Texas Instruments Reports Earnings
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Texas Instruments Inc (NASDAQ: TXN) reported its fourth-quarter earnings at market close today and managed to beat Wall Street’s revenue expectations. The Street expected revenue of $3.25 billion, but TI managed to bring in $3.42 billion. Fourth-quarter profit came in at the upper end of the range at $0.25 per share. Wall Street had previously expected more, but on December 8th TI warned that chip demand was weak and expectations were revised downward. The company said that orders picked up almost immediately after their warning and remained strong through January until the start of Chinese New Year. This is a positive sign for the chip industry, which has underperformed since mid-2011 due to economic concerns. It may indicate a bottom for the chip manufacturers.
Operating profit declined from the previous year’s quarter primarily due to acquisition charges, lower gross profit and restructuring charges. Results are also less directly comparable due to the sale of a product line in the previous year’s quarter.
The company closed its acquisition of National Semiconductor on September 23rd and the related charges were included in this quarter. The acquisition of National Semiconductor added an estimated 12,000 products to TI’s product line of roughly 30,000 individual products and is expected to increase its share of the analog semiconductor market. In 2010 the analog semiconductor market generated an estimated $42 billion in revenue, with TI and National Semiconductor controlling 14% and 3% respectively. National Semi has been rolled into TI’s Analog business and that division now accounts for more than 50% of the company’s revenue. Analog chips are generally low priced, but can be produced very profitably and are used in a wide variety of products including cell towers, Wi-Fi networks, and various medical applications.
The company also announced that it was shutting two factories in the next 18 months, one in Hiji, Japan and another in Houston, Texas. The company expects to incur a total of $215 million in related charges, $112 million of which were incurred this quarter. The remaining charges will be incurred over the next seven quarters. The company is shifting the production to more advanced factories and expects to save $100 million a year once the closures are completed.
TI operates in a market that is fragmented and essentially commoditized, but should perform well. The stock trades with a healthy 2.05% dividend yield and at a PE similar in line with its peers. The company did pay a hefty premium for National Semiconductor and recently incurred some long-term debt, but it should not adversely affect the stock. Additionally, the cost savings from the factory closures should help the company’s bottom line. I’m bullish on Texas Instruments long-term assuming there isn’t a significant economic slowdown going forward.
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