Texas Instruments Inc. (TXN) said third-quarter profit fell 4.4% on lower sales, though the results topped even its own recent expectations, led by worldwide strength in its analog chip business.

The chip maker saw demand grow for the second quarter in a row, including a 20% increase in analog chips, which are used in everything from cell phones to industrial equipment.

While Asia showed the strongest demand geographically, Chief Financial Officer Kevin March said that for the first time in more than a year, growth is appearing in Europe and the Americas, signaling that industrial markets are starting to strengthen.

"Demand is beginning to broaden out a little bit," March said in an interview. The strong sequential growth in analog chips suggests to TI that it is gaining market share over its rivals, he added.

Shares rose 2.9% to $24.15 in after-hours trading as TI's results topped its guidance and the company predicted fourth-quarter earnings above Wall Street's average expectations. The stock has gained 75% from a six-year low last December, but has fallen 7% from its 52-week high last month.

TI's outlook echoes recent predictions of stronger demand by the world's largest chip maker, Intel Corp. (INTC), and eases concerns that analog revenue may take longer to recover. Currently, demand is returning more quickly in consumer segments, March said, particularly for chips used in smartphones, disk-drives and other gadgets.

Looking ahead, TI - which makes chips for scores of different industries and consumer products - expects fourth-quarter earnings of 42 cents to 50 cents on revenue between $2.78 billion and $3.02 billion. Analysts estimated earnings of 40 cents a share on revenue of $2.78 billion, according to a poll by Thomson Reuters.

TI recently has focused more on its strengths in analog and embedded processing as competition has increased in the wireless arena. TI has said that the wireless business of selling chips used to connect phones to cellular networks - known as baseband - is quickly commoditizing, and TI plans to exit that business by 2012.

In the latest quarter, wireless profits dropped 29%. March called wireless "a tale of two cities," with its business geared towards selling chips running cell phones and other mobile devices growing significantly faster than its baseband business.

In the third quarter, the chip giant reported a profit of $538 million, or 42 cents a share, down from $563 million, or 43 cents a share, a year earlier. The latest results included a $10 million restructuring charge.

Revenue dropped 15% to $2.88 billion. Declines occurred across all segments, but profits rose in the analog and embedded processing segments by 12% and 2.7%, respectively.

Despite the revenue declines, the company said that after several quarters where its customers' chip inventories had become disjointed from end-demand for electronics, those inventories are now more in line with true demand. As such, the massive swings in chip purchases seen in the last few quarters may have passed.

In September, TI helped lift expectations for the semiconductor sector's recovery by raising its forecast to earnings of 37 cents to 41 cents a share on revenue of $2.73 billion to $2.87 billion.

Gross margin rose to 51.4% from 48.5%, helped in part by a shift to higher-margin analog and embedded devices. TI is also in the process of transitioning some of its analog chip manufacturing to larger silicon wafers, which generally helps to lower costs.

"On 300-millimeter wafers, quite simply, the cost per chip will be lower," March said.

"It's not gong to be enough to move the needle for us in 2010," he said, but it's likely to increase profitability in 2011 and 2012.

Orders decreased 4%, while inventory fell 29%.

-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; Jerry.DiColo@dowjones.com

(Kathy Shwiff contributed to this report.)