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Strong chip demand boosts TI past estimates

Texas Instruments, the leading maker of chips used in cell phones, posts second-quarter earnings that just beat analysts' estimates.

Texas Instruments, the leading maker of chips used in cell phones, posted second-quarter earnings that edged past analysts' estimates, and the company said it continues to see strong growth in the handset market.

For the quarter ended June 30, TI said it earned $525 million, or 31 cents per share, excluding a big gain on sales of Micron Technology stock and other extraordinary items. Revenue was $2.84 billion.

Analysts had been expecting TI to earn an average of 30 cents a share, according to polling by First Call/Thomson Financial. The revenue figure was close to the $2.85 billion range predicted in several recent analyst reports.

In the same quarter a year ago, TI earned 23 cents per share on a pro forma basis on revenue of $2.4 billion.

TI offered a positive outlook for the future, saying it sees sequential revenue growth in both its overall chip business and its storage business, which has seen declines in the past four quarters.

"Despite seasonal pressure, the company expects sequential revenue growth in its semiconductor business to accelerate in the third quarter, based on broad customer demand and strength in key markets such as wireless, catalog and broadband communications," TI said in a statement.

In a strong sign for the entire wireless industry, TI said the market for cell phones remains hot.

"We have made no revision to our industry forecast of 435 million handsets," chief financial officer Bill Aylesworth said in a conference call. "We believe demand is strong."

Salomon Smith Barney analyst Jonathan Joseph said in a research note earlier this month that TI might "fine tune" its forecast down to about 420 million units.

On the contrary, Aylesworth said even more people will be buying new handsets next year as so-called "2.5 generation" wireless networks offer improved data speeds.

"We think replacement rates will in fact accelerate next year," Aylesworth said in an interview.

Aylesworth added that next year TI should start to see a significant sales from its broadband unit, which makes chips for digital subscriber line (DSL) and cable modems. That unit grew 67% sequentially in the second quarter.

During the quarter, TI sold 20 million shares of Micron stock, giving the company $1.21 billion in pretax gains, or 45 cents per share. Those gains were not included in the company's reported results.

Aylesworth said the company will continue to sell Micron shares.

"Our objective is to monetize our Micron stake in this DRAM upcycle," he said.

Merrill Lynch analyst Joe Osha said in a report today that he expected TI to earn 29 cents a share, with revenue of $2.85 billion.

"Overall, June looks to have been a solid but not exceptional quarter for TI," Osha said, adding that a recent sell-off in TI's shares discounts any problems the company might see if the scorching demand for cell phones softens somewhat.

TI is upping this year's capital expenditure forecast to $2.8 billion from a previous forecast of $2.5 billion in response to strong demand.