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Texas Instruments Profit Beats Estimates

Texas Instruments Inc. (TXN), the world's largest maker of chips for cell phones, on Monday reported a 12 percent rise in quarterly profits, as manufacturing and operating expenses fell and new orders increased modestly from the end of last year.

TI shares rose almost 6 percent in after-hours trading as the earnings, at the top end of the range TI gave last month, proved welcome relief to tech investors after a spate of disappointing news from tech firms including IBM (IBM), the world's largest computer company.

"The numbers are the best you could hope for, knowing the weakness in TI's end markets, in particular the handset business," said Barry Randall, portfolio manager of the $100 million First American Technology Fund (search), which owns Texas Instruments stock.

Dallas-based TI reported a net profit of $411 million, or 24 cents per share, compared with a year-earlier profit of $367 million, or 21 cents per share. Revenue rose to $2.97 billion from $2.94 billion a year earlier.

Analysts surveyed by Reuters Estimates had expected earnings per share of 23 cents on revenue of $2.99 billion.

On a conference call, TI executives said the pace of new orders picked up in March and has continued since.

Gross margins in the quarter were 44.9 percent, up from 42.3 percent, in part because the company was able to increase production of parts in its older facilities.

Those factories had not been fully used while there was excess inventory in the distribution channel, but that inventory issue has now largely abated, TI said.

"We have begun for the first time in several quarters to increase our loadings in those factories," said Kevin March, chief financial officer of Texas Instruments, in an interview. And with excess capacity yet remaining in those facilities, he said, there was room for further margin improvement.

TI's own inventory levels also fell slightly in the quarter. March said TI was comfortable with its position and remained open to carrying more inventory than it had traditionally, in order to respond to customers faster.

The one place where inventory remained an issue, TI said, was in digital light processing, or DLP, chips for lighter weight large-screen televisions and video projectors. TI said it expected a continued inventory correction in the current quarter, but at a slower rate than in the first quarter.

For the current quarter, TI forecast earnings per share of 25 cents to 29 cents on revenue of $3 billion to $3.24 billion. Analysts on average had expected earnings per share of 26 cents on revenue of $3.18 billion.

"The revenues came in slightly below what the company had guided down to mid-quarter — but the outlook here is more important than the numbers," said Bruce Bartlett, director of growth equity investments at Lord Abbett, which owns Texas Instruments stock.

Shares in TI rose nearly 6 percent to $24.23 in after-hours trading on Inet from a $22.92 New York Stock Exchange (search) close.

The stock is down about 7 percent for the year to date, compared to a decline of about 11 percent for the Philadelphia Semiconductor Index (search), of which it is a component.

Unexpected weakness in International Business Machines Corp. earnings last Thursday sent IBM shares down 8 percent on Friday, dragging U.S. stocks overall down to 5 1/2-month lows.

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