Texas Instruments (TXN, Financial) experienced a positive surprise in its automotive end market in China during Q3, leading to a strong market response despite weaker Q4 earnings and revenue guidance. The company, known for its analog and embedded processors, generates three-quarters of its annual revenue from industrial and automotive markets, with about one-third from automotive products. While the industrial segment weakened for the sixth consecutive quarter, recoveries in other markets like automotive, personal electronics, enterprise systems, and communication equipment helped mitigate the impact.
- TXN's Q3 earnings and sales improved sequentially, with EPS at $1.44 excluding a $0.03 benefit and revenue at $4.15 billion. Notable growth was seen in smaller markets outside of industrial and automotive:
- Personal electronics grew 30% sequentially, rebounding from a low in Q1 2023, though still 20% below the 2021 peak.
- Enterprise systems and communication equipment saw 20% and 25% sequential growth, respectively.
- Automotive sales increased by 7-8% from Q2, driven largely by China's demand for electric vehicles (EVs), which require more chips than traditional vehicles. The rapid recovery in China bodes well for peers like ON Semi (ON, Financial) and STMicroelectronics (STM, Financial).
- Despite China's positive impact, the broader automotive market remains weak. Industrial demand continues to struggle, with sales declining slightly due to inventory adjustments.
- The combined issues in industrial and automotive overshadow the growth in other markets, resulting in TXN's cautious Q4 guidance, with EPS projected at $1.07-1.29 and revenues of $3.7-4.0 billion, missing analyst expectations.
The market's positive reaction today reflects optimism about China's quick automotive recovery and momentum in several of TXN's markets. Despite ongoing industrial challenges, TXN anticipates recovery as most sectors have bottomed or are near a bottom. Investors are hopeful for a return to year-over-year growth as other business components recover strongly.
