Huge improvements in semiconductor sales and operating margins at Dallas-based Texas Instruments Inc have produced soaring profits which took the market totally by surprise. Second quarter net income leapt up 228% to $249m on revenue up 6.7% at $2.56bn sending TI’s stock to a 52 week high of $113.5, a climb of $16. The rise in sales volume was driven by strong demand for semiconductors, and in particular, Digital Signal Processor chips (DSPs) which now account for 40% of all TI’s semiconductor revenues. TI has adopted a policy of focusing on DSPs, used in ever increasing numbers as a crucial element in mobile phones, modems and personal computer sound cards. TI estimates that the market for these chips will reach $50bn over the next decade and their own share of the market is growing by a massive 30% per annum in revenue terms. This new focus means that peripheral divisions such as mobile computing and printers are being sold off to generate cash. These second quarter results include a $66m gain from the sale of a further three businesses, partially offset by a $44m charge incurred when TI withdrew from its semiconductor joint ventures in Thailand (CI 3,184). Most recently, TI sold its defense business to Raytheon Co for $2.95bn in cash, but the gain from this transaction will not be booked until next quarter. Taking the semiconductor business as a whole, revenues increased by 17% but orders were up by 72% over last year, and this sector is now 80% of TI’s entire business. The only bad news is that sales of Dynamic RAM continued to be loss- making as the two year slump in prices continues, and TI see no change in the volatility of this market in the short term.
