Texas Instruments Warns, Saying SARS Hit Sales

Chipmaker Texas Instruments ( TXN) warned on Tuesday that June quarter revenues and earnings will fall below expectations, hurt by weak chip sales into the wireless market.

It's hardly the first wireless player to complain that business in Asia, weakened by the SARS epidemic, has weighed on sales, following similar commentary in the last week from TriQuint ( TQNT), Motorola ( MOT) and Nokia ( NOK).

TI, the largest maker of cell-phone chips, said in a release Tuesday that sales will rise only about 5% instead of the 7% originally forecast. Its chip arm will grow 2% instead of 4%. Before today's update, Wall Street had been gearing for 8 cents earnings on revenues of $2.3 billion for the second quarter, implying 6.4% sequential growth.

Earnings will total 6 cents, plus or minus a few cents, instead of about 8 cents. The drop in earnings is due in equal measure to the lower revenue and to higher charges from restructuring in manufacturing plants. TI recently cut an additional 250 Japan-based jobs in chip manufacturing, pushing related charges up an additional $15 million to an expected $55 million for the June quarter.

"As we noted in our April conference call, some inventory of wireless semiconductors was built in Asian markets, particularly China, toward the end of the first quarter. That inventory, which would have been successfully worked through under normal conditions, instead stalled as demand has weakened in those markets. We believe the weakness in demand is largely due to the ongoing economic impact associated with SARS, and should abate as the health concerns are resolved," said CEO Tom Engibous.

In a release, TI said the slowdown in demand for handsets and excess inventory problems have been especially acute in Asia. Wireless-chip revenues are likely to drop by about 10% from the second quarter, while other semiconductor sales are likely to increase by over 5%.

Compared with last year's levels, though, wireless-chip sales will grow by over 10% and other semiconductors will rise by more than 5%.

TI said its sensor and calculator divisions remain on track with original forecasts.

In regular trading, TI closed up 17 cents, or 0.8%, to $20.39. After hours, shares were dropping 99 cents or 4.9%.

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