Texas Instruments (TXN - Analyst Report) ,or "TI," plans to cut 1,700 jobs worldwide in order to reduce operational costs. This layoff is an attempt by the company to optimize its cost structure and concentrate on its wireless business for sustained growth.
Along with other unspecified operational changes, the company will incur total charges of approximately $325 million in the fourth quarter. These layoffs are expected to generate total annualized cost savings of around $450 million by the end of 2013.
Management is looking to restructure its businesses by focusing on its OMAP processors and wireless connectivity on embedded solutions like automobiles, industrial and other non-consumer markets, which have a long life cycle.
Though the company has made chips for devices such as Motorola Droid and Amazon’s (AMZN - Analyst Report) Kindle Fire tablet, Qualcomm (QCOM - Analyst Report) and Samsung are far ahead in the race. The increasing competition from players such as these, as well as in-house development efforts of large customers has led TI to turn its focus away from the segment.
To continue its strong global growth momentum and increase its market share, TI needs to refine its cost structure. We believe the restructuring action will bring in stability and steady earnings growth in the near future. The longer-cycle businesses will also lend stability to its revenues and the more favorable competitive climate could help it generate stronger margins
Texas Instruments is one of the largest suppliers of analog and digital signal processing (DSP) integrated circuits. The company’s compelling product line-up, increasing differentiation in its business, restructuring activities and lower-cost 300mm capacity should drive earnings in the longer term.
The restructuring announcement came a few days after TI reported decent third-quarter 2012 earnings. The company’s earnings were up 27.2% sequentially and exceeded the Zacks Consensus Estimate by 17 cents or 37.8%.
Currently, Texas Instruments has a Zacks #3 Rank, which translates into a short-term Hold rating.