Updated from March 8 After the close Monday, Texas Instruments ( TXN) raised the midpoint of its first-quarter sales guidance and boosted its earnings outlook, citing strong demand across its chip lineup. On a related note, the company said prices for its commodity semiconductors are on the upswing, reversing a three-year slide. Still, TI shares were recently down 40 cents, or 1.3%, to $30.20 early Tuesday. But that likely owes to profit-taking rather than any perceived shortfall within TI's guidance, said Legg Mason analyst Cody Acree. "Everybody was looking for mid to the high end of guidance and they did exactly that, so I don't think this was a disappointment to anyone," he said. The company projects March quarter sales of between $2.835 billion and $2.95 billion, with earnings of between 19 cents and 22 cents. As Acree suggested, the news wasn't a huge surprise; heading into Monday's update, many analysts had expected TI to tighten its guidance to the upper end of the guidance range it issued in late January. At that time, the company forecast sales in the range of $2.72 billion to $2.95 billion, with earnings in the range of 16 cents to 20 cents. The current Thomson First Call consensus estimate reflects expectations for sales of $2.85 billion and earnings of 19 cents in TI's first quarter. On a postclose conference call, Ron Slaymaker, head of investor relations for TI, said visibility seems to be improving for the company's upcoming second calendar quarter, judging from order patterns. "It looks to us that customers are giving us more backlog and moving away from a turns type of environment," he said. Turns refer to orders that are booked and shipped within a single quarter. He also noted that prices for TI's commodity chips have continued to improve, continuing a trend that began in the fourth quarter of 2003 after the segment had hit a three-year bottom. "As pricing moves up we would expect that to benefit all gross margins as well as fall through to the operating margin," said Slaymaker, noting that commodity chip prices were the "single most important area of operating margin difference" between the fourth quarter of 2003 and the peak quarter in 2000.
Though commodity semiconductors now account for only about 5% of TI's semiconductor revenues, they made up 10% of the segment's revenue in 2000, when pricing was stronger. Slaymaker suggested there's a great deal of room for upside, given prices for commodity chips remain at less than half the level of 2000. Chips have finished in the red for the past two sessions, presumably hurt by Intel's ( INTC) disappointing midquarter update last Thursday. Intel surprised many on the Street by
lowering the midpoint of its first-quarter sales guidance. "We're just generally in a weak semi space right now," noted Acree. "But I'm encouraged by the fact that stocks are selling off not because of bad news but just because the market was weak. That leads me to have some solace that fundamentals will eventually stabilize this space and position us for a stronger second half," he said. (Acree has a buy rating on TI; his firm hasn't done banking for the company.) Early Tuesday, the Philadelphia Stock Exchange Semiconductor Index was up 0.1%.