Texas Instruments reported net sales of $4.64 billion for Q3 2021, up from $3.82 billion in Q3 2020. TI was able to control COGS and operating expenses, which boosted operating margins to 49.5% from 42.2%. Combined with a lower effective tax rate, net profit jumped from $1.35 billion to $1.95 billion over this period, driving EPS up from $1.47 to $2.10.
Below are key drivers of Texas Instruments' value that present opportunities for upside or downside to the current Trefis price estimate for Texas Instruments:
Texas Instruments (TI) designs and manufactures semiconductors to sell to electronics designers and manufacturers all over the world. TI has two main reporting segments, which are mainly established along its major product categories:
Others also include royalties received for patented technology that is licensed to other electronics companies and revenue from transitional supply agreements entered into in connection with acquisitions and divestitures.
The Analog segment continues to be the most valuable segment for TI, accounting for about 75% of its revenues in 2020. TI is the market leader in the analog semiconductor space.
After its planned exit from the mobile market in 2014, TI is now focused on leveraging its OMAP processors and wireless connectivity solutions in a broader set of embedded applications. With new product launches, it continues to expand its embedded portfolio every quarter. TI believes that the embedded markets currently valued at $19 billion offer greater potential for sustainable growth compared to mobile devices. In the past few years, TI has expanded its product portfolio by almost 20%.
Texas Instruments has been steadily ramping up its production of 300 mm wafers for its analog processors, as it looks to cut costs and boost production efficiency. TI can put 2.3x more chips on a larger 300 mm wafer as compared to a 200 mm wafer and notes that output from 300 mm fab is 40% less expensive than chips produced using the 200 mm process. TI has two fabs, called RFAB and DMO56, which produce 300mm wafers and the company will build out another 300 mm fab in Richardson, Texas. As of 2020, about 75% of the company's analog production came from 300 mm chips and we expect that margins could rise as this mix goes up.
TI's analog business could benefit from emerging technology trends such as 5G and connected automobiles. The ongoing commercial deployment of 5G networks in western markets could drive demand for TI's Power ICs and related products. The company could also benefit from increasing semiconductor content in automobiles.
In-house wafer fabrication is becoming increasingly necessary to maintain control over process variables and control production at will which is not always available from foundry service vendors with generic process technology. Having in-house facilities helps to cut down operating costs as well as production costs when there is increased demand. However, the operating costs might increase in periods of lower demand.