Which Chipmaker Is A Better Bet For Your Money?

| About: Texas Instruments (TXN)

Investing in chipmakers is a tricky. The industry is subject to technological and economic cycles that can turn winners into losers and losers into winners in a short notice. Texas Instruments (NYSE:TXN) is a case in point. Form the early 1960s to the early 2000s, the company was a big winner in the semiconductor space, especially in chips that powered traditional cellphones from Nokia (NYSE:NOK) and the likes. In the last decade, however, Texas Instrument's leadership was challenged by Qualcomm (NASDAQ:QCOM), the primary provider of chips for smartphones and tablets. And that could explain why Qualcomm's stock has been beating Texas Instruments' stock in the long run. But judging from Texas Instruments' Q1 earnings report yesterday, the company seems to be coming back, and its stock has been beating Qualcomm's stock in the short run. Does it mean that Texas Instruments is now a better bet than Qualcomm?

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It depends on the investment strategy of each individual investor. Value investors may want to bet on Texas Instruments, as it is a more diverse company than Qualcomm, and pays a hefty dividend. Growth investors may want to stay with Qualcomm, for several reasons:


Recent Price

Forward P/E




Advanced Micro Devices (NYSE:AMD)






Texas Instruments (TXN)






Broadcom (BRCM)



Source; Yahoo.finance.com

Texas Instruments versus Qualcomm Financial Performance Statistics in 2011

Texas Instruments





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Qtrly Earnings Growth (yoy):



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Source: yahoo.finance.com

Qualcomm has four advantages over Texas Instruments:

1. Better company fundamentals: As a pioneer of CDMA technology, Qualcomm enjoys the "first mover" advantage in wireless communications; and with the recent acquisition of Atheros Communications (NASDAQ:ATHR), Qualcomm has strengthened its leadership in the industry.

Reflecting these strong fundamentals, the company has experienced a strong sales and profit growth, while Texas Instruments has experienced a negative sales growth.

2. Better industry fundamentals: While Texas Instruments is the leader in a number of diverse industries - some already mature - Qualcomm maintains leadership in wireless communications, which is still an emerging industry. Wireless Intelligence estimates that the number of 3G users will reach 2.8 billion by 2014.

3. Riding the industry upgrade cycle: Qualcomm is expected to be the main beneficiary of the wireless communication upgrade cycle. The GSM Association expects telecom providers to spend $100 billion by 2015 - in High-Speed Packet Access, 3G, and 4G.

4. Qualcomm is less sensitive to an economic downturn than Texas Instruments. In fact, the company cited the weak economy (mostly on Europe) as the reason for its earnings miss on Tuesday.

The bottom line: Texas Instruments is a value play, while Qualcomm is a growth play. Investors must determine which of the two stocks best serve their financial goals and objectives.

Disclosure: I am long QCOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.