The global slowdown in corporate IT spending claimed another victim this week, as semiconductor bellwether Texas Instruments (NYSE: TXN, Stock Forum) slashed its fourth-quarter earnings outlook. After the close on Monday December 8, TXN cut its fourth-quarter revenue expectations to a range of $2.3 billion and $2.5 billion, down from a previous outlook in the range of $2.83 billion and $3.07 billion. The company also said it expects earnings in the range of 10 cents to 16 cents per share, compared with a prior range of 30 cents and 36 cents per share.  

Analysts are currently looking for fourth-quarter earnings of 31 cents per share on revenue of $2.88 billion, and the lowered guidance came as a bit of a shock to many. Specifically, Baird backed its "underperform" rating on TXN and noted that the company faces "a very challenging macro-environment which should lead to another double-digit sequential revenue decline for 1Q." Furthermore, the brokerage firm stated that "We expect TI [Texas Instruments] to continue to lose market share in wireless including at Nokia, weighting on 2009-2010 revenues, while facing more aggressive pricing at the lower-end of its analog portfolio in 2009." 

Baird was not alone in its dire assessment, as several brokerage firms cut their price targets on the shares. Specifically, Citigroup cut its target to $16 per share, S&P Equity Research slashed its target to $15 per share, and Needham lowered its price target to $17 per share. Unfortunately for TXN, there is plenty of room for more analysts to follow suit. Checking in with Thomson Financial, the current average 12-month price target for TXN rests at $20.70 per share - a 39% premium to the stock's close of $14.82 on Monday. 

Elsewhere in the brokerage community, Zacks reports that TXN has earned 8 "buys," 16 "holds," and just 3 "sell" ratings. While there is a heavy degree of "hold" ratings compared to "buys," the veritable lack of "sells" on this underperforming stock leaves me concerned that TXN could be targeted by analyst downgrades, especially in the wake of this week's lowered quarterly guidance. 

Speaking of poor technical performance, TXN has underperformed not only the broader market, but also its peers in the Semiconductor HOLDRS Trust (NYSE: SMH, Stock Forum). Since January, the S&P 500 Index (SPX) has lost roughly 38%, while the SMH is down a hefty 48%. TXN, however, has plunged more than 55% since the beginning of the year, making the semiconductor concern a laggard among laggards. 

Zeroing in on TXN, the stock's losses have accelerated in recent months. Since peaking at $33 per share in late May, the equity has plummeted more than 52% under resistance at its 10-week moving average. The shares are now trading below former long-term resistance at the 17 level - an area that held TXN largely in check from September 2002 through April 2003. Complicating matters further, the security's 10-week moving average has descended into the region, creating an additional layer of overhead technical resistance in the area. 

Turning to the options pits, speculative investors remain overwhelmingly bullish toward TXN despite its abysmal price action. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.38 indicates that calls more than double puts among options with less than three months until expiration. What's more, this ratio ranks below 97% of all those taken during the past year, meaning that options traders have been more bullish toward TXN only 3% of the time in the prior 52 weeks. 

That said, we could be on the verge of a sentiment shift in the options pits. According to data from the International Securities Exchange (ISE) and the Chicago Board Options Exchange (CBOE), the 10-day ISE/CBOE put/call ratio of 1.06 indicates that puts bought to open have outnumbered calls bought to open during the past two weeks. Additionally, this ratio ranks above 67% of those taken during the past year, underscoring a growing preference for puts that could be a sign that options traders are finally capitulating to TXN's downtrend. 

With brokerage firms beginning to question their positions on TXN and price-target cuts flooding the stock following the company's quarterly-earnings warning, the stage is set for another influx of selling pressure on the shares. Add to this mix an unwinding of bullish sentiment in the options pits and potentially staunch overhead technical resistance, and the path of least resistance for TXN remains to the downside. 

By Joseph Hargett

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