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Earnings boost TI stock

Texas Instruments' share price jumps nearly 12 percent on higher-than-expected second-quarter earnings, driven by strong digital signal processing chip sales and improved operating margins.

Shares of Texas Instruments (TXN) jumped nearly 12 percent this morning after the company reported higher-than-expected second-quarter earnings, driven in part by strong digital signal processing (DSP) chip sales and improved operating margins.

TI, which reported before the market opened, watched its shares rise as high as 109 in early trading, up from its close of 97-1/2 yesterday.

The company reported net profits of $249 million, or $1.26 a share, for the quarter ending June 30, up from $76 million, or 39 cents a share, a year ago.

Without a $44 million charge for terminating a joint venture agreement in Thailand and a $66 million pre-tax gain on the sale of three businesses, the company would have posted a profit of $213 million, or $1.07 a share.

Analysts had expected the company to post profits of 87 cents a share, based on a consensus estimate from First Call.

Revenues reached $2.6 billion, up 7 percent from a year ago. They were largely driven by a 17 percent increase in semiconductor sales, which were in turn fueled by the company's DSP chip sales. DSP solutions account for more than 40 percent of TI's semiconductor revenues.

"We realize the opportunity for TI is significant, especially as digital signal processing becomes the core element in a growing number of electronic products," said Thomas Engibous, chief executive and president, in a statement.

While some semiconductor microprocessor companies are expecting a slowdown, DSP makers Lucent Technologies (LU) and TI have bridged troubled chip waters with their lucrative DSP sales, analysts say.

"There's no shortage of demand and there are not a whole lot of companies ramping up competition in this area," Walter Piecyk, research analyst with PaineWebber. "When I saw all these semiconductor companies having trouble over the last quarters, I didn't see Lucent or TI having the same problems."

But TI's gains made with DSPs are being offset by losses in the troubled dynamic random access memory market. Signs that TI is planning to exit the DRAM market include its cancellation in May of a DRAM plant planned for Thailand.

TI's continued long-term recovery will be "made or broken on DRAM pricing," said Drew Peck, managing director at Cowen & Company.

"I believe the company is slowly but surely moving away from the DRAM market," Peck said, "but it will take a number of years to achieve that."

Competitor Motorola (MOT), though never a significant player in the DRAM market, is committed to getting completely out. Earlier this month the company announced it will be abandoning the DRAM business.

DRAM market prices and profitability have dropped since the last quarter of 1995.