Strong Automotive And Industrial Demand Drove TI’s Top-Line In Q3’16
Leading analog semiconductor maker, Texas Instruments ( NYSE:TXN) reported its Q3 2016 earnings on October 26th after the market close. The company’s profitability shot-up by 21% during the quarter. Further, TI’s gross margins grew to 62% in Q3, representing an increase of 380 basis points on a year over year basis. Margin improvements for TI are as a result of an increasing proportion of its revenues coming from the 300mm production facilities.
The company’s revenues from the analog and embedded segments increased by 6% and 10% respectively in Q3. The company’s strong revenue growth was driven by a healthy demand for its products in the automotive market and industrial market. In addition, TI’s personal electronics segment revenues, which had been declining over the last couple of quarters, had an even growth as compared to the year-ago period.
In the table below we note the key metrics as reported by TI in Q3:
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- What Has Driven Texas Instruments Stock Higher In Recent Years?
- Strong Sales Growth Has Helped Texas Instruments Stock Outperform The S&P
- What’s Behind Texas Instruments Stock’s Consistent Outperformance Of The Markets?
Source: Sec-filings
Margin Improvement For TI Can Be Expected To Continue
We believe that TI should continue to benefit from an efficient manufacturing strategy going forward, which includes shifting to a 300mm analog production and purchasing assets ahead of demand. In 2015, the company had about $2 billion of its Analog revenues coming in from the 300mm analog production, which translates to only 25% of its overall analog segment revenue. The proportion of TI’s revenues from 300mm production is likely to go up in the coming quarters, driving the margins higher for the company. To increase its 300mm production, the company is likely to ramp up its production from its RFAB and DMOS6 facilities, which cater to the 300mm production, and were largely under-utilized until 2015. TI’s RFAB and DMOS6 production facilities were operating at 45% and 25% of their full production capacity, respectively, in 2015.
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