Texas Instruments (TXN, Financial) reported better-than-expected third-quarter earnings, with CEO Haviv Ilan noting that customers are offloading excess inventory. This marks a potential rebound in orders after eight consecutive quarters of revenue decline. The company's Q3 revenue dipped 8.4% to $4.15 billion, outperforming analysts' expectations of $4.12 billion. Earnings per share stood at $1.47, beating the forecast of $1.37.
Supported by rebounding demand in end markets, particularly smartphones and PCs, orders from suppliers have improved, bolstering sales of Texas Instruments' semiconductors used in power electronics. During the earnings call, Ilan highlighted more than single-digit sequential growth in the automotive market revenue. He attributed the growth to the robust momentum of electric vehicles in China, though he expects the broader automotive market to remain weak.
Although Texas Instruments' three main markets show signs of recovery, its major revenue sources—industrial and automotive chips—still face inventory surplus issues. Ilan emphasized the need for a broad rebound in the industrial and automotive markets but admitted they haven't witnessed it yet.
Summit Insights analyst Kinngai Chan expressed optimism, stating that Texas Instruments anticipates a cyclical recovery in non-industrial end markets and continued growth in the automotive sector, fueled by the proliferation of electric vehicles, despite mixed demand outside China.
Following the positive earnings report, Texas Instruments' stock rose approximately 3% in after-hours trading. However, the stock initially dipped due to moderate fourth-quarter forecasts. The company projected Q4 sales between $3.7 billion and $4 billion, compared to analysts' average estimate of $4.08 billion. Expected earnings per share range from $1.07 to $1.29, against the market expectation of $1.35.
As one of the world's largest chip manufacturers, Texas Instruments is vital in performing essential functions across various electronic devices. Despite the company's reluctance to provide long-term industry forecasts, investors consider its projections a bellwether for industry demand. So far this year, Texas Instruments' stock has increased by 14%, closing at $193.97.
The chip industry is currently navigating mixed signals. ASML reported weak equipment orders due to cautious customers, while TSMC delivered strong performance guidance, driven by demand for advanced chips used in artificial intelligence. Texas Instruments generates over 70% of its revenue from industrial equipment and automotive manufacturers. While its components aren't as complex as processors for PCs and phones, they add significant value by integrating new electronic features into everyday devices.
Texas Instruments is investing heavily in new factories as part of its strategy to bring most production in-house, which has been pressuring profits. The company believes this effort will eventually afford it a cost advantage over competitors once completed.
