Texas Instruments Doesn't See Wireless Going Wild

The largest wireless chipmaker beats estimates but says revenue will remain flat this quarter.
Author:
Publish date:

Updated from 7:29 p.m. EST

We've heard from the handset makers; now we go to the source.

Texas Instruments

(TXN) - Get Report

, the world's largest wireless chip specialist, reported results for the fourth quarter of 2001 after the bell Monday, and they show that the component side of wireless remains challenging.

The chipmaker surpassed Wall Street predictions with higher revenues and a lighter loss than expected. But though the company had previously depicted the fourth quarter as a revenue nadir, it seems TI is now cautiously forecasting flat revenues in the first quarter of 2002, perhaps heeding the equipment makers' warning that the first half of 2002 will be slow for wireless.

Nokia

(NOK) - Get Report

showed a 21% improvement in handset revenue from the previous quarter, and

Motorola

(MOT)

reported an 11% improvement sequentially, as over 28% of the mobile phones made in 2001 shipped in the fourth quarter. But these companies speak for the rest of the sector when forecasting a seasonal decline in the first quarter of 2002, and perhaps a little more.

U.S. carriers have generally preannounced that their 2001 wind sprint left them gasping at the finish line in a slower-than-expected fourth quarter for new subscriber signups. From those announcements, it looks a lot less likely that the U.S. will absorb all the phones that Western European consumers aren't buying. As the calendar flipped to January, a few weeks of big, bad inventories had built up in the channel, and this makes Texas Instruments' outlook all the more important.

TI turned in $1.786 billion in revenue on the way to a 7-cents-a-share loss. Excluding acquisition-related costs, as well as items such as in-process research and development, it posted its second quarterly pro forma loss in a row, 6 cents per share, passing Wall Street estimates of a loss of 9 cents and revenue of $1.67 billion. Depleted revenues continued to punish TI's operating margin: It extended its fall from 0.5% in the second quarter to a negative margin of 8.2% in the third quarter to another sequential drop to negative 10.9% in the fourth quarter.

The chipmaker's results constituted a softer fall than expected from the $1.8 billion in revenue and 3-cents-a-share loss it notched in the third quarter. For perspective on the severity of the chip cycle, Texas Instruments recorded $3 billion in revenue and 31 cents a share in profit in the fourth quarter of 2000's mobile-phone binge, leaving 2001's fourth-quarter revenues down 40% year over year.

Wireless products propelled the fourth quarter results for TI, growing 9% sequentially and picking up the slack for the still-dreadful market for Internet infrastructure as well as a seasonal drop in education products. CFO Bill Aylesworth explained that 2002 will necessarily be stronger for wireless because TI customers have worked through the components they had in stock. TI says its wireless customers started 2001 with 50 million handsets on their shelves. TI believes handset makers are starting 2002 with more normal inventory levels.

Aylesworth was encouraged that wireless revenues were paced evenly throughout the fourth quarter, without the demand fall-off that usually characterizes the end of the holiday period. He said orders have grown steadily and offered that the first quarter would be "somewhat better than seasonal" in the wireless segment. Meanwhile, handset makers are expecting sequential declines of more than 5% in March quarter revenues.

Texas Instruments presented a decent outlook for the March quarter, with flat revenues and 8% margin improvement that would enable it to break even by pro forma calculations. Before TI's report, analysts hadn't factored in the normal postholiday letdown in mobile phones for the first quarter of 2002. Wall Street was predicting 2% revenue growth and a slimmer 6-cents-a-share loss, perhaps following CEO Tom Engibous' October declaration that the third quarter would be the bottom for orders, and that the fourth quarter would be TI's low point on revenues.

Aylesworth told

TheStreet.com

that as TI's wireless customers "see business improving in the second half of 2002, there's the posisbility that our business improves as soon as the second quarter. Part of the reason we expect our first quarter to hold up well, for revenues to be flat, is that we are shipping components for GPRS in an increasing percentage."

The CFO said a typical first quarter sees wireless revenues drop 4%. Mobile phone fans will be happy to hear that next-generation general packet radio service (GPRS) technology made up 15% of TI's wireless revenues in the fourth quarter.

Manufacturing capacity utilization worked its way up from 45% to just under 50% sequentially, and TI expects that factories will become busier in the first quarter of 2002. The low levels leave TI with "plenty of room for additional revenue growth without the need to make capacity investments," Aylesworth said. The chipmaker had $1.8 billion in capital expenditures in 2001 and cut its budget to $800 million for 2002.