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Texas Instruments Narrows 2Q View

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Recently, Texas Instruments (TXN - Free Report) , or "TI," narrowed its revenue and earnings expectations for the second quarter of 2013. Following the announcement, itsshare price dropped 1.69% in after-hours trading.

The chipmaker now expects sales of $2.99–$3.11 billion versus its previous guidance of $2.93–$3.17 billion. The earnings outlook has also been narrowed to 39–43 cents per share from the previous guidance of 37–45 cents.

Though the chipmaker has tightened its guidance range, the midpoint remains unchanged. According to data compiled by Bloomberg, analysts expect sales of $3.06 billion, slightly above the midpoint of management guidance of $3.05 billion. However, earnings expectations of 41 cents were in line with management guidance.

Management stated that it is seeing improving demand for its chips from industrial customers with automotive continuing to grow sequentially in the second quarter. TI said that the demand for chips used in tablets and smartphones was better-than-expected but revenues from legacy wireless product lines would decline sequentially in the second quarter as the company continues to wind it down.

However, the company admitted that it was still seeing weak demand for the chips used in personal computers and consumer devices such as game consoles.

Additionally, the company stated that the inventories remain lean at all customers and particularly at distributors. Also, the company expects to keep capex at about 4% of revenue until the revenue reaches 18 billion a year. We believe that the slight increase in demand will increase the orders for the company, which will have a positive impact on the company’s sales.

Like other chipmakers, TI has struggled in recent quarters due to a slow global economy and weak consumer spending. To maintain momentum, the company responded in part by cutting costs and trying to expand the use of its application processors on embedded solutions for the automobile, industrial and other non-consumer markets, which have a longer life cycle.

Texas Instruments is one of the largest suppliers of analog and digital signal processing (DSP) integrated circuits. The company’s compelling product lineup, increasing differentiation in its business, restructuring activities and lower-cost 300mm capacity should drive earnings in the longer term. In the first quarter, TI posted decent numbers, with bottom line numbers surpassing our expectations.

Currently, Texas Instruments has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth considering include STMicroelectronics NV (STM - Free Report) , Magnachip Semiconductor (MX - Free Report) , Microchip Technology (MCHP - Free Report) , all carrying a Zacks Rank #2 (Buy).

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