Texas Instruments: In Electronic Paradise

When THe Chips Are Down
Texas Instruments' (TXN ) cheap semiconductors have put it in a sweet spot as global demand for low-cost phones and digital TVs explodes. Jeffrey Kleintop, chief strategist at PNC Advisors, which owns shares, now at 32, says that the chipmaker stands to gain significantly over the next three years because of a federal mandate that all TVs produced from 2009 onward must be digital. Kleintop says that will keep TI's sales volumes growing fast and margins soaring. TI reached management's targeted gross margin of nearly 50% in 2005, vs. 2004's 45%. It's a leader in a number of important product groups, he notes, such as digital signal processors (DSPS). The DSP market has grown rapidly because of strong demand for wireless phones, modems, and computer network gear. Tom Smith of Standard & Poor's (MHP ), who rates TI a five-star "strong buy," says it is profiting from a brisk demand in many chip categories, enhancing its long-term prospects. He expects it to earn $1.50 a share in 2006 and $1.90 in 2007, vs. 2005's $1.39. Smith's 12-month stock price target: 40.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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