Wednesday, March 15, 2006

Texas Instruments Chief Sees Phone Sales Outpacing Estimates reports that Texas Instruments Chief Executive Officer Rich Templeton predicts "mobile-phone users will double to 4 billion people within five years, more than analysts expect, as demand rises in India."

According to Templeton, TI "is focusing on new markets as competitors Qualcomm Inc. and Intel Corp. seek to eat away at his business, courting top customers such as Nokia Oyj."

Richard Crable at Loomis Sayles & Co. said, "People generally have been underestimating the degree to which cell phones will find traction in the emerging market," and Templeton's phone sales estimate is "higher than what people are expecting."

According to Credit Suisse 4 billion phone users won't hit until 2012, while RBC Capital Markets predicts "numbers won't reach that level until 2013 or 2014."

Templeton's goal for TI is "50 percent gross margin, or sales left after production costs. The margin improved to 48 percent last year from 29 percent in 2001. The company is outsourcing more manufacturing and building fewer plants, which can cost $2 billion each, cutting depreciation costs."

Crable said, "Once upon a time, people would have laughed in their face" if they suggested a margin that high. "They are managing the ship more tightly than in the past."

On TI's statement that it can maintain similar profit margins on chips for low-cost handset as for higher-end models, Apjit Walia at RBC Capital Markets said, "I don't believe that. It drags down the margins."

In the emerging markets of India and China, TI's top customer, Nokia, is cleaning up. According to Piper Jaffray's Michael Walkley "Nokia has 70 percent market share in India," and he estimates that "nine of the top 10 models in China are Nokia."