Texas Instruments Inc. (TXN) is scheduled to
announce its third-quarter fiscal 2012 results on October 22, 2012,
and we notice upward as well as downward movements in analyst
estimates.
Prior-Quarter Synopsis
Texas Instrumentsdelivered a decent second quarter with pro
forma earnings per share of 46 cents, exceeding the Zacks Consensus
Estimate by 7 cents.
The company reported revenue of $3.34 billion, up 6.9%
sequentially and toward the middle of the revised guidance range of
$3.22–$3.48 billion. The strength in the quarter came from growth
in core analog, led by power management and HVAL.
Gross margin was 49.5%, down 22 basis points (bps) sequentially,
impacted by lower insurance proceeds. It also declined 199 bps from
the year-ago quarter, mainly on account of low utilization rates as
well as lower revenue.
Third-Quarter Guidance
Recently, the company narrowed its revenue and earnings
expectations for the third quarter of 2012.
The chipmaker now expects sales of $3.27–$3.41 billion versus
its previous guidance of $3.21–$3.47 billion. The earnings outlook
range has also been raised to 38–42 cents per share from the
previous guidance of 34–42 cents.
(Detailed earnings results can be viewed in the blog
titled: Guidance Pulls Down TI Shares
Agreement of Analysts
Over the last 30 days, only 1 out of the 30 analysts providing
estimates made an upward revision, while none made downward
revisions for the third quarter. For fiscal 2012, 8 out of 21
analysts made downward revisions, with none of the estimates moving
in the opposite direction.
Recently, management revised its revenue and earnings guidance
for the third quarter but did not reduce the midpoint of the
guidance, allaying investor concerns. Analysts, by and large,
expect results to come in line with the revised guidance.
The company stated that insurance receipts of $60 million
related to the 2011 earthquake in Japan and various restructuring
activities will likely help earnings in the upcoming quarter.
However, a few analysts expect revenue and earnings to come in
below the guidance range. They continue to believe that the ongoing
macro weakness and strong competition from tablets and smartphones
will likely hit TI’s computing market. The analysts also contend
that a slowdown in Europeand mature markets could be an added
concern.
Recent reports from Israeli newspaper Calcalist stated that
Amazon (AMZN) was in advanced talks to buy TI’s OMAP business. The
majority of analysts see this as a clear positive for TI as it
would remove a major investor overhang. They believe that the sale
would bring in a lot of cash, which will allow management to reduce
its huge debt balance, currently estimated to be $4.2 billion.
Longer term, majority of the analysts contend that TI's analog
and embedded businesses will continue to drive growth. They see
potential margin expansion opportunities from the company’s cost
cutting initiatives along with growth in higher-margin businesses.
Additionally, the analysts contend that 300mm RFABand cost
synergies from the NSMacquisition will likely lead to margins and
earnings upside going forward.
Magnitude of Estimate Revisions
In the past 30 days, the Zacks Consensus Estimate remained
unchanged at 45 cents for the third quarter, but was down 2
cents to $1.66 for fiscal 2012.
Over the 90-day period, the Zacks Consensus Estimate was down by
3 cents for the third quarter and by 8 cents for fiscal 2012.
Recommendation
Though we remain optimistic about Texas Instruments’ compelling
product line, the increased differentiation in its business and its
lower-cost 300mm capacity, we expect the company to report in-line
third quarter results due to a weak PC market worldwide and a
challenging global economy.
Though the wireless segment has been struggling for a while, TI
recently announced that it was seeing some improvement owing to new
tablet launches that use the company’s ARM-based OMAP processors.
Also, its new analog and embedded processing designs getting into
volume production should help the gross margin to move up toward
its long-term target of 55%.
On the cost front, we believe the company has taken a number of
steps in 2011 by closing a couple of 6-inch facilities in Hiji,
Japanand Houston, Texasand transitioning the remaining products to
more advanced facilities. The restructuring is expected to generate
annual savings of $100 million a year.
However, we remain concerned about the macro weakness, Texas
Instruments’ larger exposure to wireless communications
infrastructure, and National’s huge debt balance, which has
negatively impacted the balance sheet.
Increasing competition from Maxim Integrated
Products (MXIM), Analog Devices (ADI),
Broadcom (BRCM) and Intel (INTC)
is also a matter of concern.
We, therefore, have a short-term Hold rating (Zacks #3 Rank) on
Texas Instruments shares.
ANALOG DEVICES (ADI): Free Stock Analysis Report
BROADCOM CORP-A (BRCM): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
MAXIM INTG PDTS (MXIM): Free Stock Analysis Report
TEXAS INSTRS (TXN): Free Stock Analysis Report
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