Texas Instruments Eyes Shift Away from Wireless

Tuesday, 25 Sep 2012 04:39 PM

 

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Texas Instruments said it will shift its wireless investment focus from products like smartphones to a broader market including industrial clients like carmakers where it is hoping for a more profitable and stable business.

But TI's shares fell 3 percent as investors worried about its revenue prospects because the chipmaker did not go into detail about how the change would affect its financial results at an investor meeting on Tuesday.

Dallas, Texas-based TI has been under pressure in wireless, where it has lost ground to rival Qualcomm Inc and the world's biggest smartphone makers Apple Inc and Samsung Electronics Co Ltd who have been developing their own chips instead of buying them from a supplier like TI.

TI, whose chips are used in products such as Amazon.com's Kindle Fire tablet, told investors that it would continue to support its customers. But its mobile application chip business, which supports features like video, will not invest in supporting its customers future roadmap for tablets and smartphones to the same degree as before.

"We believe that opportunity is less attractive as we go forward," Greg Delagi, senior vice president for embedded processing, said during a webcast of the meeting.

TI has already kicked off efforts to expand sales of its OMAP wireless application chips beyond smartphone and tablets to its embedded chip business, which include industrial customers such as carmakers.

Analysts took Delagi's comments as the strongest indication yet that TI might exit OMAP from smartphones and tablets entirely.

"TI made it very clear they no longer want to be in the business of proving application processors for smartphones or tablets," said Longbow Research analyst JoAnne Feeney. "What remains uncertain is for how long they'll support customers."

As a result, investors were left wondering when TI's revenue from smartphones and tablets would start to disappear and how soon it would be able to replace it with new revenue generated from applying its previous investments to new markets.

Delagi said that TI is "reprofiling" its investment in wireless for embedded customers and that the company's research and development profile for OMAP "needs to look different."

The executive said OMAP's growth in the embedded product market will be slower than in the high-growth wireless market but would "generate a more stable, profitable long-term business" than wireless.

But he said it was too early to reveal specifics as to how this would affect TI's financials as the company is still working on changing its business.

In general Delagi said he expects TI's embedded processor and wireless chips to generate gross margins in a range of 55 percent to 60 percent and operating margins of about 30 percent, but he declined to give a time frame.

But this was not enough for investors.

"The market never likes uncertainty, and while removing some they created more," RBC analyst Doug Freedman said.

TI shares closed down 3 percent at $27.83 on Nasdaq.

© 2014 Thomson/Reuters. All rights reserved.

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