Could it have just been Microchip's (MCHP) issue? I have listened to Intel (INTC), Micron (MU), Skyworks Solutions (SWKS), Xilinx (XLNX) and now Texas Instruments (TXN). Not one of these companies has struggled like Microchip, the semi company that started the downhill cycle.
In fact, I would go one step further and say that Texas Instruments is indicating a level of robust growth that I would typically not see in any environment other than an expanding one. China, in particular, seems very much on plan -- the same geography that felled Microchip. Telecommunications, so worrisome after Microchip, seems fine, confirming the view of Xilinx and Skyworks.
Plus, they are putting their money where their mouths are, buying back $670 million worth of stock at a total of $47.62, above the current price, simply because they believe it is a terrific investment.
Hey, they know more than we do.
Okay, sure, Texas Instruments counts Apple (AAPL) among its clients and after last night's Apple quarter you could argue that everything is Apple-centric and that you can throw out this upside surprise, because it has to be asterisked.
I get that.
You could tell that the analysts, almost all of whom were in total doubt mode, were itching to say: "how much of this is Apple, and is the rest of your business terrible?" But that would be a terrible breach of analyst etiquette.
To me, though, the important takeaway is that, as outrageous as it might have seemed when Microchip lowered the boom, perhaps it really was Microchip-specific, with the real issues being disappearing Chinese business at the end of the quarter, something that no one else has experienced yet and something that, by the way, if it hasn't been experienced yet just may not be experienced at all.
I might feel different if I heard that there were multiple fabs coming in that will make it so the supply-demand imbalance somewhere in the food chain is about to slip into glut. I know that there are many who are short Micron betting now that we are seeing new fabs in DRAMs that all chip companies are the same: just waiting to do something stupid like adding instant capacity, something that might not even be that possible given how expensive these new factories might be.
To me, the whole point of this terrific Texas Instruments call was that the company won't be stupid, that it would rather return its cash to shareholders in the form of dividends and buybacks. That continues a long tradition dating back to 2005, the beginning of when it started one of the most aggressive buybacks of all stocks. In fact, the company has taken in 39% of its outstanding shares in that time, and if you didn't know any better you would think that this company is a free cash flow machine--$3.5 billion in FCF this quarter alone. That free cash flow is about making you want to be a shareholder, not about reckless capital expenditures.
I think that at this point it is time to start thinking that maybe this industry, ex some real ne'erdowells, is doing much better than we think, and that it has become one of the more undervalued segments out there.
I am well aware of how contrarian that is. But the facts just keep bearing it out and at a certain point you have to surrender to the optimism the participants of this industry feel, despite the obvious headwinds that seem to swirl at every turn.