What We Can Expect From TI’s Q4’16 Earnings
Leading analog chip maker, Texas Instruments (NYSE:TXN) is set to report its Q4 2016 earnings on January 24th. Going by the company’s guidance for the quarter, its revenue and EPS figures have likely declined sequentially and moderately increased on a year-over-year basis. It should be noted that Q3 is usually a seasonally strong quarter for TI, due to which there is a sequential decline in its revenues and net income in Q4. In the table below, we note the key metrics as expected for the company in Q4.
Going ahead, we can expect TI to see improvements in its gross margins. The company’s effective manufacturing strategy has helped it improve its gross margins by approximately 10 percentage points in the last five years. At 62%, the company’s gross margins were at its highest levels in Q3’16. Margin improvements for TI are as a result of an increasing proportion of its revenues coming from the 300mm production facilities. Further, the company could witness an increased demand for its products if the infrastructure spending in the U.S. were to increase under the Trump administration.
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More Scope For Margin Improvements
We believe that TI should continue to benefit from an efficient manufacturing strategy going forward, which includes shifting more production to 300mm analog capacity 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 have 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.
Fiscal Boost To Benefit TI
Going ahead, TI can be an indirect beneficiary of an increased infrastructure spending by the Trump administration. It should be noted that the new administration has been vocal about its seriousness to boost infrastructure spending. [1] A fiscal stimulus by the government to boost infrastructure is likely to drive growth in the industrial, automotive and telecommunications markets. This, in turn, should result in an increased capex in these sectors. Given that TI derives revenues from each of these segments, an uptick in infrastructure spending will be beneficial for the company.
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Notes:- Trump indicates he’s serious on infrastructure spending, The Washington Times, November 2016 [↩]