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Stock Analyst Update

Texas Instruments Is Still a Strong Story

Short-term weakness creates long-term opportunity for investors.

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What Happened?
Texas Instruments (TXN) reported third-quarter earnings Wednesday evening in line with the First Call consensus estimate of $0.33 per share. Sequential revenue growth of 7% was consistent with management's guidance during its June conference call. Management sees weak growth in semiconductors next quarter as a result of temporary weak demand for wireless components as cell phone makers work down a glut of handset inventories.

What It Means for Investors
We think the market’s more than 35% shellacking of TI's stock during the past month has created a nice buying opportunity for investors. Despite the warning of weak semiconductor growth in the fourth quarter, the company's long-term story remains attractive. Handset makers have overestimated the rate at which wireless subscribers are replacing their phones, and as a result must work down their inventories to more normal levels. However, we don't think this inventory buildup indicates a significant fundamental problem in the wireless industry. Moreover, the subsequent weak near-term forecast for TI's chips, which are key components in cell phones, should not last more than one quarter. We also see next-generation wireless standards as a reason growth in the wireless industry will soon reignite, most likely in the second half of 2001.

Jeremy Lopez does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.