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

To: gao seng who wrote (4308)	3/5/1999 8:01:00 PM
From: Robert S.	Read Replies (1) \| Respond to of 6180

Nice day for TXN shareholders. The expectation of rising margins probably played a role in today's share price spike: Stock of the Day Mar 05, 1999 Texas Instruments: Working on the Margins Is it good news or bad news? During its annual analyst conference on Thursday, Texas Instruments (NYSE:TXN - news) CFO Bill Aylesworth told Reuters that operating margins would be flat in the first quarter at around 16%, but they should rise going forward. The company's objective is to reach 20% by year end. The direction of profit margins is an important tool for investors in evaluating a company, and Texas Instruments' improvement in that area has fueled a strong run in the stock price lately. The question now is whether investors focus on the lack of progress in the current quarter or the hope for renewed progress ahead. Two years ago, Texas Instruments made a strategic shift away from the memory chip business toward specialized chips such as Digital Signal Processors (DSPs). The market for memory chips was brutal, characterized by massive overcapacity and freefalling prices. While conditions have improved lately, Texas Instruments is probably not regretting its exit from that market. Meanwhile, the DSP market is thriving. DSPs process audio and video more efficiently than general-purpose microprocessors. They are used in a growing variety of communications products such as wireless phones, DSL modems and TV set-top boxes. They are also expanding their presence in audio and video devices for things such as surround sound stereo, portable music devices and computer animation. These chips have above-average margins for the semiconductor industry, and TI is the dominant player in DSPs. The competition is really heating up in this market, though, with several big players like Motorola (NYSE:MOT - news) and Lucent (NYSE:LU - news) teaming up to develop new DSP chips. Semiconductors now account for roughly 60% of TI's revenues, and the company also said it continues to expect moderate revenue growth in this are for the first quarter and all of 1999. Recent worries about a slowdown in PC sales have sent computer and chip stocks tumbling in the past two weeks. Texas Instruments dropped nearly 20% in the span of a week. But since TI's chips are used in communications devices and a variety of other consumer electronics products, soft PC sales shouldn't be much of a direct concern. Perhaps more significant is the prospects for an end to the economic crises in Asia and Latin America, which are important end markets for the products that use DSP chips. While the US economy continues to chug along at a healthy clip, ultimately the DSP makers like TI need a revival in overseas markets to sustain long-term growth. The consensus among analysts is for 64% growth in earnings this year, and 30% next. The 5-year growth rate is seen at 22% for Texas Instruments. That is impressive growth for a company of TI's size, though miserable results in 1996-1997 provide an easy base from which to grow. With the stock price doubling since October, Texas Instruments now trades at 51 times trailing 12-month earnings. The forward P/E (using 1999 estimates) is nearly 32. That's quite a premium to the expected long-term growth rate of 22%, so TI better deliver on its hopes for expanding profit margins and revenue growth if it hopes to continue receiving that premium valuation. fnews.yahoo.com