While Texas Instruments (NASDAQ:TXN) often doesn't generate the same headlines as high-flying semiconductor stocks, the company has provided a solid record of results. In the last year, shares of the company have advanced 40%, versus the Philadelphia Semiconductor Index's advance of 24%.
Long-term investors in the stock are used to low-stress, below-the-radar returns: Texas Instruments has outperformed both the Philadelphia Semiconductor Index and the S&P 500 over the last one-year, three-year, five-year and 10-year periods. Thus CEO Brian Crutcher's abrupt resignation caught investors by surprise.
As an investor, you should always revisit your buy thesis when the CEO leaves, particularly when the departure is abrupt and comes as this one did, "due to violations of the company's code of conduct." That said, I think Crutcher's ouster is mostly a nonevent for long-term TI investors.
According to the company, Crutcher -- a 22-year veteran of the company -- resigned from both the executive role and the board of directors due to code of conduct "violations related to personal behavior not consistent with our ethics and core values, but not related to company strategy, operations, or financial reporting." The company gave no details. The company's chairman -- and former president and CEO -- Rich Templeton has stepped back in as president and CEO on an "ongoing, indefinite basis."
Why this is (mostly) a nonevent for investors
Investors, myself included, should take Crutcher's resignation in stride. First, Crutcher had not been in his position for a significant period, leaving less than two months after assuming the role. Thus, it's unlikely any of his initiatives -- good or bad -- had taken hold. The company's emphasis on Crutcher's violation having nothing to do with operations is encouraging as well.
Templeton set the company's strong investor-focused policy of returning all free cash flow (cash from operations minus capital expenditures) to shareholders. And now Templeton's back at the helm. Templeton was the company's chief operating officer from April 2000 to April 2004 and became president and CEO in May 2004. He had been executive vice president of the company and president of TI's semiconductor business from June 1996 through April 2004. As strong returns occurred during Templeton's tenure, it appears the company remains under strong and disciplined stewardship.
Also, Crutcher's quick ouster shows TI's board of directors is committed to company guidelines. That's a good sign.
The long-term thesis remains intact
Texas Instruments has a three-pronged buy thesis:
- Shareholder-friendly management that pledges to return all free cash flow in the form of dividends and buybacks.
- Improving margins as the shift to 300-millimeter manufacturing lowers chip production costs.
- Long-term demand for its sensors, processors, and analog-to-digital chips from autonomous vehicles and Internet of Things applications.
Crutcher's departure changes nothing of the long-term thesis, and provided a critical test for the company's board. In addition to announcing his departure, Texas Instruments also published second-quarter results that beat analyst consensus on both the top and bottom lines. While I'm never happy when a CEO departs, in this case I'm not particularly concerned.