Revenue by segment
In the previous part of the series, we saw that Texas Instruments (TXN) is likely to report flat revenue growth in fiscal 2Q16, as strong growth in industrial and automotive is likely to be offset by weakness in communications and consumer electronics.
Texas Instruments caters to more than 100,000 customers. Apple (AAPL) is its biggest customer, accounting for 11% of total revenue. Due to its diverse products and customer base, the chipmaker is less likely to be impacted by a single product or consumer. While end consumer demand may bring ups and downs in quarterly results, it’s unlikely to affect long-term growth.
The analog segment consists of high volume analog and logic, power management, high-performance analog, and Silicon Valley analog segments. Texas Instruments earned 62% of its revenue from analog in fiscal 1Q16. The company dominates the $45 billion analog market with an 18% share. However, the company’s analog segment has been reporting declining revenue over the past two quarters, as iPhone sales fell and will likely see another decline in fiscal 2Q16.
The embedded processing segment comprises MCUs (microcontrollers), processors, and connectivity semiconductors. Texas Instruments earned 24% of its revenue from embedded processing in fiscal 1Q16. The company dominates the $18 billion embedded processing market with a 15% share.
In the embedded space, automotive is the key market Texas Instruments is eyeing. An average car has analog ICs, MCUs, discrete power devices, and sensors. Texas Instruments provides three of these four components and is looking to expand in this area. However, it faces tough competition from NXP Semiconductor (NXPI), which dominates the automotive space.
Trefis forecasts that the embedded processor market will grow by 28% over the next five years, and Texas Instruments’ market share will increase from 15% in 2015 to 17% in 2021. This means the company’s revenue from the embedded segment is expected to rise from $2.8 billion in 2015 to $4.2 billion in 2021.
According to WSTS (World Semiconductor Trade Statistics), the worldwide semiconductor market is expected to fall by 2.4% YoY (year-over-year) in 2016. However, the analog and micro IC markets are expected to grow 1% and 0.6% YoY, respectively, in 2016.
Thus, Texas Instruments is likely to outperform the semiconductor industry in 2016. Next, we’ll look at the profitability of the company in fiscal 2Q16.