Texas Instruments Inc.TXN

Morningstar Rating

Stock Research and Analysis

by Brian Colello, CPA

Texas Instruments is the world's largest analog chipmaker and a key supplier to the handset market. Although the firm is shutting down a large business line, which will weigh on revenue growth, we believe it will ultimately emerge as a stronger player. Read more

Bulls Say

TI has a leading market share position in several chip segments, such as analog, DSPs and applications processors.

TI's competitive advantage comes from the firm's giant sales staff, which allows the firm to cross-sell chips to existing customers.

TI's strong position in application processors should bode well as customers shift from basic handsets toward smartphones that offer higher-end software and applications.

The company has an excellent balance sheet, which should allow it to return profits to investors by way of dividends and buybacks, as well as make bolt-on acquisitions to expand its already-extensive product portfolio. Read more

Bears Say

Nokia's decision to multisource baseband chips was a damaging blow to TI's baseband business. Perhaps in response, TI has decided to wind down this business segment.

As smartphones gain adoption, TI should see increased competition in the application processor market, particularly from Qualcomm. Intel also has its eyes on the wireless market with its processor chips.

The winding down of the baseband segment will shrink the size of the company in the near term and limit total revenue growth.

TI faces the risk that, by alienating baseband customers, it will also see lower sales of other types of chips, such as analog.

The analog chip market is fragmented, and products have long product lives. TI might be unable to leverage its scale to its advantage in gaining market share away from other analog chipmakers. Read more

Strategy

TI is focused on maintaining its leading position in the analog chip market. The company anticipates growth in analog and DSP chip sales by leveraging its large salesforce. Meanwhile, TI has made the Read more

Management

A 30-year veteran at TI, Richard Templeton has been CEO since 2004 and gained the chairman role in April 2008 after longtime chairman Tom Engibous stepped down. Although we would prefer to see a separation of the chairman and CEO roles, we are pleased Read more

Profile

Dallas-based Texas Instruments generates 96% of revenue from semiconductors and 4% from its well-known calculators. TI is the world's largest maker of analog chips, which Read more

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