Is Texas Instruments’ Revenue Growth From Communication Equipment Back On Track?

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Texas Instruments

Leading analog chipset maker, Texas Instruments (NYSE:TXN) saw its revenue from communication equipment, which contributed to 13% of its revenues in 2015, decline by around 20% in 2015. The company attributed this decline to a 30% decline in the sales of wireless infrastructure. In the table below we can see TI’s wide range of offering for the telecom and wireless infrastructure segment, which illustrates its dependence on the wireless infrastructure companies.

TI’s Wireless Infrastructure Offering:

Wireless_Insfrastructure

TI’s Telecom Infrastructure Offering:

Telecom_Infrastructure

Source: Texas Instruments’ Webpage

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According to a report, the total U.S. carrier spending averaged around $31.5 billion each year between 2011-2013. However, since 2014 carrier spending has declined and have ranged between just $27 billion and $29 billion. As wireless pricing and average revenue per user for telecom companies have come under pressure, a majority of them have been cutting their infrastructure spending. It is worth noting that AT&T’s capex as a percentage of EBITDA declined from 53.5% in 2014 to 37.2% in 2015.

However, we believe that TI’s revenue decline from this segment was cyclical and the growth is picking up as there have been signs in improvement. This was evident from TI’s recent earnings call, where the company stated that it saw strong demand for its processors in the embedded processing segment.  This was led by a recovery in communication infrastructure spending. Furthermore, the company is is bound to benefit when major wireless technology changes happen. As data consumption increases and new wireless technologies such as 5G and small-cells are deployed, wireless infrastructure companies will need to ramp up their network infrastructure in a bid to stay ahead of their competitors. This will directly benefit TI, as the demand for its communication segment would then intensify.

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