Since I started looking at the ways Texas Instrumentsworks through its strategies, my belief is getting firmed up that this is one company which can always sail through rough waters during downturn and reap rich benefits during upturn. They regularly review their strategies and can predict ahead of time when the water is about to turn red. That’s the time they change gears to move towards blue water and are able to generate good free cash flow, and handsomely reward their shareholders. It’s witnessing improvement in margin and free cash flow after coming out of OMAP business, right-in-time. Today, price war (a red ocean phenomenon) has already started in smartphone business, except Applewhich is on its path to trade in niche segment if it does not revise its pricing strategy to remain in the mass market. Recently we were talking about wearable technology and fitness trackers, and to my surprise, I hear about Nikealready closing its Fuelband division.
I was patiently reading the long transcript of the interviewof Rich Templeton, Chairman, President and CEO of TI to Credit Suisse. There he clearly mentions about ~10 years life cycle of a product or design in automotive and industrial segment against a product in personal electronics (aka smartphone) having ~12 to 18 months of life cycle. And the amount of electronics in industrial and automotive segment is increasing, not decelerating any time soon. A dollar invested in automotive and industrial segments is paying more and much longer return. TI, in these segments, is adding ~30 basis points annually (for past 5 to 6 years) of market share on analog and embedded business. In Q1 2014 revenue of TI, ~84% contribution was from analog and embedded business and that improved the overall gross margin also to 53.9%.
So, what’s the secret there in analog and embedded business? Why can’t competition copy it? How long this competitive advantage will sustain? One obvious answer is that analog and embedded technology has remained TI’s core competency; they are able to use this strength effectively in many complex products and solutions. But there is more to it. In segments like industrial, automotive, medical, home etc. traditional electromechanical systems are being replaced by semiconductor based systems. These systems have integrated semiconductor designs; you may call them SoCs, which have sensors, processors, controllers, intelligent software, firmware, connectivity (along with internet to enable IoT!), power management, and automation to troubleshoot any defective part, and so on. TI provides solutions to applications in these areas, they cannot be copied easily. Moreover, TI has a very broad and robust portfolio of products in these segments, e.g. analog, embedded processors, controllers, power management system, embedded analytics, DSP libraries, advanced driver assistance system (ADAS) including Vision SDK (Software Development Kit) and libraries for Embedded Vision Engine (EVE) and DSP, and many others. This big portfolio which keeps improving and widening will continue to provide sustainable competitive advantage to TI. Another key competitive advantage of TI against its analog competitors is its 300 mm wafer fab.
Out of my curiosity to know about some of the intelligent solutions TI provides, I looked at its Embedded Analytics solutions which combine embedded processors in sensor driven systems to get that extra edge of intelligence in real world applications in security & surveillance, industrial automation, automotive vision and other diverse areas. The solution uses diverse algorithms and provides fast processing with predictable latency.
Industrial solution has a diverse application area including complete factory automation, robotics, traffic management, control systems, automatic inspection and many others which cannot be included elsewhere. Application of sensors to detect sound, motion, temperature, pressure etc. is the key to industrial solution along with embedded software, processors and intelligent algorithms. An example of vision systems used in industries through smart cameras and vision processing systems that employ TI’s TMS320C66x multicore low power DSPs which provide great programmability is shown above. Details can be seen at TI website.
Similarly, I looked at TI’s smart automotive solution; the TMS320C6000[SUP]TM[/SUP] DSP platform enables various vision and audio processing sub-systems that form a particular vehicle’s embedded analytics system. These vision processing sub-systems are meant to monitor both inward and outward spaces. Image sensors monitor spaces around the car for its own protection from the objects outside as well as protection of life outside through night vision, pedestrian detection, lane departure warning etc. It can even check drowsiness inside.
Amazing systems; there are similar intelligent systems in medical, healthcare and other areas. These will become more intelligent, and remotely accessed and controlled with the advent of IoT and I guess that’s where TI is sharpening its focus in the long run – integrated systems that provide high revenue, high margin, and for longer duration, with clear competitive advantage.
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