Updating graphs, will get back later on TA!!
Here is an interesting read from one the better US brokerage firms:
RATING: Buy Change: None 12-Mo. Target: $100
VIEWPOINT
TI announced it is selling essentially all of its memory assets to Micron
Technology in exchange for Micron common stock, convertible debt, and
subordinated debt. The sale is expected to close by the end of September,
which would result in improved operating earnings for TI starting in the
December quarter. The sale of its memory assets essentially completes TI's
metamorphosis into a pure play proprietary semiconductor company,
specializing in DSP, analog/mixed-signal, and ASIC devices with a strong
focus on communications and data networking end markets. We are raising our
earnings estimates and reiterating our Buy recommendation.
IMPORTANT POINTS
o TI announced it is selling essentially all of its memory division
assets to Micron Technology. The specific fabs being sold are the Avezzano,
Italy facilities; the Richardson, Texas facility (formerly the TwinStar
joint venture); an assembly/test facility in Singapore; TI's interest in
the KTI joint venture in Japan; and the TECH Semiconductor joint venture in
Singapore.
o TI posted an operating loss of $129 million ($0.21 per share) from its
memory operation in the March quarter, and we expect the loss to widen
modestly in the June quarter before shrinking gradually over the second
half of the year. TI should quickly realize higher operating margins and
profit after the deal closes.
o TI has nearly completed its metamorphosis into a pure play, value-
added semiconductor company. TI specializes in DSP solutions, analog/mixed-
signal, ASIC, and specialized logic products. TI's application focus is
increasingly on high performance communications and data networking
applications.
o We are raising our 1998 EPS estimate from $2.02 to $2.10, and our 1999
EPS estimate from $3.20 to $3.50. We are reiterating our Buy rating on the
stock and raising our 12-month target price to $100.
Adios DRAM
TI announced it is selling essentially all of its memory division assets to
Micron Technology. TI will receive 28.9 million share of Micron common
stock, $740 million principal amount of convertible debt (convertible into
12 million shares of Micron stock), and $210 million principal amount of
subordinated paper. In exchange for the convertible and subordinated paper,
TI will provide Micron with $750 million in financing to fund the
deployment of Micron's DRAM technology. Micron will assume $192 million of
government-sponsored debt in conjunction with TI's Italian operations. The
deal is expected to close by the end of the September quarter.
Micron will acquire TI's Avezzano, Italy operation; the Richardson, Texas
operation (formerly the TwinStar joint venture); an assembly/test facility
in Singapore; TI's interest in the KTI joint venture in Japan and the TECH
Semiconductor joint venture in Singapore. The two companies also agreed to
a 10 year, royalty-free patent cross-license agreement, starting in 1999.
The disposal of its memory operation should provide improved profitability
for TI immediately upon the deal's closing. TI generated a $129 million
operating loss from its memory division in the March quarter, equivalent to
($0.21) per share. We expect this loss to widen modestly in the June
quarter, due to continued declines in DRAM pricing. We had projected a
gradual narrowing of the loss during the second half of 1998, and return to
profitability during the second half of 1999. We had projected a net loss
from the memory operation in both 1998 and 1999. TI announced a
restructuring in conjunction with the deal that will eliminate 3500 jobs
worldwide and result in savings of about $270 million annually, which will
just offset the residual fixed and allocated costs associated with the
memory operation not absorbed by Micron. This implies that the net
operating loss (or profit) from memory operations would flow back to (or
out of) the P&L.
The disposal of its DRAM operation is the last major step in TI's
metamorphosis into a pure play, value-added semiconductor company. The
company's semiconductor operations will be centered around the DSP and
analog/mixed-signal product lines, with strong competence in system-level
integration ASIC and ASSP products. TI's primary application market focus
will be the communications and data networking markets, with some exposure
to mass storage, digital consumer, automotive and industrial electronics
markets as well. We expect the company to experience substantial
improvement to its operating model after the deal closes, with gross margin
moving into the mid-40% range and operating margin moving toward 20%. We
also expect TI's financial performance to be significantly less volatile
with the removal of its memory exposure, which should ultimately translate
into a higher multiple. We are raising our 1998 and 1999 EPS estimates to
$2.10 and $3.50, respectively. We are raising our 12-month target price to
$100. We reiterate our Buy rating on the stock. |
