Equity firm reportedly will pay $2.5 billion but won't get RFID portion

12:00 AM CST on Saturday, December 24, 2005

By VICTOR GODINEZ / The Dallas Morning News

If Texas Instruments Inc. is able to close a reported sale of its sensors and controls unit, it would allow the Dallas firm to focus on its more profitable business lines, an analyst said Friday.

"I think this will be a positive for Texas Instruments," said Tristan Gerra, a senior analyst with Robert W. Baird who said in November that a deal was likely.

"I believe that the sale of this business will enable TI management to focus on the higher-growth areas of the business, especially mobile phones, broadband and digital TVs."

Shares of Texas Instruments rose 21 cents Friday to close at $32.93.

The Wall Street Journal reported Friday that Boston-based private equity firm Bain Capital will pay about $2.5 billion for the unit, which makes electronic devices for automobile fuel-injection and air-conditioning systems, among other products.

TI spokeswoman Sharon Hampton said the company doesn't comment on speculation.

A spokesman for Bain Capital, which was also reported Friday to be among a group interested in buying Dallas-based Affiliated Computer Services Inc., also declined to comment.

Over the last several years, TI has focused on its semiconductor business and sold off several unrelated segments.

The company has also eliminated several hundred jobs in the sensors and controls division.

If the sensors and controls sale does go through, it will close a nearly 50-year chapter in TI's history.

The division has its roots in a company formed in 1916 – General Plate Co. of Attleboro, Mass. – that made gold plating for jewelers. The firm changed its name to Metals & Controls Corp. in 1931 after acquiring a company with expertise in temperature sensors, according to TI's Web site.

Those new capabilities attracted Texas Instruments, which bought the business in 1959.

TI has a history of reinventing itself as markets shift and its innovative products become commodities.

Texas Instruments got its start in 1930 as Geophysical Service Inc, making seismological instruments for oil drillers.

Since then, the company has moved from the energy services business into the defense industry on to computer memory chips and now into semiconductors for a variety of consumer products.

TI has three main segments: the semiconductor unit, which makes chips for cellphones and other devices; the sensors and controls unit; and an educational and productivity division, which makes calculators and other products.

The semiconductor unit is by far the largest.

In the third quarter, the semiconductor segment had total revenue of $3.14 billion and produced an $835 million profit.

The sensors and controls business had total revenue of $280 million and produced a $60 million profit. The educational and productivity unit had revenue of $177 million and a profit of $79 million.

For the year, based on earnings results for the first three quarters and a fourth-quarter estimate from TI, the sensors and controls unit is expected to generate total revenue of about $1.17 billion.

Mr. Gerra said companies similar to TI's sensors and controls unit have recently sold for around twice their annual sales, and the reported price tag falls in that range.

He said TI could use the proceeds to acquire other firms or repurchase shares.

"I think there are several options that they have," he said.

According to the Wall Street Journal report, TI is expected to hold on to a piece of the sensors and controls division that makes what's known as radio frequency identification, or RFID, devices.

The wireless tracking technology is estimated to generate annual revenue of only about $100 million for TI but is expected to be a hot business opportunity.

Market research firm Gartner Inc. estimated this month that spending on RFID technology worldwide will total $504 million in 2005. That is predicted to top $3 billion by 2010.

"I think the RFID business is a small portion of the business, so it's not something I would view negatively if TI kept it," Mr. Gerra said. "It certainly has high growth potential going forward."

E-mail vgodinez@dallasnews.com