Can Texas Instruments Get Out of Quicksand?

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NEW YORK ( TheStreet) -- Investing in the stock market can be a funny thing sometimes in that every now and then you realize you have turned negative on a company that you have spent so much of your time cheering. Regardless of conviction, patience has its limits.

This is the point to which I've arrived with semiconductor giant Texas Instruments (TXN) . On the heels of its third-quarter earnings result, I've become convinced the stock may not be going anywhere for a while.

The Quarter That Was

To its credit Texas Instruments did what it had to do during the quarter to exceed both EPS and revenue expectations. But the company also introduced more anxiety about its future growth prospects. For the third quarter, Texas Instruments reported net income of $784 million, or 67 cents per share on revenue of $3.39 billion -- beating EPS estimates of 39 cents, while topping analysts' revenue projections by $4 million.

Texas Instruments impressed analysts with year-over-year EPS growth of 31.4%. However, a decline in revenue by over 2% from the same period of a year ago is a concern. Even more glaring is that this marked the fourth consecutive quarter in which revenue has deteriorated. This even though the company saw a 6% increase year over year in orders, while also lowering inventories by $117 million.

Margins, on the other hand, arrived better than expected. The company improved gross margins sequentially by almost two points and besting its performance in the same period of a year ago by one point. Likewise, Texas Instruments logged a 40% improvement in operating income from the second quarter as it was also up 3% year over year. But investors' reaction to these numbers was a big yawn. So what's the problem?

Moving Forward

While a beat on both the top and bottom line is indeed impressive, its impact is only as good as the guidance that follows. In this case, what followed was a huge disappointment. Rich Templeton, the company's CEO had this to say about what lies ahead: "TI revenue grew sequentially and operations were well executed even though the economy and semiconductor market remained weak and likely will get weaker in the fourth quarter."

For the coming quarter, the company is projecting earnings per share of 23 cents to 31 cents - much lower than consensus estimates of 42 cents. Similarly the company's revenue range of $2.83 billion to $3.07 billion disappointed analysts, many of whom had estimates of $3.24 billion. While the uninspiring outlook is disappointing, it's hard to fault the company for its stance.

Not only is the company being affected by a tough macro climate, but it does not help that two of Texas Instruments' biggest customers, Nokia (NOK) and Research in Motion (RIMM) , are both experiencing declining market share of their own -- making it even tougher to place chip orders. But that's only part of the problem.