TI seeks to dispose portion of mobile baseband unit
The company said it would reduce expenses by about one-third in the wireless business, or more than $200 million per year, especially in its wireless baseband operation.
It added it would focus its remaining wireless investments in OMAP applications processors, which power smart phone products. It noted the reduction plans will be implemented immediately and are anticipated to be finalized by June 2009. TI said the company will have restructuring charges amounting to around to $110 million in the next three quarters.
TI is at present the second top supplier of merchant baseband chips, behind Qualcomm Inc., according to Will Strauss, an analyst at Forward Concepts Inc. Kevin March, senior VP and chief financial officer, TI, said about three quarters of its wireless revenues come from baseband chips.
TI gained a net income of $563 million on revenue of $3.39 billion for Q3. Income declined 4 percent sequentially and 26 percent year-to-year. Income equated to $0.43 cents per share, down 2 percent sequentially and 17 percent year-to-year. Revenue of $3.39 billion increased 1 percent sequentially but down 8 percent compared to the same period of 2007.
Analysts were looking for Q3 earnings of about $0.44 cents per share and revenue of about $3.40 billion.
The Q3 drawbacks
"We entered Q3 with a cautious view of the economy and its impact on our markets," said Rich Templeton, chairman, president and CEO, TI, in a statement. "Revenue was weak, as expected, because consumers and corporations reduced their spending in today's uncertain economy," he added.
TI said it expects Q4 revenue from $2.83 billion to $3.07 billion and earnings per share of $0.30 to $0.36 cents. Consensus analyst expectations for TI's Q4 had called for earnings per share of $0.29 cents and revenue of $3.34 billion.
It added IC revenue is expected to slide to about 10 percent from Q3 and calculator revenue is expected to decline seasonally. Company officials claimed TI is also assuming further revenue decline in Q1.
"Our outlook for Q4 is for revenue to decline substantially based on weak order trends over the past few months," Templeton said.
TI officials said they expect revenue from the custom baseband business to decline over time. TI's custom baseband business involves baseband-like ASIC chips mainly for Nokia, which has said it will diversify its supply chain and begin buying custom baseband chips from ST Microelectronics as well. According to Strauss, the Nokia-ST deal won't cut into TI's shipments until 2010.
Analysts on a conference call after the earnings announcement asked TI executives why the company would remain in the custom baseband business given that it expects revenue to decline.
"The reality is that the baseband business, especially the custom baseband business, has very good profitability and is valuable to Texas Instruments," said March.
"We've got a well-run custom business anchored with a great solid relationship," Templeton said. "We will continue to operate it well," he added.
Templeton said TI is in talks with "several interested parties" over the merchant baseband business, but declined to elaborate the negotiations. March said the timing of a deal is undetermined, but that a decision would likely be made within the next few months. Strauss said he was surprised, but not shocked, by the news that TI wants to unload its merchant baseband chip business. He said the move makes sense because TI is hanging on to higher-margin 3G products and unloading products that go into 2G and 2.5G products.
He added a potential buyer would be someone who serves India and China markets and suggested Taiwan chipmaker Mediatek could be a possible candidate. He added that Qualcomm would not be a possibility because the company is focusing on higher-end markets.
He noted that Freescale Semiconductor recently announced plans to sell its wireless chip unit and said it's possible that a single company may be interested in buying TI's merchant baseband business and some or all of the Freescale units.
Strauss said a buyer would also have to license TI's DSP technology, an arrangement that TI has been reluctant to enter in the past. He added he was aware of only one instance when TI licensed its DSP technology to another company, and that that occurred about a decade ago.
Strauss took TI's willingness to disclose that it was in negotiations about the merchant baseband chip business as a signal that an agreement might be announced soon. "Generally they don't say such things unless they are close to a deal," he said.
Earlier reports said the sale of the merchant portion of TI's cellular baseband operation would send about 350 employees to the purchasing company and lead to about 300 layoffs.
TI's analog business posted Q3 revenue of nearly $1.29 billion, flat sequentially and down about 1 percent year-to-year. Embedded processing revenue of about $427 million was down 3 percent sequentially and up 9 percent year-to-year. Wireless revenue of $915 million was up 1 percent sequentially, but down 16 percent year-to-year.
TI trimmed its 2008 capex forecast to about $800 million from an earlier estimate of $900 million.
- Dylan McGrath
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