Investors Reward Texas Instruments

The shares surge 7% on its solid first-quarter report.
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Updated from 7:40 a.m. EDT

Shares of

Texas Instruments

(TXN) - Get Report

held solid gains ahead of the bell Tuesday as investors celebrated strong quarterly execution and optimism about the company's end markets.

The stock recently traded at $24.21, up $1.29, or 5.6%.

For the quarter ended March 31, TI reported net income of $411 million, or 24 cents a share, on sales of $2.97 billion. During the same quarter last year, the company earned $367 million, or 21 cents a share, on sales of $2.93 billion.

Analysts expected earnings of 23 cents a share on revenue of $2.99 billion, on average, according to Thomson First Call.

TI said the market environment for its chips is improving because the inventory correction of its standard analog chips is complete.

"We are confident that TI and our markets are once again moving in the right direction," said company CFO Kevin March. He said TI's projected growth for the second quarter is "pretty close to what you would expect" in a typical second quarter.

March added, though, that the company sees strong growth opportunities in the markets for 3G, or third generation, phones and chips used in high-end TVs.

For the second quarter, TI predicts earning between 25 cents and 29 cents a share on sales between $3 billion and $3.24 billion. Analysts had predicted earnings of 26 cents a share and sales of $3.17 billion.

Technology stocks had dropped sharply during the past week on

growing concerns about the health of the economy.

IBM

(IBM) - Get Report

scared investors last week by

badly missing its financial targets amid what it described as a sharp fall-off in demand in March.

TI executives said that demand increased in March and that the trend has continued into the first weeks of the second quarter. They also stated that softness of past months stemmed solely from inventory problems, not from those concerning demand.

"Our belief is that the downturn we saw over the last three quarters was strictly an inventory-related, inventory-correction downturn," said Ron Slaymaker, head of investor relations for TI. "To the extent that that's over, revenues should grow from here."

Orders rose sequentially by $84 million to $3.03 billion due to demand for the company's calculators and its sensor and control products.

TI reported gross margins of 44.9% vs. 42.3% in the previous quarter and 45% in the same quarter last year. The company said it was helped by improved profitability of its calculator business and gains associated with the sale of its LCD driver product line. March said TI has long-term, peak-cycle, gross margin goals of 50%.

The 6.4% share spike in late Monday trading helped erase some of the declines logged since the company's midquarter update at the start of March.

At that time, TI lowered the high end of its financial targets because of an ongoing inventory bloat in its chips used in high-end TVs and projectors. It trimmed its targets to reflect earnings between 22 cents and 24 cents a share, and sales between $2.91 billion and $3.03 billion.

TI reduced its overall inventory slightly during the first quarter after cutting it by $100 million in the fourth quarter. TI said inventory of its high-end TV chips, known as digital light processors, remains elevated, and reductions would continue into the second quarter.

By segment, TI's semiconductor unit posted a profit of $460 million on sales of $2.6 billion. During the same quarter last year, the chip unit logged a $465 million operating profit on sales of $2.57 billion. TI said wireless chip sales rose from the same quarter last year, but that most other product areas booked reduced sales.

TI's sensor and control unit recorded an operating profit of $69 million on sales of $296 million compared with an operating profit of $75 million on sales of $283 million in the same quarter last year. Profits declined due to cost reductions for automotive sensor products.

The company's calculator business had an operating profit of $20 million on sales of $82 million vs. an operating profit of $9 million and sales of $79 million in last year's first quarter. Profits increased due to lower manufacturing costs.

The Dallas-based company makes a wide range of analog and digital signal processors used in cell phones, computers, cars and digital TVs. TI ranked as the world's third-largest chipmaker last year.

Shares of TI closed the regular session up 16 cents to $22.92.