Texas Instruments outlook weak on economy concerns

NEW YORK (Reuters) - Texas Instruments Inc (TXN.N) posted disappointing quarterly results and gave a weak third-quarter outlook, blaming a broad-based slowdown in customer orders due to economic concerns, sending shares down almost 13 percent late Monday.

While TI's wireless chip business has been weakening for some time, the company is showing signs that the downturn was spreading to analog chips, which are used in everything from consumer electronics to industrial equipment.

Analysts were alarmed by the weak forecast as the third quarter is often a strong one for TI due to back-to-school sales and as consumer electronics demand increases ahead of end-year holiday-season shopping.

"It's very worrying for TI and the semiconductor industry," said Charter Equity Research analyst John Dryden. "The outlook was as poor as the report."

He said the news boded badly for the analog market, where TI is the leader. Its rivals include National Semiconductor (NSM.N) and Linear Technology Corp (LLTC.O).

Dryden said that while slowing wireless demand could only mean softness at a few companies, analog weakness reflected badly on multiple industries. "When you're talking analog you're talking thousands and thousands of customers," he said.

TI said demand slowed unexpectedly in June as distributors reduced inventory levels and did not replenish supplies. It said revenue from wireless, for which Nokia (NOK1V.HE) is its biggest client, also continued to decline.

TI forecast third-quarter earnings of 41 cents to 47 per share on revenue of $3.26 billion to $3.54 billion. Wall Street on average expect earnings of 51 cents per share on revenue of $3.57 billion, according to Reuters Estimates.

"We think customers are being very prudent right now. Nobody really wants to be caught by surprise," Chief Financial Officer Kevin March said in an interview, adding that no one wanted to have too much inventory in a weak economy.

"I'm talking about inventory broadly," he told Reuters.

ECONOMIC WEAKNESS

TI's second-quarter profit fell to $588 million, or 44 cents per share, from $614 million, or 42 cents a share, in the year-ago quarter. Revenue dropped 2 percent to $3.35 billion.

The results were worse than the average analyst target for earnings of 46 cents on revenue of $3.39 billion. Last month, TI forecast second-quarter earnings of 43 cents to 47 cents per share on revenue of $3.33 billion to $3.46 billion.

Chief Executive Rich Templeton blamed slower demand on the weaker economic environment. "Our orders were up in the quarter and backlog grew, but we are cautious given the demand environment we just experienced," Templeton said.

While demand improved in the quarter for chips used in phones with third-generation (3G) high-speed Web links, demand for lower-end phones deteriorated at a faster rate, TI's finance chief said.

"We did see 3G shipments increase although they did not increase as much as the declines we saw in the mid and low end," March said, suggesting that consumers who were considering buying cheaper phones may be holding back due to the economy.

"People who may have been on the margin, who might have bought a phone before, now appear to be putting it off," he said, referring to China and India as countries where the strongest growth had taken place for lower-end phones.

TI's shares have fallen 12 percent since the end of last year as investors worried about high-end phone demand and TI's loss of business at customers such as Nokia and Ericsson (ERICb.ST).

The stock fell to $24.90 following the earnings report from the New York Stock Exchange close of $28.52.

(Reporting by Sinead Carew; editing by Mark Porter and Jeffrey Benkoe)