Texas Instruments Lowers Forecast

Updated from 4:52 p.m. EDT

SAN FRANCISCO -- Texas Instruments(TXN Quote) lowered its financial forecast for the current quarter, as the chipmaker's wireless business showed further signs of weakness.

TI said that demand for chips used in high-end, 3G cell phones deteriorated significantly in the past week, particularly at one specific customer that TI didn't identify. As a result, TI now projects that sales in the quarter ending March 31 will increase between 1% and 5% year-over-year, for a range of $3.21 billion to $3.35 billion.

TI had initially forecast that sales could grow by as much as a double-digit clip in the quarter, with a revenue range of $3.27 billion and $3.55 billion, while analysts polled by Thomson Financial were looking for $3.4 billion on average.

The chipmaker also slashed its profit forecast Monday, predicting EPS between 41 cents and 45 cents, instead of its previous range of 43 cents to 49 cents. Analysts polled by Thomson Financial were looking for 46 cents EPS.

Shares of TI fell in after-hours trading, down $1.10, or 3.7%, to $28.55.

The new forecast marks the second negative financial revision by a major chipmaker in recent days. Last week Intel(INTC Quote) said that its gross margin would be two percentage points lower than initially expected due to the plummeting prices of flash memory chips.

In a conference call following its midquarter update Monday, TI investor relations manager Ron Slaymaker said the company's other product lines continue to track with initial expectations in the quarter, pointing to chips for low-end cell phones, as well as the company's line of analog chips.

TI has shifted more of its focus to higher-margin analog chips in recent months, as its stronghold in wireless chips has faced increased competition, and longtime TI customers like Nokia(NOK Quote) and Ericsson(ERIC Quote) have moved to diversify their component suppliers.

Last year, Nokia awarded key business to chipmakers Broadcom(BRCM Quote) and ST Microelectronics(STX Quote), much to TI's chagrin.

Slaymaker said that market share loss was not the cause of the latest revenue shortfall, pointing the finger instead at one customer's recent decision to pare its production of smartphones during the month of March.

Asked whether the customer's lower production plans extended beyond March, Slaymaker deferred comment until the end of the quarter.

"Although the wireless market and our revenue in that market have often fluctuated on a short term basis, we believe the long-term trend toward smart phones represents a great opportunity for TI," said Slaymaker.

He noted that the company's gross margin in the current quarter would not be hurt by the financial shortfall, thanks to recent changes in the company's manufacturing model.