Texas Instruments reveals bad news

Texas Instruments reveals bad news

Texas Instruments, the world's second largest maker of chips for mobile phones, yesterday lowered its guidance for the first quarter on slumping demand for chips in higher-end mobile phones, including 3G (third generation) handsets.

"Very recently, we received what I would call a pretty significant downward revision in wireless customer demand," said Ron Slaymaker, a vice president at TI, in a conference call. The decline was concentrated in 3G handsets and base stations, he said, adding that demand for entry-level products in emerging markets has remained consistent with initial expectations at the beginning of the first quarter.

The company cut its revenue forecast for the first quarter to the low end of its original guidance, to a range of US$3.21 billion to $3.35 billion compared to its original forecast of $3.27 billion to $3.55 billion.

Investment bank Credit Suisse had expected the company to revise its first quarter guidance to the mid-point of its earlier prediction, to earnings-per-share of around $0.46 on revenue of around $3.41 billion.

The company's first quarter ends March 31.

TI also dispelled some rumours of reduced demand for handsets in China, at least for mobile phones from major manufacturers. Slaymaker said TI has not seen lower demand from customers, which include Nokia and Motorola, but could not speak for smaller handset manufacturers in China.

The company's reduced forecast comes on the heels of a report by Gartner a day earlier calling for chip makers to rein in production to control rising inventories. Global inventories of semiconductors, the building blocks of electronic devices, spiked in the fourth quarter due to lackluster fourth quarter gadget sales and lower expectations for sales in the first quarter, Gartner said. The market researcher blamed fears of a U.S. recession for part of the reduction in demand.

Slaymaker indicated that TI would be able to maintain its gross margins in the quarter in part by cutting orders to contract chip makers and maintaining its own factories at full production. Around half of the production of TI's high-end chip products is outsourced, he said, while the remainder is done in TI factories.

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