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TI Takes It Higher

The chipmaker boosts revenue and earnings expectations for the second quarter.

Updated from 5:01 p.m. EDT

Texas Instruments

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boosted its profit forecast and the midpoint of its projected sales range for the quarter under way, thanks in large part to a tax benefit and a patent litigation settlement.

In a midquarter update after Thursday's market close, the Dallas chipmaker said sales are expected to range between $3.63 billion and $3.78 billion in its second quarter, vs. the earlier range of $3.46 billion and $3.75 billion. The new revenue estimate includes a $70 million cash payment from

Conexant Systems

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from a previously announced patent litigation settlement.

TI said its earnings per share in its second quarter will range between 46 cents and 48 cents compared with its previously guided range of 38 cents to 43 cents. TI said that between 5 cents and 6 cents of the EPS upside stemmed from the settlement as well as from an unspecified tax benefit.

The EPS figures include 4 cents in stock-option expenses.

On that basis, analysts polled by Thomson's First Call were looking for TI to earn 40 cents a share on revenue of $3.6 billion.

Shares of TI climbed 2.5%, or 77 cents, to $31.49 in extended trading.

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TI does business in what has become the sweet spot of the semiconductor market, supplying chips to the world's major cell-phone handset makers. Yesterday, the Semiconductor Industry Association cited strong demand for cell phones as the main driver behind its upwardly revised forecast for 2006 chip sales.

Even so, TI hasn't been able to escape the market malaise that has dragged down the chip sector as a whole. The company's stock is down 13% since the beginning of May, mirroring the decline by the Philadelphia Semiconductor Sector index in the same period.

Investors are spooked by rising inventory levels throughout the chip sector as well as the stock-option backdating controversy that has affected many tech firms. That's in addition to macroeconomic issues such as energy costs and interest rates.

In a conference call with analysts following the announcement, VP of Investor Relations Ron Slaymaker said that TI was paying close attention to the macro-economic trends but had yet to see any impact on its business.

"We're not seeing any signs in our orders yet that there's any kind of impending slowdown," said Slaymaker. He noted that bookings in the month of May were up sequentially from April.

Slaymaker said inventory levels both within TI and at its distributors could continue to rise, but that they were tracking the company's projected revenue growth, unlike in the first quarter of the year when TI was aggressively building up inventory to make up for a bottleneck in its manufacturing operations.

TI projected that semiconductor revenue, the vast majority of its business, will range between $3.45 billion and $3.59 billion in the second quarter vs. its previous expectations of $3.29 billion to $3.56 billion in semiconductor revenue.

Among the segments of the company's chip business outpacing expectations so far this quarter, Slaymaker pointed to the DLP chips used in high-definition televisions, as well as chips used in infrastructure equipment for wireless telecommunications.

He noted that TI's sales of chips for cell phone handsets were consist with the seasonal norms of the second quarter, which he said has historically meant a sequential increase of about 5%.

Sales in the company's educational- and productivity-solutions division, which makes calculators, is projected to range between $175 million and $185 million. TI had previously set a $170 million to $190 million.

"I don't' think anybody is expecting a blowout second half

of 2006, but I think in general people are expecting a seasonal second half," said Slaymaker.

Shares of TI were unchanged at $30.72 at Thursday's market close.