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Tuesday, September 05, 2006

Texas Instruments Downgraded (TXN)

AmTech Research cut Texas Instruments from "Buy" to "Hold" today. According to MarketWatch, the research firm chopped its price target to $28 from $40. The stock did not move much on the news and trades at just under $30 on a high/low of $36.40/$26.77.

The change of heart at AmTech is puzzling. Samsung recently revised its forecast for worldwide handset sales for all cell phone manufacturers from 915 million to 950 million for 2006. TI should benefit from this more than any other chip firm. The new Walker Information survey on chip loyalty amoung enterprise buyers ranked TI as one of the top eight firms in customer loyalty.

Caris & Co also downgraded TI to "average" from "buy". The basis was potential slow growth of the Indian and Chinese markets, according to Forbes: Analyst Rick Whittington cited the company's potential slowdown in the increasingly important Indian and Chinese markets.
"The potential for a third quarter, even early fourth quarter, inventory adjustment led slowdown, following four consecutive well above expectation unit growth years puts us to the sidelines," the analyst said.

But, not everyone is on the downgrade wagon. The Associate Press talked to CIBC and the firm was bullish on TI's business: CIBC analyst Allan Mishan said in a published note to clients that chip maker Texas Instruments Inc.'s recent design win with LG Electronics represents a "key success" for the company.

TI's recent financial performance and guidance would make a sharp downturn in its shares fairly unlikely. In the June 30 quarter, revenue was $3.697 billion and operating income was $953 million. Both of these topped the immediately previous quarter when revenue was $3.334 billion and operating income of $718 million.

TI is clearly a complex company that makes chips for a large number of industry segments, but its products for the handset market and video DSPs are unlike to suffer declines as the portions of the electronics markets that they serve continue to do well.

Betting against TI may not be a good strategy.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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