Bullish on texas instrument
Standard & Poor's---Smith, Tom---Analyst
kozlowski. it was an accusation he engaged in enterprise corruption in looting the conglomerate of $600 million. the charge is usually used to prosecute organized crime figures and carried a maximum sentence of 25 years in prison. kozlowski and tyco’s former chief financial officer, mark swartz, are accused of stealing $170 million in unauthorized bonuses by abusing company loan programs and are charged with defrauding shareholders through the sale of $430 million in tyco stock at a price they inflated by misrepresenting the company’s financial condition. summations in the trial which began in september are set for monday. the s.e.c. wants information from boeing on the firing of former c.f.o. michael sears and the air force official he hired. the pentagon is investigating whether darlene druyun helped boeing get favorable terms on the $17 billion deal to lease or sell 100 re-fueling tankers for the air force. boeing said sears offer druyun a job while she was negotiating for the air force. boeing fired them both in november. the s.e.c. will focus on boeing’s disclosures to investors of the potential conflict of interest after it was discovered. our next guest is bullish on texas instruments and the semiconductor group because it has a competitive product, he says, in many areas. he also says there is a cyclical upturn in the industry now. tom smith is a semiconductor analyst with standard & poor’s and joins us now from the firm in new york. tom, thanks for coming in. you’re expecting a surprise with the mid quarter numbers on monday. you’re estimates―your estimates are above the so-called street average estimate not only on sales but also on earnings not only on the quarter but also for the full year. why are you bullish on txn?
>> i’m bullish on texas instruments as i am on other communications oriented companies because i think they can do well with the digital signal processing products as the semiconductor cycle that we project for the industry unfolds over the next couple of years. the industry typically moves in four-year cycles more or less but we had the strongest, deepest downturn just in the past few years, 2001, 2002. things began to get better in the second half of 2003 but i think 2004 and 2005 will be strong years. the street sees generally a strong year in 2004 but are less certain about 2005. i think that there will be good global economic growth and interest in cell phones and big screen tv’s and new laptop computers and all kinds of electronics gear through 2004 and 2005.
>> history and bloomberg data show that texas instruments rarely surprises on sales. over the past six quarters they’ve delivered just 1.9% above what they’ve promised and in terms of earnings, though, the average surprise has been 58%. the profit surprise is clearly enormous for texas instruments or the estimates clearly terrible. which is it?
>> i don’t know. there’s a lot going on in that. for the current quarter, which is as far as they guided, they’ve given a large range, quarter to quarter down 2% on revenue or as good as up 6.5%. i’m modeling 4% which i don’t think is far from the street which gave a range of 16 cents earnings to 22 cents, i believe. 16 to 20 cents. i’m modeling 20 cents. i think the street’s at 19. you get more discrepancy as you think three and four quarters out, going through next christmas sales season, does the american business come back and buy equipment, do they hire more people and give them a cell phone, too? do people really latch on to multimedia cell phones and drive that growth. t.i.has strong products with the processors for that. broadband for the home. t.i. can grow there with new products that we really haven’t had in past cycles.
>> jumping in here, over the past four months, though, all you just said clearly does not apply because the stock is up 3% in four months at a time when the s&p 500 has tripled that rate of return. in our remaining 30 seconds, is that t.i.’s problem or the s&p’s strength?
>> it’s partly―an investment phenomenon. things began to get better and the market anticipated that and ran up the semiconductor group strongly through the second half of 2003. and then as we came around the new year, there seems to be distribution profit-taking, moving that money around and i expect at some later point in the face of strong revenues in the second half, strong earnings in the second half, most of the semiconductor group, including texas instruments, that investors will be re-interested. we work with a 12-month time horizon and i look further ahead.
>> thank you, tom smith. the martha stewart conviction today on all four charges is the topic of our next guest. we’ll be joined by a lawyer who specializes in white collar defense.
