After defying yesterday's market downturn, its stock ending the day stubbornly in the green despite all the red-hued mayhem surrounding it, Texas Instruments (NYSE: TXN) shares dropped this morning. The reason: After the markets had safely closed for the day Monday, Texas Instruments issued an earnings warning.

Not a large one, mind you. First-quarter sales had previously been expected to come in at about $3.41 billion. Now we're looking at something more on the order of $3.28 billion. Similarly, profits previously forecast at $0.46 per share will more likely approximate $0.43.

Explaining the move, company VP Ron Slaymaker advised that "a particular customer," whom he would not name, decided last week to reduce its orders of TI chips used in its higher-end mobile phones. Major media outlets parsed the news, and concluded that the blame for TI's troubles emanated from either the cell-phone-making joint venture between Sony (NYSE: SNE) and Ericsson (Nasdaq: ERIC), or, more likely, Nokia (NYSE: NOK).

Both Sony Ericsson and Nokia advised last year that they were going to diversify their sourcing of cell-phone chips away from TI, and yesterday's news "feels" like a logical extension of that policy. But for the record, TI disputes this theory, insisting that it is not losing market share in cell-phone chips. The company says the lost sales rather indicate slowing demand for advanced wireless phones globally.

You say tomato, I say kumquat
I'll leave it to other pundits to argue who's right on this debate. Whether TI's earnings warning bodes good or ill for rivals like Qualcomm (Nasdaq: QCOM) and Broadcom (Nasdaq: BRCM). Whether it means bad things for Nokia rival Motorola (NYSE: MOT) -- or whether it's even possible for things to get worse for Motorola.

All I really want to point out today is that any sell-off of TI in particular should be viewed as a buying opportunity. Here's why:

  • $0.43 isn't $0.46, but it is a 23% improvement over what TI earned last Q1.
  • Unless yesterday's news foreshadows further declines in earnings later this year, TI still seems on track to earn $2.05 per share in 2008, giving the stock a 14 P/E -- a bargain price for an expected 17% grower.
  • The more so when you notice that TI's GAAP earnings understate its free cash flow. TI may have earned $2.7 billion last year under GAAP, but it generated $3.7 billion in free cash flow. 

Looked at that way, what we have here is a stock priced at less than 11 times trailing free cash flow, growing at perhaps 17% per year. In my book, that makes TI a Texas-sized bargain.

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool's disclosure policy is talented enough to eat mangos while it tangos.