Texas Instruments (TXN) revised its revenue guidance to $2.90 billion-$3.02 billion, an increase of 1-5% from third quarter levels. This takes into account the $120 million seasonal decline in calculator revenue, as well as generally weaker baseband revenue, as the company phases out that business.
The guidance provided at the beginning of the quarter was for revenue of $2.78 billion-$3.02 billion or a decline of 3% to an increase of 5% sequentially. The previous guidance did look a bit conservative to us, so the revision does not come as a surprise. However, the reason for such conservatism is now clearer.
The company is seeing very strong demand, as customers, particularly in automotive, consumer and storage markets for computing are ramping up production. The greater-than-anticipated increase in some product categories is driving the inventory out of mix. This is slowing down production, depleting distributor inventories, extending lead times and resulting in lower revenue.
Management traced the production bottleneck to back-end operations, where certain packages appear to be moving faster than others. The company will devote a portion of its capital spend to building back-end operations over the next two quarters. Capex is expected to drop back into the 5-8% of revenue range in the back half of 2010. Despite supply constraints, the differentiated nature of offerings limits the possibility of customers defecting to other suppliers.
According to management, everyone in the industry is facing similar constraints, so moving away would not be a major benefit. On the other hand, the company appears to be gaining market share, another reason for the revenue strength.
Management stated that gross margins were likely to be stronger than previously anticipated, driven by higher utilization rates, a more favorable mix of higher-margin analog products and a higher level of revenue.
Previous expectations for R&D expense of around $1.5 billion, restructuring charges of around $0.01 per share and a tax rate of 28% were not revised. However, management now expects an EPS of 47 to 51 cents, compared to previous expectations of 42 to 50 cents.
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