Scenarios That Can Change Our Valuation For Texas Instruments

by Trefis Team
-18.71%
Downside
97.74
Market
79.46
Trefis
TXN
Texas Instruments
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Below are key drivers of Texas Instruments’ value that present opportunities for upside or downside to the current Trefis price estimate for Texas Instruments:

TI’s Analog semiconductors market share: We forecast TI’s market share in analog semiconductors to increase from 17.6% in 2015 to approximately 18.3% by the end of our forecast period. However, there are a number of factors which can cause this to change. The technology industry is highly competitive and requires high R&D investment. Moreover, there is rising competition in the industry as companies are increasingly outsourcing manufacturing and hence lowering capital costs. Thus, if TI beats its competitors by developing superior technology, it could result in a higher market share for the company. There would be a 15% upside in our price estimate if the market share increases to 25% by the end of the forecast period. On the contrary, if TI fails to develop superior products and its market share remains around the current level, there will be a marginal downside to our price estimate.

Analog segment gross profit margin: We believe that TI can manage to increase its Analog products gross margins from 60% currently to 68% by the end of our forecast period, as 300mm production can help drive down the production costs for the company. TI pointed out in its presentation  about its capital management strategy that it can achieve 68% gross margins for analog chips that were manufactured on a 300mm wafer. 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 revenues. Furthermore, 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.

However, it must be noted that there is higher pricing pressure in the semiconductor industry due to increasing competition. Because TI owns much of its manufacturing capacity, a significant portion of its costs is fixed and does not decline with reductions in customer demand or utilization of manufacturing capacity, and can adversely affect profit margins. There could be a more than 10% downside to our current price estimate if the gross margins remained at the current levels till the end of our forecast period.

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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