ADI Analog Devices Inc

Recently, Texas Instruments (TXN), or "TI," narrowed its revenue and earnings expectations for the second quarter of 2012. The chipmaker now expects sales of $3.28–$3.42 billion versus its previous guidance of $3.22–$3.48 billion. The earnings outlook has also been narrowed to 32–36 cents per share from the previous guidance of 30–38 cents.

Though the chipmaker has narrowed its guidance range, the midpoint remains unchanged. According to Thomson Reuters, the analysts also expect sales of $3.35 billion (in line with the midpoint of the management guidance).

Specifically, management stated that the wireless segment will decline sequentially. Even in the last quarter, revenue from the wireless segment was impacted by lower demand in the baseband business, which the company expects to phase out completely by the end of the year.

However, TI’s Analog and Embedded Processing segments are expected to post solid sequential growth. Orders and backlog are also expected to grow sequentially based on strong demand.

TI expects the industrial market to recover faster than expected and the addition of a solid product line-up from National Semiconductor, acquired last year, to drive strong overall results this year. On the whole, management commented that the business is doing well and results are expected to be as expected.

In the past few quarters, TI had been lowering its guidance due to soft market conditions and weakness in the handset and industrial end markets. This is the first time in the past year that the company has not lowered the midpoint of the guidance. TI remains confident about the end-market recovery and expects National Semiconductor to boost its results in the analog-chip market.

Though the first quarter earnings were down 18.4% sequentially and 28.6% year over year, management stated that the first quarter should be regarded as the bottom, with growth expected to return in the second. The fact that orders of $3.24 billion were up both sequentially as well as from the year-ago quarter, also point to growth at TI.

We believe the addition of National Semiconductor strengthens its product line-up and brings additional capacity onboard. Additionally, the company’s compelling product line-up, the increased differentiation in its business, restructuring activities and lower-cost 300mm capacity should drive earnings in the longer term.

Increasing competition from Maxim Integrated Products (MXIM), Analog Devices (ADI), Broadcom (BRCM), and Intel (INTC) remains a concern.

Currently, TI has a Zacks #3 Rank, which translates into a short-term Hold rating.

 
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