Watch Texas Instruments to Move Sideways Through 2012
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I have always been impressed with Texas Instruments (NASDAQ:TXN), but like all companies it is subject to what economic conditions bring. That can be seen in the long downturn it had this year. But the company continues to make good decisions as one would expect. With this recent rally, I am wondering how far the stock will move up. What can we expect from this through the rest of the year?
Needing a New Alliance for Microsoft RT Platform
The chipmaker is looking for a new partner to develop products for Windows RT after Samsung moved away from development to focus on new Windows 8 products. The new RT system has been designed to encourage production companies to make handheld devices to help slowly erode Apple’s stronghold. So the company will continue to look for another ally. Melissa Haddad, a spokeswoman for Texas Instruments said;
“We have a long view on successes in Windows RT, and continue to be excited about our work there.”
Dell, Samsung, Lenovo and Asustek will all be making tablets using Windows RT with operating systems based upon ARM Holdings technology. I am not sure if this will slow them down or not, it depends on how fast they build a working agreement with others.
Lowering Interest on Debt is a Great Move!
TI is taking advantage of the fact that borrowers are exploring the U.S. credit market because they are attracted to highly rated companies like Texas Instruments whose debt is considered safe compared to the unstable European fiscal crisis. So TI offered $1 billion in senior debt notes. For those you who do not know what these are, they can also be referred to as senior debt that takes priority over other unsecured or otherwise more "junior" debt owed by the issuer. Senior debt has greater seniority in the issuer's capital structure than subordinated debt. In the event the issuer goes bankrupt, senior debt theoretically must be repaid before other creditors receive any payment. This is a smart borrowing move by the company and should help it keep interest on debt payments lower.
2Q2012 not an Issue Future Projections Are the issue
As almost if by script, TI acknowledged the European headwinds identified by other tech heavyweights as well as a slight slowdown in China. The whole problem Texas Instruments and others are running into is not so much a stop in global growth, but very slow growth. Its second-quarter profit topped both its own and Wall Street's expectations. Investors, however, focused on the company's weak guidance. TI forecast earnings of between 34 and 42 cents a share on sales of between $3.21 billion and $3.47 billion, short of the consensus estimate analysts had predicted for the company’s third quarter. It is not the first chip maker to do this either, it’s becoming the norm of the industry.
Weak Orders across the Industry
Texas instrument’s orders started to weaken in June and its backlog for shipments due in September is also lighter than expected. Customers are rightly cautious to place new orders with the unstable global environment. Companies have low stockpiles of chips but are still remaining cautious. But it is not just Texas Instruments alone! Qualcomm (NASDAQ: QCOM), in April of this year, lowered its financial target for the third quarter of the year. Its expectations fell short of some analysts’ estimates. It also had to increase spending. Operating expenses surged 41 percent to $3.43 billion in the second quarter, outpacing sales gains, as the company spent more on production to meet demand for new types of advanced chips. Officials at Intel (NASDAQ: INTL) lowered their outlook for the second half of the year. The consumer PC market, particularly in established markets like the United States and Western Europe, has been slowing for several quarters many buyers opting for tablets and smartphones instead or not buying new systems given the economic woes in those countries.
Texas Instruments is doing all it can to make wise decisions in an uninviting business environment. I think the present rally is a short lived one and the realization of downsizing expectations will keep the stock in a low channel through the rest of the year. As to what 2013 brings forth, I believe this will be the key to its future growth.
johnmylant has no positions in the stocks mentioned above. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
