Seeking Alpha
Long/short equity
Profile| Send Message|
( followers)  

As if markets didn’t have enough problems to deal during the trading hours, things got worse in after hours, as a number of high-tech companies including Texas Instruments (TXN) lowered their guidance. The chipmaker announced that it now expects sales in the range of $3.19 billion to $3.33 billion, compared with a previous range of $3.26 billion to $3.54 billion; and earnings in the range of 21 cents to 25 cents a share, compared with a prior range of 28 cents to 36 cents a share.

Coming less than two months after the company reported lackluster results, TI’s warnings suggest that it is losing the chips war in the fastest growing area of high-tech industry, mobile devices, to Qualcomm (QCOM), which reported robust results—though TI reported that its chip sales to Amazon.com (AMZN) was a bright spot in its guidance.

Company

Recent Price

Forward P/E

Intel (INTC)

$25.17

10.25

Advanced Micro Devices (AMD)

5.40

4.8

Nvidia (NVDA)

15.67

16.74

Texas Instruments (TXN)

30.68

12.29

Qualcomm (QCOM)

54.6

22.72

Broadcom (BRCM)

34.37

21.35

Source; Yahoo.finance.com

Texas Instruments versus Qualcomm Financial Performance Statistics in 2011

Texas Instruments

Qualcomm

Dividend

2.20

1.50

Operating Margins

29.40%

33.41

Qtrly Earnings Growth (yoy):

-12.4.0%

29.10%

Qtrly Revenue Growth (yoy):

12.40

45.50

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 (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 tame sales growth and negative earnings 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 (HSPA), 3G, and 4G.

4. Qualcomm is less sensitive to an economic downturn than Texas Instruments. In fact, the company cited the weak economy as the reason for its earnings miss on its last report and the recent guidance.

Source: Is Texas Instruments Losing The Chip Wars To Qualcomm?