What To Expect From Texas Instruments Over The Next Two Years?

by Trefis Team
Texas Instruments
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Semiconductor bellwether Texas Instruments (NYSE: TXN) has been contending with declining revenues in recent quarters, amid cooling demand for its products in many end-markets, and the ongoing trade war between the U.S. and China. In this analysis, we take a look at what is driving the company’s Trefis price estimate and its outlook over the next two years.

View our interactive dashboard analysis on What To Expect From Texas Instruments Over The Next Two Years? You can modify key drivers to arrive at your own estimates for the company’s EPS and valuation.

Strong 5G Demand Could Help TI’s Analog Business Manage the Semiconductor Downturn

  • TI’s Analog segment accounts for over 65% of its revenues and produces high-volume, power, and signal chain semiconductors.
  • The business is likely to see revenues decline ~3% this year, driven by lower consumer electronics demand and cooling demand from China, although this could be offset by stronger demand from the communications space, with the advent of 5G networks.

Embedded Revenues Likely To Trend Lower On Lower Microcontroller & Processor Demand

  • The embedded business, which produces Connected Microcontrollers and Processors, accounts for close to 25% of TI’s total revenues.
  • We expect sales of the digital (embedded) business to decline in 2019, with the broader semiconductor market, which has entered a downcycle, although things could improve during 2020.
  • Moreover, higher spending on 5G is unlikely to benefit this segment.

Other Revenues Will Also Trend Lower

  • TI’s Other segment – which includes revenues from its Digital Light Processing products, calculators, and other products – accounts for about 10% of total revenues.
  • We expect revenues to decline by 6% year-over-year in 2019.

Estimating TI’s Net Income

  • TI’s net margins posted an improvement over 2018, driven by the U.S. tax reform and stronger pricing.
  • However, we expect margins to decline slightly over 2019 and 2020.

Estimating TI’s EPS

  • While TI’s earnings are expected to decline over the next two years, the impact on EPS will be partly mitigated by share repurchases.

Calculating TI’s Price Estimate

  • We are valuing Texas Instruments at about 19x its projected 2020 results.


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