Texas Instruments: Strong Technical Support Could Signal 87% Increase
Toronto, ON, July 7 /SHfn/ -- After taking an analyst-induced beating earlier this
week, Texas Instruments' [TXN] shares, trading at $66.75, are at strong technical
support and more likely to recover in the coming months than go any lower. Merrill's
Joe Osha reiterates that although we are into the cyclical low for semiconductors,
he does not find "any evidence of a real end to the upturn that began in late 1998."
He expects the sector to be hitting new highs in the second half of the year. Other
analysts maintain their price targets of $125. TXN dropped around 10% on the open
July 5 after Salomon Smith Barney analyst Jonathan Joseph downgraded shares of
the company, among others. He forecasted that semiconductor shipments would
slow, and prices of components, which power them, would decline. However, this is
only one analyst's view. Neither TXN nor market research firms have reported any such slowdown as yet, and other analysts are
maintaining their "buy" recommendations for the stock.
In fact, the Salomon report is contradicted by a Merrill Lynch [MER] report that addressed the same
speculations on June 26. Merrill's Joseph Osha and Chris Danely conclude that there is no apparent
slowdown in wireless orders from major handset manufacturers, and that semiconductor suppliers
would be hard-pressed to meet demand for the expected 440 million handset shipments this year.
The report states that any weakness in semiconductor stocks should be viewed as an "opportunity to
build additional exposure to the group."
Other analysts have so far maintained their "buy" ratings. Some have price targets as high as $125,
which is a level that is supported by triple-bottom technical measuring techniques.
Wednesday's gap down opening can be viewed as an exhaustion gap, and Salomon's negative report should result in the culmination
of the recent down price channel, which began June 20, when Texas Instruments' stock traded as high as $90. At Thursday's close
of $66-3/4, the stock is severely oversold from a technical perspective. It should resume its up trend in the near term. The stochastic
indicator confirms the oversold status of TXN's shares. With strong support at $62.50, as evidenced by both the Bollinger bands and
Fibonacci fan lines, the stock should resume its up trend once Salomon's report has been discounted.
Even if there is a slowdown in cellular phone chip demand, it is unlikely to last for long. High-tech market research firms Cahners
In-Stat Group and Dataquest predict that worldwide sales of wireless handsets will be one billion in 2003, up from estimates of more
than 400 million units in 2000. Also, while TXN, because of its large market share, would get hurt in a major slowdown, the company
might well maintain its growth in a minor slowdown by capturing additional share from competitors.
Texas Instruments continues to fend off competitors, some of which have joined forces. The company has actually been increasing
market share to the point where it now supplies the cellular market with 60% of the digital signal processor (DSP) chips.
To bolster its lead, Texas Instruments recently announced a $7.6-billion acquisition of Burr-Brown Corp. [BBRC], and the $475
million purchase of privately held Dot Wireless. The Burr-Brown acquisition will improve Texas Instruments' 11% lead in the
$22-billion market for analog chips. Dot Wireless, which develops technology for emerging third-generation (3G) code division
multiple access (CDMA) wireless phones and devices, will fill Texas Instruments' gap in 3G technology and will further augment the
company's DSP market-share lead. CDMA is a technology which speeds the delivery of information to mobile phones and other
devices, helping to deliver excellent call quality and long battery life.
DSP revenue accounts for 22.3% of TXN's total revenues, while analog revenue accounts for 11%. First Call estimates project
FY2000 earnings of $1.25 per share, growing by 28% to $1.60 for FY2001. According to research firms IC Insights and Forward
Concepts, DSP shipments will surge in 2000, growing by 39% to $6.1 billion.
On June 22, analysts Eric Ross of Thomas Weisel, and Hans C. Mosesmann of Prudential Securities, raised their Texas
Instruments price targets to $120 and $125, respectively.
In the Merrill Lynch semiconductor report, Osha and Danely investigated speculation regarding a
slowdown in demand from cellular telephone makers. They concluded from their research that "Some
smaller cell phone manufacturers might be scaling back expectation in total cell phone sales for 2000
due to component shortages. However, our channel checks with several component suppliers have
revealed no slowdown in order rates from the major handset manufacturers."
Chip sales continue to obliterate projections, setting record after record. The Semiconductor Industry
Association (SIA) reported chip sales accelerated in May, growing to $15.6 billion, an 8.9% increase
over the previous month, and 45.3% increase year-over-year. J.P. Morgan Securities, a division of J. P. Morgan [JPM], believes that
35% annual growth is likely, with growth rates fluctuating between 30% and 45% for the balance of the year.
SIA's president, George Scalise, notes that together with strong PC sales, the "Industry growth is being driven by an explosion of
worldwide demand for cellular phones and the wireless communications infrastructure." He further notes that strong seasonal
demand trends characterize the PC and consumer electronics market, while cellular phones are in demand year-round. The SIA has
continued to predict that the 30% growth rate expected in year 2000 chip sales will slow to 25% in 2001.
As strong demand for cellular phones is confirmed, and the market digests Salomon's negative report, shares of Texas Instruments
are likely to advance to $125 over the next 12 months. |
