Has Texas Instruments Beaten Intel and Qualcomm?

Texas Instruments (TXN +0.77%) will release its quarterly report on Monday, and investors have been happy about the company's new strategy, sending the stock to its best levels since the tech boom in 2000. Yet the shrewdness of TI's strategy is that rather than going head-to-head against giants Intel (INTC +0.42%) and Qualcomm (QCOM 1.08%), Texas Instruments has instead chosen to concentrate on its areas of greatest strength, ceding more competitive business to its rivals rather than fighting it out in a destructive price war.

Qualcomm has been a huge winner from the mobile-chip revolution, and Intel has recently made pushes to secure its spot in the lucrative market. But for Texas Instruments, core businesses in analog semiconductors and embedded processors hold arguably greater promise, albeit without the high-profile growth that most casual tech investors focus on. Will Texas Instruments prove to have the winning strategy in the long run? Let's take an early look at what's been happening with Texas Instruments over the past quarter and what we're likely to see in its report.

Stats on Texas Instruments

Source: Yahoo! Finance.

Can Texas Instruments earnings keep climbing this quarter?
Analysts have gotten a lot more excited in recent months about the potential for Texas Instruments earnings to grow, raising their third-quarter estimates by $0.02 per share but vaulting their full-year 2013 projections higher by almost a quarter per share. That optimism has helped push the stock higher by 9% since mid-July.

Texas Instruments came into the quarter on a strong note, with its second-quarter earnings report featuring a 48% jump in net income even though sales declined 9%. What really made investors happy, though, was news that its order backlog had increased and that its guidance for third-quarter earnings was higher than investors were expecting.

One interesting element of Texas Instruments' earnings report involved a gain from selling "wireless connectivity technology" to an undisclosed customer. Some believe that Apple might have been the buyer in question, as it seeks to start bringing some of its chip-design functions in-house. That spells potential problems for Qualcomm, Intel, and other suppliers to the iDevice giant, and validates Texas Instruments' strategy to get out of the segment.

But the bigger reason for Texas Instruments' success has been strength in its key customer markets. CEO Rich Templeton cited strong automotive and industrial sales as helping to keep revenue from declining any further than it did, and vehicle sales in the U.S. have continued to climb sharply as automakers make the most of pent-up demand for new cars and trucks. Industrial production levels have also helped TI somewhat. In the long run, high demand will let Texas Instruments boost margins for analog and embedded-processor chips and could make it more profitable than Intel and Qualcomm can be in the more competitive mobile and wireless chip markets.

In the Texas Instruments earnings report, don't let falling revenue scare you too much about the stock, as it's merely the result of its overall strategy. Instead, look to be sure that profits in its core segments stay strong, as that will only prove that its decision to leave mobile chips to Qualcomm and Intel was the right one.

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