Can We Expect More Margin Improvements For Texas Instruments Going Ahead?

-4.45%
Downside
174
Market
166
Trefis
TXN: Texas Instruments logo
TXN
Texas Instruments

Texas Instruments’ (NYSE:TXN) effective manufacturing strategy has helped it improve its gross margins by approximately 9 percentage points in the last five years. At 61.2%, the company’s gross margins were at its highest levels in Q2’16. Shifting to 300mm analog production has helped TI reduce its chip costs by around 40%. This is due to the fact that TI can put 2.3 times more chips on a larger 300 mm wafer as compared to a 200 mm wafer.

We believe that TI should continue to benefit from an efficient manufacturing strategy going ahead, which includes shifting to a 300mm analog production and purchasing assets ahead of demand. In 2015, the company had about $2 billion of its Analog revenues coming in from the 300mm analog production, which translates to only 25% of its overall analog segment revenue. The proportion of TI’s revenues from 300mm production is likely to go up in the coming quarters, driving the margins higher for the company. To increase its 300mm production, the company is likely to ramp up its production from RFAB and DMOS6 facilities, which cater to the 300mm production, and were largely under-utilized until 2015. TI’s RFAB and DMOS6 production facilities were operating at 45% and 25% of their full production capacity, respectively, in 2015. gross_margins_Txn

Notes:

1) If you like or have any questions about our analysis, please write us back at content@trefis.com. We hope such lean communication sparks thinking, and encourages you to ask questions. The purpose of these analyses is to help you focus only on a few important things. 
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Texas Instruments

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