- With better than expected demand, TI narrowed its
revenue target from the earlier estimate of $2.69 - $2.91
billion to $2.80 - $2.91 billion
- Strong performance in the industrial segment is driving
demand for TI's analog products despite persisting weakness in
the computing and communication sector
- TI generates 17% of its business from the industrial
segment and analog and embedded processors are primary
growth engines for TI
- Despite better than expected wireless performance due to
increasing demand for handsets and tablets, revenue will
decline as this unit is phased out
- $450 million annualized saving incurred from
restructuring the wireless business will offset the negative
impact of declining revenue
Global macro headwinds and weak consumer spending impacted Texas
) earning in 2012, with revenues declining by 7% compared to 2011.
TI's decision to exit the wireless market in September 2012,
combined with low inventory level at OEMs and distribution channels
led to a 12% sequential and 13% annual decrease in its Q4 2012
earnings. With a 16% sequential decline in orders last quarter, it
anticipated lower revenues in Q1 2013. However, on account of
better than expected demand so far this quarter, TI narrowed its
revenue target last week, from the earlier estimate of $2.69 -
$2.91 billion to $2.80 - $2.91 billion.
TI believes that its orders bottomed out in Q4 2012. It is
seeing a stronger demand environment in January and February and
claims to be building a backlog for the first time in several
quarters. While weakness in the computing and communication sector
continue to suppress demand, the strong performance in the
industrial segment is driving demand for TI's products.
Though TI's wireless revenues will continue declining this year,
the saving incurred from restructuring the business will offset the
negative impact on TI's business. Additionally, we believe that
with increasing strength in its core business of analog
semiconductors and shifting focus on embedded processors, the
company can witness a revival in its business 2013 onward.
Our price estimate of $35 for Texas Instruments
is in line with the current market price.
our complete analysis of Texas Instruments here
Improving Demand For Core Products - Analog &
Generating strong cash flow and investment returns, the analog
and embedded processor divisions remain the focus areas for TI. In
2012, revenues from the analog division increased by 10%, and
though the embedded processing revenue declined by 7%, both
division made healthy profits. Despite anticipating lower revenue
in Q1 2013, TI claims that both divisions are performing better
than expected. We think the decline is more on account of soft
macro conditions and believe that the two divisions are the
primary growth engines for TI.
Higher revenue from National Semiconductors and growth
in high volume analog and logic, as well as power management will
drive demand for TI's analog products. TI is benefiting from
the strong demand in the industrial sector which contributes
approximately 17% to its business.
TI witnessed a strengthening product portfolio last quarter as
it earned a higher proportion of its revenue from analog and
embedded processing products. The two divisions together
contributed around 70% to TI's 2012 revenue, compared to just 47%
five years ago.
With new product launches, TI continues to expand its
analog and embedded portfolio every quarter. While the excess
manufacturing capacity gathered over the years might weigh on its
short term growth, we feel the same will help TI further increase
its market share in the analog division in the future.
Better Than Expected Wireless Demand, Though Revenue Will
Phase Out This Year
In September last year, TI declared its intention to stop
focusing on smartphones and tablets and to instead expand its OMAP
footprint in embedded applications, which it
believes offers greater potential for sustainable growth
compared to mobile devices. TI intends to leverage its
wireless connectivity solutions in a broader set of embedded
applications - automobile, industrial and other non-consumer
markets - which require fewer resources and less investment.
It estimates its restructuring initiatives to translate into
annualized savings of approximately $450 million by the end of
Though TI's wireless business is witnessing better than
anticipated demand this quarter backed by increasing handsets and
tablets shipments, the company expects revenue from the division to
decline sharply this quarter and phase out by the end of 2013. TI
will transfer revenue from the remaining wireless business to its
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