DALLAS — By selling its sensors and controls division for $3 billion to a private equity firm, Texas Instruments is giving up short-term profit for what it says will be faster growth from investing in its core business of making chips for wireless phones and electronic devices.
On Monday, Texas Instruments Inc. announced the long-rumored sale of the sensors unit to private-equity firm Bain Capital LLC.
The deal is not expected to affect TI's Tucson analog semiconductor operation, which employs more than 900 workers at the former Burr-Brown Corp. plant at 6730 S. Tucson Blvd.
The Massachusetts-based unit TI plans to sell makes engineered sensors and controls for manufacturers in the automotive, aircraft and other industries. With annual sales topping $1 billion, about 8 percent of Texas Instruments' total, it is profitable and steady, providing a cushion when the company's core semiconductor business hits one of its periodic slumps.
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Gross profit margins are higher in semiconductors, however. The sensors unit needs an infusion of research-and-development spending to make new products, but sales are growing less than half as fast as TI overall, making the company reluctant to put more money into it.
Still, the sale will reduce profits in the short run, said manager of investor relations Ron Slaymaker. The sensors unit contributed about two to three cents earnings per share and analysts estimate that the company overall earned 42 cents per share in the just-concluded fourth quarter, according to a survey by Thomson Financial.
Cody Acree, an analyst with Stifel Nicolaus & Co., said TI traded stability during slow times for faster potential growth during the high end of the semiconductor cycle. Shareholders will prefer that approach, he said.
"Typically, investors pay for growth and not for playing defense," Acree said. "It's probably better to use (the proceeds) on acquiring something that will grow faster."
Despite that, TI shares fell 27 cents to close at $34.18 in trading on the New York Stock Exchange.
Michael Masdea, an analyst with Credit Suisse First Boston, added that the semiconductor business is becoming less cyclical as chip makers and their customers do a better job managing supplies and inventory. TI does this by farming out production to meet peak demand.
As a result, the stability of the sensors business is less critical to TI, he said.
Chief Financial Officer Kevin March said the company had not decided what to do with the estimated $2.5 billion in after-tax proceeds from the sale, but he said it could be used for acquisitions, new facilities, stock repurchases or increased dividends.
Texas Instruments kept part of the sensors unit that makes radio-frequency identification (RFID), the tags increasingly used by manufacturers and retailers to track inventory. The RFID business had sales of about $110 million last year.
The sensors division's sale had been widely rumored for several weeks and is the latest in a series of moves by Texas Instruments to divest noncore units such as making personal computers and educational toys to focus on making digital and analog chips for wireless phones and consumer electronics.
Through the first nine months of 2005, TI's semiconductor division earned $1.89 billion on $8.5 billion in revenue, while the sensors unit earned $201 million on $871 million in sales. The education sector had $178 million in profits on $433 million in sales. Total profit was reduced by corporate and other costs.
Analysts said the price matched or beat other recent technology deals. Tristan Gerra of Robert W. Baird & Co., who had assumed a price up to $2.5 billion several weeks ago, said TI did a good job negotiating. Dallas-based TI said it expects to close the sale by midyear.
The sensors business is headquartered in Attleboro, Mass. It has about 5,400 employees in the Americas, Europe and Asia. Bain Capital will keep the unit's management, March said.
Bain, based in Boston, is among the largest private buyout firms, with more than $27 billion in assets under management. It has other technology holdings, and its purchase of TI's sensors business follows other tech acquisitions by private-equity firms.