updated 7/25/2005 8:14:20 PM ET 2005-07-26T00:14:20

Texas Instruments Inc., one of the world's largest semiconductor makers, said Monday that its second-quarter profit climbed 42 percent on stronger sales of core chip products and educational calculators.

Quarterly income rose to $628 million, or 38 cents per share, from $441 million, or 25 cents per share, a year ago. Excluding a tax benefit, the company said it would have earned 32 cents per share in the latest quarter.

The results beat both the company's June forecast for earnings of 27 cents to 30 cents per share, as well as analysts' expectations for profit of 29 cents per share, according to a Thomson Financial survey.

Revenue was relatively flat with year-ago levels at $3.24 billion, though this hit the high end of TI's sales forecast and beat analysts' predictions for revenue of $3.19 billion.

Sales were up 9 percent from the first quarter, driven by increased demand for the company's analog and digital signal processing, or DSP, semiconductor products. A seasonal boost in demand for educational calculators also contributed to the higher results. Texas Instruments said semiconductor orders rose 15 percent from the first quarter.

Texas Instruments reported results after the close of trading. Its shares rose $1.70, or 5.5 percent, in after-hours trading, after closing earlier down 16 cents at $30.60 on the New York Stock Exchange. The stock has climbed from a 52-week low of $18.06 last summer to a high of $31.51 just last week.

Texas Instruments said April-June orders rose $136 million compared to the same quarter last year and $361 million from the previous quarter to $3.4 billion.

TI was helped, in part, by the depletion of pent-up inventory that began accumulating at semiconductor distributors last fall, said Ron Slaymaker, TI's vice president of investor relations.

"Part of it is the overall industry is emerging from this inventory-driven downturn," Slaymaker said. "We are now shipping to the rate of which our customers are shipping and the rate that retail channels are selling the end product."

Slaymaker told analysts that the second quarter growth was "very broad-based" for sales in chips for wireless phones, the PC market _ including notebook computers and printers _ and digital televisions and projectors.

"This gives us strong confidence our growth will continue to be strong into the third quarter," Slaymaker said.

Looking ahead, TI expects third-quarter earnings of 31 cents to 35 cents per share, or 34 cents to 38 cents per share excluding the cost of expensing employee stock options. Revenue will range from $3.29 billion to $3.56 billion, the company said.

Analysts currently predict third-quarter profit of 32 cents per share on sales of $3.36 billion.

Slaymaker said the company still plans to begin treating stock options as an expense in the third quarter, though the Securities and Exchange Commission in April gave most U.S. companies six additional months to adhere to new rules calling for employees' options to be counted against profits.

Separately, the company said it plans to raise its annual dividend by 20 percent to 12 cents per share, starting in October. TI's board also authorized an additional $2 billion stock repurchase program.

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