Strong order demand and closure of facilities
Texas Instruments’ or TI’s, product demand has increased due to the company having a shorter lead-time than its competitors. It had book-to-bill ratio of above one in the first quarter ending March 2013, which indicates the company’s strong order demand. The book-to-bill ratio measures orders received against units shipped and billed.
The majority of the company’s end markets are performing well, where industrial order demand is showing positive trends, particularly in high performance Analog and Silicon Valley analog products, as well as in embedded processing. Automotive is also showing strength because of catalog and application-specific integrated circuits. The communication infrastructure market is improving in North America with some improvement in China, but demand for semiconductors used in PC and consumer devices like gaming consoles remains weak.
With order growth across various end markets and growing customer strength, TI can expect revenue growth in its analog and embedded business segments. These segments contribute around 77% of the company’s total revenue. The analog segment revenue is expected to rise to $7.14 billion in 2013 and $7.65 billion in 2014, compared with $7 billion in 2012, whereas the embedded processing segment revenue is expected to rise to $2.28 billion in 2013 and $2.4 billion in 2014, up from $2 billion in 2012.
In 2012, TI announced that it will close two older semiconductor manufacturing facilities in Hiji, Japan, and Houston, Texas. These sites are 30 years old, and now require significant upgrades to keep operating. It is financially viable to shift production from these sites to more advanced facilities in Texas rather than upgrading. These sites are expected to close by the end of the second quarter of this year, and should generate annual savings of $100 million.
Broadcom Corporation (NASDAQ:BRCM)’s baseband chip, BCM23550, and extension of its 5G Wi-Fi technology to connected homes should drive revenue and strengthen its market position.
QUALCOMM, Inc. (NASDAQ:QCOM)’s launch of the new Snapdragon 400 and 3G subscriber growth in China provides better prospects for future growth.
Texas Instruments (NASDAQ:TXN)’ strong order demand across end markets should improve revenue and the closure of old facilities is expected to generate savings.
All three of these stocks look like buys.
The article These Semiconductor Companies Can Be Good Investments originally appeared on Fool.com and is written by Madhu Dube.
Madhu Dube has no position in any stocks mentioned. The Motley Fool owns shares of QUALCOMM, Inc. (NASDAQ:QCOM). Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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