TI to lay off 2,500 despite beating estimates

The mobile phone chipmaker reported profits of $317 million, or 18 cents a share, on revenue of $2.52 billion for the first quarter, which ended March 31. Analysts polled by First Call had expected a profit of 16 cents a share.

TI's plunging revenue--down 17 percent from the previous quarter--along with an increase in inventory shows sluggish demand from customers who would normally consume all of the chips TI could offer. At the same time, inventories of finished mobile phones have risen, the company said.

The result is a double whammy affecting TI's bottom line and leading to layoffs and other cost-cutting decisions. A ripple effect from the reduction of its capital expenditure budget by some $200 million could affect chipmaking equipment companies such as Applied Materials.

In the same quarter last year, TI reported a profit of $494 million, or 28 cents per share.

TI shares closed regular trading Tuesday up 2.5 percent to $33.83.

"The first quarter was a difficult quarter for the overall industry and for TI," Bill Aylesworth, chief financial officer, said in a conference call after the announcement.

TI customers canceled order backlogs during the quarter, and new orders have been weak, especially in the United States, he said.

Aylesworth said in an interview that there was no way of telling when the market would start rebound.

"We know it will (turn around), because it always has," he said. "But predicting when order patterns will turn around is something we just can't do right now."

Revenue for wireless products and digital signal processors, a key chip in mobile phones and other devices, were both down. DSP revenue sunk 28 percent from the previous quarter, Aylesworth said.

Revenue from broadband products, one bright spot for the company, was up 15 percent sequentially, driven by growth in products for high-speed digital subscriber line (DSL) Internet connections. Aylesworth said in an iterview that TI also had "good orders" from several customers for wireless handset chips.

Gross margins declined to 42.6 percent, reflecting lower royalties and operating expenses, Aylesworth said.

"Looking into the second quarter, we expect revenues to decline sequentially by about 20 percent as our semiconductor customers continue to work through excess inventories," Aylesworth said. "It is unclear when demand for TI's semiconductor products will strengthen."

TI will lay off the 2,500 employees beginning this quarter. The company has more than 42,400 employees worldwide.

"Most of those employees will be in support and manufacturing and will not disrupt our strategic development programs," Aylesworth said.

The company's total savings from cost cutting will be about $400 million, he said.

TI expects cost cutting and layoffs to help it reach a "break-even operating profit on a pro forma basis" in the second quarter, Aylesworth said.

Meanwhile, TI has reduced its projected capital expenditure budget to $1.8 billion to $2 billion. Total capital expenditures in 2000 were $2.8 billion.

Research and development expenditures are now projected at $1.6 billion, down from original projections of $1.7 billion but the same as 2000.

"In times such as this, it is difficult to take a long-term view, but let me assure you TI is committed to come out of this downturn stronger than we went into it," Aylesworth said.

The company, for example, plans to continue to come out with new manufacturing capabilities, including systems using larger 300-millimeter silicon wafers.

"The decisions we'll make in the second half of the year and beyond will be to what degree or how fast to add additional modules of (the) 300-millimeter technology," Aylesworth said.