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TI shores up core business

Texas Instruments makes a habit of shedding businesses in an effort to strengthen its position in the global market for digital signal processors.

    Texas Instruments (TXN) has lately made a habit of shedding pieces of its business such as its marginally profitable notebook operations in an effort to strengthen its position as the world's leading provider of DSPs (digital signal processors).

    DSPs are special-purpose microprocessors designed to handle signal-processing applications very quickly. TI is the world's leading supplier of programmable DSPs; it also manufactures other semiconductor products such as microcontrollers and memory chips.

    Why is TI focusing on DSPs? Programmable DSPs are in everything from antilock brakes, wireless telephones, and videoconferencing equipment to digital set-top boxes and DVD-ROM drives. Basically, wherever there is a need to convert audio or video to a digital signal, there is a DSP. It's also a $2.3 billion worldwide market that is predicted to grow at a rate of 40 percent this year, according to research from Forward Concepts.

    Will Strauss, president of Forward Concepts, said TI had $1 billion in DSP sales last year, and in spite of the fact that they already have 44.7 percent market share they have increased that share three years running.

    Still, TI's peripheral operations are dragging down earnings and the company is still susceptible to changes in the volatile memory chip market. TI yesterday reported a fourth-quarter net loss of $29 million, or 15 cents a share, compared with a profit of $291 million or $1.50 a share a year ago.

    Revenues, however, fell to $2.46 billion for the quarter from $3.15 billion a year ago, as prices of DRAMs (dynamic random access memory chips) plummeted 80 percent during the 12-month period.

    And for the year, the company reported net income of $63 million compared with $1 billion a year ago. Revenues were $9.94 billion for the year, down from $11.4 billion a year earlier.

    For the most recently completed quarter, TI attributed its difficulties in the notebook market to high dealer inventories at the start of the quarter and lower dealer orders. Also, customers tended to delay purchases while waiting for the next generation of faster processors from Intel, which were expected to be on the market in January of 1997.

    In spite of the reported losses, financial analysts favor the direction the company is going. TI's stock rose nearly 11 percent yesterday on the news that it had sold its notebook operations to the Acer Group. TI's shares closed at 70-3/4, up 7 points.

    "TI has found that their business in DSPs is growing faster than anything else. Their success in that market is what distinguishes them from the rest of the world. Their notebook business was marginally successful, even with good evaluations of their systems. Their military product line was profitable, but it was a long-term, slower growth industry," says Strauss of Forward Concepts.

    TI is now targeting high-growth markets such as modems, where they supply chips for upcoming 56-kbps modems from U.S. Robotics, and recently stated plans to work with Amati Communications to develop technology for high-speed ADSL (asymmetric digital subscriber line) modems.

    Another place TI is aiming for is the market for set-top boxes that offer Internet browsing, television programming guides, and picture-in-picture capabilities. By the year 2001, the biggest market for single purpose DSP devices will be TV set-top boxes that need MPEG decoders for the playback of full-screen video, according to a recent report by Forward Concepts. The overall single-purpose DSP market will reach $15 billion by 2001, growing at about 33 percent a year, the report says.

    Looking further into the future of TI's strategy, the company expects to begin production in 1997 of a single chip that has 125 million transistors on it, which is approximately the number of transistors found in 30 Pentium Pro processors.

    With this technology, TI says that cell phones or laptop computers could have increased battery life because the chips require less power than current chip designs. Other applications include computers that can recognize speech and take relevant action could become a more affordable reality soon.