Texas Instruments Outlook Doesn’t Meet Promise of Economy

(Bloomberg) -- Texas Instruments Inc., the largest maker of analog chips that are basic components of almost every electronic device, gave a sales forecast that fell short of some estimates amid weaker demand from phone-equipment manufacturers.

First-quarter profit will be $1.01 a share to $1.17 a share, the Dallas-based company said Tuesday in a statement. Revenue will be $3.49 billion to $3.79 billion. On average, analysts predicted a profit of $1.15 a share on sales of $3.64 billion, according to data compiled by Bloomberg. The shares declined as much as 7.2 percent after the earnings announcement.

“Expectations were running high,” said Dave Heger, an analyst at Edward Jones & Co. “You needed a solid beat and raise. Instead you got in line.”

Texas Instruments’ reach makes it a proxy for demand across the economy. It produces at least some kind of chip for almost everything that runs on electricity and has the largest customer list and product range in the semiconductor industry. Analysts had predicted that strong economic activity would boost demand for the company’s products. But Texas Instruments won’t meet those projections if it hits the lower end of its revenue forecast.

Makers of communications equipment and some personal electronics producers are ordering at lower levels, Texas Instruments said. Demand in the broader categories of industrial and automotive remains solid and that is where the company will continue to invest for future growth, Chief Financial Officer Rafael Lizardi said.

“Communications equipment was down and personal electronics grew, but in single digits,” he said in an interview. “We’re focused on industrial and automotive. Those markets did well for us.”

Shares fell to as low as $111.30 in extended trading after closing at a record $119.89 in New York. After climbing 43 percent in 2017, the stock is up 15 percent so far this year.

The company announced last week that Chief Executive Officer Rich Templeton will be succeeded by Chief Operating Officer Brian Crutcher in June. Under Templeton, who will retain the role of chairman, Texas Instruments has shifted its focus away from more expensive digital chips made by companies like Intel Corp. and Qualcomm Inc. into analog, seeking a more diverse set of markets for its products. That’s paid off by increasing the company’s profitability, but hasn’t yet fired up sustained revenue growth.

Analog chips perform the fundamental task of translating real-world inputs, like sounds and touch, into electronic signals. Texas Instruments chips can be found in everything from smartphones such as Apple Inc.’s iPhone to industrial equipment to space hardware. A typical role for its products might include converting power from one voltage to another inside a battery-powered device.

Fourth-quarter net income was $344 million, or 34 cents a share, compared with $1.05 billion, or $1.02 a share, a year earlier. Sales rose 9.8 percent percent to $3.75 billion. Analysts projected profit of $1.09 on revenue of $3.74 billion.

Analysts estimate the company will benefit from new lower corporate tax rates established by the U.S. tax legislation passed by Congress in December. Earnings per share could improve by as much as 15 percent, according to Jefferies & Co. analyst Mark Lipacis. The company, unlike many of its peers, has not parked earnings outside of the U.S., but has repatriated and paid up as it booked the income.

Texas Instruments reported quarterly income tax expenses of $1.21 billion -- more than twice as much as the quarter in 2016. The annual operating tax rate will decline to 18 percent by 2019 from 31 percent in 2017. The rate will be 23 percent in 2018 due to “transitional expense associated” with the tax law, the company said.

“It’s going to enable us to be competitive,” Lizardi said of the tax changes. “We’re no longer at a disadvantage versus other companies.”

(A previous version of this story corrected the name in the last paragraph.)

©2018 Bloomberg L.P.

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