Texas Instruments Senses an Opportunity

Based in Attelboro, Mass., TI's sensors business employs about 5,400 workers. The $3 billion price tag represents a nice premium on the business, which generates about $1 billion in annual sales.

That's because the sensors business has several things to recommend it, say analysts, including operating margins of roughly 25%, and long product cycles that allow TI to ink supply contracts that can last for several years. And with automobiles incorporating increasing amounts of chips every year for safety and entertainment features, the business is bound to grow.

As attractive as the business is, however, TI CFO Kevin March said it's still not in the same league as the company's semiconductor business, which focuses on high-growth markets like cell phones and handheld electronic gadgets.

For the past three years, says March, sales in the sensors and controls business have increased about 7%, compared with 17% a year in the semiconductor business. And the operating margins in semiconductors last quarter exceeded those of the sensors group.

"When you've got faster top-line growth combined with higher operating margins, what that says to us is that sensors and controls will be averaging down both our revenue and earnings growth in the future," says March.

In the past, the sensors business, which doesn't have the same seasonality as TI's other businesses, has acted as a stabilizing influence on the company's finances. But as the business has become a smaller portion of TI's overall mix, its ability to act as a buffer against seasonality has been diminished, March says.

The company has not said how it intends to use the proceeds of the deal. With more than $5 billion in cash and short term investments on its balance sheets, TI certainly doesn't need the money.

"This was not done for purposes of trying to acquire more cash. It was done for strategic reasons," March emphasized.

Shares of TI were down 1.3%, at $34 in Monday trading.

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