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Texas Instruments Gives In-Line Forecast, Stock Drops

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(Bloomberg) -- Texas Instruments Inc. gave a forecast in line with analysts’ estimates for the current period, disappointing investors who are concerned that a surge in demand for electronic components is beginning to slow.

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Sales will be $4.22 billion to $4.58 billion in the fourth quarter, Texas Instruments said Tuesday in a statement. Profit will be $1.83 to $2.07 a share. On average, analysts predicted profit of $1.94 a share and sales of $4.48 billion, according to data compiled by Bloomberg. The stock dropped as much as 5.3% in extended trading.

Investors are concerned that the double-digit percentage revenue gains that chipmakers have been posting are creating a bubble and that the huge increase in orders in recent months isn’t supported by commensurate demand for the devices they go into. Texas Instruments, the largest maker of analog and embedded processing chips, has the broadest reach in the industry and its results are used as a bellwether for electronics demand.

Customers are no longer ordering everything to be shipped as soon as possible, Chief Financial Officer Rafael Lizardi said in an interview.

“Customers are becoming a little more selective on their expedite requests,” he said. “Ninety days ago they were expediting everything.” Lizardi said the company isn’t trying to predict whether demand has peaked. Instead, Texas Instruments is prepared to keep running its factories hard, even if there is weaker ordering, to build back inventory levels required for what it sees as a future in which more semiconductors go into vehicles and factory equipment.

Texas Instruments’ executives have argued that its high level of in-house manufacturing has made the company more nimble in responding to the increase in demand. When competitors cut production last year, Texas Instruments increased output and built inventory. Many chipmakers outsource large amounts of their manufacturing, and some have never owned a plant of their own. Dallas-based Texas Instruments has factories that provide about 80% of its own needs.

Shares declined to a low of $186.58 in extended trading after closing at $196.98 in New York. The stock has gained 20% this year.

In the third quarter, net income rose to $1.95 billion, or $2.07 per share, from $1.35 billion, or $1.45 a share, a year earlier. Revenue increased 22% to $4.64 billion. Analysts, on average, estimated $2.04 a share on revenue of $4.66 billion.

Separately, Advanced Micro Devices Inc., gave a bullish fourth-quarter revenue prediction based on strong demand for server chips and processors that run game consoles made by Sony Corp. and Microsoft Corp.

(Updates with comments from CFO beginning in the fourth paragraph.)

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