Texas Instruments’s business segments
In the previous part of this series, we saw that Texas Instruments (TXN) is expected to post strong revenue growth in fiscal 3Q16, driven by bulk orders from Apple (AAPL). Texas Instruments has divided its business into three segments based on the product: Analog, Embedded Processing, and Others.
The three segments cater to various end markets such as industrial, personal electronics, automotive, communications equipment, and enterprise systems. With a slowdown in the personal electronics segment, which includes smartphones, the company is shifting its focus to automotive.
TXN’s Analog segment encompasses High-Performance Analog, Silicon Valley Analog, High Volume Analog & Logic, and Power Management. TXN earns 62% of its revenue and 70% of its operating profit from the Analog segment.
As seen in the above graph, TSN’s Analog revenue is seasonally high in fiscal 3Q and is expected to grow in fiscal 3Q16 as well. If we assume the segment’s contribution toward the company’s revenue remains unchanged, its revenue is likely to grow ~8.2% sequentially to ~$2.2 billion. This growth would be purely due to seasonal demand from Apple, as the revenue growth would be flat when compared with fiscal 3Q15.
Over the past five quarters, the Analog division’s operating margin has improved by an average rate of 50 basis points. If this trend continues, it may report an operating margin of 38.3% in fiscal 3Q16, which equates to $831.5 million. This represents YoY (year-over-year) growth of 2.4%.
Texas Instruments’s Embedded Processing segment comprises Microcontrollers, Processors, and Connectivity Chips. TXN earns 23% of its revenue and 19% of its operating profit from this segment.
As seen in the above graph, Embedded Processing revenue grew in four of the past five quarters. If we assume the segment’s contribution toward the company’s revenue remains unchanged, its revenue is expected to grow 6.4% sequentially and 10.8% YoY to $803 million.
Over the past five quarters, the Embedded Processing division’s operating margin has improved by an average rate of 130 basis points. If this trend continues, it may report a margin of 26.3% in fiscal 3Q16, which equates to $211.3 million. This represents YoY growth of 21.4%.
Texas Instruments’s Others segment includes calculators, royalties, and custom ASIC (application-specific integrated circuit) and DLP (digital light processing) products. The segment’s fiscal 3Q16 revenue is likely to grow 7.6% sequentially to $510 million.
Next, we’ll see how Texas Instruments’s profits could turn out in fiscal 3Q16.