Texas Instruments Inc., established in 1930 to develop oil exploration technology, has grown into a predominantly wireless-based powerhouse with $14.3 billion in annual revenue last year. Its main customer for its digital signal processors is Nokia Corp., the world’s largest cellphone vendor. By revenue, TI, which focuses on GSM and fabricates its own chips, is the single largest chip vendor serving the wireless world.
CEO Rich Templeton is speaking to investors at 3GSM tomorrow about how the company is pursuing growth in the wireless market. He also may answer questions on last week’s news that Nokia will begin working with Infineon Technologies AG for chips for low-cost handsets, previously TI’s exclusive domain.
Though the terms of Nokia’s deal with Infineon were undisclosed, at least one analyst called the impact on TI merely “a flesh wound.”
TI’s position in digital signal processors and analog components allows it to address wireless opportunities in 3G and mobile television (DVB-H) as well as emerging markets for digital audio and cameras, according to the company.
TI’s expertise and product lines, however, crosses myriad industries including automotive, consumer electronics, medical and military segments. The company’s wireless industry work focuses on DSPs, which enable a wide variety of functions in voice, data and connectivity.
More power
According to Will Strauss, principal at Forward Concepts, which tracks the semiconductor industry, once a signal is received by a mobile handset and converted from analog to digital, all processing is done by a digital baseband chip, which is a DSP programmed to serve as a cellular modem. Digital signal processing is the mathematical manipulation of digital signals in order to modify or improve their characteristics, Strauss said.
Besides Nokia, TI is known to count Motorola Inc., Sony Ericsson Mobile Communications L.P. and LG Electronics Co. among its customers. TI is a major supplier of wireless chips to Chinese vendors as well.
Like most semiconductor companies, TI is working to expand the value of its products by integrating related functions into a single chip or package of chips. Market forces push TI, and all chip vendors, to produce smaller, more powerful and power-efficient products at progressively lower prices.
While the wireless market in general and the Nokia relationship in particular have fueled TI’s growth, the situation has drawbacks as well.
“When one sneezes, the other gets a cold,” said Strauss.
More cost savings
Though TI’s revenue in 2006 grew by 16 percent from the prior year, a weak outlook for the first quarter of this year, driven by slower growth in lucrative handset sales in mature markets, led the company to announce 500 layoffs (about 1.6 percent of its global workforce). Investors have shown concern about the company’s revenue mix; the bulk of growth in the wireless handset market today is in lower-cost handsets in emerging markets-which use low-margin chips-rather than higher-margin replacement handsets in mature markets.
As Ron Slaymaker, manager of TI’s investor relations, told analysts on Jan. 22 in an earnings call, the handset market influenced a 2-percent drop in wireless revenue in 2006 over the prior year. 3G-related revenue, which carries greater margins, grew a modest 7 percent over the prior year.
The company’s single-chip product for emerging market handsets, “LoCosto,” ramped up in the fourth quarter, Slaymaker said, a surge expected to continue this year as TI transitions to a more efficient manufacturing technology. TI’s single-chip product-dubbed “eCosto,” it combines an application processor and RF modem functions-supports EDGE and begins sampling with handset vendors in the first half of 2007, according to Slaymaker.
More opportunities
TI faces a market where handset vendors are seeking to diversify their chip suppliers, Slaymaker acknowledged, while pointing to new opportunities to diversify its own customer base. For instance, TI recently announced a deal with Nokia rival Motorola to provide chips for 3G and WiMAX, as well as application processors, which analysts have said should offset any loss of Nokia business to Infineon. Motorola-and Nokia, as noted above-is an example of a vendor diversifying its chip suppliers; it has agreements with TI, Qualcomm Inc. and Freescale Semiconductor for W-CDMA, a new battleground with several aggressive competitors.
“The key to winning is simply that we must continue to win more . high-volume customer programs than we lose,” Slaymaker told analysts.
Last year, TI garnered more than 62 percent of the DSP market, followed by Freescale with 13 percent, according to data from Forward Concepts. Freescale enjoyed the bulk of Motorola’s business after the latter spun it off in June 2004 as a public company. (Freescale went private last year, when it was purchased by a private-equity consortium led by The Blackstone Group for about $17.6 billion.) Motorola and TI’s recently announced collaboration will bear fruit next year, when Freescale’s exclusive agreement with Motorola apparently expires.
In the DSP segment, TI appears well-positioned, according to a report last week from Forward Concepts. Consumer-related DSP shipments grew nearly 60 percent over the prior year and wireless accounted for nearly 73 percent of all DSP sales.
Forward Concepts’ DSP forecast calls for a flat Q1 (echoing TI’s own forecast), with growth picking up in Q2, fueled by accelerating adoption of W-CDMA in higher-end handsets and new subscribers in emerging markets. Ultimately, according to Forward Concepts, communications and multimedia applications based on DSP technology will supplant the PC as the largest overall semiconductor market, giving DSP competitors such as TI a thriving market to pursue.
Texas
Instruments
CEO: Rich Templeton
Headquarters: Dallas
2006 revenue: $14.3B
31,000 employees
Products:DSPs
and myriad others
Biggest customers:
Nokia, Motorola,
Sony Ericsson, LG
Biggest competitors:
Qualcomm in W-CDMA
Freescale in DSPs
