Texas Instruments may be wrestling with major macroeconomic issues, but CFO Kevin March says that its cash generation efforts are paying off.
NEW YORK (TheStreet) -- Texas Instruments(:TXN) may be wrestling with some major macroeconomic issues, as evidenced by its weak outlook this week, but CFO Kevin March says that the company's cash generation efforts are reaping dividends.
Revenue from the company's core analog and embedded processing businesses grew 2% year-over-year during its third-quarter results on Monday, and March said these areas now account for 70% of the company's revenue.
"That's resulting in massive cash generation," he said in an interview with TheStreet, noting that the company's operating cash flow was $1.2 billion during the quarter. "That's about $60 million higher than the prior year and about $526 million higher than the prior quarter," he added.
The chip maker has made a concerted effort to focus on analog and embedded processing, a strategy it says is delivering results for investors, even in a weak market.
March noted that the Dallas-based firm increased its quarterly dividend from 17 cents a share to 21 cents a share during the quarter and also increased its share buyback by a factor of two compared to prior quarters.
Texas Instruments' analog chips are sold into a broad range of products such as laptops, netbooks, servers and video surveillance equipment, while its embedded processing technologies can be found in DVD players, X-ray systems and MRIs.
A lot of post-earnings attention, however, was focused on the company's weak fourth-quarter guidance, the result of ongoing weakness in the semiconductor market and the broader economy.
Canaccord Genuity analyst Bobby Burleson, for example, lowered his Texas Instruments price target on Tuesday and maintained his 'hold' rating, citing headwinds on both revenue and margins. Sterne Agee analyst Vijay Rakesh reduced his estimates for the firm, noting the company's weak fourth quarter outlook.
For the fourth quarter, the Dallas-based company anticipates revenue between $2.83 billion and $3.07 billion, well below the consensus estimate of $3.23 billion.
"Customers are carrying very, very low inventories," said March. "This is largely because of their uncertainty about what demand looks like."
The finance chief said that a number of events are contributing to the atmosphere of economic uncertainty, from the U.S. election to the government change in China and debt issues in Europe. "These three regions are the largest economic regions on the planet and they are all in a period of uncertainty right now," he said.
Nonetheless, March pointed to the fact that Texas Instruments enjoyed a third-quarter beat on both the top and bottom lines.
"From a highlight standpoint, our revenue and earnings exceeded expectations," said March. "Investors were probably pleasantly surprised with the quarter we turned in and that revenues came in above what was expected and earnings came in quite a bit above what was expected."
The chip maker brought in revenue of $3.39 billion, down from $3.47 billion in the same period last year. Analysts surveyed by Thomson Reuters were looking for revenue of $3.34 billion. The revenue came in above the mid-point of Texas Instruments' projected range of $3.27 billion to $3.42 billion.
Texas Instruments earned 67 cents a share in the September-ended quarter, up from 51 cents a share in the prior year's quarter. The company's latest earnings number, however, includes 7 cents of charges associated with the company's acquisition of National Semiconductor and a benefit of 22 cents a share for changes in taxes and a Japanese pension program.
Excluding those items, the company's adjusted earnings would be 52 cents a share in the latest quarter. Wall Street was looking for a profit of 46 cents a share.
The Qualcomm(:QCOM) and Texas Instruments(:TXN) had projected earnings between 38 cents a share and 42 cents a share.
The company's shares dipped 0.57% to $27.68 on Wednesday.
--Written by James Rogers in New York.
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