Texas Instruments Inc (TXN.O) forecast second-quarter revenue growth ahead of Wall Street estimates, signaling the end of a prolonged inventory-related decline in demand, sending its shares up 4 percent in late trading.
The maker of chips used in everything from communications equipment to cars said it expects revenue growth for the rest of the year due to a broad-based improvement in demand after several quarters when its clients cut inventories.
While TI's clients are not yet showing signs of expanding their chip stockpiles, the fact that they have stopped reducing inventories is boosting TI's orders.
"We think it is pretty sustainable. Our customers were really lean on inventory," Chief Financial Officer Kevin March said. "At a macro level the global economy looks like its growing modestly ... so we're probably in for growth for the rest of the year."
Bernstein analyst Stacy Rasgon said any move by TI's customers to increase inventory levels would boost the company, which says it has plenty of spare manufacturing capacity.
"Now the question becomes - do you just float around down here for a while or do you start to see channel restocking?" Rasgon said. "It's hard to call, but the potential is there if the demand is there. You'll see upside on the top line as well as the margins."
Unlike rival Qualcomm Inc (QCOM.O), which warned last week that supply constraints would limit its revenue, March said TI should not face a manufacturing capacity shortage this year even if demand accelerates.
"It's too early to tell just how robust it will be. We are certainly prepared if it turns out to be very robust," he said.
The maker of chips used in products ranging from cellphones to industrial equipment forecast current-quarter revenue of $3.22 billion to $3.48 billion.
This implies a mid point above analyst expectations for $3.29 billion, according to Thomson Reuters I/B/E/S.
It set an earnings target of 30 cents to 38 cents per share for the current quarter.
TI posted a first-quarter net profit of $265 million, or 22 cents per share. Its net profit was $666 million, or 55 cents per share in the year ago quarter.
Its latest quarterly profit was helped by a 3 cents per share gain from an insurance payment related to last year's earthquake in Japan, which resulted in damage and a production suspension in two TI factories.
Revenue fell 8 percent to $3.12 billion from $3.39 billion, but was slightly ahead of the consensus Wall Street forecast for $3.06 billion, also helped by the insurance payment. TI's own revenue target was $2.99 billion to $3.11 billion.
TI shares rose 4 percent in late trading to $33.15 after closing down 1.79 percent at $31.89 on Nasdaq.
(Editing by Richard Chang, Bernard Orr and Andre Grenon)