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Texas Instruments Lacks Bullish Catalysts

Texas Instruments' quarterly earnings and revenue topped expectations but it can't be considered a breakout quarter.

By Chris Bulkey, principal analyst at Technology Research Group

Breakout quarter for

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

? We're not so sure.

Texas Instruments

reported first-quarter earnings of 52 cents a share on revenue of $3.21 billion, exceeding Technology Research Group estimates of 51 cents and $3.13 billion, respectively.

Gross margin and inventory turns moved lower sequentially amid a 7% sales gain. Normalizing doubtful accounts and research and development expenses, as a percentage of revenue, vs. the preceding quarter would shave nearly 1 cent a share from the bottom line.

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Nothing glaring about these data points, but they seem to contradict sentiment about a breakout quarter.

It is also important to consider that margins are benefiting from last year's cost-containment measures. These actions caused earnings for 2009 to fall 21% over theprevious year. The fact that a restructuring charge surfaced in this latest quarterconfirms that key cost drivers haven't stabilized, and also suggests excess capacity is still an issue.

An irregular cash flow progression - down 28% quarter over quarter to $710 million -- was driven by working capital management and casts further doubt on profit and loss quality.

Orders were up 12% quarter to quarter and were publicized as a reason for optimism. Inconclusive feedback on backlog and deferrals tempers enthusiasm, as do inventories and gross margin.

We're not calling this a major step backward, but simply don't see a catalyst for bullishness.

Shares are underperforming the broader market (up 3.6% year to date vs. a 10% gain for


), and we see no reason for this to change.

We reiterate a sell rating and $22 price target.