TXN should not have been a surprise

TXN gave mid-quarter guidance after market close yesterday and lowered its 1Q05 revenue guidance from $2.90-$3.14 billion (mid-point of $3.02 billion, down 4% Q/Q) to $2.91-$3.03 billion (mid-point of $2.97 billion, down 6% Q/Q). 1Q05 EPS guidance was lowered from $0.22-$0.26 to $0.22-$0.24. Street had expected 1Q05 at $3.04B and $0.24. The main culprit for lower revenues was weakness in DLP business. TXN produces DLP chips that run your flat screen projection TVs and overhead projectors. DLP accounted for 7% of December revenues for TXN. I am surprised on how most investors were taken back by the DLP weakness. JDSU which supplies components for the DLP light engine has seen revenues weaken over last two quarters and clearly pointed out that their biggest DLP customer (TXN) had sequentially lowered production guidance almost weekly last quarter. It could have been that JDSU was seeing lower orders due to TXN using alternative suppliers but JDSU remains one of the major supplier to TXN for DLP mirrors. This situation was exacerbated as customers transitioned to newer DLP chips from TXN. As newer units ramp-up takes some time this lowers consumption of older units hence lower orders to JDSU in last two quarters and lower revenues for TXN this quarter. If investors had followed JDSU then it was a forgone conclusion that TXN DLP business will weaken. It is all perfect with 20/20 hindsight but reading tea-leaves (following the food chain) could have been the best thing next to 20/20 hindsight on this one.