By Benjamin Pimentel 
 

Texas Instruments Inc. (TXN) is expected to report a 17% drop in third-quarter sales on Monday, but analysts also see the chip giant affirming the rising optimism in the semiconductor industry.

TI is scheduled to report third-quarter financials on Monday.

"As one of the key global semiconductor suppliers, we believe Texas Instruments will benefit from the continuing rebound in the semiconductor market over the next few quarters and through 2010," Brigantine Advisors analyst Ramesh Misra said in an Oct. 5 note.

Analysts currently expect the Dallas-based chip giant to report earnings of 39 cents a share on revenue of $2.8 billion, according to a consensus survey by FactSet Research.

That represents a slight decline from the year-earlier period when the chip maker reported earnings of 43 cents a share on revenue of $3.4 billion.

In early September, the company boosted hopes of improving chip demand after it raised its sales and earnings outlooks.

TI said it expects revenue to be in the range of $2.73 billion to $2.87 billion, and earnings in the range of 37 cents a share to 41 cents a share. The company also said it expects its analog business to be biggest driver of sequential growth.

TI is still widely considered a dominant tech giant, but it is also a company struggling with a changing competitive landscape.

The company is wrestling with the threat to its dominant position in the cell-phone chip market as some top customers have shifted to a multi-supplier strategy. Nokia Corp. (NOK) has decided to work with other suppliers such as Broadcom Corp. (BRCM) and STMicroelectronics NV (STM).

With heightened competition in the wireless arena, TI has focused more on its strengths in analog and embedded processing.

The company's analog chips, which perform such functions as translating sound and temperature into signals that computers can process, are used for such products as home security systems, automobile air bags and blood pressure monitors.

Broadpoint AmTech analyst Doug Freedman cited TI's "analog strength" in a note after the company's outlook revisions.

"We are adding a bit more volatility to seasonality going forward, and believe there is good news being left for the December quarter," Freedman wrote. "Consequently, we model the fourth quarter to be stronger than seasonal, and expect seasonal patterns to return in March."

But Misra of Brigantine Advisors said the company could likely face near term headwinds, saying in a note, "While the company's planned exit from the handset baseband business is well understood and factored in by investors, the impact TI's other businesses will likely suffer due to this is not adequately appreciated."

Misra added: "TI will not be able to provide bundled solutions to the handset market, and without a baseband offering, will likely be treated as just another analog IC supplier by potential customers."

-Benjamin Pimentel; 415-439-6400; AskNewswires@dowjones.com