Share tip of the week tech firm set to prosper once economic storms abate – MoneyWeek

TakeDallas-basedTexasInstruments,aleadingdeveloperofmicrochipsformobilephones,consumergoods,carsandmedicalequipment。

Itownsmorethan35,000registeredpatentsanditsstate-of-the-arttechnology(infieldssuchaspowermanagementanddatastorage)isusedinaroundhalfofallcellphonesand75%oflaptopPCssoldglobally。

Lastweek,despitearecentprofitwarningfromitslargestcustomer,Nokia,TexasInstrumentssaidthatperformanceforthecurrentquarterwasstillontrack,forecastingrevenueandunderlyingearningspershareof$3。

4bnand44centsrespectively。

Akeyreasonforitsresilienceisthatthefirmhasshiftedtowardsmoreprofitable3Gmobiledevicesandawayfromlow-marginentry-levelhandsets。

Ithasalsorampedupitsanalogue(35%ofsales)andembeddedprocessor(12%)units,whicharegrowingatdouble-digitannualrates。

TexasInstrumentsdeservesamuchhigherrating。

WallStreetexpects2008salesandadjustedearningspersharetocomeinat$13。

5bnand$1。

81,risingto$14。

0bnand$1。

95in2009。

Thatputsthestockonforwardp/eratiosofonly12。

3and11。

4。

Thislooksfartoocheap,especiallyasitisalsogeneratingaround$1。

90ashareinoperatingcashflowandhasarock-solidbalancesheetwithnetfundsof$1。

6bn。

Ontopofthis,duetotheimprovingproductmixandgreatercostefficiencies,theboardreckonsthatoperatingprofitmarginscanbeliftedfrom25%currently,to30%by2011-2012。

Therearetheusualpitfallstoconsider,ofcourse。

ThisChristmascouldbetoughastheeconomyslowsandconsumerspendingweakens。

TexasInstrumentsfacesavarietyofotherchallenges,includingrapidlychangingtechnology,intensecompetitionfromrivals–suchasInfineon,STMicroelectronicsandQualcomm–highcapitalintensity(ithastospendalotonresearchanddevelopment)andpricingpressure。

Yetthefirmlookswellrunandhasreinventeditselfmanytimesoverits78-yearhistory。

WhilesomeoftherecentchangeshavepromptedjittersonWallStreet,theriskslookweightedtowardstheupside。

Oncetheworstofthedownturnhaspassed,TexasInstrumentsshouldbeinastrongposition,givenitsgreatproductline-up,strengthinmobilecomputing,economiesofscaleandstrongcustomerrelationships。

Recommendation:long-termBUYat$22。

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