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Intel, Texas Instruments May Say Quarterly Sales Are Surging

http://www.bloomberg.com/apps/news?pid=10000103&sid=a8GH5g70jv8A

Sept. 8 (Bloomberg) -- Intel Corp. and Texas Instruments Inc., the two biggest U.S. semiconductor makers, may say today that third-quarter sales are surging on laptop and mobile phone purchases during the back-to-school season.

Santa Clara, California-based Intel's sales will likely rise 17 percent to a record $9.92 billion, meeting the company's previous forecast, according to the average estimate of 35 analysts surveyed by Thomson Financial. Texas Instruments' sales may increase 6.1 percent to $3.45 billion, the highest in 10 years, according to the average of 33 estimates.

The mid-quarter forecasts, to be released after the close of trading today, may spark optimism about demand for consumer electronics going into the holiday season and damp concerns about the effect of rising gas prices on consumer budgets. The fastest- growing chip markets are overseas, limiting any pause in spending in the U.S. after Hurricane Katrina prompted a surge in oil prices last week.

``Demand is very strong and it will be a great back-to-school season, especially for Intel,'' said Matt Kelmon, who helps manage $750 million at Palo Alto, California-based Kelmoore Investment Co., which owns shares of both chipmakers. ``Semiconductors are really clicking on all cylinders.''

Intel, the world's biggest computer-chip maker, said July 19 that sales would be $9.6 billion to $10.2 billion this quarter on demand for laptops with wireless Internet connections. Dallas- based Texas Instruments, the top seller of chips that run mobile phones, predicted revenue of $3.29 billion to $3.56 billion as handset makers add functions to play videos.

Shares of Intel, which have gained 9.7 percent this year, fell 4 cents to $25.66 yesterday in Nasdaq Stock Market composite trading. Texas Instruments, up 35 percent this year, rose 13 cents to $33.30 on the New York Stock Exchange.

The Optimism Game

Intel received a boost from notebook orders. Laptop shipments of notebooks out of Taiwan, which accounts for more than three- quarters of worldwide production, have exceeded early predictions.

``We expect Intel to say that emerging-market PCs are strong,'' said Cody Acree, an analyst at Legg Mason Wood Walker in Dallas. He has ``buy'' ratings on both of the stocks, which he said he doesn't own. ``It's not the U.S. corporate side that is doing it.''

Shipments may rise 37 percent this quarter from a year earlier to 12 million units, Jefferies & Co. analyst John Lau in New York said. He initially expected 11.7 million.

Concerns about inventory piling up this time last year have abated, and Intel now can't build enough of some chipsets to satisfy demand, analysts said.

Name of the Game

``This year seems better, and optimism seems to be the name of the game,'' said Daniel Morgan, who helps manage $5.45 billion at Synovus Investment Advisors in St. Petersburg, Florida.

About 31 of the 48 analysts who follow Intel suggest buying the shares, 15 recommend holding them and 2 have ``sell'' ratings. Of the 42 analysts covering Texas Instruments, 21 suggest buying the stock.

Both companies have exceeded analysts' profit estimates in the past three quarters.

The concern may be how profitable orders are going forward as more revenue comes from cheaper systems sold overseas, analysts including Needham & Co.'s Charles Glavin in San Francisco said.

Intel Chief Executive Officer Paul Otellini and his predecessor, Craig Barrett, expanded the company's reach overseas. The company won 51 percent of its sales from Asia last quarter, the first time more than half of revenue came from the region. The U.S. accounted for 22 percent of sales, down 24 percent a year earlier.

The company in July forecast a gross margin, the percentage of sales left after production costs, of about 60 percent this quarter -- less than some analysts expected. The margin reflects the trend toward winning more sales of less-expensive chips overseas and a pickup in orders of cheaper processors used in the Xbox video-game machine, analysts said.

Seeping In

``This has been something that eventually had to seep in,'' Needham's Glavin said. He rates shares of both Intel and Texas Instruments ``buy'' and said he doesn't own them. ``It's a structural change.''

Texas Instruments also expanded into new markets.

Nokia Oyj, the world's biggest handset maker and Texas Instruments' biggest customer, said in July that its operating margin narrowed even as sales surged. Competition drove its prices down as the company sought customers in new regions.

Pushing its chips into new, more expensive handsets that surf the Internet and play music may help Texas Instruments counter the effects of the lower-priced products on profit, Glavin said.

``TI we think will be fairly bullish,'' said Hans Mosesmann, an analyst at Moors & Cabot Inc. in New York. He is recommending investors buy both stocks. ``We look to hear positive data points from them, particularly in handsets.''

Increased Competition

Both companies also face heightened competition in key areas. Intel lowered prices to compete in chips for server computers that run networks, a market Otellini described as ``tough'' on the last earnings conference call in July.

Intel's market share in servers fell to less than 90 percent for the first time in the second quarter as Advanced Micro Devices Inc. took customers with a new design.

Texas Instruments CEO Rich Templeton is squaring off against Qualcomm Inc., which is targeting the Nokia account as one of its top priorities to bolster sales of new chips for the latest handsets.

Intel said in July that an unidentified large customer will announced this month that it is using Intel's baseband chip, the main chip in a cell phone. Intel so far has failed to secure a top six handset maker as customer for those processors.



To contact the reporter on this story:
Ian King in San Francisco at [e-mail];
Jason Kelly in Atlanta at [e-mail].
Last Updated: September 8, 2005 01:03 EDT