Texas Instruments is a global semiconductor company that develops analog ICs and embedded processors. It designs and makes semiconductors which are subsequently sold to electronics designers and manufacturers worldwide.
The company owns and operates semiconductor manufacturing facilities (wafer fabrication and assembly/test facilities) in North America, Asia, Japan, and Europe. It has operations around 30 countries worldwide.
Texas Instruments’ reportable segments include Analog (68% of 2018 revenue), Embedded Processing (23%) and other (9%). Analog and Embedded Processing are its core businesses accounting for leading overall industry market share at 18% each, respectively.
Texas Instruments caters to many diversified markets like industrial (36% of total revenue), personal electronics (23%), automotive (20%), communications (11%), enterprise systems (7%) and other (3%). The company owns a broad portfolio of products that are essential for electronic equipment and sells them to about 100,000 diverse customers.
- Opportunity Score: 64
- Ticker: NASDAQ:TXN
- Sector: Technology
- Industry: Semiconductors
- Market Cap: 137.65B
- P/E: 28.34
- Dividend Yield: 2.72%
- Payout Ratio (Earnings): 77.13%
- S&P Dividend Aristocrat: NO
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 6/10
Revenue Growth & Market Exposure
Texas Instruments is well positioned to increase its market share in the fast-growing electronics industry. The company produces semiconductors or chips which serve as the building blocks of electronics and equipment. Texas Instruments has a broad portfolio of differentiated analog and embedded processing products and is known for delivering quality and reliable long-life products. About 100,000 global customers use Texas Instruments’ chips. The company also has developed strong sticky customer relationships over time.
With nearly nine decades of expertise in the industry, Texas Instruments has developed a strong expertise in technology and manufacturing. The company enjoys a manufacturing cost advantage owing to its in-house manufacturing and inherent advantage of 300-millimeter production. Its Analog and Embedded Processing businesses offer solid opportunities for future growth, profitability, and steady cash generation.
Companies in every industry depend on Texas Instruments to help them deliver smarter and efficient products for the future. The company has been growing its focus on industrial and automotive markets, which together account for 56% of its total revenue, up from 42% five years ago. Texas Instruments is targeting a bigger portion of its revenues to come from these markets given the diversity, long product lives, growth opportunities and solid returns on investments.
Texas Instruments has proficiently acquired knowledge about targeted end markets, manufacturing process technologies, and software expertise. All these features act as strong entry barriers for new entrants.
Texas Instruments is a shareholder-friendly company paying uninterrupted dividends since 1962. The company has spent nearly $25 billion on consistent share repurchases over the last ten years and has been growing its dividend for the last 15 years in a row. Texas Instruments is a Dividend Achiever with an impressive dividend growth rate of 20.4% CAGR over the last decade. The company sports an average annual yield of 2.5% and a reasonably safe payout ratio of 55%. It last raised its dividend by an impressive 24%. Earnings growth has also been solid over the years, with the company compounding its earnings growth at 24% annually, over the last five years.
Texas Instruments is targeting analog and embedded processing products and the industrial and automotive markets to be its future growth drivers given their attractive fundamentals. Every electronics device uses some form of analog, and embedded processing, while both the markets tend to be long-lasting i.e. their product life cycles are measured in years and even decades. Analog and embedded processing are the best products in the semiconductor industry while industrial and automotive are the best markets, both offering solid growth opportunities. These products have registered a growth of 8% CAGR in the last decade.
Long product life cycles, intrinsic diversity, and less capital-intensive manufacturing enable Texas Instruments to generate ample cash flows. The company has been generating growing free cash flow per share over the last decade despite difficult market conditions, at times. It generated over $6 billion (i.e. ~38% of revenues) in free cash flow in the last year. Texas Instruments is targeting to commit all of its free cash flow towards dividends and share repurchases in the near future.
Given the growing demand for electronic products and Texas Instruments’ market leading reputation, investors can expect the company to continue its dividend growth pace in the future. A reasonable payout ratio and strong earnings growth should also support future dividend hikes.
Manufacturing and technology are core competitive advantages for Texas Instruments. The sheer size of Texas Instruments marketing channels (sometimes even five times larger than those of its peers) is another differentiating factor. Moreover, the company commands strong leadership positions in most of the analog categories that grant it a significant edge over the competition. It competes with the likes of Analog Devices and Microchip Technologies.
|TickerKey||Ticker||Company||Sector||Industry||Score||Quote||Market Cap||P/E||FPE||EPS||Yield||Payout Ratio||Payments||Dividend||Chowder||GrowthRating||IncomeRating||Tollbooth||Ambassador||Achiever||Aristocrat||King||Country||Graph||Yield|
|NASDAQ:ADI||ADI||Analog Devices, Inc.||Technology||Semiconductors||0.62||124.20||45.90||41.57||41.57||2.99||0.0200||0.8294||4||2.48||0.0969||9||6||Durable||YES||YES||NO||NO||USA||1||2.00|
|NASDAQ:MCHP||MCHP||Microchip Technology Inc.||Technology||Semiconductors||0.47||112.52||28.41||45.03||45.03||2.50||0.0130||0.5872||4||1.47||0.0178||5||7||Durable||NO||YES||NO||NO||USA||1||1.30|
The length and breadth of Texas Instruments’ product portfolio positions it better to address its customer needs. The consistency of its dividend and share repurchase practices demonstrates the company’s willingness to return excess capital to its shareholders. The diversity and longevity of Texas’ products, markets, and customer positions make it an undisputed leader in the industry. Texas Instruments is targeting to distribute 40% – 60% of its current year FCF as dividends to its shareholders.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.