Overview of results
Texas Instruments reported revenue of $4.15 billion for the third quarter, down 8.4% year-over-year. However, this decline is slightly better than analysts' estimate of $4.12 billion in revenue. Earnings per share came in at $1.47, while the market had predicted a value of $1.37. These results, while not dazzling, show the company's ability to keep up with market challenges.[1]
However, chip inventories in key segments, especially in the industrial and automotive sectors, continue to hamper overall growth. CEO Haviv Ilan said during a conference call that customers are still working to reduce excess inventory, but the market is slowly stabilizing, according to him. Ilan emphasized that Texas Instruments' three main markets are already showing signs of recovery, but the industrial and automotive segments, which are the largest sources of revenue, have not yet met expectations. The statement "It's about time, but we haven't seen it yet" became the focal point of Ilan's speech, suggesting cautious optimism.
Looking to the future
The company's outlook for the fourth quarter is conservative. Texas Instruments expects revenue in the range of $3.7 billion to $4 billion, which is less than analysts expected ($4.08 billion). Earnings per share are expected to be between $1.07 and $1.29, while analyst estimates predicted $1.35.[2] However, this slightly pessimistic outlook did not discourage investors, who reacted positively to the company's overall tone. Texas Instruments shares rose around 3%[1] in later trading, showing that the market is considering the potential for a longer-term recovery.*
Competition and market environment
Although Texas Instruments has difficulties with excessive inventory in the main segments, it also has its bright sides compared to the competition. Some other chip companies, such as ASML Holding NV, are seeing a decline in orders, while Taiwan Semiconductor Manufacturing Co. (TSMC) has brought a strong outlook. TSMC predicts growth due to demand for advanced chips for artificial intelligence.[3] This confirms that the industry faces an imbalance between traditional and new technologies.
Long-term potential
Texas Instruments' biggest advantage is its ability to supply chips that, while performing simple but critical functions in a variety of devices. The industrial and automotive segments account for more than 70% of the company's revenues, giving TI a strong position in these industries. The demand for these chips is driven by the growing presence of electronics in everyday devices, which adds value to Texas Instruments' products.
An important step of the company is also the construction of new factories and a focus on in-house production. While these investments in production capacity are currently pushing margins, they can bring significant cost benefits in the long term, boosting competitiveness.
Investment considerations
For the investor, Texas Instruments represents a stable company with long-term growth potential. While the near-term outlook suggests some volatility, the firm has strong fundamentals, and its products are essential for a few industrial and automotive applications. In addition, ongoing investment in manufacturing and presence in several key markets increase the likelihood of future growth.[4]
As an investor, I will monitor the development of inventories and demand in the automotive and industrial segments. If the situation in these industries improves, Texas Instruments has the potential to return to growth. However, given its current market position and investment activities, Texas Instruments remains an attractive long-term opportunity, despite the current uncertainty.
* Past performance is not a guarantee of future results.
[1,2,3,4] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which is subject to change. Such statements are not a guarantee of future performance. They involve risks and other uncertainties that are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.
[1] Share price performance of Texas Instruments Inc. over the past five years: https://tradingeconomics.com/txn:us
https://finance.yahoo.com/news/texas-instruments-gives-weak-forecast-201923052.html