Texas Instruments Gives Rosy Sales Forecast; Shares Jump
(Bloomberg) -- Texas Instruments Inc., the largest maker of chips that help run most electronic devices, gave a quarterly sales and profit forecast that topped estimates, defusing concerns that orders are trailing off amid weaker demand across the semiconductor industry. The shares rose.
Second-quarter net income will be as much as $1.39 a share, the Dallas-based company said Tuesday in a statement. Revenue will be $3.78 billion to $4.1 billion. On average, analysts predicted profit of $1.22 a share on sales of $3.9 billion, according to data compiled by Bloomberg. Texas Instruments shares jumped 4.2 percent to $102.56 at 9:36 a.m. in New York.
The company said it’s seeing strong demand from industrial and automotive customers. The forecast may help allay fears that some of the semiconductor industry’s biggest end markets are slowing down, sparked by a spate of downbeat news from other technology companies in recent days. More than any other chipmaker, the company’s reach makes it a proxy for demand across the economy. Texas Instruments, one of the oldest companies in technology, produces a part for almost everything that runs on electricity.
“The macro economy continues to be constructive,” Chief Financial Officer Rafael Lizardi said on a conference call following the report. It’s too early to say whether increasing geopolitical concerns will hurt the economy, he said.
Concerns about the health of the chip business began when Lam Research Corp., a maker of equipment used primarily in the production of memory chips and the first large chip-related company to report earnings, spooked investors last week by predicting a decline in orders in the second half of the year. That was followed by Apple Inc.’s main chip manufacturer, Taiwan Semiconductor Manufacturing Co., giving a revenue forecast for the current quarter that missed analysts’ average estimate by about $1 billion. The reports arrived against the backdrop of a brewing trade war between the U.S. and China, which could put some chipmakers’ fastest-growing markets at risk.
“We’re seeing some relief that things, at least so far, aren’t going south,” said David Heger, an analyst at Edward Jones & Co. “We’re two years into an up-cycle so everyone’s getting skittish.’
A lingering area of concern is the trade skirmish between the U.S. and China, the largest market for semiconductors. While chips haven’t been mentioned specifically as targets for tariffs, any escalation of the spat could slow the economy and eventually dent demand for these components, said Lizardi.
In the first quarter, Texas Instruments said net income rose to $1.37 billion, or $1.35 a share, from $997 million, or 97 cents, a year earlier. Sales rose 11 percent to $3.79 billion. Analysts on average had estimated earnings of $1.10 on revenue of $3.65 billion.
Texas Instruments shares had dropped 5.8 percent this year through Monday. That’s compared with a decline of 0.7 percent in the Philadelphia Stock Exchange Semiconductor Index in the same period.
While Texas Instruments saw stronger demand across its product range, orders from communications-equipment makers fell from a year earlier, the company said. The industrial and automotive markets will continue to be the fastest-growing areas for chipmakers because demand is being fueled in part by an increasing number of semiconductors used in each device.
Factory robots are being put to work alongside humans and the machines need more chips and sensors to operate safely in this more complex and riskier environment, according to Lizardi. In automotive, the growing number of electric vehicles has created a larger market for semiconductors in cars, he said.
Texas Instruments’ analog chips perform the fundamental task of translating real-world inputs, like sounds and touch, into electronic signals. These semiconductors can be found in everything from refrigerators to satellites. Texas Instruments has deliberately avoided concentrating on one product area.
The company gets the biggest chunk of its sales from makers of industrial equipment. It’s also one of the biggest providers of silicon to the automotive industry. Unlike Intel Corp. and Qualcomm Inc., it doesn’t make chips that cost tens of millions of dollars to develop and then quickly become obsolete, making it less vulnerable to sudden swings in demand or competitive pressure. That’s paid off by increasing the company’s profitability, but hasn’t yet driven sustained revenue growth.
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