SAN FRANCISO—Texas Instruments Inc. said Monday (Oct. 20) it is in discussions with undisclosed potential buyers of its merchant baseband semiconductor business but would continue to support some of its custom baseband customers.

TI said it would cut expenses in the wireless business by about one third, or more than $200 million per year, especially in its cellular baseband operation.

TI said it would focus its remaining wireless investments in OMAP applications processors, which power smartphone products. Reductions in cellular baseband operations will begin immediately and are expected to be complete by June 2009, TI said. The company said it expects to take restructuring charges of approximately $110 million across the next three quarters.

TI is currently the second-ranked supplier of merchant baseband chips, behind Qualcomm Inc., according to Will Strauss, an analyst at Forward Concepts Inc. According to Kevin March, TI senior vice president and chief financial officer, about three quarters of its wireless revenue comes from baseband chips.

TI posted a net income of $563 million on revenue of $3.39 billion for the third quarter. Income was down 4 percent sequentially and 26 percent year-to-year. Income equated to 43 cents per share, down 2 percent sequentially and 17 percent year-to-year. Revenue of $3.39 billion was up 1 percent sequentially but down 8 percent compared to the same period of 2007.

Analysts were looking for third quarter earnings of about 44 cents per share and revenue of about $3.40 billion.

"We entered the third quarter with a cautious view of the economy and its impact on our markets," said Rich Templeton, TI chairman, president and CEO, in a statement. "Revenue was weak, as expected, because consumers and corporations reduced their spending in this uncertain economy."

TI said it expects fourth quarter revenue of $2.83 billion to $3.07 billion and earnings per share of 30 to 36 cents. Consensus analyst expectations for TI's fourth quarter had called for earnings per share of 29 cents and revenue of $3.34 billion.

Semiconductor revenue is expected to decline about 10 percent from the third quarter and calculator revenue is expected to decline seasonally, TI said. Company executives said the company is also assuming further revenue decline in the first quarter.

"Our outlook for the fourth quarter is for revenue to decline substantially based on weak order trends over the past few months," Templeton said.

TI executives said they expect revenue from the custom baseband business to decline over time. TI's custom baseband business involves baseband-like ASIC chips mainly for Nokia, which has said it will diversify its supply chain and begin buying custom baseband chips from ST Microelectronics as well. According to Strauss, the Nokia-ST deal won't cut into TI's shipments until at least 2010.