Monday, January 24, 2011

Texas Instruments (NYSE: TXN): Q4 Earnings Preview

Texas Instruments Inc. (NYSE: TXN), the world's second largest maker of mobile phone chips, is scheduled to release its fourth-quarter financial results after the closing bell on Monday, January 24, 2011. Analysts, on average, expect the company to report earnings of 63 cents per share on revenue of $3.50 billion. In the year ago quarter, the company reported earnings of 52 cents per share on revenue of $3.00 billion.

Texas Instruments Incorporated engages in the design and sale of semiconductors to electronics designers and manufacturers worldwide. The company operates in four segments: Analog, Embedded Processing, Wireless and Other. The company has successfully realigned its business to reduce focus on the commoditized, low-margin market for wireless chips. Texas Instruments expects Analog and Embedded Processing to be its primary growth engines in the years ahead.

In the preceding third quarter, the Dallas, Texas-based company's net income was $859 million, or 71 cents a share, compared to $538 million, or 42 cents a share, in the year-ago quarter. Revenue rose to $3.7 billion from $2.9 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 69 cents per share on revenue of $3.69 billion. Looking ahead to the fourth quarter of 2010, the company expects revenue of $3.36 billion to $3.64 billion and earnings of $0.59 to 0.67 per share.

Early in December, the company narrowed its fourth-quarter earnings and revenue forecast ranges. Texas Instruments said it expects to earn between 61 cents and 65 cents a share on revenue of $3.43 billion to $3.57 billion in the fourth quarter. In October, TI had forecast profit in a range of 59 cents to 67 cents a share on $3.36 billion to $3.64 billion.

The company is generally viewed as strong long-term player in the chip market, especially given its robust position in the analog and embedded processing markets. The company continued to invest during this recession, making smart acquisitions, expanding the sales force, and expanding manufacturing capability. In addition, the company has grown its dividend over the last several years and has repurchased shares in every quarter of 2009. 

The company is focusing on tried-and-true profitable tech segments that have long product lifecycles and reasonable economic moats, while also keeping itself as a key player in the growing smartphone market. Texas Instruments is prudently investing its R&D dollars into several high-margin, high-growth areas of the analog, embedded processing and wireless markets, which has led to solid order growth in the recent past. The phasing out of the low-margin baseband business also remains on track and should generate some margin expansion every quarter. This, along with a stronger mix and cost control is resulting in great earnings momentum and solid cash flow.  Texas Instruments' compelling product line, the increased differentiation in its business, lower-cost 300mm capacity and possibly aggressive pricing strategy (in the next few quarters) should continue to drive earnings momentum.

In November, the SIA had forecast total 2010 chip sales of $300.5 billion, a rise of 32.8 percent over 2009. Looking ahead, the industry group predicts more moderate gains, with sales rising 6 percent in 2011 to $318.7 billion and 3.4 percent in 2012 to $329.7 billion.

In terms of stock performance, TXN shares have gained nearly 50 percent over the past year.  

Full Disclosure: None.
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