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Texas Instruments’ Rosy Forecast Counters Fears of Slowdown

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(Bloomberg) -- Texas Instruments Inc., the maker of chips used in everything from washing machines to satellites, gave a bullish forecast for the current period, countering concern that a slowing economy is hurting demand for electronics.

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Third-quarter revenue will be $4.9 billion to $5.3 billion, Texas Instruments said in a statement Tuesday. That compares with the $4.94 billion average estimate from analysts. Profit will be as much as $2.51 a share, the company said, ahead of projections.

That helped lift the stock 2.6% in extended trading Tuesday and gave a boost to shares of chipmakers such as Qualcomm Inc. and Intel Corp., which also report their results this week. Chips stocks had fallen sharply in regular trading.

The outlook offered a ray of optimism for chip investors, who have grown more bearish about the industry this year. The Philadelphia Stock Exchange Semiconductor Index has fallen 30% in 2022, worse than the performance of major indexes, hurt by concerns that a multiyear boom in demand is weakening. Already, Texas Instruments was down less than its peers this year, sliding 15% through Tuesday’s close.

Texas Instruments has the biggest customer and product lists in the chip industry, making its reports an indicator of demand across the economy. The Dallas-based company had previously cut back its projections, citing Covid-related lockdowns in China that hampered its customers. Now that factories there are back in production, more orders are being filled.

Chips used in industrial machinery and vehicles provided strong growth in the quarter, Chief Financial Officer Rafael Lizardi said in an interview. Consumer products didn’t fare as well, though.

“We did see weakness in personal electronics,” Lizardi said. “At this point many companies have talked about that so it’s not a surprise.”

Lizardi declined to make specific predictions about markets or the chip industry as a whole saying instead Texas Instruments will continue to invest in industrial and automotive products undaunted by outside circumstances.

“There’ll be a recession at some point in the future, maybe it’s this year or the next or in 2025,” he said. “We’ll deal with it at the time.”

Automotive revenue jumped more than 20% in the second quarter. More broadly, the company saw a resurgence in orders at the end of the three-month period, when owners of factories located in China were able to start taking deliveries again following lockdowns.

Second-quarter net income rose to $2.45 a share from $2.05 a share a year earlier, beating estimates. Revenue rose 14% to $5.2 billion. Texas Instruments had posted double-digit percentage increases for six straight quarters coming in to Tuesday’s results.

One of the pioneers of the chip industry, Texas Instruments is the largest maker of analog and embedded processing chips, which are part of products as varied as factory equipment and space hardware.

Texas Instruments’ management generally declines to give predictions about future demand for electronics, maintaining instead that the company can still sell the inventory it produces at some point in the future. Its products, unlike digital chips such as microprocessors, take years to become obsolete, meaning that rising stockpiles aren’t the danger sign they are in other parts of the chip business. The company still doesn’t have enough inventory, executives said Tuesday.

Texas Instruments manufactures about 80% of its chips in its own factories, and the company is investing to expand that footprint. That’s caused some analysts to express concern that the chipmaker will have less cash available for share repurchases and dividends -- benefits that made its stock a long-term investor favorite.

Texas Instruments said it wants even more in-house production to avoid the woes of other chipmakers, which are reliant on outsourced manufacturing and have struggled with shortages during the pandemic.

(Updates with CFO comments from sixth paragraph.)

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