Zacks_Analysts' Blog : TI Mid-Quarter Update-No Surprises - Analyst Blog

Texas Instruments Inc. (TXN, or “TI”) narrowed its fourth quarter guidance yesterday, as market trends are tracking in line with management’s expectations.

Accordingly, revenue is now expected to come in at $3.43-3.57 billion compared to previous expectations of $3.36-3.64 billion. TI also narrowed the EPS guidance, expecting it to lie in the 61-65 cent range compared to previous expectations of 59-67 cents.

The third quarter strength in the U.S. is expected to soften somewhat in the fourth, while the third quarter weakness in Japan is likely to convert to strength. TI stated that the rest of Asia and Europe were tracking third quarter levels.

The Wireless segment is expected to come in strong, given the success with TI’s OMAPs, which continues to gain ground in the growing smartphone market. TI also stated that the OMAP 4 (latest generation processors) were seeing success at both smartphones and tablets, and would generate revenue in the first half of 2011. Growth in baseband and connectivity products will trail OMAP.

The Analog segment will be a mixed bag, as expected. Power management is working out to be the weakest area, given its exposure to the computing and LCD TV markets. The high volume analog (HVA) products are expected to be slightly stronger. TI stated that since the high performance analog (HPA) products are least exposed to the computing and TV markets, it will see the fastest growth.

We were a bit concerned regarding TI’s utilization rates, given the extra capacity from RFAB, the Spansion fab (in Japan) and the Semiconductor Manufacturing International (SMI) fab (in China). However, TI stated that transitional agreements with SMI and Spansion, while generating little revenue, would take care of the additional carrying costs. Moreover, TI intends to use capacity to build some inventory, which it said would help lower lead times going into 2011. The overall impact to gross margins would be negligible, TI said.

Since the revised outlook does not change the mid-point revenue or EPS forecast by TI during the third quarter conference call, we do not see any revision to analyst estimates for the December quarter. However, some analysts have turned more cautious on 2011, so there have been a couple of downward revisions for the first quarter. However, there were no changes to the Zacks Consensus Estimate for the next 2 quarters, or the next 2 years.

As a result, the Zacks Rank allotted to TI shares remains #3, similar to other semiconductor peers, such as Intel Corp. (INTC), Linear Technology Corp. (LLTC) and Intersil Corp. (ISIL).