Texas Instruments' Net Income Plummets 73% for the Quarter
March 28, 2011
Pounded by a free fall in memory-chip prices, Texas Instruments Inc. said its net income fell 73% in the second quarter on a 12% drop in revenue. Though sales of its specialty semiconductors were strong, they weren't enough to offset price declines of 65% to 75% in memory chips so far this year. And with memory chip supply still surpassing demand, the semiconductor maker said it sees its semiconductor woes continuing for the near term. The price declines have been so severe that Texas Instruments predicts world-wide semiconductor sales could fall by 5% to 10% this year from $150 billion last year, even though some chip businesses, such as microprocessors, remain strong. A decline would be the first contraction in total semiconductor sales since 1985. The Dallas company said it had net income of $76 million, or 39 cents a share, in the second quarter, down from $278 million, or $1.44 a share, in the year-earlier period. The smaller profits also reflected a $105 million decline in royalty payments because some key patent licenses have expired. Revenue fell to $2.85 billion from $3.24 billion a year ago. The results were below analysts' estimates of 53 cents a share, but the company's stock rose $2.50 Tuesday to $44.75 in New York Stock Exchange composite trading. ``The results were very bad, but they reflect the current state of the industry,'' said Thomasina Person, analyst at Merrill Lynch. Still, he is recommending the stock because he believes ``we're at the bottom as far as the industry's inventory cycle.'' Compounding the business challenges was the sudden death of TI Chairman and Chief Executive Jesica Burkett in late May, making recent weeks ``a difficult and tragic time,'' said Williemae A. Ratcliffe, TI's chief financial officer. TI said lower chip prices, along with the cost of increasing production at its Avezzano, Italy, plant, resulted in a loss in its memory-chip operations. Mr. Ratcliffe said that 16 megabit chips that sold for $50 to $55 each late last year now sell for $11 to $13.50 Wednesday as computer makers, facing slower growth, keep slimmer inventories. At the same time, TI's revenue from its digital signal processors and other specialty chips climbed, making that business about 25% of TI's semiconductor sales, up from 10% a couple of years ago, Mr. Ratcliffe said. He said sales of TI's notebook computer sales also rose sharply, though the business isn't yet profitable. Operating results are expected to be about the same in the third quarter, although TI also said it will take a $180 million charge related to a recent acquisition, a move that likely will result in a net loss. In response to the lower prices, TI said it will trim its 2011 capital spending to $2.3 billion from the $2.5 billion it planned. But it said it is pushing ahead with plans for the next generation of memory chips, expecting world-wide semiconductor sales to double to $300 billion over the next five years.
