Texas instruments (NASDAQ: TXN) often flies under the radar. But this chipmaker has established a strong competitive position and shareholders have been well rewarded. In this Backstage Pass video, which was broadcast September 29, 2021Motley Fool contributor Trevor Jennevine discusses numbers investors need to watch when Texas Instruments reports earnings later this month. The company is expected to release its results on October 26.
Trevor Jennevine: Texas Instruments, for anyone new to the company, there is a semiconductor maker. And what they make are analog chips and integrated processing products.
Analog chips, probably something few people know about, convert real world signals, like sound and temperature, to digital data that can be used by other types of semiconductors. Then integrated treatment products, they are usually designed to perform a dedicated task in an electronic device, such as powering a calculator, an electric toothbrush or a microwave. Analog chips are therefore present in all electronic products; integrated treatment products are in most. And then one of the things I really love about Texas Instruments, I’ll get to that, but they have their own manufacturing facilities and they have an incredibly diverse product portfolio, 80,000 different products, 100,000 different customers across. a range of sectors: industrial, automotive, personal electronics.
To set the scene, things went well for this company last quarter. Revenue was $ 4.6 billion, an increase of 41%. They posted earnings of $ 2.05 per diluted share and it was up 39%, then quarterly free cash flow was $ 1.7 billion and it was up 9%. Thus, during the next quarter, the management expects a turnover of 4.4 to 4.76 billion dollars, an increase of 25% in the high-end. Then diluted earnings per share of $ 1.87 to $ 2.13, up 47% in the high end.
Over the past year, the title has been a market beater. The market has caught up recently, but Texas Instruments has been ahead in the last month or so. The things I’ll be focusing on when management releases results is, first of all, their commentary on supply and demand with the global semiconductor shortage. It’s a frequent topic during results calls, the fact that they have their own manufacturing facilities, including insert manufacturing, and assembly and test plants – this gives Texas Instruments a significant advantage.
They are able to control their inventory much more closely than if they did not own these factories, and so throughout the supply chain, the semiconductor supply issues, they have been optimistic about their ability. to meet customer demand. So I would be looking to hear what management has to say, see if there is still a position as strong as last quarter and take advantage of the fact that they have a wafer manufacturing facility, one of them. their advantages, as they currently need 300-millimeter production facilities and 300-millimeter production refer to the size of the silicon wafer on which integrated circuits are made. So it’s basically a circle, 300 millimeters is the size and most of their competition is using a 200 millimeter process, and basically if you increase that to 300 millimeters it allows you to produce 40% less chips per. chip, according to management. So they have a cost advantage there, and like I said, they had two of these wafer-making facilities that have a 300-millimeter process right now and they just bought a third one at Micron and they’re building a fourth in Texas. So we’ll be looking to see what management has to say about this deal and how the process of building the plant in Texas is going.
Then one of the great things shareholders love about this company I’m sure is that they’ve increased their dividend steadily for 17 straight years, and they’ve increased it at a rate of compound annual growth of 26%. They just announced another 13% increase, the dividend is now $ 1.15 per share, so I’m going to watch free cash flow just to make sure they can continue to fund that dividend. The payout ratio is currently around 54%, I believe, which just takes into account how much they pay out in dividends divided by net income. So we still have plenty of room to keep increasing this. But management has been very focused on returning money to shareholders in the form of share buybacks and dividend payments, and so has paid attention to free cash flow just to make sure it can continue to grow. fund these efforts. I think it’s important to watch.
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