Even as some analysts said that TI's shortfall related to inventory management at Nokia, fears that it meant the weakening global economy is biting into consumers' appetite for pricier phones sent Nokia shares down almost 5 percent.

"In our view the replacement cycle will slow due to the economy and consumers will increasingly go for cheaper phones over more pricier models," said Carnegie analyst Janne Rantanen.

Texas Instruments said the warning came after one of its key clients cut plans for building third-generation advanced phones in the preceding week or so.

Analysts said that the 3G customer, which TI did not name, was likely to be Nokia, its biggest client for mobile chips. A Nokia spokeswoman declined to comment.

Citing weak wireless demand, especially for third-generation high-end chips, TI cut its January-to-March quarter profit forecast and sales target ranges on Monday.

Brokerage Cazenove and Cheuvreux cut their recommendations on Nokia stock on the news.

Cazenove cut Nokia stock to "in-line" on the news, saying weaker demand for high-end 3G phones was likely to hurt the Finnish firm's average selling price and earnings per share.

"We are usually careful about comments from Nokia's supply chain, but the scale of the downgrade at Texas Instruments and the precision of the comments make us conclude that demand for Nokia's 3G/high-end phones has decreased in the second half of the quarter," Cazenove analysts said in a note.

TI shares were down almost 5 percent at $28.26 on the New York Stock Exchange and Nokia's U.S. shares were down 4.6 percent, or $1.50, at $31.39, also on NYSE. Shares in Qualcomm Inc, TI's bigger wireless chip rival, were down 73 cents, or 1.9 percent, at $38.44.

But some analysts said the fears were overdone as they viewed TI's cut in sales estimates as the result of Nokia over-ordering chips for the first quarter due to component shortages in the previous quarter rather than weak demand.

"We continue to expect Nokia ships 20.4 million 3G handsets in the first quarter, down only slightly from an estimated 21.4 million" in the fourth quarter, JPMorgan analyst Ehud Gelblum said in a note to clients.

Another analyst, Tim Long of Bank of America, said that the shortfall was likely an inventory issue rather than the result of weak end-market demand at Nokia.

"Nokia's inventory was higher than usual at year end due to overall sales growth, stronger sales in December and Nokia making up for prior production under-runs due to component shortages," Long said in a note to clients.

Shares in Ericsson also dropped, falling as much as 1.9 percent to 11.92 crowns in Stockholm.

"There is a fundamental reason to sell Ericsson on this as it may indicate less end-user demand for 3G in Europe, but much more so to sell Nokia as they are the reason for the TI downgrade," said analyst Per Lindtorp at ABN AMRO.

Shares in Texas's rival chip makers Infineon and STMicroelectronics also fell Tuesday before recovering later in the day.

"In our view, STM stands to be the most impacted in Europe as it has focused on 3G ... with little exposure to the low end," Credit Suisse analysts said in a note to clients. (Additional reporting by Sven Nordenstam in Stockholm and Sinead Carew in New York; Editing by Brian Moss and Louise Ireland)

By: DocMemory
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