There was not much out of the ordinary in Texas Instruments’ (TXN, or “TI”) mid-quarter update. The company narrowed its guidance (as it usually does) to Rev/EPS of $3.34-$3.48 billion/$0.56-$0.60 from $3.27-$3.55 billion/$0.54-$0.62 and stated that end market trends were tracking in line with normal seasonality.
The only exception was the PC business, which was slower than expected in February. TI attributed the slowdown to another supplier’s processor chip recall, obviously referring to Intel Corp’s (INTC) Cooger chipset. However, TI assured that demand was already picking up and that tablet demand remained strong, in line with expectations.
We were a little surprised that TI did not see any improvement at television customers, since glassmaker Corning (GLW) reported significantly stronger demand from the LCD TV market in the last quarter, suggesting that the inventory glut had cleared.
Industrial holding out flat with the fourth quarter is an encouraging sign, as is the strength in automotive (driven by incentive-driven spending as well as increasing electronic content per vehicle).
The wireless baseband business is going to be seasonally down (as expected) and TI remains on track to phase it out by the first quarter of 2013.
Management stated that the recent agreement between Microsoft Corp (MSFT) and Nokia (NOK) would not unduly hurt its revenue, since the company was in any case phasing out the baseband business with Nokia (TI is the exclusive supplier to Nokia and decided to divert R&D effort to higher-margin areas a couple years ago).
TI does not expect any inventory accumulation at distributors, and expects sell-in to be similar to sell-out in the quarter.
The Zacks Rank on TI shares is #3, which translates into a short-term Hold recommendation. Our longer-term view remains Neutral.
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