Morningstar | TXN Updated Star Rating from 25 Jul 2018
Texas Instruments is the world's largest analog chipmaker and a key supplier of embedded chips into a host of applications. We remain encouraged with Texas Instruments' relentless focus on higher-margin analog and embedded chips, and when combined with smart operational moves on the manufacturing front, we foresee further gross margin expansion in the years ahead.Texas Instruments has a leading share of the fragmented yet lucrative analog chip market. Analog chips are used to convert real-world signals, such as sound and temperature, into digital signals that can be processed. We believe Texas Instruments has a wide economic moat because it benefits from intangible assets around proprietary analog designs, as well as customer switching costs. Since analog chips are neither particularly expensive, nor do they require cutting-edge manufacturing techniques, high-quality analog chipmakers tend to retain design wins for the life of the product, yet maintain healthy pricing and strong profitability on such sales over time. Additionally, Texas Instruments' size allows the firm to compete across a broader spectrum of industries, without its fortunes tied to a single customer or end market.Texas Instruments has spent much of the past decade focusing on its analog chip business, highlighted by the large acquisition of National Semi and shrewd purchases of cutting-edge manufacturing equipment for pennies on the dollar. The expansion should allow Texas Instruments to attract additional analog chip orders, all while taking on relatively lower fixed costs that has led to healthy gross margin expansion, a trend we don't see slowing down anytime soon. Texas Instruments' embedded chip business may also see healthy growth over the next few years, especially if the nascent "Internet of Things" trend takes off, as Texas Instruments' chips could be key components in a massive array of new electronics devices with improved connectivity and processing power.Texas Instruments designs and makes semiconductors that it sells to electronics designers and manufacturers. The company has two reportable segments: Analog and Embedded Processing. The company's analog semiconductors change signals, such as sound, temperature, pressure or images to a stream of digital data. The company's analog segment primary product lines includes: power, signal chain, and high volume. The company's embedded processors are designed to handle specific tasks and can be optimized for various combinations of performance, power and cost, depending on the application. The company's embedded processing segment primary product lines includes: connected microcontrollers and processors.
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