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Texas Instruments (NYSE: TXN ) is a tricky duck. The company started selling off manufacturing equipment and reducing capital expenses for factory buildouts many years ago, running alongside Motorola (NYSE: MOT ) in the avant-garde of the "asset-light" chip-making strategy. Ah, those were the times -- remember when Motorola still designed semiconductors?
By outsourcing some manufacturing to third-party foundries like United Microelectronics (NYSE: UMC ) , TI could react quickly to market conditions, ramping up or reducing chip supply without sending shockwaves through its own infrastructure. This worked very well for many years, and TI delivered market-beating stock returns during this era of low-capacity leadership. Analog Devices (NYSE: ADI ) couldn't keep up in the analog markets, and even Intel (Nasdaq: INTC ) fell behind the Texas-sized curve. The strategy was firing on all cylinders.
Then the chip market took a couple of weird turns, starting with a deep depression, followed by a slingshot-like return to high demand.
The semiconductor industry had followed TI's lead into lower manufacturing investments, often overshooting the "asset-light" model and moving to an entirely "fabless" strategy. This left a handful of chip foundries with the Herculean task of accommodating sudden order increases from each and every one of their clients with little advance notice. Digital-camera chip expert OmniVision Technologies (Nasdaq: OVTI ) was holding the bag for cameraphone orders it couldn't fill. NVIDIA (Nasdaq: NVDA ) got more graphics chip orders than it could possibly fill. And on and on the litany went.
Meanwhile, Texas Instruments and a couple of other shrewd competitors continued to deliver from their own factories, growing market share against the fashionably fabless crowd. Now they're investing in manufacturing capacity again. Just this week, TI bought $1 billion worth of analog chipmaking capacity from the Japanese arm of memory maker Spansion. It's not the first presumably low-cost, high-value factory TI has snapped up in recent months, and I don't think it'll be the last.
Asset-light turns out to be more flexible than entirely fabless when the chips hit the fan. So if there's one thing to remember in this chip rebound, it's that nobody does asset-light quite like TI. This is a visionary company with an unmatched ability to weather any type of market storm.