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How Being Apple’s Only Foundry Partner Works in TXN’s Favor

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Dec. 4 2020, Updated 10:53 a.m. ET

Texas Instruments overview 

Texas Instruments (TXN) is the world’s largest analog IC (integrated circuits) supplier and the seventh-largest semiconductor company in the world. It also supplies embedded chips and is looking to expand in the automotive space. Apple (AAPL) is its biggest customer, accounting for 11% of its overall revenue.

In the previous part of this series, we saw that Texas Instruments would benefit from Apple’s new iPhone 7. Let’s see how the chipmaker’s earnings would look in fiscal 3Q16.

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Revenue

Texas Instruments (TXN) expects to report revenue between ~$3.3 billion and ~$3.6 billion in fiscal 3Q16, which indicates YoY (year-over-year) growth of 2% and sequential growth of 7%. The guidance is in line with the analyst revenue estimate of ~$3.5 billion.

The revenue growth would largely be driven by strong orders from Apple for its flagship product, the iPhone 7. There is a possibility that the chipmaker could exceed its revenue guidance as TSMC (TSM), Apple’s only foundry partner, exceeded the higher end of its fiscal 3Q16 revenue guidance by 1.3%.

Investment bank Piper Jaffray noted that the overall supply of the iPhone 7 is “constrained.” Pacific Crest also increased its estimates for iPhone 7 component orders in 2H16. These factors indicate that Texas Instruments could report better-than-seasonal revenue in fiscal 2H16.

EPS

For fiscal 3Q16, Texas Instruments (TXN) expects to report EPS (earnings per share) in the range of $0.81–$0.91. This EPS range is higher than the $0.73 reported in fiscal 2Q16 and is in line with the analyst estimate of $0.86. Its earnings are expected to improve as the company realizes cost savings from its restructuring efforts.

TXN beat analyst estimates in four of the past five quarters by an average of 7.3%. If the company maintains this trend, it could report EPS of $0.92 in fiscal 3Q16. If we remove the seasonal effect, the company exceeded its EPS estimate by 11.8% in fiscal 3Q15. If this seasonal trend is maintained, the company is likely to report EPS of $0.96 in fiscal 3Q16.

Next, we’ll see how Texas Instruments’s profits would turn out in fiscal 3Q16. You can invest in TXN through the PowerShares QQQ ETF (QQQ) that has holdings in technology stocks, including ~12.1% in AAPL and ~1.3% in TXN.

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