Company analysis

Introduction

Purpose

With the goal of Texas Instruments (TI) to be a leader in innovative semiconductors and integrated circuits (Texas Instruments, n.d.), this paper’s goal, then, is to look at the best way to bolster TI’s productivity and innovation.

Problem Statement

The decline of the demand for chips of high-end mobile has spurred the closure of its production facilities in Tucson, Arizona (Inside Tucson Business, 2008). With this, it is easy for TI to introduce massive layoffs and plant closures to keep the company afloat. The question for TI is, how would it be able to keep the company afloat without adding to the economic casualties.

Background

Texas Instruments is one of the world’s biggest electronics companies. Their main focus is on the production of semiconductors including analog, digital signal processing, wireless, and DLP technology. They are also involved in the educational sphere by providing the technology used in calculators and computers (Texas Instruments, n.d.).

Texas Instruments is a company that has serviced the technological world since 1958. TI’s products currently focus on semiconductors and integrated circuits, but it was once a “geophysical exploration company” that searched for oil. It adopted the name Texas Instruments in 1951 and entered the semiconductor market in 1954. Since then, TI has come a long way.

To date, it has 36,000 patents, has an employee population of around 29,500, and is one of the companies ranked in the Fortune 500. The company’s sources of revenue are from the production of analog semiconductors ($4.9B), embedded processing ($1.6B), wireless ($3.4 B), and other sources ($2.6B) (Texas Instruments, n.d.).

Methodology

Examining articles and analyzing them is the primary method of research for this paper. One of the primary sources of information would be the TI site, particularly the investor relations page since it is the primary insider source for the company easily accessible to the public. Other major sources would include Business Week, and Inside Tucson Business, which gives us credible insights on the company and its environment. Also included, would be Investopedia Advisor, which is a site that is relied on by many investors for correct insights within the market.

Findings

The current world economy has a grim outlook for all businesses, whether they operate in a large scale or in a small scale. TI is not an exception. Since 2007, the company has been feeling early signs of difficulty. 2006 has given them profits of $14.3B (Business Week, May 16, 2007) and is easily a stark contrast to the revenue report of $12.5B in 2007 (Texas Instruments, n.d.).

This could be owed to the stockpile of unsold semiconductors during the middle of 2007. With positive growth seen in 2006, TI has stocked up inventories considered as the highest level in two years. These high inventory levels, however have remained unsold even during the holidays when forecasts have been positive. The company reports that this is due to the speculations of a recession that didn’t abate during the holiday season (Hesseldahl, March 11, 2007).

Taking a closer look, however, gives us an insight on the current state of affairs. While it is noticeable that Intel had also felt the crunch by cutting its margin forecasts (Hesseldahl, March 11, 2007), it would be well to note that TI’s decline isn’t shared by the rest of its competitors in the industry and is still well below Intel’s earnings. This was reflected by the 8% decline in shares from July to September in 2007.

Moreover, what hit the company more was the fact that one of its largest clients, Nokia, has announced that it would welcome “other companies into its group of ‘preferred’ suppliers.” Also, Motorola, another large client of TI, has experienced a stall in their sales, thus reflecting badly on the company’s sales as well (Pinsent, Sept 17, 2007). Looking at TI’s sales, we find that not all of the company’s sales was affected largely.

While it is true that the sales of Texas Instruments has dipped, the bulk of sales actually come from analog semiconductors, which has increased from a little over $4B in 2007 (Business Week, May 16, 2007) to $4.9B in 2008 (Texas Instruments n.d.). What was hit greatly in this case was their wireless sector. Analog semiconductors, on the other hand, have a broad range of applications, not limited to the declining wireless technology (Business Week May 16, 2007).

Conclusion

Summary

There are a few vital points to be gathered in this study. First of all, the sector that was hit by the decline of sales was the wireless segment. Much of the speculation that could be had was largely due to the fact that their largest clients could not/would not buy as much inventories from them as they once did. Secondly, most of TI’s sources of revenues are currently unaffected because of their wide range of uses from VoIP to the medical field.

Recommendation

It is recommended for TI to weather the storm and help its clients increase the demand for wireless technology. Since they are already going into other areas for their analog semiconductors, they must stimulate the demand for their wireless sector to grow.

Business Impact

This strategy would be very difficult considering that in the short run, the company’s profits and shares would suffer. However, closing down plants and laying off people to protect its own interest in having high shares and high profits could affect the economy as a whole negatively. Laying off people would mean less people with jobs. When people get laid off, their purchasing power declines, which would mean that less people would be able to afford more than the barest necessities. This would mean less profits yet again for TI considering that many of the applications of their technology aren’t the barest of necessities or the people already have the technology and would not need a new one. In this case, a quick-fix solution is not an option especially with the economic crisis going on.

Bibliography

Templeton, R. (May 16, 2007).  Taking the Pulse at Texas Instruments. Business Week. P27

Hesseldahl, A. (March 11, 2008). Semiconductor Demand Down, Inventory Up. Business Week. P.4

(April 28, 2008). Texas Instruments to slow chip production. Inside Tucson Business. P.3

Pinsent, W. (September 17, 2007). Texas Instruments Take an Unearned Beating. Message posted to http://research.investopedia.com/news/IA/2007/Texas%5f Instruments%5fTakes%5fAn%5fUnearned%5fBeating%5fTXN.aspx

Texas Instruments (2008). TI Fact Sheet. From http://www.ti.com/corp/docs/company/ factsheet.shtml

Texas Instruments (2008). History of Innovation. From http://www.ti.com/corp/docs/company/ history/tihistory.shtml