Jessica Lights up DLP

07/23/2004 12:00 am EST


Jessica Chiaverini

Associate Editor, The Prudent Speculator

Jessica Chiaverini joined Al Frank Asset Management in 2000 and is currently portfolio manager and associate editor of The Prudent Speculator , the best performing stock newsletter of the past 20 years. Here she discusses one of her favorites - Texas Instruments.

"Analog is where it's at in semiconductors. That might sound a bit counterintuitive at a time when it seems all things techie are going digital, including stereos, telephones, television, and cameras. To get digital, however, these devices need something to convert what are inherently analog, electromagnetic waves into digital bits that can more easily and efficiently be processed within the device. Therein lies the technology and business strength of chipmaker Texas Instruments (TXN NYSE). With its fingers in everything from broadband to wireless, Voice-over-Internet-Protocol (VoIP) and televisions, the company has tapped into nearly every device-based growth segment in the technology sector. Even more, the company continues to be a market and technology leader in many of them.

"Take the company's digital light processing (DLP) technologies, which make use of teenie-tiny light switches to enable a completely digital connection between the image source in projection systems and the viewer. DLPs are used in projection devices ranging from desktop business to digital theater projectors, and have given rise to a whole new type of thin rear projection televisions. The most basic element of the projection systems is a mirror that measures less than one-fifth the width of a human hair. Texas Instruments puts up to 1.3 million of them on a chip, which is then used to direct project light onto a viewing source, be it a movie screen or the front of a projection TV. No viewing technology comes even close to reproducing the image quality available from its DLP solution, helping the company to ship more than two million systems to more than 50 manufacturers since 1996. In fact, at the end of last year, more than one-third of business and home front-projectors were based on DLP technologies.

"Texas Instruments had a strong first quarter showing, as revenue jumped 6% sequentially and 34% year-over-year to $2.9 billion, driven by strength in DLP and high-performance analog semiconductors. Earnings came in at $0.21 per share, three times the Q1 2003 total. In its mid-quarter update, TI tightened its Q2 guidance and now expects to see earnings per share between $0.24 and $0.26 on revenue between $3.17 and $3.29 billion. Lest we forget why we are truly attracted to the company, the company sports a cash-rich, low-debt balance sheet and its shares look attractive at about 22 times consensus estimates for 2004 annual earnings of $1.05 calculated by Reuters estimates. We see recent price weakness in the stock as even better opportunity to pick up a marquee chipmaker at super-attractive prices. With a long term goal price of $49 and an fundamental goal price of $39 on the shares, we are buyers of TXN up to $24.50."

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