We are optimistic about Texas Instruments‘ (TXN) recent performance, although we do not expect significant movement in share prices when the company reports later this month. Our outlook is reflected by the stock’s Zacks Rank #3.
The company’s third-quarter earnings beat the Zacks consensus estimate by 3 cents, although revenue was more or less in-line, beating the consensus by 2.1%. Texas Instruments also reported double-digit bookings growth, resulting in a much stronger backlog. The company’s restructuring activities have lowered the cost structure, which along with higher utilization and better product mix, enabled Texas Instruments to generate the third quarter earnings surprise.
Last month, Texas Instruments also raised its guidance. This prompted 7 of the 37 analysts covering the stock to raise their estimates for the fourth quarter. The number of positive estimate revisions and absence of downward revisions indicate positive sentiment on TI’s performance. Moreover, estimates were exceeded in each of the last four quarters, which is also positive. However, we note that the positive surprise percentage has been going down over the past three quarters, with the rate of decline indicating a possible halt in the next quarter. Hence we do not expect significant price movement.
However, we remain encouraged by the company’s many initiatives, including the prudent use of R&D dollars. Texas Instruments has decided to use its Richardson fab for making semiconductors targeted at green energy sources, such as solar panels, energy-efficient appliances and advanced utility meters. This should fetch Texas Instruments a federal tax credit of around $51 million, a stimulus for clean energy jobs created.
The Richardson fab was originally expected to be used for digital chips, but Texas Instruments recently changed its plans and decided to turn it into the first 300mm analog fab using refurbished equipment. Last year, Texas Instruments decided to equip it with tools from bankrupt chipmaker Qimonda. This is an overall positive, as analog equipment can be used for a considerably longer period of time.
With the e-reader market poised to surge and many new players adding to the existing products from Amazon.com (AMZN), Sony Corporation (SNE) and Barnes & Noble (BKS), Texas Instruments launched its e-reader platform, including the new 45nm OMAP 3621 applications processor and the new power management chip for electronic paper display (EPD) supporting 3G modem connectivity. Texas Instruments expects the products to reduce time to market and lower costs for e-reader manufacturers.
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