Automotive, Industrial Markets Continue To Drive Texas Instruments’ Revenues
Texas Instruments (NYSE:TXN) once again posted solid growth in Q4, as its revenues grew by 10% to $3.75 billion in the quarter. The company’s revenue again came in at the high end of its guided range. However, its tax expense jumped up by $800 million in Q4 as TI provisioned for the recently passed Tax Reform Act. As a result, diluted earnings per share (EPS) declined by 67% to $0.34. While the company expects that its annual operating tax rate will decline to 18% in 2019 due to the tax reform act, its tax rate for 2018 is expected to be 5% higher at 23% due to the transitional tax effect. This announcement negatively impacted TI’s stock price and its stock price declined by 7% in aftermarket hours trading. Nevertheless, the company’s revenues are likely to continue to grow, driven by its increasing strength in the automotive and industrial markets.
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In Q4, Analog revenue grew 11% y-o-y due to growth in revenues from Power and Signal Chain products, while Embedded Processing revenue grew 20% y-o-y. The operating margin increased in both businesses, as 300 mm fab facility utilization grew during the quarter. Meanwhile, Automotive and Industrial products continue to drive growth as the automation in these industries is boosting semiconductor demand. Texas Instruments, through its 300-millimeter analog production, has a diverse product portfolio for these segments. In 2017, industrial and automotive made up 54% of TI’s revenue, an increase of over 12% in 2013.
Texas Instruments’ gross margin improved by 70 basis points to 65.1% due to improved manufacturing efficiency. The increase in TI’s gross margins in the last few years has been driven by an increasing proportion of production occurring on 300-mm capacity. As the analog business grows, the company’s incremental growth will be built on 300mm. In addition to the expanding revenue base, the increasing proportion of manufacturing on 300mm, as opposed to 200mm, should help sustain or even further grow gross margins.
For Q1 2018, the company expects revenue to be in the range of $3.49 billion to $3.79 billion, while EPS is expected to be between $1.01 and $1.17. We have created a dashboard that illustrates this expectation. You can modify the underlying drivers i.e. revenues and operating profit margins to set up your expectations for TI’s revenues in Q1’18.
We are in the process of updating our model. At present, our price estimate of $79 for Texas Instruments is below the current market price.
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