Texas Instruments - Analog Market

Saturday, March 22, 2008

[Originally for Sramana Mitra's site]

In the last part of this series, I presented a brief analysis of TI’s 2007 Financials. As I mentioned before, the company’s semiconductor business has two pillars – namely DSP and analog. While DSP has been TI’s traditional strength, analog, which is one of the largest semiconductor markets, is fast becoming its future mainstay.

TI is the world’s largest supplier of analog semiconductor solutions. The statistic to note here is that its $5.29bn revenue represents just under 15% of the total addressable market of $36bn, presenting a huge opportunity for the company to grow.

TI has an increasingly strong presence in the high-performance analog (HPA) semiconductor market. The company has successfully grown its market share in HPA every year since 2001. HPA is driven by power management chips and precision high speed data converters and amplifiers. It contributes to 45% of TI’s analog revenues helped by stable pricing and the company’s technological acumen. Besides, as the product mix gets skewed to HPA, TI will be able to achieve its margin targets.

TI is taking steps to consolidate its position in the analog market and to have sustained growth in excess of the fragmented analog market growth. It has been investing heavily in analog since the past decade. A substantial portion of the company’s R&D expense has been spent in activities such as increasing analog field applications engineers to bolster its world-wide support network. Also, its CFO Kevin March said recently that acquiring smaller companies to grow market share was always in the cards. TI believes that this strategy will allow it to rapidly leverage its sales force and customer contacts to complement the acquisition’s product offerings. In keeping with this mindset, the company acquired integrated circuit designs and POWERPRECISE solutions last year.

TI’s increased attention to this market has resulted in impressive financial results. Analog revenues have grown by 11% over the past two years. The corresponding HPA growth has been about 28%. The company has continued to broaden its analog portfolio to bring differentiated custom, standard and commodity analog products to the market. It is well-positioned to exploit the continued thrust towards efficient power management, especially in mobile communications. If it can continue to skew its product mix towards HPA products, TI can further the already market share in the analog space with impressive margins despite falling prices. This will also drive its future growth.

Posted by Vijay Nagarajan at 1:00 PM  

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