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Texas Instruments Profit Rises, Forecast Disappoints

Texas Instruments Inc. (search) said Monday profit rose 12 percent in the third quarter on strong sales of chips for mobile phones and electronic devices, but company shares slumped in late trading as investors digested a slightly weaker than expected outlook for fourth-quarter revenue.

The largest maker of chips for mobile phones had net income of $631 million, or 38 cents per share, up from $563 million, or 32 cents per share, in the year-earlier period. The results for the latest quarter include a cost of 3 cents per share for expensing stock options.

Analysts, who typically exclude such costs from their forecasts, had expected earnings of 40 cents per share, according to a survey by Thomson Financial (search), putting the profit a penny above Wall Street's expectations.

Revenue rose to a record $3.59 billion from $3.25 billion a year ago, Texas Instruments said. Analysts forecast sales of $3.55 billion.

Texas Instruments said fourth-quarter earnings would be 36 to 40 cents per share, including about 3 cents per share for stock-based compensation costs. Analysts have forecast 41 cents per share, excluding the expense of options.

The company expects fourth-quarter revenue of $3.425 billion to $3.715 billion, the midpoint of which is below analysts' forecast of $3.63 billion.

Before release of the results, shares of Texas Instruments rose 40 cents, or 1.3 percent, to close at $30.92 in trading on the New York Stock Exchange (search). In late trading, the shares fell $1.27 or 4.1 percent.

Cody Acree, an analyst for Legg Mason Wood Walker Inc., said the late selling came from short-term traders who were hoping the stock, which has slumped nearly 10 percent this month, would rise on the earnings. He said they sold when they saw the fourth-quarter revenue forecast.

"Nobody who owns the stock for a long-term investment is going to sell over a $60 million miss" on the October-December revenue forecast, Acree said.

Company executives said they underestimated demand for some chips. Michael McConnell, an analyst for Pacific Crest Securities, said that might cost TI sales, but he said the company was also controlling its inventory to avoid a chip glut.

TI said the revenue increase from the second quarter into the third was the biggest in at least 15 years.

"From a revenue standpoint, we feel great," said Ron Slaymaker, the company's manager of investor relations.

The company said the best growth was in chips for wireless devices and consumer electronics products, up 20 percent and 16 percent respectively from a year ago. It said chips for high-end televisions also recovered after a weak first half of the year.

The company also said that operating profit hit a record rate of 22.7 percent in the quarter.

Company officials said they were perplexed by analysts who have turned a bit more cautious in their outlook for the company.

On Friday, Bear Stearns (search) downgraded the Dallas-based chip maker's stock from "outperform" to "peer perform." Analyst Gurinder Kalra actually increased his forecast of fourth-quarter profit but reduced it for next year, citing tough competition, pricing pressure by makers of cell phones and slower growth in demand for TI technology used in high-end televisions.

That technology, called digital-light processing or DLP, competes with liquid-crystal display panels and plasma-screen TVs. Kalra said stores were giving more space to LCD and plasma sets because LCD TV makers have aggressively cut prices and Samsung Electronics Co., which makes DLP sets, shifted promotional efforts to LCD sets using screens made by Samsung.

Texas Instruments plans to step up its advertising of DLP directly to consumers for the holiday season, Slaymaker said.

On mobile phones, TI gets the most revenue from rising sales of feature-rich, so-called third-generation phones but the company said it is also seeing more demand for cheaper phones used in China, India and Latin America.