How Is Texas Instruments Looking To Weather Demand Slowdown?

by Trefis Team
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Semiconductor bellwether Texas Instruments (NYSE: TXN) published its Q3 2018 results on Tuesday, October 23, reporting a weaker than expected set of earnings, while providing a soft outlook for Q4 amid a slowdown in demand for its products across most end markets. The company’s revenues grew by 3.5% year-over-year to $4.3 billion, while net income grew by 22% to $1.57 billion. Below we provide some of the key takeaways from the company’s earnings and what lies ahead for TI.

We have summarized our expectations for the company in our interactive dashboard, which outlines what to expect from TI’s full-year results .

Analog Business Grows, Albeit At A Slower Pace 

TI’s Analog semiconductor business, which accounts for roughly two-thirds of the company’s sales, saw revenues grow by 8% year-over-year to $2.9 billion, driven by Power and Signal Chain products, although High Volume product sales declined. Operating margins for the segment grew to 49.8%, up from 47% a year ago, driven by a higher revenue base and likely due to a growing mix of output from its 300-millimeter process. TI has been betting big on the automotive market to drive growth. While the company noted that sales to the auto sector grew by double digits year-over-year, its growth rate slowed down compared to previous quarters. That said, this market should prove to be crucial for the company in the long run, considering that cars are generally seeing higher semiconductor content, and the industry is also more diverse from an application standpoint.

Soft Outlook

The company has provided a weaker than expected outlook for the fourth quarter, indicating that profits are expected to stand at about $1.14 to $1.34 per share, with revenues projected to come in at $3.6 billion to $3.9 billion, implying that they would be almost flat on a year-over-year basis, at the midpoint. While the company indicated that the decline was due to a slowdown in most end markets, the ongoing trade war between the United States and China may also be impacting demand, as customers could be hesitant to stock up on components that they may not be able to deploy due to any potential disruptions. To address the slowdown, TI indicated that it would be more disciplined with its spending, reducing its number of wafer starts, implying that it could build fewer semiconductor wafers. Moreover, the company indicated it would be more circumspect about operating expenses, although it indicated that it wouldn’t scale back on its long-term R&D plans or its continued transition towards the more competitive 300-mm fabrication process.

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