On Mar. 10, Texas Instruments, a leading supplier of semiconductors for cell phones, set off shock waves in the multi-billion-dollar mobile industry by lowering its first-quarter growth estimates for sales of wireless chips. TI pinned the blame on weakening demand from a major customer for high-end chips used to power third-generation phones.
Investors made the assumption that the client might be Finnish giant Nokia, which accounts for nearly one-third of TI’s wireless chip business. On Mar. 11, investors drove down shares in the world’s top handset maker by as much as 4.75 percent. The key question: Did TI’s warning signal a broader industry slowdown?
Consumers Curb Spending
Financial analysts clearly are worried. Although part of TI’s retrenchment is likely due to a first-quarter inventory correction, there’s growing concern that the handset market — especially for pricey high-end models favored in the U.S. and Western Europe — may be feeling the effects of economic downturn and slower consumer spending.
Consider Said Nafea, a Parisian shopper in his 30s checking out new handsets at the FNAC electronics emporium on Paris’ Champs-Elysees. He has a three-year old Samsung that fits nicely in the front pocket of his jeans. And while he’d like something newer, with more bells and whistles — especially an Apple iPhone — he has decided to wait until he can afford it.
Customers like Nafea are what worries experts. The typical pattern in first-quarter mobile-phone sales includes a relatively weak January and February, following fourth-quarter holiday purchases, and then a sharp uptick in March. All indications from sales channels in recent weeks were that everything was going as expected. So, TI’s slowing chip orders in March hinted at deeper problems in the market.
Analysts Aren’t Surprised
That’s why “there was a heck of a lot of drama” after TI’s announcement, says Mark McKechnie, an analyst at American…