In recent days I’ve seen several long discussions about Texas Instrumentslosing its grip in semiconductor industry when it came out of a business it was strong in, i.e. wireless business. It seems the semiconductor community has not digested the fact that TI, very rightly, came out of the OMAP business at the right time. The smartphone business is maturing and is characterized by short life cycle, thinning profit margin and rising competition. True, in last decade it was a very lucrative business and TI skimmed good revenue out of it. In fact, TI had initiated Nokia in using TI’s DSP chip as the core of cellphone and becoming the champion of cellphone technology. However, as always, TI doesn’t like to fall into what we call ‘innovator’s dilemma’ as Nokia did. TI came out of the smartphone business when it sensed this market going into maturation stage with little profitable incentives. I wouldn’t argue on the fact that the same business may fit very well into some other competitors’ scheme of things. Also I will not be surprised if TI finds another start-up or any little known company which can take any of TI’s ideas in analog and embedded space, a different use of DSP (and MEMS) in the scheme of IoT and make it the next big thing. TI is good at finding such companies which can drive TI’s business and make it a win-win for both.
The good thing I like about TI is that it’s not stuck with one business; it regularly reviews its businesses and strategies around those and churns them to its benefit. That’s the reason we see major changes in TI’s offerings in every 5 to 10 years. Here is how we can sum up the evolution of TI’s businesses since its invention of silicon transistor and IC (I’m not going into oil & gas business prior to that) –
1960s – Portable radios, calculators, IC manufacturing
1970s – Microprocessors and Microprocessor controlled devices, Digital watches
Early 1980s – Home computers, Printers
Late 1980s – Custom microprocessors, DSP cores
1990s – Multimedia video processors, DSP, Analog chips
2000s – Wireless phone chips, OMAP, Embedded Processing, MEMS, DLP
2010s – Strengthening core businesses in Analog and Embedded, MEMS and DLP
During this long tenure, obviously there were many ups and downs, often the wrong strategies or ‘juice drying up’ was sensed sooner than later and right level of changes were done in time. In order to not fall out, it’s necessary to constantly look for and focus on financially viable businesses with good operating profit margins. Of course, SCBA (Social Cost Benefit Analysis) is another aspect, but that should be applicable up to a certain extent and not confused with the actual financial viability.
Talking about commodities, if we look at the list of offerings since 1960s, there are quite a lot looking like commodities, but each of them was innovative at its first instance and provided lucrative business at one point of time, exceptions apart. I find it absolutely fine to have multiple types of eggs in the same basket (in other words a conglomerate with diversified risks under the same umbrella), but each of those eggs with a positive NPV. Any negative NPV egg has to be taken out and put to a different use before it gets completely rotten, it may spoil other eggs.
An important point to observe here is about the core competencies of TI in analog and embedded processing along with its base in IC and MEMS manufacturing. These are the spaces where TI is focusing in today’s economic environment with tough competition and falling profit margins. It has set its vision on high profitability and longer life cycle segments such as automotive, industrial, medical, home, office, avionics etc. with a winning strategy in the ‘internet-of-everything’ revolution in near future. The DSP technology is a game of programming, the use of DSP in a cellphone or an audio system or an industrial control unit depends on how it is programmed. TI has an edge to produce DSPs for variety of applications.
In 2013, TI drew its ~80% (79% to be precise) revenue from analog and embedded market. In analog, it is leading with ~17% market share out of ~$40B market and in embedded ~14% market share out of ~$17B market. The market is fragmented, but is large with good growth potential and cushion for long term profitability. TI is investing and strengthening in these areas and who knows it may strike gold.
In the analog space, TI leads in voltage regulators and power management solution. It offers power-efficient LED lighting and other high performance and high volume analog solutions. In the embedded market, TI leads in DSPs along with specialized microcontroller solution that integrates analog components and sensors together.
Considering a tremendous growth opportunity in IoT market and its requirement for low power microcontrollers, TI is expanding its embedded product portfolio; recently it added Hercules[SUP]TM[/SUP]MCU RM57Lx and TMS570LCx into its microcontroller offering that are with 32-bit dual-core processors which provide ~50% increased performance over previous MCUs. They also provide largest on-chip memory and several other safety features for industrial, automotive, avionics and medical applications. TI’s revenue growth in embedded processing seems to be increasing rapidly – ~8.5% y-o-y in 2013 and ~17% q-o-q in Q1 of 2014!
Fingers crossed; let’s see which turn TI takes to reap the benefits from automotive, industrial, medical, transportation, home and other applications in the backdrop of IoT. Comments are welcome!