Remarkably, despite deteriorating growth, the stock is now up more than 20% on the year, while trading at a significant premium to stronger names like Qualcomm (QCOM).
I'm trying to understand, why does TI deserve this level of respect when the company is being outperformed in several key areas including earnings per share, gross margin and revenue growth? In these areas, not only is TI at a meaningful disadvantage to Qualcomm, but the company also lags behind Intel (INTC) -- remember Intel?
Granted, Texas Instruments still has a solid market position in the semiconductor industry and is working hard to transform its business into a leader in Analog and Embedded Processing. However, on the heels of two consecutive "sub-par" earnings performances, I do wonder how long investors are willing to wait for revenue to start moving in the right direction. In fact, I wonder if revenue really matters to this company anymore.Saying "sub-par" was not by accident. There continues to be a disconnect between the movement of the stock and the company's actual performance. The company first-quarter report, during which revenue declined 8% year over year, serves as a perfect example.
Bulls will argue the results were in line with expectations. While this is true, it also followed a 13% decline in fourth-quarter revenue, which also followed a 2% decline in the third quarter. The pattern is anything but subtle. Nevertheless, despite this being the sixth consecutive quarter of revenue declines, investors are still coming to TI's defense. At best, the results were mixed when looking at each segment. Analog sales were down 2% year over year and down 8% from the fourth quarter. Although there were some positives such as 4% year-over-year increase in Embedded sales, it also fell 3% sequentially. Interestingly, though, one of Texas Instruments' strongest performers came from its wireless business. Unfortunately, the company has exited that business altogether, ceding that market to (among others) Qualcomm and Broadcom (BRCM). The fact that the wireless business is still performing this well (on a relative basis) should raise more questions as to whether or not it was a wise move for management to exit that market in the first place.
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