Wall Street Still Likes TI
Updated from 8:23 a.m. EST
The pace of selling eased Tuesday in
Texas Instruments
(TXN) - Get Report
after some Wall Street brokerages counseled against overreacting to last night's guidance tweak.
After falling 3.5% last night, the most recent price has them down 48 cents, or 1.8%, to $26.89 in recent trading. TI shares ended Monday's regular session at an 11-month high, up 1.8% to $27.36. Shares are up 30% since TI reported its fourth-quarter financial results on Jan. 25, and up 50% since mid-August.
Several analysts stood by the shares Tuesday, including Smith Barney, which maintained a buy on the stock, and Merrill, which reiterated a neutral. Merrill described weakness in TI's digital light processor chips for high-end televisions as a "hiccup" and said the division will eventually grow.
Monday night, Texas Instruments lowered the high end of its first-quarter financial targets because of an ongoing inventory bloat in DLP processors. TI now expects earnings between 22 cents and 24 cents a share on sales between $2.91 billion and $3.03 billion, the company said as part of a scheduled midquarter update. Analysts had predicted earnings of 24 cents a share and sales of $3.04 billion, on average, according to Thomson First Call.
At the quarter's start in late January, TI predicted earnings between 22 cents and 25 cents a share and sales between $2.9 billion and $3.14 billion.
Dallas-based TI said in a statement after the bell Monday that its customers built too many TVs and projectors for the holiday shopping season and still haven't worked down inventory enough, despite them taking "aggressive actions to reduce these inventories as quickly as possible."
"From January to February, we've already seen very significant reductions in inventory," said Ron Slaymaker, TI's vice president of investor relations. "I don't want to project how long it takes, but we do see customers getting on top of this very aggressively."
Digital light processors are used in business and front-projection TVs, high-definition TVs and digital cinema projectors. TI sells DLPs to about 65 customers, and its DLP business accounted for more than 5% of TI's overall sales in 2004, growing 79% from 2003, according to TI's annual report.
The business was a shining light for TI through much of 2004, logging quarterly sales and profitability metrics above the company average. The success TI had with its proprietary DLP technology contrasted with failed efforts by the likes of
Intel
(INTC) - Get Report
and
Philips Electronics
(PHG) - Get Report
on a competing technology, known as liquid crystal on silicon, or LCOS.
Indeed, TI didn't waver on its vision for its DLP products. Slaymaker said that the company's market share inside of big-screen TVs continues to increase, and that the problem in this market is confined to inventories, not pricing.
He said the market remains a new one to the company and that, even for customers, its hard to balance supply and expected demand until after peak selling periods, like the Super Bowl.
TI's new first-quarter expectations include proceeds from its
previously announced sale of its large-size, thin-film liquid crystal display driver operations to Japan-based Oki Electric Industry. That business contributed marginal profitability, but exited 2004 with quarterly sales of about $50 million.
TI had previously targeted semiconductor sales between $2.55 billion and $2.75 billion, sensors and controls sales between $280 million and $300 million and sales of educational products between $70 million and $90 million.
TI now expects semiconductor sales between $2.55 billion and $2.65 billion, sensors and controls sales between $285 million and $295 million and sales of educational products between $75 million and $85 million.
Monday's midquarter update is the first of several chip-sector updates scheduled for this week.
National Semiconductor
(NSM)
reports earnings Thursday while Intel provides guidance later that day.