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Texas Instruments Is a Solid Buy for the Long Run That You Shouldn't Miss
Posted by: jaggom (IP Logged)
Date: May 7, 2014 05:26PM
Texas Instruments (TXN) released impressive results that surpassed Street expectations on revenue and matched on earnings. However, the company’s net income fell short of the consensus estimates as it is focusing on restructuring to revive the unprofitable areas of its business. Also, the company is planning to cut nearly 1,000 jobs globally as a part of its cost cutting initiatives.
But, the company exhibited a solid outlook and is on the right track to deliver better results in the coming years.
Texas Instruments had a solid financial year as its revenue for the last quarter surged to $3.03 billion as compared to $2.98 billion in the same quarter last year. This beat analysts' estimates of $2.98 billion. The company also registered a gross margin of 54.2% and its profits accelerated 94% in the fourth quarter to $0.46 per share, at par with estimates.
Texas Instruments expects revenue in the range of $2.83 billion to $3.07 billion for the ongoing quarter, which is below consensus estimates at the mid-point. Also its earnings per share are projected between $0.36 to $0.44 per share. However, Texas Instruments does have short-term issues, but it has a bright future.
Texas Instruments expects ample growth opportunity across different areas as it manufactures chips that are used in various parts, ranging from satellites to home appliances. Also, the company anticipates handsome growth in communication equipment and enterprise systems. Texas Instruments is also expecting improvements in the automotive segment as vehicle manufacturers are making their cars smarter.
In addition, the company expects that its embedded processors and analog chips will exceed expectations as it continues to deliver better results year over year. Analog revenue increased 12%, while embedded revenue rose to 11% year on year, along with strong growth in operating margins. Also it has improvised its factory utilization by creating efficient load in advanced factories and closing old, inefficient factories. This move will certainly reduce its costs and increase its efficiencies that will result in increased performance of its operational outcomes.
As it moves forward, Texas Instruments is expected to benefit from an increase in global auto sales as well. The U.S. auto market is estimated to grow once again this year with sales ranging between 16 million to 16.5 million units, while LMC Automotive sets the global growth forecast at 5%. Texas Instruments is looking forward to benefit strongly from the increasing use of semiconductors in mobile devices that will increase its revenue growth in the future, and the consistent focus on cost reduction will help the company to yield comprehensively better margins for fiscal 2014.
In addition, the company has experienced increased confidence in manufacturing and consumers last month. This suggests an improvement in sentiment. As a result, Texas Instruments will be able to count on one more growth driver in the future as industrial production and manufacturing improves.
It has already eliminated approximately 1,100 jobs globally, equal to 3% of its workforce. Hence, it expects annual savings of about $130 million by 2014.The restructuring will result in charges of $80 million, of which $49 million were incurred in the fourth quarter. This restructuring is very important since it will allow Texas Instruments to become a more profitable entity in the long run.
Texas Instrument is focusing more on embedded processors and analog chips, such as those used in automotive and industrial equipment. The company also plans to downsize its operations in Japan, as it expects limited market opportunities in the Japanese market.
Therefore, one can say that its strategy of lowering headcount and reducing operations in certain unprofitable areas is a good move, which will undoubtedly help the company to enhance its efficiency and increase its profitability in the long run.
Stocks Discussed: TXN,