Texas Instruments Inc said yesterday that chip demand this quarter would be at the low end of its expectations due to weak markets such as Europe, realizing investor fears. The maker of chips for products ranging from cellphones to cars was able to maintain its financial targets for the quarter only due to an insurance payment, cost cuts and better-than-expected sales in its declining wireless business.
But in reality, TI said that demand in most areas of its chip business was weaker than expected as customers kept product stockpiles low due to concerns about the global economy. Investors had worried that TI would have to cut its financial targets for the third quarter after a revenue warning from chip maker Intel Corp
TI saw some customers push back orders made in July and August to September, according to Ron Slaymaker, TI's head of investor relations. And on top of this, “overall product demand for the quarter has also declined a little” to the lower end of TI's previous expectation, he told analysts on a call.
“To see that things have gotten worse since (July), even if marginally worse, is disappointing. But it's consistent with market commentary we've seen from other companies,” Williams Financial analyst Cody Acree said.
Texas Instruments warning of low chip demand
TI kept its third-quarter revenue target largely in line with its previous forecast, and it slightly raised the midpoint of its outlook for earnings.
It was able to do this because it cut costs in the quarter and received a $60 million insurance payment related to the 2011 earthquake in Japan, where it temporarily shut factories.
Another bright spot in the quarter was the revelation that the new Kindle Fire tablet from Amazon.com Inc would include a key chip from TI, according to William's Acree. He had expected rival Nvidia Corp to win that business.
However, TI's Slaymaker said TI is looking into changing to its wireless investment strategy as that business lost money in the last two quarters due to fierce competition. “The smartphone and tablet market has become less attractive to us even in the past 12 months,” Slaymaker said.
Analysts and investors told Reuters last month that they were hoping for some wireless strategy changes at TI, which is already shutting down its wireless baseband unit but still sells application chips to run features like video and web-browsing on smartphones and tablet computers.
TI forecast earnings of 38 to 42 cents per share compared with its previous range of 34 to 42 cents, raising the mid-point of its guidance by 2 cents to 40 cents. Slaymaker said the 2-cent improvement was split evenly between the cost cutting measures and insurance payment.
It forecast revenue of $3.27 billion to $3.41 billion compared with its earlier forecast of $3.21 billion to $3.47 billion, keeping the mid-point of the range intact.