TI’s Future Growth Likely To Get A Boost From An Increasing Focus On Microcontrollers

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TXN: Texas Instruments logo
TXN
Texas Instruments

Since  its exit from the smartphone and tablet market in September 2012, semiconductor manufacturer Texas Instruments (NASDAQ:TXN) has transitioned its operations to become a pure analog and embedded processing company. With a market share of 17%, TI is one of the leading player in the analog semiconductor market, and derives over 60% of its revenue from this division. On the other hand, TI derives only 21% of its revenue from the embedded division and accounts for 13% of the global embedded market.

TI’s embedded division includes processors, microcontrollers and connectivity products, which account for 50%, 45% and 5% of its embedded revenue, respectively. While it has a leading market share in processors, the company is still relatively under-represented (6% market share) in the microcontroller space. Since the last 3-4 years, TI has increased its focus on microcontrollers.

In this article, we discuss why expanding its presence in the microcontroller space will augur well for TI’s long-term growth.

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Our price estimate of $42 for TI is at an approximate 10% discount to the current market price.

Global Microcontroller Market Size

Microcontrollers are general purpose, low-cost integrated circuits which are used in a wide range of applications. According to Grand View Research, the global microcontroller market is expected to reach  $27 billion by 2020, driven by growing demand from industries, such as automotive and consumer electronics, and the advent of the Internet of Things (IoT) coupled with declining microcontroller prices. In unit terms, the global microcontroller market is estimated to grow at a CAGR of 12.3% through 2020, from 17 billion units in 2013 to 39 billion units in 2020.The automotive and consumer electronics segments accounted for 30% and 20% of the microcontroller market in 2013, respectively, and the rising proliferation of these devices and technological advancement are expected to give impetus to the market over the next few years as well. [1]

An Expanding Product Portfolio Will Increase TI’s Footprint In Micocontrollers

Over the last few years, TI has expended its investment to broaden its microcontrollers portfolio and increase its application support for the same, which has helped the company increase its market share over the past several years. As already mentioned above, TI accounts for 6% of the global microcontroller market. The company now has a wider product portfolio with microcontrollers ranging from$0.25 up to a couple of dollars using all different combinations of its connectivity products.

In Q2 2014 (ended June), TI marked its seventh consecutive quarter of year-on-year growth and a big part of that was driven by growth in microcontrollers. The company intends to continue investing in this area, expanding its product offering of controllers and increasing the number of dedicated field application engineers positions to better serve its customers. Such actions should help it  to grow its market share in the future.

In its last earnings call, TI mentioned that some industry analysts believe it holds the number six position in the microcontroller market, and thus there is a lot of scope in further expanding its presence in this domain. Some of the leading companies that TI competes with are Microchip, Freescale, ST Micro, Atmel and others.

See our complete analysis of Texas Instruments here

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Notes:
  1. Grand View Research Report []