Texas Instruments Preview: What We’re Watching Monday

by Trefis Team
Texas Instruments
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Texas Instruments, Inc. will announce its Q3 2011 earnings on Monday, October 24, 2011.  We currently have a $35.70 price estimate for Texas Instruments, which is 20% above its current market price. Earlier this year, Texas Instruments announced its acquisition of National Semiconductors for $6.5B, another semiconductor manufacturer with a strong product portfolio focused on analog semiconductors. The acquisition was closed last month, cleared of all required regulatory reviews and approved by National’s shareholders. Texas Instruments competes with other semiconductor manufacturers like Qualcomm (NASDAQ:QCOM), Broadcom (NASDAQ:BRCM), STMicroelectronics and Renesas Electronics Corporation.

See Our Full Analysis for Texas Instruments Stock

Texas Instruments Revenue Outlook

Last month, in a scheduled update to its business outlook for the third quarter of 2011, Texas Instruments Incorporated narrowed and lowered its expected ranges for revenue and earnings per share (EPS).  It now expects its Q3 revenue to be in the range of $3.23 — 3.37 billion, compared with the prior range of $3.4 — 3.7 billion. The reductions are due to broadly lower demand across a wide range of products, markets and customers.

Global semiconductor revenue outlook worsens

Semiconductor revenue projections for the third quarter are being lowered as various indicators point to a slowing economy. The U.S. GDP growth in 2011 now is expected to be 1.7 percent, down sharply from 3 percent in 2010.

Accordingly, global semiconductor revenue is now forecast to grow by 2.9 percent growth in 2011, down from the 4.6 percent annual growth rate projected earlier this year by IHS iSuppli, and down from the 32.4 percent growth recorded in 2010.

Analog semiconductors inventory increases

Texas Instruments provides semiconductor solutions for a wide array of markets including but not limited to industrial, automotive, computing and communications. Its most valuable division is Analog semiconductors.

According to IHS iSuppli, analog semiconductors days of inventory the end of the Q2 2011 stood 96.9 days, compared to 83.4 days for the rest of the semiconductor industry. In the face of weak demand, manufacturers are looking to cut production and hence reduce their inventory stockpiles. Texas’ analog revenues and margins might get affected due to higher inventory.

Wireless and communication segments are still showing growth

While the rest of semiconductor industry is struggling from slow demand, the demand from wireless and communications segment is still growing. Strong revenues from the popular Android and Apple operating system platforms also will help counteract the losses being experienced by handset manufacturers like Nokia Corp. Texas Instruments provides the touch-screen controller for iPhone 4s and OMAP 4460 processor for the Samsung Nexus.

The increase in revenue from wireless segment is expected to reduce the impact of the decline in analog revenues. We expect Texas’ revenue to be as per the company guidance, however, the profit might see a hit due to increased inventory.

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