TI banks on analog, embedded as mobile slips

By Sinead Carew - Analysis

NEW YORK (Reuters) - Texas Instruments Inc (TXN.N), best known for its mobile phone chip business, is turning to analog and embedded chips instead to drive its growth, banking on them to bring in 75 percent of its revenue in 5 years.

At its annual analyst meeting on Thursday, TI set ambitious growth targets for its analog and embedded chips, used in everything from consumer electronics to industrial products, but did not specify targets for wireless, which has been the main focus among its investors.

Embedded chips now bring in 10 percent of TI's revenue, and analog chips account for 40 percent.

"Growing at 20 percent a year over the next five years, you have an analog business that's 60 percent of TI," Chief Executive Rich Templeton said during a webcast of the meeting. He noted that as the leading maker of analog chips, TI still has only a 13 percent market share and plenty of room to grow.

He said embedded chips, including wireless infrastructure chips, would account for 15 percent of revenue in five years if it keeps up its current growth rate of about 22 percent.

TI last year fell to second place behind Qualcomm Inc (QCOM.O) in phone chips, which account for about 30 percent of revenue.

"We know there are levels of anxiety in the investor community today, particularly in wireless," said Templeton at the meeting where he gave a long-term target for total annual earnings increase of 15 percent on revenue growth of 10 percent.

Charter Equity Research analyst John Dryden said that while TI's wireless revenue looks like it could fall 7 percent both this year and next, it was unlikely that the trend would continue for the five-year period.

"(Templeton's) not saying wireless will be flat to down. He's saying if these other businesses grow as fast as we expect, any growth in wireless will be an upside to the long-term growth forecast," Dryden said.

WIRELESS ANXIETY

TI did not give growth targets for its other businesses, including calculators and digital television technology, which represent about 20 percent of revenue.

Dryden said the guidance implied phone chips would account for 15 percent to 20 percent of revenue in five years as top client Nokia (NOK1V.HE) takes on new suppliers such as Broadcom Corp (BRCM.O) and Infineon Technologies AG (IFXGn.DE).

TI is already seeing the effects of a decision by Ericsson (ERICb.ST), a parent company of joint-venture phone maker Sony Ericsson, to buy chips from STMicroelectronics (STM.PA).

Templeton said its revenue from Ericsson would keep falling quarter-to-quarter and annually until the third quarter this year and start improving in the second half of 2009 when TI is due to sell new chips to Ericsson.

But even as wireless declines in importance for TI, Templeton called the idea of getting out of the handset chip business "far-fetched" in response to a question.