Markets braced for chip slump as TI cuts workforce

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Markets braced for chip slump as TI cuts workforce

By CAROLINE GABRIEL

Published: 27 January, 2009

READ MORE: Semiconductor

Texas Instruments reported one of the worst quarters in its history and said it would lay off 3,400 people, or 12% of its workforce, as it adjusts simultaneously to the handset downturn and its newly refocused business. Analysts braced themselves for poor performance from other majors of the mobile semiconductor sector, including Broadcom and even Qualcomm, and for a step-up in the ongoing wave of consolidation in this market.

TI said it did not expect improvement in its fortunes during the first half of 2009 or longer, and analysts agree, given the likelihood of a decline in handset sales of about 10% this year (weighted to the first half), plus current inventory correction and consumer spending squeeze.

The chipmaker plans to cut 12% of its workforce. In Q4, its revenue fell 26% year-on-year and 30% on Q3, while net income nosedived by 86% year-on-year to $107m or eight cents per share (including 13 cents in restructuring charges), well below consensus analyst forecasts of 12 cents. Excluding the special charges, earnings per share would have been 21 cents.

"We are realigning our expenses with a global economy that continues to weaken," said CEO Rich Templeton, in a statement. Most reductions will come from non-core businesses and SG&A (sales, general and administration). This will allow "a greater percentage of the dollars we spend [to] go directly toward developing and supporting analog and embedded processing products," according to Templeton. "We believe these are the areas that will drive TI's future growth and allow us to achieve our financial objectives."

The cuts will cost TI $300m and, combined with the results of earlier reorganization plans announced in October, the company expects $700m a year in savings. It forecasts its first quarter revenue will be in the range of $1.62bn to $2.12bn and warned it may post a net loss.

Some analysts believe Broadcom, which has hinted it will use the low valuation of most wireless companies to make acquisitions, could be lining up to buy TI's baseband activities to boost its fledgling position in the handset space.