New Products To Expand TI's Presence In The Growing Embedded Market

May.28.14 | About: Texas Instruments (TXN)

Summary

TI has been focusing on transitioning its operations to become a pure analog and embedded processing company.

The company is one of the leading player in the analog semiconductor market and derives over 60% of its revenue from this division.

TI plans to reduce investment in certain embedded processing product lines that either have matured or do not offer the return opportunities it is looking for.

Last week, Texas Instruments (NYSE:TXN) introduced its latest 32-bit dual-core Hercules microcontrollers (MCUs) for industrial, medical, automotive and transportation design applications. The two new variants (RM57Lx and TMS570LCx) offer a 50% increase in computational performance over any of TI’s current MCUs, allowing system designers to utilize a single Hercules MCU to replace several discrete MCUs. The new Hercules MCUs also provide the largest on-chip memory along with several safety feature enhancements. (TI’s Press Release)

Since its exit from the smartphone and tablet market in September 2012, TI has been focusing on transitioning its operations to become a pure analog and embedded processing company, segments that it believes will offer long term growth and less volatility, compared to the past. With a market share of 17%, TI is one of the leading player in the analog semiconductor market, and derives over 60% of its revenue from this division. On the other hand, TI derives only 22% of its revenue from the embedded division. However, the fast expanding embedded market offers significant growth opportunities for the company. In the last year, TI expanded its embedded product portfolio by almost 20%.

Microcontrollers Dominate the Market For Internet-Of-Things

The internet-of-things (IoT) includes all other computing devices apart from PCs, tablets and smartphones. Gartner estimates the market will grow almost 30 times from an installed base of 0.9 billion in 2009 to 26 billion by 2020. It will result in $1.9 trillion in global economic value-add through sales into diverse end markets. In the IoT space, minimal power consumption and the lowest possible cost are two key requirements. Microcontrollers, which are purpose-dedicated, low-cost logic devices, currently dominate the market for Internet-of-things.

Aligning Resources In The Embedded Portfolio To Aid Growth

TI’s embedded processing revenue grew 8.6% and 17.0% year-over-year in 2013 and Q1 2014, respectively, on account of strong demand for microcontrollers. With increased investments in this growth area over the past few years and new product launches, TI continues to expand its embedded portfolio every quarter. TI plans to reduce investment in certain embedded processing product lines that either have matured or do not offer the return opportunities it is looking for. However, the company has clarified that it does not plan to exit any market or discontinue any existing embedded products, but is simply realigning its resources to better cater to market opportunities. We expect TI's embedded processing market share to increase marginally over our review period.

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