Monday morning, we'll get treated to a quarterly update from Texas Instruments
What analysts say:
- Buy, sell, or waffle? Thirty-six analysts follow TI on a day-to-day basis. Twenty-five of them say we should buy the stock, 10 recommend that we just hold on, and one wants to sell. In our Motley Fool CAPS investor community, this is a solid four-star stock, based on input from more than 740 users.
- Revenue. The consensus forecast calls for $3.45 billion, nearly 7% less than last year's $3.7 billion. Management's mid-quarter update told us to expect between $3.36 billion and $3.51 billion.
- Earnings. $0.42 per share would match the average analyst expectation, though it's lower than the $0.47 per share produced last year. Official guidance sets a range from $0.40 to $0.44 per share.
What management says:
"TI's performance in the first quarter was confirmation of fundamental and sustainable long-term changes we have made in the company," said CEO Rich Templeton in the last earnings release. "Even with an 8 percent decline in sequential revenue, gross margin remained above 50 percent and operating margin remained above 20 percent. TI performed considerably better than inf prior troughs because of a more resilient manufacturing strategy and a stronger portfolio of analog products."
More detail on that "resilient manufacturing strategy" below.
What management does:
The year-ago quarter ending June 2006 included $1.65 billion of decidedly one-time net gains, as TI sold its sensors & controls segment into private equity fund Bain Capital. That skews our rolling data a bit -- hence the "adjusted net margin" row.
With that in mind, TI is keeping its operating and net income rather stable by adjusting its research and sales budgets to match gross income increases. In turn, those increases are happening on the back of modest sales gains.
Wait -- I thought TI was supposed to be in the middle of a market crisis, as consumers opt for low-end gadgets? Surely that's not conducive to widening gross margins. This is where the company's asset-light manufacturing strategy is paying off, as seen once again in TI's efficiency ratios.
|
12/2005 |
3/2006 |
6/2006 |
9/2006 |
12/2006 |
3/2007 |
|
|---|---|---|---|---|---|---|
|
Gross |
49% |
50.1% |
49.9% |
50.1% |
51.4% |
51.7% |
|
Operating |
22.2% |
23.9% |
25.7% |
26% |
25.9% |
26% |
|
Net |
18.8% |
19.3% |
28.9% |
28.5% |
30.5% |
30.3% |
|
Adjusted net* |
18.8% |
19.3% |
17.7% |
19% |
18.9% |
18.6% |
|
FCF/Revenue |
20.1% |
18.3% |
13.7% |
7.2% |
8.3% |
10% |
|
Efficiency Ratios |
12/2005 |
3/2006 |
6/2006 |
9/2006 |
12/2006 |
3/2007 |
|---|---|---|---|---|---|---|
|
Return On Assets |
10.9% |
13.3% |
15.6% |
16.6% |
15.9% |
16.5% |
|
Return On Equity |
17.4% |
20.3% |
21.9% |
22.9% |
22.6% |
23.2% |
One Fool says:
When the market gets tight, TI can keep its own facilities running at top speed anyway, and simply reduce its outsourcing orders to chip foundries like Taiwan Semiconductor
That's how the company can keep its margins nice and tight, even when sales are slowing from a lack of demand. When the market turns back up again, TI just takes its chip orders coming in from Nokia
It's a pretty sweet model that gives TI the best of both worlds -- absolute production control where it really matters, and volume flexibility where cutting-edge processes aren't that important. Rumor has it that AMD
TI's stature in the analog, digital, and mixed-signal chip markets also makes it a great gauge for overall market conditions. Many observers will tune in to TI's earnings report just to see what to expect from reports like that of Linear Technology
Fool contributor Anders Bylund owns shares in Taiwan Semi and AMD, but holds no other position in any of the companies discussed here. He wonders whether Reverse Polish wouldn't simply be Roughness, or Abrasion. You can check out Anders' holdings if you like, and Foolish disclosure is lost without its TI-30 STAT, vintage 1989.
