Updated from 5:14 p.m. EST

SAN FRANCISCO -- Texas Instruments ( TXN) announced plans to sell a key portion of its cell-phone chip business, as competition and weakening demand are forcing the chipmaker to reorganize its operations.

TI said it is "actively" pursuing the sale of its so-called merchant cellular baseband business, which provides off-the-shelf modem chips for handsets. TI said it will continue to make custom baseband chips, and will focus its wireless business predominantly on making the applications processors used in more advanced cell phones.

The moves are part of a variety of actions the company said it was taking that would shave one third of the operating expenses, or roughly $200 million, from its wireless business.

Shares of TI were off 79 cents, or 4.4%, to $17.19 in recent after-hours trading.

The Dallas chipmaker said that sales in the current quarter will decline substantially due to weak order trends in the past few months.

The company projected revenue between $2.83 billion and $3.07 billion in the current quarter - well below the $3.34 billion expected by Wall Street analysts.

TI said EPS would range between 30 cents and 36 cents, vs. the 42 cents that the Street was looking for.

TI said it aggressively reduced its inventory in anticipation of the declining demand, putting pressure on its profitability. The company's net income in the three months ended Sept. 30 declined 26% year over year to $563 million, or 43 cents, one penny shy of the average analyst expectation.

The company's gross profit margin fell to 48.5%, compared to 54.2% in the third quarter of 2007.

The company's $3.39 billion in sales in the three months ended Sept. 30 were in line with Wall Street estimates.

TI experienced a 16% decline in its wireless sales year over year in the third quarter, compared to a 1% decline in its business selling analog chips, and a 9% increase in sales of embedded processors used in industrial machinery and communications gear.

The decision to exit a portion of the cell-phone business marks an important, but not wholly unexpected turning point for TI, which dominated the cell-phone chip market for years.

In recent months, TI has seen its wireless business come under pressure as rivals such as Infineon ( IFX), ST Microelectronics ( STM) and Broadcom ( BRCM) have made inroads among its stable of handset customers.

TI has increasingly signaled that its main focus going forward will be less on wireless chips and more on analog chips.

The company said its move to sell the merchant baseband business will result in charges of $110 million during the next three quarters.

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