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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