Why it’s important for investors to understand Texas Instruments



Company overview

Texas Instruments (TXN) was founded in 1941. It’s headquartered in Dallas. TXN is known for designing and manufacturing semiconductors. It has operations in ~35 countries.

It was formed through the purchase of Geophysical Service Incorporated—a seismic exploration company. The founders of Geophysical Service turned it into a company that built electronics for the US Army and Navy. Later on, the company’s name changed to Texas Instruments.

Intel (INTC) dominates the semiconductor industry. Qualcomm Inc. (QCOM), Samsung Electronics Ltd. (SSNLF), and Broadcom Corporation (BRCM) are other leading players in this space. The companies work together. They enter into joint ventures (or JV) to retain their market share.

An example of a company that engages in joint ventures is Micron. To understand why Micron forms partnerships, read Market Realist’s series, “Why NOR flash is a key product for Micron” and “Why Micron’s NAND is an important business segment.”


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TXN’s reportable segments

TXN mainly generates its revenues from three segments.

• Analog
• Embedded Processing
• Other

The company expects that the majority of its growth will come from two segments–Analog and Embedded Processing. We’ll discuss each segment in more detail later in this series.

End markets and customers

The above chart shows the proportionate contribution of the major markets—Industrial, Automotive, Personal Electronics, Communications Equipment, Enterprise Systems, and Calculators—that used TXN’s products in 2013.

Texas Instruments sells its products to original equipment manufacturers (or OEMs), original design manufacturers (or ODMs), and companies within the electronics manufacturing services industry (or EMSI).

An OEM designs and sells products under its own brand that it manufactures in-house. The brand can also be manufactured by other companies. An ODM designs and manufactures products for other companies. The companies sell these products under their own brand. EMSI companies manufacture, distribute, and provide repair services for electronic products for OEMs. None of its customers contribute more than 10% to the overall revenues.

The graph was amended to 24% for Industrial.


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