[TXN] Texas Instruments
I.
I was first introduced to Texas Instruments by my dearest high school friend:
Only years later would I learn that this wonder was but a thin product sliver within the TI complex, lumped in the stagnant “Other” catch-all segment that today accounts for just 5% of profits, with the other 95% coming from analog semiconductor chips.
Most of those chips fall in one of two categories: power management, circuits that deliver and regulate power across a circuit board, and signal chain, a series of components that gather and process signals: amplifiers enhance the analog signal picked up by sensors, analog-to-digital converters that convert the analog signal into a digital representation that is manipulated by digital signal processors to, for instance, remove unwanted noise or compress a song recording. That song might saved to memory, where upon replay it is converted back into analog by a digital-to-analog converter before being blasted over a stereo’s speakers.
Converters, amps, and power management ICs (PMICs), along with some commodity low-cost logic circuits, are contained in TI’s Analog segment, which makes up 77% of total revenue and 83% of profits.
Microcontrollers, which control motor functsion (i.e, a car’s braking system or windshield wipers) and DSPs1 are grouped into the somewhat lumpier, more competitive, slower growth Embedding Processing segment:
TI’s chips may not have the sex appeal of cutting edge advanced processors designed by Nvidia and AMD, but without them the electronic devices we take for granted don’t work. These ~$0.40 circuits are pervasive, splayed on circuit boards embedded in systems that control powertrains, x-ray machines, airbags, manufacturing and testing equipment….basically anything that runs on electricity and kicks back in response to physical stimuli. Whereas Intel and AMD sell a handful of CPU designs in massive volume to enormous end markets (smartphones, PCs, and servers), Texas Instruments maintains a catalog of 85k products fragmented across a vast array of use cases.
This wasn’t always the case. In 2005, most of TI’s revenue came from baseband modems and application processors found in cell phones, digital cameras, tablets, and other consumer electronics. These end markets are challenging because design cycles are short, tied as they are to the progression of packaging technologies and Moore’s Law. Revenue from a given design might peak within a year or two of launch and is, moreover, concentrated among OEMs with the bargaining power to negotiate favorable terms. So the company spent the better part of a decade unwinding its wireless exposure and mixing toward Analog and Embedded Processing products sold into Industrials and Autos, a journey hastened by its $3bn divesture of sensor and controls business, Sensata, to Bain in 2006, followed by the $6bn purchase of National Semiconductor in 2011, its last major acquisition2. Today, around 60% of TI’s revenue comes from Industrial and Auto.