After Growing 18% In 2 Years, Why Is Texas Instruments’ Revenue Expected To Drop 3% Over The Next 2 Years?

by Trefis Team
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Texas Instruments’ (NASDAQ:TXN) total revenue has grown from $13.37 billion in 2016 to $15.78 billion in 2018, largely driven by a $2.26 billion jump in analog semiconductor revenue. We expect total revenue to drop to $14.72 billion in 2019, on the back of cooling demand for TI’s products in many end markets, and the ongoing trade war between the US and China.
However, things should get slightly better going into 2020 driving revenue to $15.23 billion, owing to stronger demand from the communications space, with the advent of 5G networks.

Takeaway

  • Texas Instruments’ Analog Semiconductors division, which sells analog semiconductors to different industries such as Automotive and Industrials, is expected to contribute $10.15 billion to total revenue in 2019, making up 69% of Texas Instruments’ $14.72 billion revenue estimate.
  • The Analog division, is more than three times larger than the Embedded Processors division, which is expected to bring in $3.23 billion in 2019, making up 22% of total revenue.
  • TI’s Analog division will bring in an additional $2.02 billion, which is 108% of the $1.86 billion in total revenue that the company is expected to add between 2016 and 2020.
  • This strong revenue growth has been key to TI’s 70% price appreciation since December 2016, further helped by growing margins and a steady drop in shares outstanding.
  • In our interactive dashboard Texas Instruments Revenue: How Does Texas Instruments Make Money?, we discuss TI’s business model, followed by sections that review past performance and 2020 expectations for TI’s revenue.

A look at Texas Instruments’ segments and their contribution to total revenue

(A) Revenue from analog semiconductors to drop by $240 million over the next 2 years, to make up around 69% of total revenue in 2020

  • Analog revenue has grown from $8.54 billion in 2016 to $10.8 billion in 2018.
  • This growth can largely be attributed to Texas Instruments’ increased focus on catering to the fast-growing automotive and industrial markets, which are witnessing an increase in semiconductor content.
  • However, with the ongoing semiconductor downcycle, and trade tensions between the US and China, we expect revenue from this segment to drop to around $10.56 billion by 2020.

(B) Revenue from embedded processors to drop by $220 million by 2020, to make up 22% of the total revenue estimate

  • Revenue from the embedded processors segment has grown from $3.02 billion in 2016 to $3.55 billion in 2018, on the back of steady demand growth.
  • However, amidst the current semiconductor market conditions, we expect revenue to drop to around $3.23 billion in 2019, before recovering marginally, to around $3.33 billion by 2020.

(C) Other Revenue to drop $90 million over the next 2 years, and make up around 9% of the total revenue estimate in 2020

  • This segment includes revenue from TI’s smaller semiconductor product lines and from sales of TI’s handheld graphing and scientific calculators.
  • Revenue from this segment has declined steadily from $1.81 billion in 2016 to $1.43 billion in 2018.
  • This segment sees relatively low R&D expenses, as calculators are mostly a legacy business, and hence has no additional assets or costs associated.
  • We expect revenue from this segment to decline to around $1.34 billion by 2020.

 

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