Texas Instruments (NYSE:TXN) is a global semiconductor manufacturer that makes custom and standard semiconductor products. It was the world’s fourth largest semiconductor company in 2010 behind Toshiba, Samsung Electronics and Intel respectively. Texas Instruments competes with other semiconductor manufacturers like Qualcomm (NASDAQ:QCOM), Broadcom (NASDAQ:BRCM), STMicroelectronics and Renesas Electronics Corporation.
Launch of Coverage on Texas Instruments; $35.70 Price Estimate
We recently launched coverage on Texas Instruments with an $35.70 price estimate for the company’s stock. Our estimate is around 40% ahead of the market price.
We have broken down our analysis of Texas Instruments into four main business segments:
Global Semiconductor Industry
The global semiconductor industry growth is linked to the growth in global GDP. IHS iSuppli forecasts semiconductor revenues to grow to $326 billion in 2011 up from $304 billion in 2010.
The highest growth in the semiconductor industry will come from the wireless and mobile segment driven by demand from handheld devices and mobile computing. Texas Instruments operates in three broad segments in the global semiconductor industry including analog, microcontrollers, digital signal processors and application processors as well as wireless connectivity solutions.
The analog semiconductor industry has a slower growth rate than the digital semiconductor industry due to the longer life-cycle of analog products. The analog semiconductor industry netted $42 bn in revenue in 2010. The demand for analog semiconductors is generated from computing, automobile and industrial sectors.
Microcontrollers and digital signal processors are used in industrial and automobile applications. The demand comes mainly from consumer and industrial electronic applications. Digital signal processors are used in products such as portable media players, video surveillance systems, cellular phones, digital cameras etc. The microcontroller industry had revenues of $18bn in 2010, up ~30% from $14bn in 2010.
Wireless communication devices are used in cellular phones and consumer electronic devices. The wireless communication market in 2010 was $24bn.
Texas Instruments’ Niche in Analog Semiconductors
Texas Instruments’ Analog division is its most valuable division contributing around 72% of the overall stock value of the company. Globally, Texas Instruments leads with a market share of 18% in analog semiconductors. It has maintained its leading position due to its technology advantage as well as its large sales and field applications staff.
In April 2010, Texas Instruments(TI) announced that it would acquire National Semiconductors (NYSE:NSM) for around $6.5 billion. National Semiconductors is an analog semiconductor manufacturer and would merge with Texas’ analog division. TI was the largest analog semiconductor company with 14% market share in 2010 while National was the 7th largest analog company with 4% market share. National’s strength is power management, amplifiers, and interface chips which nicely fits into complement TI’s existing portfolio of high-performance analog products.
Though, TI and National Semi have almost similar line of products, their end markets are different. While National’s high voltage power management products that are well suited to industrial power applications, TI’s power management product offerings are oriented towards portable devices. National has low speed, high resolution data converters while TI has high speed and high resolution. This means, TI would get access to newer markets for their products.
TI acquired a purely analog wafer development facility in Richardson, Texas (RFAB) in 2009. This fabrication unit allows TI to manufacture technically superior products at a lower cost. Combined, these two factors would help TI gain further market share in the analog semiconductor market.
