Texas Instruments (NASDAQ:TXN), which designs and manufactures semiconductors, announced its Q2 2012 earnings on Monday, July 23. Treading a downward path for quite some time, Q2 offered some respite to the company and its investors with a 7% sequential increase in revenues, though it registered a y-o-y decline of 4% in the same. Strong growth in orders and an expanding backlog reported by the company in the first quarter contributed to the growth in revenues this quarter.
Driven by growth in power management, TI registered a 7% sequential increase in revenues from the analog division, whereas the strong growth in communication infrastructure led to a 8% sequential rise in embedded processing revenues. However, on account of lower OMAP revenue, the wireless segment posted a 8% sequential decline.
The lack of visibility of orders from its customers and distributors, compelled TI to post a weaker outlook for Q3 2012 with targeted revenue in the flat range of $3.21 – $3.47 billion.
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Lack Of Order Visibility Lowers Outlook For The Third Quarter
Though orders and backlog did witness an increase in the second quarter as well, it was at a slower pace compared to Q1 2012. The company registered a clear decline in order momentum in the month of June and is not so optimistic of meeting the seasonal increase in orders for the month of September either. The weak global economic environment has increased uncertainty around demand from manufacturers, which has narrowed the window of backlog coverage for TI.
Led by a substantial reduction in revenues from the wireless segment and continued lower level of factory utilization, the company had registered a 8% y-o-y decline in its Q1 2012 revenues. Though the utilization levels were up slightly in the second quarter, with a flat revenue guidance for the next quarter and inventory being at the desired level, the utilization levels might decline in the third quarter.
Additionally, the incremental capacity added over the years will further put downward pressure on utilization levels and margins. If the demand does not pick up in the latter part of the year, as expected, it could negatively impact the company valuation.
The company remains committed on strengthening its long-term position in the analog and embedded processing divisions with continued focus on investments to bolster its product portfolio. However, the lack of visibility in order growth keeps the outlook muted for this year.
We are in the process of updating our price estimate of $45.29 for Texas Instruments for Q2 2012 earnings.