Texas Instruments’ forecast signals chip slump is persisting

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Texas Instruments’ forecast signals chip slump is persisting

stock :: 2025-01-24 :: source - bloomberg

By Ian King

Image source: Yahoo finance

(Bloomberg) — Texas Instruments Inc. (TXN) gave a disappointing earnings forecast for the current period, hurt by still-sluggish chip demand and higher manufacturing costs.

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Profit will be 94 cents to $1.16 a share in the first quarter, the company said in a statement Thursday. The midpoint of that range, $1.05 a share, was well below the $1.17 that analysts projected on average. Sales will be $3.74 billion to $4.06 billion, compared with an estimate of $3.86 billion.

Much of the electronics industry remains mired in a slump — contributing to nine straight quarters of sales declines at the company. Manufacturing expenses also have affected profit, Texas Instruments executives said.

Texas Instruments gets the biggest portion of its sales from manufacturers of industrial equipment and vehicles, making its projections a bellwether for much of the global economy. Three months ago, executives said some of the company’s end markets were showing signs of emerging from an inventory glut, but the rebound hasn’t come as quickly as some investors anticipated.

The company’s shares slipped about 3% in extended trading following the announcement. They had gained about 7% this year through the close of regular trading.

Chief Executive Officer Haviv Ilan said Thursday that industrial demand remains slow. “Industrial automation and energy infrastructure still haven’t found the bottom,” he said on a conference call with analysts.

In the automotive segment, growth in China wasn’t as strong as it has been, meaning it can’t offset the expected weakness in other parts of the world.

“We haven’t seen the bottom yet — let me be clear,” Ilan said, though the company is seeing “points of strength.”

In contrast with the disappointing forecast, Texas Instruments’ fourth-quarter results handily beat analysts’ estimates. Though sales fell 1.7% to $4.01 billion, analysts had projected $3.86 billion. Profit was $1.30 a share, compared with a prediction of $1.21 per share.

The Dallas-based company is the biggest maker of chips that perform simple but vital functions in a broad range of electronic devices. It’s also the first large US chipmaker to report numbers in the current earnings season.

The company is running some plants at less-than-full capacity to reduce inventory stockpiles, Chief Financial Officer Rafael Lizardi said during the call. That’s taking a toll on profit.

When chip companies slow down output, they book what they refer to as underutilization charges. The issue affects gross margin, the percentage of sales remaining after deducting the cost of production.

Chipmakers in other parts of the world have offered a mixed picture of demand for their products. Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and SK Hynix Inc. have pointed to continuing strength in data center products — helped by the artificial intelligence boom. But overall growth is still hampered by downturns in other markets, such as smartphones and personal computers.

Together, the industrial and auto markets account for about 70% of Texas Instruments’ revenue. The chipmaker produces analog and embedded processors, a huge category of semiconductors. Though the chips handle important functions, such as converting power inside electronic devices, they don’t fetch the kind of high prices of chips from the AI-focused Nvidia Corp. or even Intel Corp.

Texas Instruments’ chips also generally don’t require state-of-the art production. Even so, the company has embarked on an aggressive expansion and upgrade of its facilities in the US. While that spending is weighing on profitability, the company says the move will help lower costs in the long term and help it compete with Chinese rivals.

In China, there have been allegations that US companies are dumping lower-end chips into the market — selling them at a level that unfairly undercuts competitors. Though the country has said that it’s investigating the issue, Texas Instruments hasn’t been notified of any probe, Ilan said. It’s “business as usual,” he said.

Moreover, Texas Instruments’ chips aren’t powerful enough to trigger US export restrictions to China.

(Updates with executive remarks starting in sixth paragraph.)