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By Brian Colello, CPA | 11-08-2010 02:14 PM

Texas Instruments: We Can Grow at Twice the Market Rate

TI's Dave Pahl explains how the firm plans to grow its analog semiconductor business at twice the rate of competitors.

Brian Colello: Hi. I'm Brian Colello, Semiconductor Analyst at Morningstar. With us today is Dave Pahl, Director of Investor Relations at Texas Instruments. Some of you may be familiar with Texas Instruments from their popular line of calculators, but more than 95% of the business comes from semiconductors. They are the world's largest analog chipmakers and have a host of other product lines.

Dave, thanks for joining us.

Dave Pahl: Thanks, Brian. Thanks for having us.

Colello: Could you give us a quick overview of your business, your various segments where some of our listeners might be using your products today and can you also give us an overview of how business has been since the credit crisis?

Pahl: I think if you look at our products as you said, vast majority of them are in semiconductor market. Last year, we were a little over a $10 billion company with our guidance here in fourth quarter and finishing up the year we'll be probably around a $14 billion company, as we've come off the trough of the economic downturn that began in the third quarter-fourth quarter of 2008.

If you look at the composite of our businesses and we've got four segments that we report. About 40%, 42% of our revenues are what we call analog products and analog, as you know, go into really any electronic device that we see in the world, and they do simple things like converting energy from devices that plug into walls to what the electronics can use or from batteries into energy that they can use as well as a host of other things.

About 15% of our revenues are what we call embedded processing products and that's where we've got a either a microcontroller or a DSP where customers are writing software to those platforms. It's also a market where we service thousands of customers. We also have a core wireless business that is in both application processors and those are the brains of today's smartphones, as well as what we call connectivity products and connectivity products are things like Wi-Fi and GPS and Bluetooth and FM.

And then finally, we have a last bucket that we call other and inside of our other, we've got the famous calculators that has been a very nice business for us for years, as well as products we call digital light processors. So, if you've seen a 3D movie at a theatre, the vast majority of those are delivered through TI DLP engines, and then we've also got some royalties ASIC business and some miscellaneous businesses inside of that.

Colello: We've talked before and we've heard you discuss very aggressive or very optimistic growth plans going segment by segment for the analog business. You mentioned that you expect to grow at twice the industry rate. How do you expect to do that?

Pahl: Well, the good news is that if you look at our performance in two of our businesses inside of analog, our high-performance analog business as well as our power business we actually have been doing that and we're doing it because we've got a broader portfolio of products than any of our competitors.

So we've got the opportunity to cross sell to customers when we're engaged on one device. We're looking right and looking left of that product to see what other things that they are using and what we might be able to sell them. And the second thing is we've got two to three times the number of sales people in any given market, so we're just calling on more customers than any of our competitors.

So in analog today, we have about 13% of the market with the number one position. So there is a lot of opportunity to grow from market share gains. Where we haven't been happy with our performance is in the third business unit inside of analog, which is the high-volume analog and logic or HVAL as we call it and that business has not only lost share, it's actually reduced in size of revenue over that same time period. We went through a pretty major restructuring of that business a few years back and obviously it takes time for that restructuring to take hold.

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