Texas Instruments (TXN) narrowed its third quarter revenue expectations to $2.73-$2.87 billion (a sequential increase of 9.7%-16.7%). Previous guidance was for revenue of $2.50-$2.80 billion (a sequential increase of 1.6%-13.8%). This effectively raises the mid-point of guidance by 5.7%.

The company also expects earnings per share (EPS) to come in at 37 to 41 cents, compared to the previously guided range of 29 to 39 cents.

Management stated on the call that the higher expectations were based on increased demand across all segments and particularly, the analog business. The main drivers within the high-performance category are HDD, PND and video games products.

Power management products will benefit from the ongoing strength in notebooks, cell phones and other consumer products. The Embedded Processing segment is expected to benefit from particular strength in microcontrollers (catalogue products), as well as automotive products.

The industrial business in China and India are also expected to contribute. The growth in the Wireless segment is expected to come from connectivity products for smart phones. Basebands will grow, although declining as a percentage of revenue. Calculator sales are expected to be up on positive seasonality.

Distributor sell-in is expected to be close to sell-out. Activity is currently strongest in Asia, although it is also expected to pick up in Europe and the Americas. Direct sales to OEMs are also strengthening.

Fabs are being ramped up, leading to higher utilization rates. However, the sudden increase in demand is leading to supply constraints, prompting management to hire temporary labor as well as increase investment in assembly test equipment. Management now expects capex to come in higher than the $300 million originally guided for 2009.

The company reported very strong second quarter results, with revenue growing across all four segments. Order rates were also very encouraging, leading to a strong double-digit growth in the backlog.

The Zacks Consensus Estimates for revenue and EPS were at $2.66 billion and 35 cents per share, lower than the revised ranges.

The TI revision follows the Intel Corporation (INTC) revision last week, confirming our view that the chip industry is back on the growth path.
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