Kurlak knows this well.
In fact, even though they are transitioning to a heavier emphasis on DSP, currently a good majority (roughly 2/3) of TXN's IC business is non-DSP. Trust that as the top semi analyst on the street, Kurlak knows this well.
Double Vision
First, I have a hard time trusting anyone connected to the street,
and I differently don't trust you.
And second, I never invest for today, I invest in the future.
Anyone have a Fly-swatter I can borrow?
JW@KSC
ti.com
TI's Strategic Direction: Value, Growth and Stability
(snip)
We have defined TI's vision and strategy for the future. TI is
moving toward a company that is more focused on DSP
solutions . Over the next four years, the size of the DSP market
is expected to triple. That growth and our market leadership
provide a rare opportunity.
ti.com
Tom Engibous
President and CEO
Bernstein Strategic Decisions Conference
June 4, 1997
(Snip)
In the time we have today, I'd like to talk about the strategic
direction we've taken at Texas Instruments to focus on digital
signal processing solutions or DSP solutions - the fastest
growing and most profitable part of our semiconductor
business.
We believe the opportunity we have today in DSP solutions is
one of the largest we've had at TI since we invented the
integrated circuit in 1958. And it's an opportunity we will not
miss.
In order to focus on DSP solutions, we've made changes in our
company structure and strategy. Those changes include the
divestiture of a number of large and small businesses - including
our defense, notebook computers and software businesses.
(snip)
Today, there are only 15 cellular phones per 100 people in the
U.S., 11 in Japan, 7 in Europe and only one in Asia. Clearly,
there will be significant growth in the voice communications
market. Digital cellular is growing rapidly - more than 30
percent per year. And over half the digital cellular phones today
use a TI DSP solution, up substantially from just two years ago.
Similarly, the chart on the right shows the growth in the data
communications market. Network connections in both the
business and home markets are projected to grow about 20
percent per year over the next three years. At both ends of
every connection lies a DSP solution.
(snip)
Every stage of the digital TV process will require DSP
solutions. From encoding the content using the multiple
standards shown here in the lower left column, to transmission
via ground lines, cable, satellite and the Internet and the receiver
for video, audio and data.
And with a programmable DSP solution, the various audio and
video standards can all be accommodated with one in-home
receiver. You would simply transmit a decoding software
package ahead of the programming and the receiver could
make the connection. Again, all of these require DSP solutions.
(snip)
It's safe to say that if you look ten years out, many of the
common DSP applications haven't even been invented today.
Let me give you examples in just three areas.
In the drive to lower energy consumption, digital motor control
will be critical. In the year 2001, about 1.4 billion brushless
motors will be shipped into a huge variety of applications
ranging from white goods, to automotive, industrial and
commercial. High-performance motor control involving
electronics is being used in only a small percentage of motors
today. In the future, DSP solutions will be commonplace in
many, if not all, these motor control applications. And
eventually, those 1.4 billion motors in the year 2001 could
translate into millions of DSP solutions for digital motor control.
(snip)
In fact, we believe the market demand for DSP solutions will
explode. Since 1988, the market for digital signal processors
has grown at more than 40 percent per year. We expect
continued growth - well above that of the semiconductor
market for the next ten years. We believe the market for DSPs
together with related mixed signal devices will reach about $50
billion dollars over the next ten years.
The DSP solutions market is obviously very attractive with
high-growth prospects and a diverse, pervasive set of
end-market applications. For these reasons, TI is focusing on
the DSP solutions market. And for the same reasons, other
semiconductor companies are as well.
(snip)
Our DSPs are supported by a disproportionate share of
software programming resources. While we currently have
about a 45 percent share of the DSP market, we have more
than 70 percent of the world's DSP software engineers working
on TI architectures. As the DSP market grows, the value
proposition and the ability to differentiate will be more and
more in the software. This is a tremendous advantage for TI.
(snip)
Finally, we have a strong position in both process technology
and systems know-how - due in large part to the tremendous
economies of scale we realize from our current market position.
We are number one in the DSP market with about a 45 percent
market share according to Forward Concepts - and Dataquest
shows TI as a close second in the fragmented mixed signal
market with about a 12 percent share.
We are the only company with a strong leadership position in
both the DSP and the mixed signal/analog markets. Let me
explain specifically how that translates into some large
competitive advantages.
(snip)
Now let me turn to the third question I want to address today
-- what's the financial impact on TI of our DSP
solutions-focused strategy? Today, revenues from DSP
solutions represent more than 40 percent of our semiconductor
revenues. That's up from about fifteen percent just five years
ago.
We've outgrown the overall DSP solutions market - one of the
fastest growing markets in the industry - in each of the past
three years. And our margins on DSP solutions are among the
best in the business.
All of that translates into a case for improved financial returns -
as DSP solutions become an even larger part of our revenue
mix. This is something we've seen already in the first quarter of
'97, when higher operating margins in our differentiated
semiconductors - primarily DSP solutions - led to sharply
improved profitability. Operating profit margins for all of TI
reached 10 percent - up from 5.5 percent in the first quarter of
'96. The No.1, near-term priority for TI is to improve its
operating margins in differentiated semiconductors to the high
teens - paced by DSP solutions.
(snip)
Digital signal processing solutions will play a major role in
achieving TI's long-term financial goals of 20 percent revenue
growth and 20 percent return on invested capital. It's also a
key driver behind TI's strategic move toward higher
value-added products, higher growth and better financial
stability.
(snip)
Now let me turn to the third question I want to address today
-- what's the financial impact on TI of our DSP
solutions-focused strategy? Today, revenues from DSP
solutions represent more than 40 percent of our semiconductor
revenues. That's up from about fifteen percent just five years
ago.
We've outgrown the overall DSP solutions market - one of the
fastest growing markets in the industry - in each of the past
three years. And our margins on DSP solutions are among the
best in the business.
All of that translates into a case for improved financial returns -
as DSP solutions become an even larger part of our revenue
mix. This is something we've seen already in the first quarter of
'97, when higher operating margins in our differentiated
semiconductors - primarily DSP solutions - led to sharply
improved profitability. Operating profit margins for all of TI
reached 10 percent - up from 5.5 percent in the first quarter of
'96. The No.1, near-term priority for TI is to improve its
operating margins in differentiated semiconductors to the high
teens - paced by DSP solutions.
DSP-centric Equipment
(view original presentation graphic 28KB)
We expect strong market growth in the DSP-centric world.
And it will come from a wide variety of end-equipment
demand. Looking across such critical markets as digital set-top
boxes, modems, digital cellular phones, hard disk drives and
motors, we see double-digit growth in every area.
As the market grows to about $50 billion over the next ten
years, we are focusing our resources so TI can capture more
than our share of that growth as well.
Shareholder Value Goals
(view original presentation graphic 22KB)
Digital signal processing solutions will play a major role in
achieving TI's long-term financial goals of 20 percent revenue
growth and 20 percent return on invested capital. It's also a
key driver behind TI's strategic move toward higher
value-added products, higher growth and better financial
stability.
As we continue in that strategic direction, TI has the potential to
move into the ranks of the premier electronics companies -
companies that typically earn recognition for market
capitalizations several times their annualized revenues. The
proof of our success will be to grow shareholder value faster
than revenues.
(Snip)
Let me conclude by summarizing our strategic direction. First
we're focused on the DSP solutions market because it's a great
market in terms of growth and value. As the world goes digital,
DSP solutions will be pervasive.
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