Microchip bellwether Texas Instruments Inc said it was confident a recent demand correction would be short-lived and narrowed its quarterly earnings guidance in line with analysts' expectations.
Texas Instruments expects sales to fall sequentially in the final quarter of the year due to weakness in products its chips are used in, such as televisions and hard drives, but it said revenues from notebooks have hit a low point.
After electronics manufacturers enthusiastic about an economic recovery overbought chip supplies in early 2010, demand slowed in the second half of the year as they used up inventories. But that phase will probably be short-lived, Ron Slaymaker, head of investor relations, told analysts on a conference call.
I would say if anything our confidence has increased; that what we're dealing with is a relatively short and shallow correction, he said.
He cautioned that chips sales to the industrial market remained weak after recovering strongly early this year.
It has to be looked at as an incremental positive from an inventory standpoint that it looks like the declines are now over and we've seen some stabilization, said Michael McConnell, an analyst at Pacific Crest Securities.
Texas Instruments, whose chips are used in products ranging from cars to cellphones, expects quarterly earnings between 61 cents and 65 cents per share on revenue of $3.43 billion to $3.57 billion.
The new outlook implies a midpoint of 63 cents and $3.5 billion, which is in line with average analyst expectations, according to Thomson Reuters I/B/E/S. The midpoint of Texas Instruments revenue forecast is 6.4 percent lower than its revenue in the third quarter.
CAUTIOUS ON CONSUMERS
Chip sales are often brisk in the third quarter, as manufacturers rush to build consumer products for the holiday season and then slow in the final months of the year.
Worldwide semiconductor sales were flat in October compared with September and up 20 percent from October 2009, according to the Semiconductor Industry Association.
As the U.S. economy continues to struggle and family incomes remain constrained, consumers are expected to be picky during the holiday season about what they buy.
Everybody is cautious on the consumer. So if the consumer reacts a little bit better and the sentiment improves then that possibly becomes a tail-wind in the first half (of 2011), said Vijay Rakesh, an analyst at Sterne Agee.
A bright spot for Texas Instruments in the current quarter has been microchips sold into smartphones and video game consoles, Slaymaker said.
The company is getting out of its low-margin cellphone baseband business and concentrating on its OMAP line of chips for smartphones and tablets.
Global semiconductor sales next year will likely expand 4.5 percent, according to World Semiconductor Trade Statistics, an industry organization.
Texas Instruments in October had forecast that its revenue in the quarter ending in December would fall sequentially to between $3.36 billion to $3.64 billion, also implying a midpoint of $3.5 billion. Sales in the third quarter were $3.74 billion. It had forecast fourth-quarter earnings per share of 59 cents to 67 cents.
Shares of Texas Instruments, which is increasingly focusing on its analog chip business, dipped 0.9 percent after-hours after closing up 1.40 percent at $33.41.
(Reporting by Noel Randewich; editing by Richard Chang, Phil Berlowitz and Andre Grenon)