Texas Instruments (NYSE:TXN) sales suffered revenue and gross margin declines due to an inventory correction in 2011 as reduced demand in the last few quarters took a toll. However we believe there are a few catalysts in 2012 that should help it recover. Its competitors include Intel (NASDAQ: INTC), Analog Devices (NASDAQ: ADI) and Linear Technology (NASDAQ: LLTC), and we currently have a $35.61 price estimate for Texas Instruments, around 10% ahead of its market price.
Sales growth declines, margins suffer
Analog chip sales still account for the majority of the revenue and increased by 7% percent to $6.4 billion. This was mainly due to additional revenue from the acquisition of National Semiconductor, which was completed for $6.5 billion. The fact that inventory correction within the overall chip industry is now over, this should bode well for Texas Instruments going forward.
Multiple growth opportunities in 2012 and beyond
For the coming year, we expect revenues to reach around $15 billion as the worst for the semiconductor industry seems over. We expect this trend to continue going forward leading into 2013. While Analog Semiconductors remains its core strength, a plethora of opportunities in the Wireless and embedded space are coming up. Texas Instruments is well in position to capitalize from its partnerships with Amazon (AMZN), Research in Motion (RIMM) and more importantly Apple (AAPL).
In a CES demo, TI showed off the next-gen OMAP5 silicon running both the Windows 8 Mango operating system and Google’s Android 4.0 Ice Cream Sandwich. OMAP5, due by 2013, will have two next-generation ARM Cortex A15 processor cores. Already its OMAP processors are powering the Amazon Kindle Fire and multiple other mobile devices. In the non-iPad tablet market, Texas Instruments (TI) commands the leadership position with 47% unit shipment share.
Based on improving conditions, we believe that the semiconductor industry is on its path to a substantial recovery by Q2 2012. Though Texas Instruments stock continues to be on an impressive run by climbing almost 8% percent in this year so far, we still maintain our price target of $36.51.