With Chip Stocks Under Pressure, All Eyes on Texas Instruments

(Bloomberg) -- An ugly start to earnings season for semiconductor companies has stoked anxieties about demand for memory chips and smartphones. Now attention is shifting to the company with the most diverse product catalog and customer list in the business: Texas Instruments Inc.

Most analysts’ first-quarter revenue estimates for the world’s largest maker of analog chips have remained steady in the past month, with the average projection for growth at 7 percent. There’s greater concern about the company’s outlook for the current quarter following disappointing sales forecasts from a string of semiconductor companies.

Any indication from Texas Instruments of lackluster demand will be read as a sign that the weakness that has plagued chip stocks in the past two weeks is spreading to other areas of the $400 billion industry. With components in everything from lawn mowers to X-ray machines, the Dallas-based company’s earnings report after the market close Tuesday will offer the best view on the health of the market for chips that are being used in a growing number of everyday products.

“Semiconductor stocks have been under pressure for most of the year,” said Tore Svanberg, a Stifel Nicolaus & Co. analyst. “If Texas Instruments can come out and say that the industry remains stable, obviously that would ease a lot of fears.”

The Philadelphia Semiconductor Index has fallen more than 7 percent since 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 with a forecast for fewer shipments in the second half of the year. Two days later Apple Inc.’s main chip manufacturer, Taiwan Semiconductor Manufacturing Co., sparked another selloff after its revenue forecast for the current quarter missed the average analyst estimate by about $1 billion.

Semiconductor stocks, the best-performing industry group last year, are trading at their lowest levels in more than two months and flirting with a 200-day moving average that hasn’t been breached since 2016.

Investor skittishness was on display Monday, when Austrian electronic component maker AMS AG -- with an $8 billion market value -- helped spark a selloff in the chip index with another disappointing revenue view. The Philadelphia Semiconductor Index fell 1.3 percent to the lowest level since Feb. 8.

The latest downbeat news came Tuesday morning from SK Hynix Inc., South Korea’s second-largest chipmaker, which reported quarterly sales that fell short of estimates.

Analysts on average project Texas Instruments’ revenue will increase 6 percent in the second quarter to $3.9 billion, according to data compiled by Bloomberg. That would be down from a 13 percent gain in the same period last year. At the end of 2017, Texas Instruments got 35 percent of revenue from industrial customers, 25 percent from consumer electronics and 19 percent from the automotive industry.

Stifel’s Svanberg predicts below-seasonal growth rates for Texas Instruments in 2018 as a result of excess inventories, making it unlikely that the company’s revenue forecast will exceed current estimates.

©2018 Bloomberg L.P.

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