TI Feels Impact of Japan

APRIL 19, 2011 THE WALL STREET JOURNAL

By DON CLARK And SHARA TIBKEN
Texas Instruments Inc. provided more evidence of the financial fallout from the earthquake in Japan, which hurt the chip maker's first-quarter results and is expected to hold down growth in the current period as well.

The Dallas-based company had already issued warnings about the impact on its two factories in the quake zone. In reporting first-quarter results Monday, TI put costs associated with the disaster at $30 million, which reduced earnings per share for the period ended in March by about two cents. In addition, the company suffered about $20 million in lost sales, said Ron Slaymaker, TI's vice president of investor relations.

Though the company said it is making progress at restarting production at the two factories, TI projected greater effects of the March 11 quake in the period ending in June, reducing expected earnings by about five cents per share. Mr. Slaymaker said TI had been expecting a revenue growth percentage "in the low double digits" before the quake; on Monday it indicated revenues would grow less than 5% in the second quarter.

"We've cut our growth prospects in half," Mr. Slaymaker said.

TI's first-quarter results were also hurt by unexpected weakness late in the period in demand for cellular baseband chips. The company's only known puschaser for such products is Nokia Corp., though Mr. Slaymaker declined to identify the customer specifically.

In all, TI reported first quarter net income of $666 million, or 55 cents a share, up 1% from the year-earlier earnings of $658 million, or 52 cents a share. Revenue rose 5.8% to $3.39 billion.
TI, an industry pioneer that has been shifting its focus from digital to analog chips, recently announced plans to buy longtime Silicon Valley rival National Semiconductor Corp. for $6.5 billion in cash.

The earthquake and resulting tsunami—as well as the ensuing nuclear crisis in Japan—highlighted the world's dependence on electronic components built in the country. TI noted that many of its customers in Japan remain in the early stages of reopening their own factories, and that TI and its customers face potential disruptions to their supply chains. Mr. Slaymaker noted, for example, that the company is carefully watching the supply of silicon wafers for fabricating chips, which has been hurt by damage to factories in Japan.

TI forecast second-quarter per-share earnings between 52 cents and 60 cents on revenue of $3.41 billion to $3.69 billion. Analysts surveyed by Thomson Reuters had expected earnings of 62 cents a share and $3.52 billion.

Underlying demand for most of TI's chips is quite strong, said Kevin March, TI's chief financial officer, in an interview. "At this point, we expect the second half to be pretty darn strong."
Aside from the quake, the other exception is in cellular baseband chips. "That was the one end market that behaved in a manner we didn't expect," Mr. March said. "We believe the actual phones our principal customer is selling don't appear to be selling as well as the marketplace expected."
Write to Don Clark at don.clark@wsj.com and Shara Tibken at shara.tibken@dowjones.com