Texas Instruments is betting massive new output capacity will help it extend its lead in analog chips over the next few years but said it won't use aggressive pricing to grab market share in the meantime.

Recently acquired facilities and equipment give Texas Instruments the capacity to produce $4.5 billion of analog chips a year in the United States, Japan and China and increase its lead in the analog market.

Our industry changes quickly and when it comes out of a cycle and customers are looking for significant increases in capacity, we now have the brick and mortar in place to deliver on that, Gregg Lowe, Texas Instruments' senior vice president of analog, told Reuters in an interview on Monday.

Texas Instruments is ramping up its new capacity amid a soft patch in demand for analog chips, which convert natural phenomena like heat and sound into digital signals in everything from smartphones to household thermostats.

After electronics manufacturers -- enthusiastic about an economic recovery -- overbought global chip supplies in early 2010, demand slowed in recent months as they used up inventories.

There's a lot of noise out there on competing on price but the fact of the matter is customers demand performance, Lowe said.

Texas Instruments is winding down its less profitable baseband mobile telephone business and increasing its stake in analog chips.

Already contributing revenue of around $6 billion a year, or 40 percent of total revenue, Texas Instruments expects to grow its analog business twice as fast as the market over the next few years.

FAR FROM CAPACITY

The company's recently opened facility, called RFAB, is the world's first to produce analog chips on 300 millimeter -- instead of 200 mm -- wafers, which Lowe said would lead to cost savings because more microchips can be produced at once.

RFAB, near Dallas, Texas, is starting with production of power management chips but will take years to get up to full capacity, Lowe said.

There's a process ramp roadmap for a number of other technologies going into RFAB, he said. It's going to ramp as fast as we need it to from a demand standpoint.

After growing 38 percent this year, global analog chip sales will probably increase less than 10 percent in 2011 as manufacturers work through inventories, according to market research firm Gartner.

Texas Instruments bought the equipment installed in RFAB, as well as its new facilities in China and Japan, at fire sale prices following the global economic slump.

That will help it ride out the cost of operating its new manufacturing facilities until demand grows enough to fill out capacity, but experts are unsure how long that will take.

Whether those fabs are fully utilized will depend on demand and they're gambling that demand remains strong, said Gartner analyst Stephan Ohr.

(Reporting by Noel Randewich; Editing by Richard Chang, Phil Berlowitz)

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