RealMoney Silver - Finding Value in TXN

Finding Value in TXN
By Jay Somaney
RealMoney.com Contributor
1/23/2008 12:31 PM EST

Updated from 1:22 p.m. EST on Jan. 22.

Texas Instruments (TXN) reported last night with earnings of 53 cents per share on revenue of $3.56 billion, a penny ahead of earnings estimates and in line with revenue expectations.

For first quarter 2008, Texas Instruments guided revenue to $3.27 billion to $3.55 billion, down 9% to flat sequentially. The guidance is lower than the company's normal historical guidance of down 1% sequentially due mainly to share loss in the wireless business. Texas Instruments derived 37% of its revenue from the wireless business.

Semiconductor revenue in the fourth quarter was flat with third quarter due to a shortfall in its analog business. The DSP business saw some slight upside due to better-than-expected demand from wireless. DLP sales decreased 18% quarter over quarter due to increased competition in the TV markets.

The book-to-bill ratio was 0.98 at the end of fourth quarter 2007, which suggests slight contraction.

The gross margin in fourth quarter came in at 54.2%, up 110 basis points over third quarter due to a better product mix. Expect Texas Instruments gross margin to contract in the first quarter due mainly to lower expected revenue.

Management stated that the demand environment remained good and that channel inventory remains low.

Texas Instruments ended the quarter with cash and equivalents of $2.92 billion, down $745 million from third quarter due to share buybacks in the fourth quarter of $1.88 billion. Capital expenditures increased quarter over quarter by $29 million, to $181 million. Management is guiding 2008 capital expenditures to $900 million, steady with guidance at the end of third quarter.

Depreciation in the fourth quarter was $253 million. The company is guiding 2008 depreciation to come in at $1 billion, pretty much level with 2007.

Trading here at 13 times estimated earnings for 2008, Texas Instruments remains a good investment for value-type investors but if one is looking for growth, bypass this one.

TXN Preview: Ripe for a Value Investment?

Texas Instruments (TXN) reports earnings after the close of trading today.

The Street expects earnings of 52 cents a share on revenue of $3.58 billion for the December quarter. For the March quarter, current Street consensus comes down to 45 cents a share on $3.41 billion. For the year ending December 2008, current consensus is for earnings of $2.10 a share on revenue of $14.64 billion.

I think that Texas Instruments' wireless numbers will come in better than expected, with additional good results in analog.

Here are some questions to consider on the call:

Texas Instruments' ramp with Nokia (NOK) has been pushed out, so what are expectations now?

Is the chatter regarding significant builds in DLP inventories true or false?

Is the chatter regarding a slowdown in the mobile phone business true or not?

Also, be on the lookout for comments on the following:

macro environment;

ASPs;

gross margins and operating margins;

opportunities in advanced phones;

overall inventory builds;

competition in broadband and analog businesses;

65mm execution and transition issues; and

guidance going forward.

I think that Texas Instruments will report good numbers for the December quarter, but I think March numbers could be lowered given the above observations. Having said that, the stock price languishes around $1 per share above its 52-week low -- it actually made a new low in this morning's panic -- and on a valuation basis, it trades at 13.8 times estimates of $2.10 per share. So, unless management says that things are falling apart, the value boys might start taking a swing at Texas Instruments.

Good luck into the call, whichever side you are swinging from, dark side or good guy.