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Technology Stocks : Texas Instruments - Good buy now or should we wait? -- Ignore unavailable to you. Want to Upgrade?

To: pat mudge who wrote (3842)	6/24/1998 5:17:00 PM
From: Barry Cartwright	Read Replies (1) \| Respond to of 6180

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.