Monday, October 09, 2006

Calls of Note Part 3

- Citigroup is lowering their 4Q06/1Q07 estimates for Texas Instruments (NYSE:TXN), as near-term order conditions have softened, manifesting in a recently implemented hiring freeze.

Firm's fieldwork suggests TI has recently implemented a hiring freeze, pointing to a less certain outlook for 4Q06/1Q07 as the cause. This hiring freeze is not division specific, suggesting the concerns are not necessarily limited to specific chip types.

Above trend analog sales are reverting back to trend line, resulting in below seasonal progression in 4Q06. US retail weakness in DLP HD-TV's adds to concerns. Handset risk exists given shortfalls in Nokia supply chain.

As a result of this lowered outlook, they expect near- term pressure on TI shares, to the advantage of trading-oriented investors. Longer-term investors ought to also consider using pressure as a buying opportunity given favorable outlook for the company in 2007. Firm sees downside risk to about $27 (the low-end of its trading range), but upside to about $36 (the high-end), making risk reward favorable by a 1:1.25 ratio.

Maintains Buy.

Notablecalls: I should have called the note from JP Morgan (Oct 5) actionable! But still, as I noted back then, TXN stock will be lower is couple of months for sure. TXN continues to be the canary in the Semi mine.

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