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Texas Instruments, After a Big Purchase, Is a Better Value Than Its Rivals

Texas Instruments' (TXN) biggest challenge is convincing Wall Street that it deserves the same respect as rival chipmakers ARM Holdings (ARMH) and, to a lesser extent, Qualcomm (QCOM).

Not only has the company recently demonstrated that it can compete in segments dominated by Intel (INTC), but interestingly, Texas Instruments is now showing that it will open its wallet to prove its level of commitment toward growth. But is Wall Street impressed?

As consistent as Texas Instruments has been over the years, it has always flown under the radar of Wall Street and hidden in the shadows of Intel. So as Qualcomm and ARM receive the lion's share of the press, it came as no surprise that Texas Instruments decided to do something about it ahead of the mobile data surge about to unfold. Not only did the company recently acquire National Semiconductor, but it went on a shopping spree, buying various companies' equipment and fabrications. Texas Instruments paid $6.5 billion for National Semi in an all-cash transaction expected to close within nine months. This is a great move, and one that already presents a considerable amount of synergistic advantages.

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In the deal, Texas Instruments gets assets that are already deeply rooted in a host of growing market segments. These include not only analog devices and subsystems, but products that extend out to power management circuits, audio and operational amplifiers, and data conversion solutions, as well as communication interfaces. One noteworthy advantage is that once this deal closes, National Semiconductor will immediately become part of Texas Instruments' analog segment. This means almost half of its revenue will be counted as part of National Semi's sales of analog semiconductors. Texas Instruments is clearly trying to distinguish itself from what its current rivals are offering, and it's an excellent strategic move.

What all this means is that Texas Instruments just might be a bit smarter than Wall Street gives it credit for. The deal presents the company with a broader amount of chip-making capacity. For this reason, Texas Instruments is now well-positioned (perhaps better than its rivals) for tremendous growth in margins when corporate IT spending fully recovers. All of that notwithstanding, at current levels the stock has become even more interesting when considering the fact that it is trading below its fair market value, even after having reported better-than-expected earnings.

What this acquisition tells me is that Texas Instruments now presents much better value than Qualcomm and ARM, though I am not ready to make the same claim regarding Intel. When it comes to semiconductors, the price competition/margin trade-off is always a source of great concern for investors, and clearly Texas Instruments has shown that it is willing to do whatever it takes, regardless of cost, to create some separation.

Though it seems Wall Street so far remains unimpressed, investors need to understand that Texas Instruments is still a prominent brand in several mobile devices. These include products from Apple (AAPL), Google (GOOG), and Nokia (NOK). When one also considers that within its recent earnings announcement, it showed a 13% increase in orders, resulting in a growing backlog, the only logical question is, What does the company have to do to deserve some respect?

Bottom line

There is no denying that competition in this space is going to continue to be fierce. But investors have to be impressed with Texas Instruments' aggressive attempt to not only seize a good portion of the market, but also its willingness to spend to grow what it already has. Wall Street should start appreciating that the company is doing a better-than-adequate job in not just maintaining its margins, but in putting its money where its mission is -- and that is to produce the level of growth that investors crave.

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