TEXAS INSTRUMENTS INC. $19 - New York symbol TXN

TEXAS INSTRUMENTS INC. $19 (New York symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $24.7 billion; Price-to-sales ratio: 2.1; WSSF Rating: Average) makes chips for a wide variety of electronic devices, including cellphones, DVD players and digital cameras. It also makes handheld calculators. The company has over 80,000 customers, but cellphone maker Nokia Corp. (New York symbol NOK) accounted for 18% of its 2008 sales. Texas Instruments earned $17 million, or $0.01 a share, in the three months ended March 31, 2009. In the year-earlier quarter, it earned $662 million, or $0.49 a share. Sales fell 36.2%, to $2.1 billion from $3.3 billion. The company spends around 18% of its revenue on research. In response to slowing sales, Texas Instruments has cut 3,400 jobs (or 12% of its workforce). Severance and other payments will cost it $400 million (including $105 million in the latest quarter), but the layoffs should lower its annual expenses by $700 million when it completes these cuts later this year. Weak sales also prompted Texas Instruments to cut its inventory by $277 million during the latest quarter. As well, it worked with its distributors to cut their inventories by $132 million. These moves should help stabilize chip prices, particularly now that it looks like demand is starting to rise again. The company hopes to spur growth by enhancing the performance of its chips. To this end, it recently bought privately held CICLON Semiconductor Device Corp. for $111 million. CICLON specializes in high-performance, low-power chips. This technology should help Texas Instruments win more cellphone-chip orders, particularly as cellphones become more like computers. The stock now trades at 36.5 times the company’s likely 2009 earnings of $0.52 a share. Next year’s earnings could reach $0.90 a share, which gives it a more reasonable p/e of 21.1. The $0.40 dividend yields 2.1%. Texas Instruments is debt free, and holds cash of $2.4 billion, or $1.91 a share. Texas Instruments is a buy.

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