Leading analog semiconductor maker, Texas Instruments ( NYSE:TXN), will be reporting its Q1 2017 earnings on April 25th. The company closed 2016 on a strong note driven by strong demand in the automotive and industrial segments. Additionally, gross margin touched an all time high of 62.5% in Q4 2016 on the back of an increasing proportion of analog production on 300mm fabrication facilities. We expect the growth momentum to sustain in 2017, as well.
TI could witness an increased demand for its products if the infrastructure spending in the U.S. were to increase under the Trump administration, which has been quite vocal about its seriousness to boost infrastructure spending. A fiscal stimulus by the government to boost infrastructure is likely to drive growth in the industrial, automotive, and telecommunications markets. This, in turn, should result in an increased capex in these sectors. Given that TI derives revenues from each of these segments, an uptick in infrastructure spending will be beneficial for the company. Additionally, the possibility of a further increase in margins cannot be ruled out, as TI shifts an increasing proportion of analog production to the 300mm production facilities.
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Margins Could Improve Further
TI’s effective manufacturing strategy has helped it increase its gross margin from 49.7% in 2012 to 61.6% in 2016. At 62.5%, the company’s gross margins were at its highest levels in Q4’16. TI can continue to benefit from an efficient manufacturing strategy for the next couple of years depending on the pace at which it shifts its production to 300mm analog capacity, as manufacturing analog ICs in 300mm fabs (i.e., fabrication facilities) is 40% cheaper for the company as compared to production on 200mm wafers. To increase its 300mm production, TI is likely to ramp up its production from its RFAB and DMOS6 facilities, which have 300mm production equipment and were largely under-utilized until 2016. Thus, there is still room for margins to increase in the next couple of years.