Should You Sell Texas Instruments Ahead of Tonight's Earnings Report?

The first earnings season of 2012 is in full swing, and tonight we get a fourth-quarter business update from semiconductor giant Texas Instruments (NYSE: TXN  ) . The health of TI tells us a lot about the industrial and consumer sectors, with a particular focus on mobile computing these days. So, what should we expect out of Dallas tonight? TI shares have climbed nearly 16% in this young year, acting the pace car to the Philadelphia Semiconductor Index and crushing the Dow and S&P 500 market benchmarks.

Analysts are setting the bar pretty low:

Metric

Q4 2011 Estimate

Q4 2011 Guidance (Midpoints)

Q4 2010

Revenue $3.25 billion $3.26 billion $3.52 billion
Earnings Per Share $0.39 $0.23 $0.78

Sources: Yahoo! Finance and TI press releases.

In time-honored TI tradition, the company updated guidance in the middle of the quarter, resetting expectations well below the original forecast. Wall Street seems to have adjusted its revenue targets accordingly but not the earnings. TI could stick the landing against its own targets but still miss the earnings consensus by a country mile. Keep that gap in mind before jumping to conclusions about hits or misses tonight.

TI spokesman Ron Slaymaker says that the company is "undershipping demand." In other words, customers are busy burning off excess inventories built up in previous quarters. That situation can only last about as long as the surplus chip stockpiles do. I'm keeping an eye peeled for an update on channel health for sure.

Last week, Intel (Nasdaq: INTC  ) set the stage for a cheerful earnings season in the semiconductor sector. What TI says tonight will either confirm that conclusion or throw ice water on the bullish fires. Either way, this report is required reading if you're on pins and needles over semiconductor reports later this week. Advanced Micro Devices (NYSE: AMD  ) unwraps results Tuesday, MIPS Technologies (Nasdaq: MIPS  ) Wednesday night, and Cirrus Logic (Nasdaq: CRUS  ) after market close on Thursday. That's just a small sampling of the chip-sector earnings avalanche coming your way this week.

Just as Intel puts a big weathervane over the sector, you don't have to be a TI investor to be interested in reading its tea leaves. Intel sinks and swims with servers and laptops; Texas Instruments has a hand in computers as well but also plays the same critical role for smartphones, tablets, and industrial tools.

Assuming that management knows the company's business better than outside analysts do, I expect a large earnings miss tonight. Wall Street firm Needham recently told investors to take some profits in this stock ahead of earnings, and I can't say I disagree with their analysis. But unless TI has destroyed your investing thesis, true Fools don't try to time the market like that -- it's a sucker's bet.

Add TI to your watchlist so you don't miss an update from -- or on -- the semiconductor titan. In the meantime, check out this short list of the three best smartphone plays from the chip industry. It's free today but might be gone tomorrow, so get your copy right away.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Motley Fool owns shares of Cirrus Logic, Intel, and Texas Instruments. Motley Fool newsletter services have recommended buying shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


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