n a huge week for semiconductor companies Q1 results Texas Instruments $TXN reported betetr than expected earnings ahead of Advanced Micro Devices $AMD, Qualcomm $QCOM and Intel $INTC
In a huge week for semiconductor companies Q1 results Texas Instruments $TXN report ahead of Advanced Micro Devices $AMD, Qualcomm $QCOM and Intel $INTC
Earnings
- TXN reports Q1 EPS with benefits $1.35, consensus $1.11; Revenue of $3.79 billion beats by $140m.
- Sees Q2 EPS with benefit $1.19-$1.39, consensus $1.23.
- Analysts expected TI to earn $1.11 a share, up 14% year over year, on revenue of $3.65 billion, up 7% for the year in the March quarter.
Texas Instruments Incorporated NASDAQ: $TXN
Market Reaction > After hours 103.15 +4.73 (+4.81%)
$TXN was seen benefitting from the high-margin & high-growth areas of the analog and embedded processing markets which has seen growth for the last four quarters. While TI’s increasing exposure to the industrial and automotive markets is positive, weakness in communications equipment and personal electronics markets are weak areas.
TI’s is driven by strong performance in almost all the product lines. Of note after $LRCX warnings is that $TXN enjoys a cost advantage on every wafer that it builds using the 300-millimeter technology against 200-millimeter technology. This competitive advantage was expected to drive growth with consensus for the analog segment revenues at $2.44 billion.
Highlights
- “Revenue increased 11 percent from the same quarter a year ago. Demand for our Analog and Embedded Processing products continued to be strong in the industrial and automotive markets.
- “Our cash flow from operations of $5.7 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was up 17 percent from a year ago to $4.9 billion, or 32.1 percent of revenue.
- This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter Analog production.
- “We have returned $5.1 billion to owners in the past 12 months through stock repurchases and dividends, consistent with our strategy to return to owners all of our free cash flow.
- Over the last 12 months, our dividends represented 45 percent of free cash flow, emphasizing their sustainability.
Outlook
- “TI’s second-quarter outlook is for revenue in the range of $3.78 billion to $4.10 billion, and earnings per share between $1.19 and $1.39, which includes an estimated $10 million discrete tax benefit.
- “We now expect our ongoing annual operating tax rate to be about 16 percent starting in 2019 and 20 percent in 2018, lower than our previous expectations of 18 percent and 23 percent, respectively.”
Caution:
Taiwan Semiconductor Manufacturing $TSM and Lam Research $LRCX Cautious Outlooks Weigh on $SOX.
The chip earnings come after heavy selling took hold last week after cautious reports from chipmaker Taiwan Semiconductor Manufacturing $TSM and semiconductor equipment supplier Lam Research $LRCX.
Analysts have been out saying the semi conductor segements have topped out. Taiwan Semiconductor is the world’s largest contract chipmaker adding weight to the sector selloff. $TSM on Thursday lowered its target for sales growth in the global semiconductor industry to 5% in 2018, down from its prior outlook for 5% to 7% growth.
$TSM said the sales weakness was mostly due to the smartphone sector and in particular Apple $AAPL. Taiwan were upbeat on sector growth in automotive, Internet of Things and data centers. Lam Research makes wafer fabrication equipment for the semiconductor industry andreported a disappointing outlook late Tuesday for chip-gear shipments for the rest of 2018.
The $TSM announcement saw the the Philadelphia Semiconductor Index $SOX fall 4.3%. The move was the biggest one- drop in the $SOX, since Feb. 8 . It was also and only the 10th time in the past eight years the index fell more than 4%. The iShares PHLX Semiconductor ETF $SOXX fell 1.2% on the Friday as the sector saw no dead cat bounce.
Needham analyst Rajvindra Gill said in a report Friday that the broad sell-off in the chip sector was not justified. Smart operators say the downgrade by $TSM was one of caution with the uncertainty from trade tariffs on China.
Bearish Note on Chips From Bank of America Merrill Lynch
Analyst Vivek Arya at BAML on Friday stated chip stocks could fall 4% to 7% more from here. He said softer earnings, trade fights and market volatility have “soured the mood”.
Arya cut his price targets on chip stocks with heavy exposure to Apple’s iPhone business, including Broadcom $AVGO, Cirrus Logic $CRUS and Skyworks Solutions $SWKS.
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