Monday, May 21, 2007

It’s all in the Mirrors - TXN

Texas Instruments is definitely on my short list and has been for years. Texas Instruments (TXN) is best known for making those complex calculators that we all had to buy for our college algebra classes at a $100 bucks a pop, but those calculators make up only a very small portion of TI’s annual revenue. TI’s main bread and butter is its semiconductor business. TI supplies millions of tiny chips that operate our favorite little friends, the cell phone. Two of TI’s biggest customers when it comes to chip consumption are Nokia (NOK) and Motorola (MOT). Although domestically Nokia has become a discounted brand, likely used as a prepaid phone, they are still a world leader producing millions of phones annually, which equates to millions of chips annually.

TI’s most recent success story is the DLP television. “It’s all in the mirrors” is TI’s ad slogan for the new DLP TV’s because they use millions of mirrors to create the intense clarity. DLP’s do have some disadvantages when compared to LCD and Plasma as far a picture clarity, contrast, and viewing angle, but for the price DLP is awfully competitive. The biggest disadvantage that DLP’s have is that they are projection TV’s. No smooth looking flat panels here, but that has not stopped TI from successfully marketing this product.

Analog chips are not quite as sexy as DLP TVs or high tech cell phones but these chips make up 40% of TI’s business. This is a huge global market in which TI dominates. Used in computers and other electronic devices analog chips are used to communicate and convert information to digital format. Let’s turn to Business Weekly for a better explanation:

“Analog chips measure "real world" inputs—from the temperature in a room or the sound of a voice to the touch of a button—so they can be converted into a digital signal that a computer or other device can understand”

So what is the stock play for TXN? TI is one of those companies that tend to stay in a pretty narrow window as far as stock price goes. I have traded in and out of this stock between $28 and $35, but recently TI has begun an upward trend holding pretty strong at $36. I am waiting on TXN right now to retreat a little to add on to my position. TXN is trading at 12.75 times earnings and has a one year target of $39.

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