Following the second quarter 2012 earnings announcement on July
23, more than half of the analysts covering
) have made downward revisions to their estimates. Low visibility,
slow end market demand, weak order trends, European macro concerns,
and intensifying competition could be the reasons for downward
Last Quarter Synopsis
Texas Instruments delivered 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, which was up 6.9%
sequentially and toward the middle of the recently narrowed
guidance range of $3.22-$3.48 billion. The strength in the quarter
came from growth in core Analog, led by power management and growth
in HVA and Logic.
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.
Agreement of Analysts
Estimate revisions for the upcoming quarter indicate declining
sentiments, with 22 out of 27 analysts making downward revisions in
the last 30 days. Also, for fiscal 2012, 17 out of 22 analysts made
downward revisions, with only 1 analyst moving in the opposite
The Zacks Consensus Estimate was 48 cents when the company reported
its second quarter earnings. Texas Instruments projected third
quarter revenue to come in between $3.21 billion and $3.47 billion
(flat sequentially at the mid-point), well below the consensus
estimate of $3.54 billion. The earnings for the quarter are
expected at 34 cents to 42 cents per share.
The weak guidance provided by the management made the analysts to
lower their estimates which took the Zacks Consensus Estimate to 44
cents. The analysts are also of the opinion that Baseband continues
to be a headwind for the Wireless segment, which the company
expects to phase out completely by the end of the year.
The majority of analysts believe that TI's guidance reflects a
broad-based market slowdown, as well as company-specific weakness
in wireless. However, they contend that once the end-markets
improve, the company will recover soon, given its compelling
product line, new design wins and significant gross margin
However, longer term, the analysts believe that TI's analog and
embedded businesses will continue to drive growth. They also 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 RFAB and cost
synergies from the NSM acquisition will likely lead to margins and
earnings upside going forward.
Impact on Estimates
As the majority of analysts have lowered their estimates over the
past 30 days, the Zacks Consensus Estimate has fallen 5 cents to 44
cents for the upcoming quarter and 7 cents to $1.69 for fiscal
2012. In the past 90 days, the Zacks Consensus Estimate fell 6
cents for the upcoming quarter and 11 cents for fiscal 2012.
We remain optimistic about Texas Instruments' compelling product
line, the increased differentiation in its business and its
lower-cost 300mm capacity. Also, the addition of National
Semiconductor strengthens its product line-up and brings on board
We also believe that some of the new designs (analog and embedded
processing products) getting into volume production should help the
gross margin to move up toward its long-term target of 55%.
Moreover, in 2011, the company announced the closure of a couple of
6-inch facilities in Hiji, Japan and Houston, Texas, transitioning
the remaining products to more advanced facilities. Of the $215
million in charges, $112 million were taken in the fourth quarter
of 2011, with the remainder being spread out over the next seven
quarters. 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 recommendation (Zacks Rank
#3) on Texas Instruments' shares.
About Zacks Earnings Scorecard
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