TI slashes profit forecast by two-thirds

Texas Instruments pulled down its profit forecast for the December quarter by as much as two-thirds on Monday, and it also cut its revenue expectations, saying the economic downturn is having a powerful impact on the market for its chips.

The company, a major provider of processors for mobile phones and other devices, said it now expects to report earnings of between $US0.10 per share and $US0.16 for the current quarter, which ends Dec. 31. TI previously had forecast earnings of $US0.30 to $US0.36 for the quarter, when it reported its third-quarter results on Oct. 20.

Revenue is likely to be in the range of $US2.30 billion to $US2.50 billion, down from the previous prediction of $US2.83 billion to $US3.07 billion, TI said.

The announcement came as two other chip vendors also lowered their forecasts. National Semiconductor reported that sales and profit for its second quarter, ended Nov. 23, were down dramatically from a year earlier. At the same time, it predicted sales would be down 30 per cent in its third quarter. Also Monday, Altera, which makes programmable processors, lowered its fourth-quarter forecast to indicate a 9 per cent to 12 per cent drop in sales from the third quarter. The bad news followed recent lowering of guidance by chip giants Intel and Advanced Micro Devices.

"This is a very broad-based decline," said Ron Slaymaker, TI's vice-president and manager of investor relations, on a conference call following Monday's announcement. "All major product lines are down. All major product lines are down more than we had expected in October."

The current woes are different from those the industry experienced around 2001. Those were caused mostly by excess inventory, Slaymaker said. Paring down the inventories of TI and its customers will help but not solve the problem, he said. "It is a demand-driven downturn," Slaymaker said.

In addition to a wide range of semiconductors, TI makes DLP digital TV technology and a legendary line of calculators. Among the factors shaping the changed forecast is TI's expectation that resales by its distributors will fall 20 per cent in the quarter. Within the company, average factory utilization will fall from more than 60 per cent in the third quarter to the mid-40s.

TI had expected revenue to fall in the fourth quarter, but the reality has been far worse than expected. In response, the company has gone beyond earlier cost-cutting measures. On Monday it announced it is starting a voluntary retirement program and will temporarily idle many of its factories in late December and early in the first quarter. It has also suspended hiring.

In the first quarter, TI expects revenue to fall again from the fourth quarter, although not as steeply as it has from the third quarter, Slaymaker said.

"Conditions are likely to get worse before they get better," he said.

The announcement took place after the close of the New York Stock Exchange, where TI's shares (TXN) are traded. The stock was down $US0.60 at $US14.22 in after-hours trading late Monday, after rising $US0.26 during the normal trading day. National Semiconductor (NSM) had fallen $US0.65 to $US9.64 in after-hours trading, and Altera (Nasdaq: ALTR) was down $US0.09 to $US13.95.

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