I got to TXN through two paths. Path 1: A recommendation from a person I highly respect (EE type; hardcore design, etc.). Now, three years ago, he also told me that AMD was a great buy & I took his word for it. Path 2. DSPs in USRX modems, cellular phones and all that.
On the former, he told me to look at TI a year ago. Still smarting from the AMD debacle, I said 'yeah, sure'. Shame on me. On the latter question, the answer is that yes, DSPs are used in all that equipment - all being sold all over the world at increasing rates. The path for me was a long position in USRX-------->COMS through acquisition------->hard core misgivings about COMS' profitability (competition) in spite of accellerating sales ---------> peeling the hardware onion to see who supplies components. (Criteria is high value add, lack of effective competition preserving suppliers' profits in spite of margin pressure on the finished product.) ---------> TXN.
Due diligence questions:
1. What if TI is off about a $5b market growing to $50b by 50%?
2. Can Lucent, etc. compete effectively?
3. Is TI serious about their focus?
4. What happens to TI in a market meltdown?
5. How sensitive is TI to interest rate shocks, etc.
6. What liabilities exist with a single product company?
To #1. Even if the market only grows to $25b in the near term, TI appears to be best positioned to maintain market domination. Good.
#2. TI says they have 70% of the DSP programmers in the world. A DSP chip is great hardware, but just a piece of sand without the programming. A discriminator in their favor.
#3. Sounds like it.
#4. Same as happens to everybody else - maybe more. Big downside.
#5. Doesn't matter a lot (I could be real wrong, here.). What matters more is whether if interest rates rise, the mfgrs that use DSPs stop selling product. Product sales will slow, but see #1, above. The upside of this is that competition would be less likely to enter the market, thus helping to preserve TI franchise.
#6. A LOT of liabilities - particularly in the technology sector. What if, for example, INTC came up with a breakthrough that obsoleted DSPs? Really big issue.
So. I did what I did; and came to the conclusion going long and buying long term calls at even current prices was the right move. Others have different conclusions & that is what makes a market. Now, I'm extremely curious........ Why are you short? You see things about TXN that make you believe price is going down. Nobody has a lock on truth & if I'm wrong, (the AMD experience, for example) I really do want to know......... Thanks. |
