Texas Instruments (TXN, Financial) met its Q2 earnings and sales forecasts, marking its first quarter of sequential improvements after a period of declining demand. The analog chip and embedded processor manufacturer also projected Q3 numbers in line with consensus, indicating another quarter of growth. While TXN hasn't confirmed a bottom in its primary markets—industrial and automotive, which account for 75% of its revenue—other sectors are showing strength. Investors are optimistic that TXN can continue this trend into Q3.
- The macroeconomic environment remains uneven. TXN saw sequential declines in its industrial and automotive markets, which fell by low single and mid-single digits, respectively, in Q2. However, personal electronics grew by mid-teens from Q1. Communications equipment and enterprise systems also saw healthy growth, increasing by mid-single digits and around 20%, respectively.
- TXN's adjusted EPS increased by $0.07 sequentially to $1.17, within its $1.05-1.25 outlook range. Revenues grew by 4% from Q1 to $3.82 billion, surpassing the midpoint of its $3.65-3.95 billion forecast.
- For Q3, TXN projects adjusted EPS of $1.24-1.48 and revenues of $3.94-4.26 billion, both representing improvements over Q2. While TXN didn't provide detailed guidance for each end market, it noted that personal electronics, which typically perform well in Q3 due to holiday preparations, are expected to drive sequential revenue growth. Communications equipment and enterprise systems are also likely to maintain their strong momentum.
- Despite not calling a bottom in its key markets, TXN's future looks promising, especially with growth drivers like industrial automation and automotive electrification. Geopolitical tensions could also lead customers to diversify their supply chains, favoring TXN's U.S.-based fabs. However, after hitting all-time highs last week, investors were likely looking for more definitive signs of a market bottom to further boost the stock.
TXN's Q2 report was solid, and its Q3 guidance was encouraging. Despite this, the company’s reluctance to declare a bottom in its primary markets leaves some uncertainty. It will be interesting to see if peers like STMicroelectronics (STM, Financial), Microchip (MCHP, Financial), and Analog Devices (ADI, Financial) follow suit in their upcoming earnings reports.
