Texas Instruments Inc., Q1 2012 Guidance/Update Call, Mar 08, 2012

Texas Instruments Inc. (TXN)

March 08, 2012 5:00 pm ET

Executives

Ron Slaymaker -

Analysts

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

David M. Wong - Wells Fargo Securities, LLC, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Sanjay Devgan - Morgan Stanley, Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Ambrish Srivastava - BMO Capital Markets U.S.

John Pitzer - Crédit Suisse AG, Research Division

Glen Yeung - Citigroup Inc, Research Division

Presentation

Operator

Good day, and welcome to the Texas Instruments' First Quarter 2012 Mid-Quarter Update Call. At this time, I would like to turn the conference over to Ron Slaymaker. Please go ahead, sir.

Ron Slaymaker

Good afternoon, and thank you for joining TI's mid-quarter financial update for the first quarter of 2012. In a moment, I will provide a short summary of TI's current expectations for the quarter, updating the revenue and EPS estimate ranges for the company. In general, I will not provide detailed information on revenue trends by segment or end market, and I will not address details of profit margins. In our earnings release at the end of the quarter, we will provide this information.

As usual with our mid-quarter update, we will not be taking follow-up calls this evening. Considering the limited information available at this point in the quarter and in consideration of everyone's time, we will limit this call to 30 minutes. For any of you who missed the release, you can find it on our website at ti.com/ir. This call is broadcast live over the web and can be accessed through TI's website. A replay will be available through the web.

This call will include forward-looking statements and involve risks and uncertainties that could cause TI's results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the news release published today, as well as TI's most recent SEC filing for a more complete description.

We have narrowed and lowered our expected ranges for TI's revenue and earnings from our previous ranges. We now expect TI revenue between $2.99 billion and $3.11 billion. We expect earnings per share between $0.15 and $0.19 on a GAAP basis. The revenue and EPS reductions are due to lower demand for wireless products. Our estimates for acquisition-related charges and restructuring charges are unchanged and are expected to total to about $0.10 per share.

Operator, you can now open the lines for questions. [Operator Instructions] Lisa?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll now take our first question from Stacy Rasgon with Sanford Bernstein.

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

For my first question, you took revenue guidance down about $100 million on Wireless weakness, but baseband in the quarter was only supposed to be about $75 million anyway. So this suggests either that baseband essentially went to 0 or that you saw a significant amount of unexpected weakness in Wireless outside of baseband, namely OMAP and connectivity. Can you give me some feeling for how the weakness within Wireless broke out? And what may be driving the weakness, particularly in the areas outside of baseband?

Ron Slaymaker

Okay. Sure, Stacy. As I said, there really is only one area that is weaker than we had expected which is Wireless, and that includes both -- the weakness includes both OMAP applications processors and connectivity products. Outside of our Wireless segment, our revenue is tracking consistent with our initial expectations, which is for that revenue to be about flat with what we saw in the fourth quarter. But back to Wireless, as you will recall from our January release, we had strong growth in OMAP in the fourth quarter, and that was really as we benefited from new product introductions across multiple customers. And as you know, whenever there is a new product introduction by a customer, there's also an associated onetime surge of revenue as those customers fill their channels with product. So although we had anticipated lower sequential revenue associated with that non-recurrence of the fourth quarter channel sales, demand for OMAP is lower than what we had originally expected, as our customers are now rationalizing both their expectations for ongoing demand, as well as the associated inventory. So the result is that we now expect our Wireless revenue to be about $100 million lower than what we had expected back in January. We continue to expect our baseband revenue to decline about $200 million sequentially. So this adjustment is not taking place in baseband. That baseband estimate is the same as what we talked about in January. The adjustment really is across OMAP and connectivity. What's your follow-up, Stacy?

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

Got it. Follow-up just on -- around bookings. And last quarter, you had said that you saw bookings strengthening in December and that strength had continued to move into January. Can you give us some feeling what the trajectory has looked like through February and now into March? And does that still give you confidence? Do you think, I guess, the rest of your broader business is still either at or close to a bottoming?

Ron Slaymaker

Sure. So let me just -- directly on your order question. Order trends are good and in fact, we expect both orders and backlog to grow sequentially. And then to the point of how do we feel about, is the business still bottoming in first quarter as we talked about in January, we do believe that first quarter is the bottom. And again, we look at it from a standpoint of the area responsible for this lower guidance is a single market segment, that being Wireless. And outside of Wireless, again, we're seeing results that are consistent with our expectations and results that are typical at the bottom of the downturn. For example, we've seen our revenues stabilize, again outside of Wireless, revenue flat fourth quarter to first quarter. And we've also seen growth in orders returning. Backlog and visibility are improving. Lead times are short, and we continue to believe that inventory at customers and distributors remains low. So we're planning for sequential growth to resume starting in the second quarter.

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