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Texas Instruments Earnings Jump, Beat Forecasts

Texas Instruments Inc. (TXN ), the world's top maker of chips used in mobile phones, on Monday said profit jumped 42 percent as factories ran more smoothly and consumers snatched up the latest video and Internet phones.

Net income in the company's second quarter grew to $628 million, or 38 cents per diluted share, compared with the year-earlier quarter's profit of $441 million, or 25 cents. The latest quarter included 6 cents a share in tax gains.

The Dallas-based company also saw a pick-up in demand for calculators ahead of the back-to-school selling season and a recovery in its television components business.

"Our confidence level is probably higher than it has been for quite a long time," Chief Financial Officer Kevin March (search ) told Reuters in an interview following the report.

The ratio of orders to bookings had turned positive for the first time since the first quarter of 2004, fueling optimism in the company's outlook. "We should be able to deliver another strong quarter in Q3 [third quarter]," March said.

Revenue was flat compared with the year-earlier period at $3.24 billion but was 9 percent higher than the first quarter.

In early June, Dallas-based TI forecast revenue of between $3.12 billion and $3.24 billion.

Wireless revenue grew 8 percent in the second quarter compared with the first quarter, with almost all of the revenue growth tied to sales of so-called third-generation phones boasting the latest Internet and video features, March said.

Analysts predict "3G" handset shipments can double in 2005 to 45 million to 55 million phones from 25 million last year. Upward of 750 million mobile phones are set to ship in 2005.

Growing Faster Than Historic Rates

Excluding the tax gain, TI's profit was 32 cents a share.

Wall Street analysts were looking for quarterly earnings, on average, of 29 cents per share, according to Reuters Estimates (search). Forecasts ranged between 25 cents and 30 cents.

TI shaved capital spending by $99 million from a year earlier, but said it still planned to spend about $1.3 billion for 2005 as a whole on new plants and equipment.

Looking ahead, the company said it expected higher revenue than the current range of analysts' estimates.

It forecast revenue in a range from $3.29 billion to $3.56 billion. Analysts' predictions had ranged between $3.25 billion and $3.46 billion, according to Reuters Estimates.

Earnings should range between 31 cents to 35 cents per share, including 3 cents per share, to cover the cost of expensing employee stock options for the first time, he said.

Based on its track record over the past ten years, TI grew faster during the second quarter than it has historically and expects to also grow faster in the current quarter as well.

It also worked down a build-up of excess inventory that had hurt its analog product and high-definition television chip businesses in recent quarters.

In past years, TI has expected to grow 2 percent to 3 percent in the third quarter compared with the second quarter. Instead, its current forecast calls for roughly 6 percent growth.

CIBC analyst Allan Mishan (search) said he forecasts that TI revenue can grow another 6 percent to 7 percent in the fourth quarter.

The company also raised its annual dividend rate to 12 cents per share from 10 cents per share previously. Its board also authorized the buyback of an additional $2 billion in common stock, which helps boost reported earnings per share.

"In general, I give TI good marks for great execution in some of the most competitive markets in the semiconductor industry," said Mishan, who rates TI stock a market performer.

He declined to comment on whether he will upgrade his rating, saying that "It's a very positive report and I expect the stock to trade right up."

Shares rose 5.7 percent to $32.35 in after-hours trade on Inet. At the close of regular-session trading ahead of the report, TI shares had gained 25 percent in the year to date.