Texas Instruments (NASDAQ: TXN ) will release its quarterly report next Monday, but shareholders already have seen the stock soar to levels it hasn't seen in years. The question for investors, though, is whether Texas Instruments earnings can finally start growing at a fast-enough pace to justify further share-price gains in the future.
Texas Instruments has made a huge gamble with its business model, choosing to shy away from the highly competitive mobile-chip market in favor of its analog semiconductors and embedded processors. Can those less-sexy areas produce the gains in revenue and earnings that shareholders want to see? Let's take an early look at what's been happening with Texas Instruments over the past quarter and what we're likely to see in its report.
Stats on Texas Instruments
| Analyst EPS Estimate | $0.41 |
| Change From Year-Ago EPS | (6.8%) |
| Revenue Estimate | $3.06 billion |
| Change From Year-Ago Revenue | (8.3%) |
| Earnings Beats in Past 4 Quarters | 4 |
Source: Yahoo! Finance.
Where will Texas Instruments' earnings end up this quarter?
Analysts have raised their earnings views in recent months on Texas Instruments, with a $0.03 per share rise in estimates for the June quarter and triple that increase for the full 2013 year. The stock has also reacted favorably, rising 8% since mid-April.
TI carried considerable momentum into the second quarter from a business perspective, as its first-quarter results were extremely impressive. Even though the company saw revenue drop 8%, Texas Instruments' earnings climbed 37%. Moreover, favorable guidance for the second quarter helped lead analysts to make their positive revisions.
Much of that momentum comes from TI's relentless efforts at innovating. Earlier this month, the company came out with a lower-power radio-frequency transceiver that should help improve efficiency for applications including alarm and security, home and building automation, and smart-grid operations. It also developed a new high-powered LED driver-controller that could be used for vehicle headlamps and other lighting needs.
Yet last month, TI issued a forecast that disappointed some investors, narrowing its previous earnings range and projecting $0.39 to $0.43 in earnings for the June quarter. The company cited weakness in PC and game-console demand as holding back its chips. We saw much the same problems in Intel's (NASDAQ: INTC ) earnings report last night, as the PC-chip giant reduced its revenue forecast for the year amid a 5% drop in overall sales and an almost-30% decline in net income. Unlike TI, Intel is aiming to shift its model toward the mobile market.
The real key for TI will be whether its analog chips can gain greater application. General Electric's Industrial Internet project continues to move forward, and connecting networks of machines in order to improve communication and gather data should require plenty of sensor-chips of the type in which TI specializes. Moreover, Cisco Systems and its Internet of Things initiative also have promise both for TI and for Freescale Semiconductor (NYSE: FSL ) , which came out with a new microcontroller chip earlier this year that could potentially work together with TI-made Wi-Fi transmitted chips to facilitate communication. Freescale is tiny compared to TI, but a partnership there could help both companies make more from the opportunity than they could separately.
In Texas Instruments' earnings report, look closely for which strategic direction TI chooses to take in trying to bolster its growth. Investors aren't going to wait forever for the company's strategy to play out, and the stock's best chance at further gains is for TI to identify growth markets that won't be overly sensitive to the industry's usual cyclical trends.
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