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Texas Instruments, the largest manufacturer of analog and embedded processors in America, traded sharply lower despite reporting better than expected 1Q21 results and 2Q21 guidance after the close Tuesday. Concern is over inventory levels becoming more depleted and its lead-times for some products extending.

Texas Instruments

 Texas Instruments Inc. (NASDAQ: $TXN) Reported Earnings After Close Tuesday

$1.87 EPS beat $1.58 AND $4.29 billion revenue beat $4.00 billion forecast 

Earnings

Texas Instruments (TXN) reported first-quarter revenue of $4.29 billion vs. the analyst consensus of $4.00 billion, while adjusted earnings came in at $1.87 per share versus consensus estimates for $1.58 per share.

Operating income for the quarter was $1.94 billion vs. consensus estimates of $1.71 billion.

“Revenue increased 29% from the same quarter a year ago due to strong demand in industrial, automotive and personal electronics," said Rich Templeton, TI’s chairman, president and CEO, in a statement.  He added that “in our core businesses, Analog revenue grew 5% and Embedded Processing grew 7% sequentially. From a year ago, Analog revenue grew 33% and Embedded Processing grew 17%.”

 

Texas Instruments Incorporated NASDAQ: $TXN

Market Reaction > $181.82 ▼ 8.39 (-4.41%) Close April 28 2021

Earnings Surge, Independance Reigns Increasing Demand But Extending LeadTimes 

TXN saw a 29% jump in Q1 revenue, which follows last quarter's 22% increase.  The next highest quarterly increase over the past five years was the 13% mark registered in 1Q17.  Business is certainly booming.  With the shortage of chips causing supply chain disruptions around the world the issue the company is happening is that demand is actually too strong.  The manic rush for chips is straining TXN's inventory levels and creating some uneven results.

Just last quarter, there was some concern that TXN's customers, particularly those in the automotive industry were stockpiling chips to protect themselves from future supply shortages. This was from the fact there was a 25% surge in automotive-related revenue that maybe Q4 sales were inflated due to inventory building efforts.

Looking back during the Q4 earnings conference call, TXN's executives addressed analysts' concerns on this issue, stating that its considerable manufacturing capabilities provide it with a competitive advantage and more control over the supply chain. Here we are at Q1 and the flat sequential growth reported in TXN's automotive vertical, combined with a Q2 outlook that calls for flat sequential revenue growth at the mid-point, those chip stockpiling concerns seem to be confirmed. 

During this quarter's conference call analysts again turned the heat on TXN's management on its soft Q2 guidance, inquiring why the company isn't anticipating a seasonal upswing this year in Q2. Dave Pahl, Head of Investor Relations for TXN, responded that since Q1 was so strong, the sequentially flat guidance for Q2 is very solid.

While that is a plausible response there is now another issue that is surfacing. Relative to other semiconductor companies, Texas instruments is in a more favorable position to meet demand as it makes over 80% of its products, rather than outsourcing production to a foundry such as Taiwan Semiconductor who is far and away the most dominant foundry on the planet.

This independance has allowed the company to build and maintain higher inventory levels in order to fulfill orders on a more timely basis. This has has paid dividends for TXN. Indeed demand has strengthened to the point that its manufacturing capacity is strained and unable to keep up with order volumes.

Thus TXN's inventory levels are becoming more depleted and its lead-times for some products are extending. A victim of it;s own success. To this end the company stated that about 20% of its products have longer lead times now.  However TXN will have more capacity coming online later this year and in 1H22.  Fromt here TXN will experience a more pronounced capacity increase with the opening of its third 300-millimeter wafer fab in 2H22. 

Source: Texas Instruments

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