TXN

Company overview

Texas Instruments designs and manufactures analog and embedded processing chips used in a wide range of industrial, automotive, and electronics applications, with tens of thousands of products sold across a highly diversified customer base.

Business model

The company earns revenue from selling semiconductor chips across thousands of products and customers, with no single end market or customer typically dominating results. Heavy investment in its own manufacturing capacity is aimed at long term cost and supply advantages over competitors that rely more on outside foundries.

Growth drivers

• Growing chip content in industrial automation and automotive electrification
• Market share gains from in-house manufacturing cost advantages
• Recovery in the broader semiconductor cycle
• Expansion of 300 millimeter wafer manufacturing capacity

Competitive position

Texas Instruments' scale, manufacturing control, and enormous product catalog create a durable position in analog chips, an area where switching costs and design relationships tend to be sticky once a chip is designed into a customer's product.

Risks

The semiconductor industry is cyclical, and Texas Instruments has been investing heavily in capacity ahead of demand, which pressures near term free cash flow and margins. A slower than expected industrial and automotive recovery would extend that pressure.

Valuation

The stock tends to trade on a cycle adjusted basis, with investors weighing near term margin pressure from heavy capital spending against the long term cost advantage that spending is meant to secure.

Final view

Overall rating: 77/100

Texas Instruments remains a high quality, diversified analog chip business investing for a long term manufacturing advantage. My view is that the long term strategy is sound, with the semiconductor cycle and near term margin pressure being the main factors affecting the stock in the interim.