Texas Instruments Signals Slump in Industrial Chips Drags On
(Bloomberg) -- Texas Instruments Inc. shares slid after the chipmaker delivered a disappointing quarterly forecast, indicating that a slump in demand for industrial and automotive electronic components is dragging on.
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Sales in the first quarter will be $3.45 billion to $3.75 billion, the company said in a statement Tuesday. That compares with an average analyst estimate of $4.09 billion, according to data compiled by Bloomberg. Profit will be 96 cents to $1.16 a share, versus a prediction of $1.42.
The outlook signals that a rebound in orders from key sectors is taking longer than expected. That may not bode well for the broader market. Texas Instruments has the chip industry’s biggest customer list and the most varied product range, making its forecasts an indicator of demand across the economy.
“During the quarter we experienced increasing weakness across industrial and a sequential decline in automotive,” Chief Executive Officer Haviv Ilan said in the statement.
Texas Instruments shares fell as much as 3.3% to $168.54 in New York trading Wednesday following the announcement, their steepest intraday slide since October. The stock has lagged behind a rally by the Philadelphia Stock Exchange Semiconductor Index. Shares of NXP Semiconductors NV, ON Semiconductor Corp. and other chipmakers fell in trading Wednesday morning before turning positive.
Not all areas of the chip industry are faring the same. ASML Holding NV, the Dutch company that makes equipment to produce the most sophisticated semiconductors, reported that orders more than tripled last quarter from the previous three months, sending its shares up 10% in Amsterdam. ASML’s machines are used to make the very small and very fast chips that end up in smartphones and data centers that power artificial intelligence applications.
Texas Instruments is the biggest maker of analog semiconductors — chips that perform simple but vital functions, such as converting button pushes into electronic signals. The components generally require less advanced production techniques than digital products, but the company has embarked on an ambitious plan to upgrade its factories.
That push, which the company says will give it an advantage over competitors that rely on outsourced manufacturing, is weighing on profitability in the immediate term. The company will spend about $5 billion a year through 2026, it said.
Texas Instruments’ revenue in the fourth quarter declined 13% to $4.08 billion, compared with an average estimate of $4.13 billion. Profit was $1.49 a share, down from $2.13 a year earlier. For the year, sales also fell 13% — the company’s biggest contraction in more than a decade.
Company executives stuck to their policy of not giving any long-term projections or trying to estimate when customer demand would bounce back. But Chief Financial Officer Rafael Lizardi, speaking in an interview, did note that the latest downturn has been different from past ones. Various sectors have declined along different timelines, he said.
Industrial-related demand, for instance, has decreased for three quarters in a row, he said. The automotive sector, in contrast, has only just started to shrink. Demand for personal electronics, which slumped much earlier, is more stable, he noted.
The Dallas-based company has built back up its inventory to near target levels — around $4 billion — and slowed down production lines to guard against an excessive accumulation, Lizardi said. That doesn’t mean though that Texas Instruments will back off its plan to upgrade factories, he said.
“Long term, we feel very confident about semiconductor content growth particularly in auto and industrial,” he said. “Now is the time, especially when things are weak, to stay the course.”
(Updates with shares in fifth and sixth paragraphs)
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