TI Retains Its Growth Momentum In Q1’17: Automotive & Industrial Remain Key Markets

by Trefis Team
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Texas Instruments (NYSE:TXN) started fiscal 2017 on a strong note, with the solid growth momentum continuing in Q1 2017. While the company’s revenue came in at the high end of its guided range, diluted Earnings per Share (EPS) beat both company and analyst expectation. The strong growth momentum continued to be driven by TI’s increasing strength in the automotive and industrial markets, which together accounted for nearly 70% of the company’s growth in Q1 2017. Personal electronics also grew compared with a weak year-ago quarter, when the company was working through an inventory correction.

Total orders in the quarter were up 14% year on year, to $3.5 billion.

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TXN Q1e

Diverse Automotive & Industrial Product Portfolio To Drive Growth

TI has been allocating its capital spending on the industrial and automotive markets, as the company believes these two segments will be the fastest growing semiconductor markets due to their increasing semiconductor content, and that they will provide diversity and longevity for the company’s product portfolio. Currently, the two segments account for more than 50% of TI’s revenue, and will be key growth drivers for the company going forward.

TI continues to see solid double digit growth in both these segments, across the board. The company has a well diversified product portfolio in both these markets, across sectors, customers, as well as geographies. The broad-based diversity insulates the company from seeing significant adverse effects of a slowdown in any particular sector or market. TI claims that its  pipeline of designs continues to be very strong, over the medium and longer term.

Efficient Manufacturing Strategy To Help Sustain High Gross Margins

The significant increase in TI’s gross margins in the last few years, from 49.7% in 2012 to 63% in Q1 2017, has been driven by an increasing proportion of production occurring on the 300-mm capacity. Manufacturing analog ICs in 300mm fabs (i.e., fabrication facilities) is 40% cheaper for the company as compared to production on 200mm wafers. TI currently has about $8 billion 300-mm capacity as compared to $2.5 billion last year. As the analog business grows, the incremental growth will be built on 300mm. So in addition to the expanding revenue base, the increasing proportion of manufacturing on 300mm as opposed to 200mm will help sustain or even further grow gross margins.

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