Profit Grows at Texas Instruments

The company saw strong demand for its chips in the fourth quarter.
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Updated from 5:07 p.m. EST

SAN FRANCISCO --

Texas Instruments

(TXN) - Get Report

boosted its bottom line 13% in the fourth quarter, and projected earnings in the current quarter that were slightly ahead of Wall Street expectations.

The Dallas-based chipmaker said it experienced strong demand for its analog and digital signal processors in the fourth quarter, resulting in TI's first year- over-year revenue increase in four quarters -- albeit a modest one.

TI said sales in the three months ended December 31 totaled $3.56 billion, up 3% from the $3.46 billion in revenue at this time last year. Analysts polled by Thomson Financial were looking for $3.58 billion in sales.

Sales of TI's wireless chips, under pressure from increasing competition, also returned to positive growth in the fourth quarter.

According to TI, wireless chip sales totaled $1.23 billion in the fourth quarter, up 9% year over year and 5% sequentially. Sales of chips for high-end 3G handsets increased at a double-digit clip during the fourth quarter, TI said.

Finance chief Kevin March said the growth in 3G phones is benefitting TI, as many of those phones feature TI's application processors, which control the data-intensive features of high-end cell phones.

"That's clearly something we find very encouraging, not just in 2008 but over the long haul," March said in a post-earnings conference call.

"We have a lead

in application processors, and we're absolutely investing to make sure we maintain that lead," he said.

By contrast, TI's business supplying baseband processors, which control a cell phone's voice functions face more significant competition, with

ST Microelectronics

(STM) - Get Report

and

Broadcom

(BRCM)

stealing some of TI's business in recent months.

TI reported net income of $756 million, or 54 cents a share, vs. $668 million, or 45 cents a share, in the year-ago period.

TI said the EPS included a one-penny tax benefit.

Analysts polled by Thomson Financial expected TI to earn 52 cents a share, not including the tax benefit.

TI attributed the increasing profitability to its focus on high-performance analog chips, which carry a higher margin than other parts of its business, as well as to the company's decision to outsource the manufacturing process for its digital chips.

Gross margin in the fourth quarter was 54.2%, vs. 50.5% at this time a year ago, while operating margin jumped to 28% vs. 22.1% a year ago. The chipmaker said it continues to aim for a business model of 55% gross margin, and 30% operating margin.

Shares of TI jumped 3.7%, or $1.07, to $30.07 in extended trading Tuesday.

TI said that its distributor customers ordered chips at a slightly lower-than-expected pace in December. But TI said it believed the shortfall was a reflection of an ongoing trend across the industry, as distributors seek to hold lower inventory, rather than a sign of a coming slowdown.

"From the indications we're getting from our customers, demand remains good," March said.

The company said that overall revenue in the first quarter will range between $3.27 billion and $3.55 billion. Analysts were expecting $3.41 billion in first-quarter revenue, roughly in line with the midpoint of TI's range.

TI exceeded the Street's view on the bottom line however, projecting 43 cents to 49 cents in first-quarter EPS. The midpoint of 46 cents was above the 45 cents EPS expected by analysts.