What’s Texas Instruments’ 2019 Outlook After Its Q4 Earnings Beat?

by Trefis Team
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Semiconductor bellwether Texas Instruments (NYSE: TXN) published its Q4 2018 result on Wednesday. While the company reported a stronger than expected set of earnings, its guidance for the first quarter was somewhat mixed, on account of cooling demand for semiconductor products and the uncertainty caused by the trade tensions between the U.S. and China. In this note, we provide a brief overview of what could lie ahead for the company.

Outlook For Q1 2019

Texas Instruments has guided for Q1 2019 earnings of between $1.03 per share to $1.21 per share, marking a decline of ~17% year-over-year at the midpoint, with revenues expected to come in between $3.34 billion and $3.62 billion – a decline of close to 8% year-over-year at the midpoint. The semiconductor industry appears headed to a downturn, on account of slower demand for personal electronics such as smartphones after years of robust growth. The Chinese market, in particular, is cooling off, with TI noting that this could be due to both lower local demand as well as reduced exports. China (including Hong Kong) accounted for over 40% of the company’s shipments over the first nine months of the year. However, this could be partly mitigated by stronger demand for analog semiconductors from the deployment of  5G telecom networks as well as continued growth in areas such as industrial and automotive, where semiconductor content is generally rising. While the downcycles typically last about 12 months, the company has indicated that this could be worsened by the current trade tensions.

Inventory holding is typically a closely-watched metric for analog semiconductor players, as the build-up of unsold components serves as an indicator of customer confidence, with higher inventory levels potentially hurting selling prices. TI’s inventory position has been expanding, coming in ahead of its projected range at 152 days in Q4, up by about 18 days from a year ago. This could also point to some softness in the market going forward.

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