Argus Research’s Jim Kelleher this afternoon cut his outlook on shares of Texas Instruments (TXN) to Hold from Buy following TI’s big cut in its Q4 outlook last night, writing that although every chip company is being hit by the semiconductor inventory correction, “only Texas Instruments is doing so while seeking to juggle unprecedented new supply that has come online in the past 12 months.��
Kelleher is, of course, referring in part to capacity picked up with the acquisition by TI of National Semiconductor, consummated in late September, but also TI’s own build-out of capacity after over-estimating demand.
“On top of the three new fabs added about a year ago, it is now integrating the National Semiconductor assets,” he writes. “The company appears to be struggling in its efforts to integrate new sites into its global mix to optimal effect.
The build-up of supply is playing havoc with TI’s ability to plan properly.
[...] we are concerned that the addition of multiple new semiconductor fabrication facilities or fabs, compounded by macroeconomic uncertainty and exaggerated volatility within the distribution channel, is complicating and ultimately overwhelming the production planning process at Texas Instruments.
(The three new fabs he mentions are “RAFB, a 300-millimeter (mm) analog fab located in Richardson, Texas; the Aizu, Japan, fab that was acquired from Spansion; and the Chengdu, China, fab that was previously operated by SMIC.)
Kelleher cut his estimates to $2.31 per share in non-GAAP profit in 2012 from a prior $2.51.
Fair value for the stock is in the low $30s, writes Kelleher, blending together the historical multiples (price-to-sales, etc.) with peer multiples and also a discounted free cash flow analysis. “I n our experience, declines in calculated fair v! alue are often consistent with further share price declines or market-mimicking performance,” he writes.
TI shares today closed up 2 cents at $29.94.
Previously:TXN, ALTR: Do You Believe The Worst Is Over? December 9th, 2011.
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