Analyzing Texas Instruments (TXN)

By Douglas A. McIntyre Published Mar 13, 2:24AM EDT

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By Yaser Anwar, CSC of Equity Investment Ideas

Management at TXN provided a some what encouraging Q1 mid-quarter update, narrowing revenue and EPS around the mid-point of the prior ranges (Q earnings guidance from $0.28-$0.34 to $0.29-$0.33).

Given that revenue for March is expected to decline 9% QoQ (Q1 revenue guidance from $3.01-$3.28B to $3.07-$3.22B), business trends so far aren’t showing any signs of weakness and growth is expected to resume in Q2.

According to management the inventory correction is reversing and even with the order trends seen so far in 1st Q (TXN internal inventory peaked in the month of November and has continued to come down during Q1) the risks with investing in TXN’s sector are not favorable, thanks to weakening demand for telecommunications equipment, wireless handsets, a slowdown in telecom spending, alongside a slowdown in consumer spending, all of which would negatively impact TXN’s business.

Management said that lead times have been stable, while pricing in general has been stable as well although in the commodity areas ASP was up modestly in Q1 due to improving mix. TXN expects inventory at its distributors to come down modestly during Q1 as sell-through is currently at a higher rate than its sell-in to the channel. So far management is comfortable with its strategy to build die bank of HPA and catalog DSP chips ahead of growth that it believes will resume in Q2.

TXN believes that dual sourcing at OEM’s such as NOK and EMP will likely lead to some share loss in baseband, however management believes it can gain dollar content by integrating RF and baseband functionality through its LoCosto and ECosto platforms, citing its recent ECosto design win with MOT.

Management expects its analog distributors to further reduce their inventory on hand during Q1. That said, TXN remains comfortable with its earlier decision to increase factory loading during the March quarter, which implies that analog bookings are improving and order backlog will be higher in Q2. Given the broad based improvement in analog order rates, low channel inventory, and the increased likelihood that lead times will extend going forward.

A couple of more risks TXN would face are: a) Inventory overhangs in the channel affecting pricing, b) Increased costs and delays in ramping up 3G, c) Potential market share losses by key TXN customers (NOK, EMP) in wireless.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.