Investments in manufacturing are now paying off for Texas Instruments as its earnings, share buybacks and dividend rise.
TEXAS INSTRUMENTS INC. (Nasdaq symbol TXN; www.ti.com) continues to benefit from its 2008 decision to quit making chips for cellular phones and focus instead on analog chips. Those products convert inputs like touch, sound and pressure into electronic signals that computers can understand. Manufacturers use them in a variety of products, including cars, cameras and appliances.
As part of its new strategy, Texas Instruments paid $6.6 billion in September 2011 for National Semiconductor Corp. As a result, the company is now the world’s leading supplier of analog chips. In 2015, they accounted for 64% of its overall revenue.
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Texas Instruments gets a further 21% of its revenue from embedded processor chips, which perform mathematical calculations. The remaining 15% of its revenue comes from other chips, calculators and licensing its technology to other firms.
Revenue fell 11.1%, from $13.7 billion in 2011 to $12.2 billion in 2013, as the company phased out cellphone chips. Revenue then improved to $13.1 billion in 2014, but slipped to $13.0 billion in 2015.
Earnings fell 21.3%, from $2.2 billion in 2011 to $1.8 billion in 2012. Due to fewer shares outstanding, earnings per share declined 19.7%, from $1.88 to $1.51. However, earnings recovered to $1.75 a share (or a total of $2.0 billion) in 2013, and rose to $2.82 a share (or $3.0 billion) in 2015.
Growth Stocks: Higher chip sales to automakers offset declines elsewhere
In the second quarter of 2016, Texas Instruments’ revenue rose 1.3%, to $3.3 billion from $3.2 billion a year earlier. Higher chip sales to carmakers and other industrial clients offset weaker demand from makers of personal electronic devices.
Earnings in the quarter gained 11.9%, to $779 million from $696 million; per-share earnings rose 16.9%, to $0.76 from $0.65 on fewer shares outstanding. These gains are partly due to investments in chipmaking equipment to improve the efficiency of its manufacturing plants; gross profit margin (gross profits as a percentage of revenue) rose to 61.2% from 58.2%.
As of June 30, 2016, Texas Instruments’ long-term debt of $3.0 billion was a low 4% of its market cap. As well, it held cash of $2.5 billion, or $2.53 a share. The company’s U.S.-based businesses hold over 80% of these funds. That means it can spend this cash without paying high tax penalties on funds transferred from overseas subsidiaries.
This strong balance sheet also lets Texas Instruments buy back its shares: since 2004, it has cut the number of shares outstanding by 42%. The company has also increased its dividend by 171.4% in the past five years. The current annual rate of $1.52 a share yields 2.2%.
The stock has jumped 48% in the past year. It now trades 22.9 times the $3.06 a share the company will probably earn in 2016. That’s an acceptable p/e as the company spends a high 11% of its revenue on research.
Recommendation in Wall Street Stock Forecaster: BUY.
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