Texas Instruments (TXN) ,or "TI," plans to cut 1,700 jobs worldwide in
order to reduce operational costs. This layoff is an attempt by the
company to optimize its cost structure and concentrate on its
wireless business for sustained growth.
Along with other unspecified operational changes, the company
will incur total charges of approximately $325 million in the
fourth quarter. These layoffs are expected to generate total
annualized cost savings of around $450 million by the end of
2013.
Management is looking to restructure its businesses by focusing
on its OMAP processors and wireless connectivity on embedded
solutions like automobiles, industrial and other non-consumer
markets, which have a long life cycle.
Though the company has made chips for devices such as Motorola
Droid and Amazon's ( AMZN )
Kindle Fire tablet, Qualcomm ( QCOM )
and Samsung are far ahead in the race. The increasing competition
from players such as these, as well as in-house development efforts
of large customers has led TI to turn its focus away from the
segment.
To continue its strong global growth momentum and increase its
market share, TI needs to refine its cost structure. We believe the
restructuring action will bring in stability and steady earnings
growth in the near future. The longer-cycle businesses will also
lend stability to its revenues and the more favorable competitive
climate could help it generate stronger margins
Texas Instruments is one of the largest suppliers of analog and
digital signal processing (DSP) integrated circuits. The company's
compelling product line-up, increasing differentiation in its
business, restructuring activities and lower-cost 300mm capacity
should drive earnings in the longer term.
The restructuring announcement came a few days after TI reported
decent third-quarter 2012 earnings. The company's earnings were up
27.2% sequentially and exceeded the Zacks Consensus Estimate by 17
cents or 37.8%.
Currently, Texas Instruments has a Zacks #3 Rank, which
translates into a short-term Hold rating.
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