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Texas Instruments Sees Phone Market Growth

Posted on: Wednesday, 10 May 2006, 21:06 CDT

By DAVID KOENIG

RICHARDSON, Texas - Texas Instruments Inc., which makes chips for about half the world's cell phones, believes it can profit from both the fancy models favored by affluent consumers and the basic handsets catching on in developing countries.

Chief Executive Richard Templeton said Wednesday there is room to grow on both ends of the market because the cell phone has replaced the personal computer as the essential technological device.

Templeton and other TI executives gave an upbeat outlook at the semiconductor company's annual investor conference, which was held at a suburban Dallas hotel stuffed with exhibits for upscale phones, high-definition televisions and other gadgets built with TI parts.

Unlike past conferences, TI officials did not provide new forecasts on financial performance, although Templeton said TI could increase its gross profit margin - a closely watched measurement for semiconductor makers - above 50 percent.

Shares of TI fell 64 cents or 1.9 percent, to close at $33.70 in Wednesday trading on the New York Stock Exchange.

The Dallas-based company is riding a three-year winning streak. Since 2003, it has increased revenue 38 percent and more than doubled earnings per share, not counting businesses it has sold. The stock price has more than doubled, too.

The company earned $2.32 billion last year, and profit jumped 42 percent in the first quarter of this year compared to the same period in 2005.

Still, analysts expect TI's earnings this year to be sapped by the cost of giving out stock options.

And the company faces questions about its ability to manage inventories. Texas Instruments was caught short late last year when it underestimated demand, causing it to lose sales of chips used in consumer devices. As a result, fourth-quarter revenue fell short of expectations.

In part, TI's stumble stemmed from a demand by electronics manufacturers that chip makers take more of the risk of carrying inventory.

Company officials said the change isn't all bad - they said it gives them a better feel for when demand is falling and inventories start backing up. But it increases TI's risk if chip demand slows, said Cody Acree, an analyst with Stifel Nicolaus & Co.

Texas Instruments has tried to minimize its risk by lining up production at outside foundries to complement its own factories.

"TI has found the best hybrid strategy in the industry by using foundries as a safety valve," Acree said.

Over the past 10 years, Texas Instruments has sold off businesses to focus on semiconductors - and only part of that market. It mostly ignores the PC chip market dominated by Intel Corp. - a position that protects TI from the slowing growth in PC sales.

Templeton said the company has prospered because its lineup of digital and analog chips are critical in popular communications and entertainment devices such as cell phones, digital cameras and music players.

Wireless accounted for nearly one-third of the company's $13.39 billion in sales last year, and TI hopes to extend that with a two-pronged strategy.

It has produced a new chip for advanced phones from Japan's NTT DoCoMo Inc. that TI says will feature better video functions and appeal to affluent consumers in developed countries. The "third-generation" phones need more of the processors that TI and other chip makers produce.

On the flip side, TI hopes to supply large volumes of less profitable parts for phones to be sold in developing countries such as China and India, where demand could grow by hundreds of millions in the next several years.

Source: Associated Press/AP Online

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