Texas Instruments Disappoints on Weak Demand for Calculators

A year ago, Texas Instruments Inc.'s (TXN) second-quarter earnings were lifted by the $1.65 billion sale of its sensors business to private-equity groups, as well as a $70 million royalty settlement and a $57 million sales tax refund.

There was no such financial windfall this year and second-quarter profit for the world's largest supplier of chips used in mobile phones plunged almost 75 percent from the year-ago period.

Investors sent shares of the Dallas-based company's stock down $1.28 to $36.90 in the after-hours session Monday. That was down from the closing price of $38.18.

Net income for the current second quarter was $610 million, or 42 cents per share, down from $2.39 billion, or $1.50 per share. On an operating basis, Texas Instruments earned $739 million, or 47 cents per share, last year after excluding parts of the business it sold.

Revenue for the quarter ended June 30 was $3.42 billion, down from $3.7 billion in the year-ago period, because of weaker demand for a broad range of products.

Analysts expected, on average, earnings of 42 cents per share on $3.45 billion in revenue, according to a Thomson Financial survey.

Company executives said TI remains poised for solid growth in the coming years on increasing demand for its high performance analog chips, which are used in cellular phones and a variety of other electronic gadgets.

"We believe our increased focus on analog, especially high performance analog, will be the biggest factor in achieving these results," said Ron Slaymaker, TI's vice president of investor relations. "I think basically it's very consistent with what we were expecting."

Rich Templeton, TI's president and chief executive officer, repeated a prediction he first made during the company's annual analysts meeting in May: Gross profit margins, which were 52.1 percent in the second quarter of 2007, would reach 55 percent in the next few years.

"Our attention to customers and growing focus on analog continue to help us deliver stronger financial results," he said in a release. "Moreover, we see even greater opportunities ahead as the market regains momentum."

Texas Instruments said it expects to earn 46 cents to 52 cents per share in the third quarter — in line with Wall Street forecasts — on revenue of $3.49 billion to $3.79 billion. Analysts were expecting third-quarter sales of $3.7 billion.

In a separate announcement that coincided with Monday's earnings report, TI said it was partnering with Ericsson, the world's largest wireless network maker, to build a cell phone platform that can run on any operating system that manufacturers and carriers chose.

Financial details weren't available, but company officials said the first products based on the combined effort would be available in the second half of 2008.

In May, TI unveiled plans to invest about $1 billion over 10 years in a new test and assembly facility in the Philippines, and it also announced the sale of its digital subscriber line, or DSL, customer equipment business to German chipmaker Infineon Technologies AG for an undisclosed sum. That sale is expected to close at the end of July.

In the past year, Texas Instruments has spent $4.42 billion to repurchase 143 million shares of common stock and paid out $278 million in dividends. The company spent $742 million in the second quarter.