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TI's profits come in lower than predicted

The largest maker of chips used in cell phones reports lower-than-expected revenue and earnings for the fourth quarter.

Texas Instruments, the largest maker of chips used in cell phones, reported Monday lower-than-expected fourth-quarter revenue and earnings.

TI said its earnings, excluding various charges and gains, came in at $549 million, or 31 cents per share, on revenue of $3.03 billion. That compares with earnings of $448 million on revenue of $2.63 billion in the same period last year.

A consensus of analysts had expected Texas Instruments to earn 33 cents per share, according to First Call, with several analysts pegging revenue at around $3.15 billion.

TI's shares moved lower in after-hours activity, trading at around $45, according to the Island ECN. Ahead of the report, TI shares closed down $1.75, or 3.5 percent, at $48.56.

William Aylesworth, TI's chief financial officer, said on a conference call that the fourth quarter marked a transition from what had been an outstanding market to one that was quite weak, marked by cancellations of current orders and a decline in new ones.

"The result was a rapid deterioration of business conditions late in the quarter," Aylesworth said.

Ron Slaymaker, TI's vice president of investor relations, attributed the earnings slump to weakness in the mobile phone sector, as well as to the tepid PC market and slower spending by telecommunications infrastructure companies.

About one-half cent of the earnings miss is attributable to an accounting change, Slaymaker said in an interview.

The company also announced that revenue will likely decline in the first quarter.

"TI expects its revenue to decline about 10 percent sequentially in the first quarter as semiconductor customers continue to work through excess inventory during this seasonally slower period," the company said a statement. "The weakening world economy limits visibility into market conditions for the remainder of the year."

Slaymaker said the lower revenue will put pressure on the company's profit margins. This means that the decline in earnings will likely be greater than the 10 percent drop in revenue in the first quarter compared with the previous quarter.

Although the first quarter is traditionally slower in the cell phone market, Slaymaker said, the issue has been exacerbated by a continued glut of cell phones.

"Customers didn't clear up inventories to the extent we would have anticipated," he said.

In the cell phone sector, the company also predicts a drop in sales from the fourth quarter "as certain handset customers continue to absorb semiconductor inventory."

One bright spot was the company's broadband unit, which sells chips used in high-speed digital subscriber line modems. Sales in that unit doubled from those in the prior quarter, Slaymaker said.

In addition, sales of analog chips were up 6 percent in the fourth quarter compared with the third quarter.

TI also said it will cut the amount it is spending on capital equipment for 2001 to $2.3 billion, down from the $2.8 billion it spent on chipmaking gear in 2000.

The earnings shortfall wasn't completely unexpected.

In October, TI posted earnings that just met Wall Street expectations but warned that wireless sales might fall in the fourth quarter because of a glut of cell phones.