Texas Instruments Inc, the biggest maker of cellular-telephone chips, plans to fire 2,500 people, a 6 percent reduction, because of a slump in demand that cut first-quarter profit almost in half.
Net income fell 49 percent to US$230 million, or US$0.13 a share, from US$450 million, or US$0.25, a year ago, the company said. Sales fell 8.4 percent to US$2.53 billion.
Texas Instruments is paring costs by closing plants and firing workers as customers, which include cellphone maker Motorola Inc, put off parts purchases while using up inventory left over when demand fell this year.
The chipmaker said in February that first-quarter sales would drop 20 percent from the fourth quarter because of canceled orders.
"This looks pretty ugly," said Daniel Niles, an analyst at Lehman Brothers Inc, who has a "market perform" rating on Texas Instruments shares. "Economic demand doesn't look so hot, and people need to work out of their inventories."
The company's profit margins are narrowing, with operating margin shrinking to "break-even" this quarter, Chief Financial Officer William Aylesworth said on a conference call after Dallas-based Texas Instruments issued results. Operating margin measures earnings after a company pays its business expenses.
Excluding amortization and acquisition-related costs, Texas Instruments had profit of US$317 million, or US$0.18 a share. On that basis, the company was expected to earn US$0.16, the average estimate of analysts polled by First Call/Thomson Financial.
Most of the firings will be made among manufacturing and support workers, and the reduction is expected to save US$400 million a year, the company said. The firings are scheduled to begin this quarter.
First-quarter new orders were "very weak," especially in the US, dropping 32 percent from the fourth quarter, Aylesworth said on the conference call.
"There is no evidence that things have stabilized," said Christian Koch, senior technology analyst at Trusco Capital Management, which owns about 2.5 million Texas Instruments shares. "Their earnings appear to be in a freefall."
Texas Instruments will reduce capital expenditures this year by 10 percent to US$1.8 billion and cut spending on research and development by 5.9 percent to US$1.6 billion.
Sales of chips used in digital-subscriber-line equipment for high-speed Internet access rose 50 percent from the fourth quarter and were the company's only source of growth.
However, sales of cable-modem chips, also used in gear for fast online service, fell by an unspecified amount.
Texas Instruments expects second-quarter sales to fall 20 percent from the first quarter because of excess inventories. The company said it is "unclear" when demand will rebound.
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