TI's Aggressive Pricing Hurting Analog Rivals

Texas Instruments (TXN) is taking an aggressive stance on analog chip pricing, undercutting rivals by 15%-20% or more, according to Pacific Crest chip analyst Michael McConnell. He says the company has cut prices on audio amplifiers, battery chargers, LCD gamma buffers, LDOs (low drop out linear regulators), DC/DC converters, notebooks PWMs (pulse width modulators) and power-over-Ethernet power management ICs.

McConnell says that the loss of market share at Sony-Ericsson (ERIC, SNE) and future share loss at Nokia (NOK) has prompted TI to seeing share gains elsewhere. He notes that the company at its last analyst day set a target of hitting 20% analog market share by 2011 from a recent 13%.

McConnell says the company is taking share from Linear Technology (LLTC) in the power-over-ethernet category at Cisco (CSCO); he thinks that will will cost Linear 2-3 cents a share in EPS. McConnell today cut his rating on Linear to Underperform from Neutral, “based on its premium valuation and our view that TI’s aggressive analog IC pricing will significantly further erode the available market for its 75% to 80% gross-market [high-performance analog] sockets.” He adds that Linear will be “forced to accept slower revenue growth to preserver margin or lower margin to preserve revenue growth going forward, either of which should its stock to underperform.”

Meanwhile, McConnell also says the TI is taking share from Maxim (MXIM) on Intel’s (INTC) upcoming Monetvina notebook platform on PWMs and battery chargers, offering prices 15%-20% lower versus competitors. He says that could mean a nickel hit to EPS for Maxim in calendar 2009. McConnell today trimmed his price target on MXIM to $27 from $28.

Given pricing pressures, he also trimmed estimates on Intersil (ISIL), and cut his price target on the stock to $30 from $31. “While Intersil remains our relative favorite in the analog space given its upcoming product cycles and share gains, we have less confidence that the company will be able to expand gross margin this year given TI’s aggressive pricing scheme in many of its markets,” he writes.

In Friday’s trading:

• Texas Instruments is down 38 cents, or 1.3%, to $30.05.
• Linear is down 57 cents, or 2%, to $27.87.
• Intersil is down 24 cents, or 1%, to $23.02.
• Maxim is down 3 cents, at $23.37.