Conference call should be ugly. JPM's checks indicate TI's book-to-bill remained below 1.0 during 4Q06 due to an inventory correction in its analog business (38% of 3Q06 sales) and weak demand for its DSP products (36% of 3Q06 sales). They also expect 4Q06 gross margins to decline to 50.0%, 140 basis points below 3Q06.
Expect sub-seasonal 1Q07. Due to the low book-to-bill, they expect TI to guide 1Q07 revenue to decline 7% QoQ, in line with their estimates but below Consensus (down 4% QoQ) and typical seasonality (down 3% QoQ). Firm also expects the company to guide 1Q07 gross margins to decline again to 48% due to lower utilization rates. They note some of TI's analog peers such as National Semiconductor and Linear Technology have already guided for sequential revenue declines in the mid to high single digits for the March quarter as a result of the inventory correction, well below normal seasonal patterns of sequential growth.
Margins bottoming - time to buy. Despite a rocky 1Q07, they believe TI's margins are bottoming as inventory peaked in 4Q06 and TI is lowering its utilization rates to ensure its own inventory returns to a "normal" level. Fownside risk appears minimal. TXN stock is trading at 3.2X C07E sales, the low end of its historic range of 3X-5X sales.
Notablecalls: Looks like JPM is hedging their bets on TXN by telling investors to expect a gruesome call. A call that should mark the bottom. That will keep the stock from plummeting if indeed the call is ugly and may even generate a bounce if it's not. One for traders. Investors...beware. I suspect things will continue to deteriorate for TXN in 2007. At best, the stock is dead money.