Tonight, we're getting the latest earnings lowdown from broad-line chip maker Texas Instruments (NYSE:TXN), and investors in the semiconductor sector are watching for signs of weakness or strength from this bellwether. Let's have a peek ourselves, why don't we?

What analysts say:

  • Buy, sell, or waffle? Texas Instruments doesn't exactly fly under anybody's radar. On Wall Street, a whopping 43 analysts follow the company, with 24 of them arriving at a buy recommendation, 18 holds, and one sell. Of more than 450 CAPS players with an opinion, 90% rate the stock an outperformer, giving it a three-star overall rating.
  • Revenues. The company issued new, lower revenue guidance for the quarter back in December, and the new range is $3.35 billion to $3.5 billion. That's about $200 million below the original outlook. The analyst range sticks close to guidance, and the average forecast lands at $3.43 billion.
  • Earnings. $0.38 per share would satisfy the average analyst, though it's in the lower half of management's $0.37-$0.40 per-share guidance. That's another lowered forecast, from an original $0.40-$0.46 per share. It's also down from last year's $0.43 EPS.

What management says:
In the latest earnings report, CFO Kevin March said that "the environment is shifting, and we're entering a near-term period where we are expecting less than seasonal growth. As a result, we have tightened our expenses, are managing our inventory, and are continuing to realign our production levels with demand."

He's mainly talking about weak order volume from cell phone manufacturers like Nokia (NYSE:NOK). The high-end handsets that need TI's signal processing chips are seeing lower-than-expected demand these days.

What management does:
There's not much to complain about here. Nearly every metric has been on the straight and narrow for a long time. The notable exception is free cash flow to revenue margins. Adjustments for income from discontinued operations and increasing capital expenditures have put the brakes on cash flows lately, a trend I'd like to see reversed. But TI is cash-rich, giving the company plenty of time to turn it around.

Margins %

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Gross

45.6

47.0

47.9

48.9

49.9

50.1

Oper.

18.4

19.6

22.3

23.9

25.7

26.0

Net

17.3

17.7

17.4

17.8

28.9

28.5

FCF/Revenue

38.5

43.9

38.1

37.6

35.4

26.1

Efficiency Ratios %

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

ROA

9.1

9.6

11.9

14.4

15.6

16.6

ROE

16.8

16.5

18.6

21.6

21.9

22.9
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The latest report and its gloomy outlook on cell phone demand brought TI's stock price down about 10%. Reduced guidance in the mid-quarter update had no effect, as the market had already figured out that things would look a bit bleak. As a result, Texas Instruments now trades at a bargain-basement trailing P/E ratio of 16.5, well below semiconductor peers like AMD (NYSE:AMD), Intel (NASDAQ:INTC), and Analog Devices (NYSE:ADI), and in line with National Semiconductor (NYSE:NSM). But TI maintains better net margins and higher revenue growth than all of these competitors, making the stock look downright cheap today.

In other words, plenty of bad news has been priced into the stock already. Even a weak report isn't likely to hurt shareholders very much, and this looks like an ideal buy-in point to this Fool. This is an excellent company caught in a cyclical downturn, and things are bound to get better eventually.

Competitors:

  • Analog Devices
  • National Semiconductor
  • QUALCOMM (NASDAQ:QCOM)
  • Conexant (NASDAQ:CNXT)

Intel is a Motley Fool Inside Value recommendation, and you can find out how and why with a free 30-day trial pass to our bargain-basement investment service.

Fool contributor Anders Bylund is an AMD shareholder, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is always on the go.