Texas Instruments Inc.
) is scheduled to announce its third-quarter fiscal 2012 results
on October 22, 2012, and we notice upward as well as downward
movements in analyst estimates.
Texas Instrumentsdelivered a decent second quarter with pro
forma earnings per share of 46 cents, exceeding the Zacks
Consensus Estimate by 7 cents.
The company reported revenue of $3.34 billion, up 6.9%
sequentially and toward the middle of the revised guidance range
of $3.22-$3.48 billion. The strength in the quarter came from
growth in core analog, led by power management and HVAL.
Gross margin was 49.5%, down 22 basis points (bps)
sequentially, impacted by lower insurance proceeds. It also
declined 199 bps from the year-ago quarter, mainly on account of
low utilization rates as well as lower revenue.
Recently, the company narrowed its revenue and earnings
expectations for the third quarter of 2012.
The chipmaker now expects sales of $3.27-$3.41 billion versus
its previous guidance of $3.21-$3.47 billion. The earnings
outlook range has also been raised to 38-42 cents per share from
the previous guidance of 34-42 cents.
(Detailed earnings results can be viewed in the blog
Guidance Pulls Down TI Shares
Agreement of Analysts
Over the last 30 days, only 1 out of the 30 analysts providing
estimates made an upward revision, while none made downward
revisions for the third quarter. For fiscal 2012, 8 out of 21
analysts made downward revisions, with none of the estimates
moving in the opposite direction.
Recently, management revised its revenue and earnings guidance
for the third quarter but did not reduce the midpoint of the
guidance, allaying investor concerns. Analysts, by and large,
expect results to come in line with the revised guidance.
The company stated that insurance receipts of $60 million
related to the 2011 earthquake in Japan and various restructuring
activities will likely help earnings in the upcoming quarter.
However, a few analysts expect revenue and earnings to come in
below the guidance range. They continue to believe that the
ongoing macro weakness and strong competition from tablets and
smartphones will likely hit TI's computing market. The analysts
also contend that a slowdown in Europeand mature markets could be
an added concern.
Recent reports from Israeli newspaper Calcalist stated that
Amazon (AMZN) was in advanced talks to buy TI's OMAP business.
The majority of analysts see this as a clear positive for TI as
it would remove a major investor overhang. They believe that the
sale would bring in a lot of cash, which will allow management to
reduce its huge debt balance, currently estimated to be $4.2
Longer term, majority of the analysts contend that TI's analog
and embedded businesses will continue to drive growth. They see
potential margin expansion opportunities from the company's cost
cutting initiatives along with growth in higher-margin
businesses. Additionally, the analysts contend that 300mm RFABand
cost synergies from the NSMacquisition will likely lead to
margins and earnings upside going forward.
Magnitude of Estimate Revisions
In the past 30 days, the Zacks Consensus Estimate remained
unchanged at 45 cents for the third quarter, but was down 2
cents to $1.66 for fiscal 2012.
Over the 90-day period, the Zacks Consensus Estimate was down
by 3 cents for the third quarter and by 8 cents for fiscal
Though we remain optimistic about Texas Instruments'
compelling product line, the increased differentiation in its
business and its lower-cost 300mm capacity, we expect the company
to report in-line third quarter results due to a weak PC market
worldwide and a challenging global economy.
Though the wireless segment has been struggling for a while,
TI recently announced that it was seeing some improvement owing
to new tablet launches that use the company's ARM-based OMAP
processors. Also, its new analog and embedded processing designs
getting into volume production should help the gross margin to
move up toward its long-term target of 55%.
On the cost front, we believe the company has taken a number
of steps in 2011 by closing a couple of 6-inch facilities in
Hiji, Japanand Houston, Texasand transitioning the remaining
products to more advanced facilities. The restructuring is
expected to generate annual savings of $100 million a year.
However, we remain concerned about the macro weakness, Texas
Instruments' larger exposure to wireless communications
infrastructure, and National's huge debt balance, which has
negatively impacted the balance sheet.
Increasing competition from
Maxim Integrated Products
) is also a matter of concern.
We, therefore, have a short-term Hold rating (Zacks #3 Rank)
on Texas Instruments shares.
ANALOG DEVICES (ADI): Free Stock Analysis
BROADCOM CORP-A (BRCM): Free Stock Analysis
INTEL CORP (INTC): Free Stock Analysis Report
MAXIM INTG PDTS (MXIM): Free Stock Analysis
TEXAS INSTRS (TXN): Free Stock Analysis
To read this article on Zacks.com click here.