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Texas Instruments Results Will Be a Litmus Test for Bloodied Semis

Texas Instruments Results Will Be a Litmus Test for Bloodied Semis

(Bloomberg) -- Investors burned by the biggest quarterly slump in chip stocks since 2011 will find out if more pain is in store when Texas Instruments Inc. releases its earnings report after the close of trading Wednesday.

Texas Instruments has one of the industry’s longest and most diverse list of customers whose products range from satellites and rockets to personal computers and home appliances. The company’s earnings report and outlook will be closely watched as waning end-market demand and the U.S.-China trade war has weighed on semiconductor shares and sparked debate about whether the downturn will be fleeting or more prolonged.

“As we head into earnings, negative data points abound along with a broader sense of uncertainty,” BMO Capital Markets analyst Ambrish Srivastava wrote in a research note. “Broadly speaking, there is an anticipation of March quarter guidance that is likely going to be weaker than what normal seasonality would suggest.”

Texas Instruments Results Will Be a Litmus Test for Bloodied Semis

After a dismal 2018, the hits have just kept coming for semiconductor stocks in recent weeks. Apple Inc. cut its revenue forecast on Jan. 2 for the first time in almost two decades, citing weaker demand in China. The iPhone maker accounts for about 7 percent of Texas Instruments’ sales, according to supply chain data compiled by Bloomberg. Taiwan Semiconductor Manufacturing Co., the largest contract manufacturer of chips, warned last week that quarterly sales will fall well below expectations.

The sell-off resumed Tuesday, leading a broad market decline as investors turned more pessimistic on prospects for a U.S.-China trade deal. The 30-member Philadelphia semiconductor index fell 15 percent in the fourth quarter and is currently trading down 17 percent from its record high last March, even with a slight rebound Wednesday. Texas Instruments’ earnings report will be followed by Intel Corp. on Thursday.

Last quarter, Texas Instruments raised concerns when it said that demand was slowing across most markets. At the time, Chief Financial Officer Rafael Lizardi said it wasn’t yet clear whether the slowdown was the result of a natural semiconductor cycle or the trade war.

“We believe investors will continue to focus on inventory levels given cycle concerns,” Amit Daryanani, an RBC analyst, wrote in a research note. There’s risk that the Dallas-based company’s quarterly forecasts will fall short of estimates and inventory levels will be higher, said Daryanani, who rates the stock outperform.

Texas Instruments’ revenue is expected to be $3.75 billion in the fourth quarter, flat from the same period a year ago, according to the average estimate of 26 analysts surveyed by Bloomberg.

Just the numbers

  • 4Q GAAP EPS estimate $1.23 (range $1.17-$1.25); forecast on Oct. 23 of $1.14-$1.34
  • 4Q revenue estimate $3.75 billion (range $3.64 billion to $4.0 billion); forecast $3.6 billion to $3.9 billion
  • 4Q gross margin estimate 64.4%
  • 1Q GAAP EPS estimate $1.21 (range $1.08 to $1.37)
  • 1Q revenue estimate $3.60 billion (range $3.43 billion to $3.68 billion)

Data

  • 15 buys, 19 holds, 1 sell
  • Average price target $110.13 (14% upside from current price)
  • Implied 1-day share move following earnings: 5.3%
  • Shares fell after 7 of prior 12 earnings announcements
  • GAAP EPS met or beat estimates in 12 of past 12 quarters
  • Shares down 19% in past 12 months vs SPX Index down 6.6%

Timing

  • Earnings release expected 4:01 p.m. New York time
  • Call 4:30 p.m. (323) 994-2093 password: 3592281
  • Conference call website

--With assistance from Ian King.

To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Brad Olesen

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