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Can Texas Instruments Get Out of Quicksand?

Stocks in this article: TXNNOKRIMMMSFTAAPL

For the coming quarter, the company is projecting earnings per share of 23 cents to 31 cents - much lower than consensus estimates of 42 cents. Similarly the company's revenue range of $2.83 billion to $3.07 billion disappointed analysts, many of whom had estimates of $3.24 billion. While the uninspiring outlook is disappointing, it's hard to fault the company for its stance.

Not only is the company being affected by a tough macro climate, but it does not help that two of Texas Instruments' biggest customers, Nokia (NOK) and Research in Motion (RIMM), are both experiencing declining market share of their own -- making it even tougher to place chip orders. But that's only part of the problem.

That rivals such as Qualcomm (QCOM) and Broadcom (BRCM) continue to perform well despite the macro concerns is pretty telling and speaks to what has contributed to TI's declining sales over the past four quarters. Also intensifying the situation is the better-than-expected progress that another rival, Nvidia (NVDA) has been making in the mobile market with its Tegra chips.

Not only has Nvidia secured design wins in Apple's (AAPL) MacBook Pro, but the company has also acquired business from titans in Google and Microsoft (MSFT), becoming a key component in the success of their Nexus 7 and Surface tablets. What this means is that Texas Instruments will find it increasingly more challenging to steal market share if it now falls behind Nvidia, a company that a few years ago was only known for its graphics chip.

Bottom Line

As rivals are ramping up their product portfolios and positioning themselves for a market recovery, Texas Instruments must figure out a way to secure more business and reverse its revenue slide. While the company still has a solid position in the market, I worry that the company may not have enough ammo to undo the trend of fallen orders and high inventories.

While I do believe there is considerable amount of value left in the stock, I'm also willing to consider that the stock may be stuck in quicksand for the next several quarters. On the other hand, investors might want to look at a company such as Nvidia. Not only does it seem to present better value than Texas Instruments, but it also comes with less risk -- trading at a price-to-earnings ratio 3 points lower.

At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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