Texas Instruments (TXN) has a long and illustrious history. It invented the handheld calculator in 1967, the single-chip microcomputer in 1971, and was granted the first patent for a single-chip microprocessor in 1973.
TI is now a semiconductor company. It is the world’s No. 1 producer of analog chips, used to convert conventional signals, such as sound, touch and video, into digital signals. They also can regulate power. So they are key components for everything from computers to cellphones to e-book readers to industrial air conditioners.
With more consumer items such as refrigerators and washers adding electronic functions, analog chips are thriving. They can be very profitable, because their simplicity keeps production costs very low.
That means more profits for TI. It was No. 2 in overall chip sales among U.S. producers last year, after Intel. Put it all together and TI is a stock worth examining.
The company registered net income of $666 million in the first quarter, up from $658 million a year earlier. Sales rose 6 percent to $3.39 billion from $3.21 billion.
However, TI got hit hard by the earthquake and tsunami that struck Japan. The disaster hurt sales in Japan and cut output the company’s factories there. Japan accounts for 10 percent of revenue.
But other areas are performing well, including analog and embedded chip sales. The company has a hefty operating profit margin of 27 percent.
On April 4, TI agreed to buy rival National Semiconductor Corp. for about $6.5 billion, which will solidify its lead in the analog-chip sector. The deal will expand the product line for the medical-device, telecommunications, and industrial-equipment industries. TI will gain 12,000 new products from National Semi.
“TXN appears undervalued based on its trailing 12-month price-earnings ratio of 13.20, which is less than the information-technology sector’s bottom quintile value of 13.77,” analysts at Ned Davis Research write.
Of the nine most accurate analysts listed by Fidelity Investments, five have the equivalent of a buy rating on TI, with the other four neutral.
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