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Texas Instruments Narrows Earnings Outlook

Texas Instruments Inc. (TXN), the world's largest maker of chips for cellular phones, trimmed its quarterly profit forecast on Monday after its emerging big-screen television chip business hit a wall.

TI said television and projector makers ordered too many of its Digital Light Projection (search) chips at the end of last year, and have since cut back orders after weaker end-of-year consumer demand. All of TI's other businesses remain generally in line with earlier expectations, the company said.

As a result of the DLP weakness, TI's quarterly profit is now expected in a range of 22 cents to 24 cents a share, down from a previous target of 22 cents to 26 cents a share, the Dallas-based company said.

Shares of the Dallas-based company fell more than 3 percent in after-hours trading. "The fact that they're turning down the high end of the range will spook some momentum investors," said Sam Rahman, portfolio manager at Baring Asset Management, who oversees funds that own some Texas Instruments stock.

In the scheduled update, TI also trimmed about $100 million from the high end of its forecasted range for revenue. The company now expects revenue in the range of $2.91 billion to $3.03 billion.

More broadly, sales of the company's portfolio of semiconductor products continued to be hurt by excess inventories of chips held by distributors, TI said.

The company's educational business, which makes calculators, and its sensors and controls unit were tracking largely in line with earlier targets, it said.

Ron Slaymaker, TI's head of investor relations, said on a conference call with analysts that the shortfall in TV chip sales, which were unexpectedly strong last year, was a consequence of dealing with fickle consumer markets. DLP chips are made up of microscopic mirrors that project high-definition images onto thin TV screens. They are also used in digital projectors in cinemas and home theaters.

The company's DLP products are used in TV sets made by Samsung Electronics (search), Toshiba Corp. (search), and other large electronics companies.

"Certainly we would like to have all of this perfectly controlled," Slaymaker said. "But the reality is when you're dealing with consumer markets, your customers are going to put in place inventory based upon their best estimate of what the selling season will look like."

Texas Instruments' shares have risen 11 percent this year, largely on the strength of its cellular phone chips and early gains in the rear-projection television chip business. The stock got an extra boost on Monday after rival Qualcomm Inc. (QCOM) said demand was strong for mobile chips.

TI, whose single largest customer is Finland's Nokia (search), is a bellwether for the semiconductor industry, as its combination of custom and commodity chips are used in consumer electronics, communications equipment and industrial products, as well as personal computers and related accessories.

TI shares fell to $26.40 in after-hours trading on Inet, down 3.5 percent from a close of $27.37 on the New York Stock Exchange.