Sunday, June 1, 2008
[In this two part series, I will compare the strategies of TXN and STM]
The 2007 revenues for both companies topped $10 billion. With very broad product portfolios, they compete directly in many markets including communications, computing, consumer electronics, industrial and automotives. Each company owns and operates its own manufacturing
While TXN is a
With this as a background, let us look at the contrasting strategies that these companies are executing on.
Manufacturing: TXN has diverted its manufacturing capabilities towards analog slowly migrating towards the fabless model for digital manufacturing. This move away from the Integrated Device Manufacturer (IDM) model to a more hybrid strategy has allowed TXN to become more nimble.
In contrast, STM seems firmly committed to the IDM model spending substantially in Capital expenditure and process technology research. Although it is engaged in joint R&D efforts with other companies like IBM to gain scale, this strategy may make it increasingly difficult for the company to compete with the aggressive pricing and product strategies from the fabless vendors.
TXN has been executing well on its target of 55% gross margin and 30% operating margin. In contrast, STM is struggling with about 35% gross margin and an operating loss of about 5% in 2007. The company aims to reduce its operating expenses to about 28%. This still implies single digit operating margins for 2008.
I will conclude this series in the second part after peeking into the companies’ divergent product strategies. In the meantime, for a detailed overview of these companies, I will direct you to my TXN valuation series here, here and here and to my STM valuation series here, here and here.