Texas Instruments Inc. announced a disappointing earnings forecast for the current quarter, hurt by continued sluggish demand for chips and rising manufacturing costs.
The company said in a statement Thursday that first-quarter earnings per share will be between 94 cents and $1.16. The midpoint of the range is $1.05 per share, well below the average analyst forecast of $1.17. Sales are expected to be between $3.74 billion and $4.06 billion, compared with expectations of $3.86 billion.
Sales at the company fell for nine straight quarters as much of the electronics industry remained sluggish, and TI executives said manufacturing costs also weighed on profits.
TI’s biggest sales come from industrial equipment and automakers, so its forecasts are a bellwether for the global economy. Three months ago, executives said some of the company’s end markets were showing signs of shedding excess inventory, but the rebound was not as swift as some investors had expected.
The company’s shares fell about 3% in after-hours trading following the announcement. As of the close of regular trading, the stock had risen about 7% this year.
Texas Instruments Chief Executive Haviv Elan said Thursday that industrial demand remains weak. “Industrial automation and energy infrastructure have not bottomed out yet,” he said on a call with analysts.
In the auto industry, growth in China is not as strong as it once was, meaning it cannot offset expected weakness in the rest of the world. “We haven’t seen the bottom yet — let me be clear,” Ilan said, though the company see “points of strength.”
In stark contrast to the disappointing forecast, Texas Instruments' fourth-quarter results easily beat analysts' expectations. Although sales fell 1.7% to $4.01 billion, analysts expected $3.86 billion. Earnings per share were $1.30, compared with expectations of $1.21.
The Dallas-based company is the largest maker of chips that perform simple but critical functions in a wide range of electronic devices and the first major U.S. chipmaker to report figures in the current earnings season.
Chief Financial Officer Rafael Lizardi said on a conference call that the company is operating some plants below full capacity to reduce inventory, which is hurting profits.
When chip companies slow production, they incur so-called underutilization costs. The problem eats into gross margin, the percentage of sales that remains after production costs are deducted.
Chipmakers in other parts of the world saw mixed demand for their products. Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and SK Hynix Inc. noted that data center products continued to perform strongly, driven by a boom in artificial intelligence. However, sluggish markets for smartphones and personal computers still hampered overall growth.
The industrial and automotive markets together account for about 70% of Texas Instruments’ revenue. The chipmaker makes analog and embedded processors, an important category in semiconductors. While these chips handle important functions such as converting power within electronic devices, they are not priced as high as AI chips from Nvidia Corp. or Intel Corp.
On January 23, Texas Instruments released its fourth-quarter financial report. Although overall revenue declined slightly, its performance exceeded market expectations. Total revenue reached US$4.01 billion, a year-on-year decline of 1.7%, but exceeded the expected US$3.86 billion for this quarter.
Texas Instruments also saw a decline in operating profit, coming in at $1.38 billion, down 10% from the same period last year. Despite the decline in operating profit, it still beat expectations by $1.3 billion, showing the company's ability to maintain strong performance despite challenging economic conditions.
Breaking down revenue by segment, Analog reported $3.17 billion, up 1.7% year-over-year. In contrast, Embedded Processing saw a significant drop in revenue, coming in at $613 million, down 18% from the previous year. Meanwhile, the “Other” revenue category (which includes various smaller business units) reported $220 million, up 7.3% year-over-year.
Haviv Ilan, president and CEO of Texas Instruments, said operating cash flow reached $6.3 billion in the past 12 months, further highlighting the strength of its business model, the quality of its product portfolio and the advantages of 12-inch production. Free cash flow during the period was $1.5 billion. In the past year, the company invested $3.8 billion in research and development, sales, general and administrative expenses, and $4.8 billion in capital expenditures, while returning $5.7 billion to shareholders.
He also provided guidance for TI's first quarter, predicting revenue between $3.74 billion and $4.06 billion and earnings per share between $0.94 and $1.16, and announced that he expects the effective tax rate in 2025 to be around 12%.
Bloomberg Research released a research report saying that Texas Instruments' fourth-quarter results and first-quarter guidance indicated that industries such as personal electronics, communications and enterprises are recovering, but this improvement is not enough to offset the continued weakness in the industrial and automotive markets, which together account for 70% of the company's sales.
The slower-than-expected recovery in the industrial sector, the more pronounced decline in the U.S. and European automotive sectors, and sluggish growth in the Chinese market suggest that TI will continue to face challenges in these areas.
Post time: Jan-27-2025