Business Model of Texas Instrument: World of Digital

Investors often associate the word “microchip” with Intel or AMD in the computer field – or, Qualcomm in smartphones. Through our Business Model of Texas Instrument article, we will introduce you to another perspective about microchips.

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In This Issue

Based on the type of microprocessor, Texas Instrument products could be classified as an analog, embedded process, and others.

Analog Devices in Business Model of Texas Instrument

Segment Contribution for Business Model of Texas Instrument Analysis.

Analog devices contributed more than 75% of Texas Instrument revenue in 2020. In this all-digital world, analog devices are the protagonist. It plays a role as a bridge between real-world signals, like voices, temperatures, light, pressure, with digital signals like voltage.

When you touch your iPhone with your finger, the analog sensor on the screen converts that pressure into digital instruction to run Youtube – then Youtube appears on your screen. So it is analog to digital then to analog once again. Same with when you say “OK, Google, tell me a joke” on your phone speaker, The voice sensor translates the sound wave into a sequence of processes to tell something funny for you.

Your input and the product you sense are analog – the pressure you give to the phone, the voice you hear. Meanwhile, the instruction and communication on the phone between the receiver and the speaker are digital. All of it happens in the blinking of eyes – in the speed of light.

The analog devices are the guardian of the real world. Texas Instruments are excellent at manufacturing them. It produces a wide array of products for different kinds of industries.

Most electronics equipment works through a conversion mechanism. That is, from real signal to electrical signal, then converted back into real signal again. The first mechanism is done through ADC (Analog to Digital Converter), get processed, the through the counterpart, DAC (Digital to Analog Converter), that signal is transmitted again. The reason behind the electrical or digital conversion is its versatility. Digital signal is easy to processed, stored, manipulated, amplified, etc. The reason you can listen to Taylor Swift’s song “Speak Now” is because it is stored digitally.

Embedded Processing Role in Business Model of Texas Instrument

When you hear about software, at any instant, you will think about PC software. Adobe, Microsoft Excel, Quickbooks, or AutoCAD. To run them, PC has a brain that you usually call processor or in modern terms, SOC – System On Chip. The truth, almost all electronic equipment has the brain to run specific tasks embedded in them.

Here comes the term “Embedded Processing”.

They are the brain that has a job only to run OLED screens to show specific displays. They are brains that blow cool air through air conditioners at specific temperature. They have one and only one job. They are simple, specific, and extremely efficient.

Look around you and pay attention then you will find so many processors embedded in them.

Economic Moat

Texas Instrument is not only good at manufacturing them with quality but also has a deep relationship with the customer. To guarantee that their products work well, the Texas Instruments customer has R&D designated specifically to TI’s product. These circumstances create high switching costs since moving away to another manufacturer (TI’s competitor) will be a painful shift: new R&D, opportunity cost, risk, etc.

In 2020, this segment contributes 18% of TI (Texas Instruments) revenue.

Texas Instrument’s Customer

After knowing TI’s product at a glance, we now moving to its customer.

Business Model of Texas Instrument: Customer Distribution

Industrial: The Government Partner

So far we have talked about “trivial” things: smartphone, AC, Screen. TI product is not limited to that kind of industry only, but also covers sophisticated business, like aerospace and defense. For more than 50 years, TI semiconductor has been used in aircraft and defense system.

Recent development tells that three parties: LTV Missiles, Electronics Group, and Texas Instruments Inc. have joined to develop Anti-Tank weapons. Differ from common sense, this weapon has no explosive part – imagine destroying a tank without a grenade, bomb, or missile. Instead, it relies on its speed to take down the target. 5,000-feet-per-second, the marketing says, then the enemy heavy armor will be down.

TI has a role to provide an enemy lock-on and controller that steer the arrow.

This story is just a piece of TI’s business. The Dallas-based company serves almost all industry segments.

Part of The Boom: Auto Business Impact on Business Model of Texas Instrument

Not only industry, but TI also takes a part in the green future through its charger innovation. This facility will use Gallium Nitrate, in short, it boosts charger efficiency and enables the EV to go further. This is achieved by developing new transistor technology. By the way, transistors play an important role for all processors, whether SOC, microcontroller or embedded processor.

In auto, transistors can take a part in an ABS system. That is a safety system that prevents your brake to lock the wheel. So, when you decelerate your vehicle using the brake, you still can control it. The mechanism is simple, it is brake, release, brake, release, in seconds. So the vehicle still could be tempered but controlled at the same instant.

Auto contributes about 20% of TI revenue.

Personal Electronics and Communication

We have big names so far…US Government, Tesla. Now we give you another, Apple.

TI has a role to manufacture Power Management systems that control iPhone 12 and 13 cameras and charging behavior.

Personal Electronics and Communication give TI 10% of revenue.

Financial Implication.

Due to its wide range of products, TI has no dependencies on another company which could make some serious trouble like in chip shortage today. TI has more than 100,000 customers, dependency, what is it?

On the flip side, no dependency comes with risk. With so many products out there, TI is susceptible to smaller competitors – mostly from Asia. A newcomer in the analog sensors could be undetected by Dallas Giant.

Final Thought

This article’s objective is to introduce TI’s business model, its product, and its client, customer. We will dig deeper into TI annual report to make a deeper analysis. So, stay in tune with us.