Anyone who has been following the world of mobile computing over the past year or so likely noticed not only which companies have been scoring important component design wins, but also who hasn't.
In the mobile applications processor space, product after product has been announced featuring NVIDIA's (NAS: NVDA) Tegra or Qualcomm's (NAS: QCOM) Snapdragon. Device makers like Apple (NAS: AAPL) and Samsung have taken chip design in-house in recent years, with their respective A# and Exynos processors.
For the most part, Texas Instruments (NAS: TXN) has sat idle as the mobile device world passes on by. The company was able to score a couple of tablet wins, including the important Amazon.com Kindle Fire family as well as Barnes & Noble's new Nooks, but that's about it as far as high-profile spots go.
According to a recent Reuters report, TI is now officially throwing in the mobile towel and shifting its focus away from its wireless segment amid intense competition and turning toward other markets like the automotive sector. The company said it won't be going after smartphones and tablets any longer, but will look at broader opportunities.
It's a strange surrender, giving up one of the hottest semiconductor growth areas in recent memory, but at the same time it's the right thing to do if it simply can't remain competitive or profitable. Its OMAP processors, the same ones in the Kindle Fires and Nooks, will be rolled into TI's embedded chip business.
TI embedded processing exec Greg Delagi said the mobile device market is "less attractive as we go forward," and while growth in different markets will be slower, that business will be more stable and profitable in the long run. The company will still support its OMAP customers, but don't expect to see many more OMAP-powered mobile device wins anytime soon.
A long time coming
The decision isn't entirely surprising, as TI's wireless segment has been languishing for years. The company chose to give up in the baseband processor market four years ago, ceding the space to Qualcomm, which has become the dominant leader. Nokia (NYS: NOK) is TI's primary baseband customer, and TI even made a new chip for Nokia last year despite its plan to shutter the business. Baseband sales were $1.1 billion in 2011, and that's expected to cease altogether by the end of this year.
With the planned baseband exit to be completed in just a few months, "reprofiling" the OMAP business was just the other shoe waiting to drop.
Can I get your digits?
Investors are wondering how all that lost revenue will be replaced, since the wireless segment was 10% of sales last quarter. That uncertainty caused TI shares to drop after the news, as the company wasn't too clear on how the move would affect its overall numbers.
Year-Over-Year Revenue Change
Operating Income/Loss (MRQ)
Source: 10-Q. MRQ = most recent quarter.
To smooth out the transition, TI will need to work hard to grow its new markets, but that's a time-consuming process. Investors will need to be patient as the wireless business winds down. Delagi said it was too early to discuss how the company's financial results would be affected as it makes the change.
He pegs long-term operating margins for embedded processors in the neighborhood of 30%, which is fairly optimistic considering the segment currently puts up just 10%. Overall operating margin last quarter was 18%, so 30% sounds just rosy. Delagi didn't say when investors could hope for these digits, and therein lies the rub.
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The article Texas Instruments Ditches Mobile originally appeared on Fool.com.
Evan Niu, CFA, owns shares of Qualcomm and Apple. The Motley Fool owns shares of Apple, Amazon.com, and Qualcomm. Motley Fool newsletter services recommend Amazon.com, Apple, and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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