One is a diversified veteran in the semiconductor market. The other, a tightly focused relative newcomer. Would either Texas Instruments (NASDAQ:TXN) or InvenSense (NYSE:INVN) make any sense in your investment portfolio?
Let's have a look.
By the numbers
InvenSense's annual revenue has nearly quadrupled over the last five years. Meanwhile, Texas Instruments' sales decreased by 9%. The comparison swings even further in the motion sensor specialist's favor if you look at free cash flow growth instead. So when you're looking for fantastic growth, it's pretty obvious which chipmaker you should prefer.
However, TI's growth chart is about as stable as the cretaceous sediments under northern Texas. InvenSense's chart lines wobble like the San Andreas Fault:
And of course, Texas Instruments operates on a much larger scale than InvenSense. TI's annual sales are more than 30 times the size of InvenSense's, and that ratio grows to 48 in the cash flow analysis. We can't even compare bottom-line earnings in this light, because TI is profitable but InvenSense is not.
The full story
TI's business approach is focused on growing free cash flows over the long haul. Via heavy research investments, a diversified product portfolio, and a mature distribution system, the company isn't shackled to any particular technology trend. Sure, management would like to capitalize on current trends like automotive computing and industrial systems, but when the wind changes, TI isn't afraid of finding entirely different focus points.
For example, the company was an early player in smartphone processors and mobile radio systems. But when other companies stole the pole position in these markets, and profit margins eroded amid heavy competition in the radio segment, TI started shutting down the mobile radio and OMAP processor operations. Operating margins got a temporary haircut, but recovered quickly. Today, TI's trailing operating margins are the highest in the company's history.
By contrast, InvenSense depends almost exclusively on its range of motion detection sensors. Originally targeted at high-end smartphones, these chips are now finding the way into automotive sensor arrays and drone stabilization systems. But, if TI can switch markets with a manageable and temporary drop in sales and margins, the damage to InvenSense's less-diverse portfolio runs much deeper.
Hence, InvenSense's operating margins are often dip into red-ink territory and the once-unstoppable revenue growth reversed in the most recent quarterly report.
The company is indeed looking for new markets, but has nowhere near the experience in such a shift as you'd find in TI's executive suite.
So InvenSense shares have fallen 40% in 2016 and nearly 60% over the last 52 weeks. Meanwhile, TI shares have outperformed the market.
The Foolish bottom line
Yes, InvenSense might bounce back from the current meltdown. If so, that turnaround story could be spectacular indeed. Just remember that there are no guarantees that this recovery attempt will work. InvenSense is hardly alone in going after the promising markets for drone and car control systems, after all. It's a speculative stock these days, and you should only invest money you can afford to lose.
TI, on the other hand, remains the type of stock you could buy and stuff under your mattress for the next decade or more. You'll rarely lose any sleep over that decision, and the stock also pays a generous dividend while you wait.
For my money, Texas Instruments wins this battle, hands down. Your mileage may vary, but only if you're willing to deal with a ton of additional business risk.