Texas Instruments' performance outlook meets expectations as chip giant welcomes a strong start to the earnings season

According to the financial news app Zhitong Finance, Texas Instruments (TXN.US), a chip giant focusing on analog chips and embedded processors, announced its performance report on the morning of July 24th. The financial data shows that the sales of the industrial and automotive business departments of this chip manufacturer have once again declined. However, in terms of the future performance outlook that Wall Street analysts are more concerned about, Texas Instruments has provided a performance outlook that is completely in line with analysts' expectations. It suggests that the total revenue in Q3 is expected to continue to grow compared to the previous quarter, and the significant easing of excess inventory of analog chips is expected. This brings confidence and hope for this American chip giant to return to a growth path in performance and the recovery of demand for analog chips.

As of the end of June, the second-quarter performance showed that Texas Instruments' total revenue decreased by 16% year-on-year to $3.82 billion, marking the seventh consecutive quarter of year-on-year total revenue decline. However, it is in line with the general expectation of $3.82 billion by Wall Street analysts, and achieved a 4% positive growth compared to the previous quarter, indicating signs of recovery in the sluggish demand for analog chips. Texas Instruments' diluted earnings per share in Q2 were $1.22, exceeding the general expectation of $1.16 by analysts.

The company is currently increasing its investment in building new factories, striving to relocate most of its chip production capacity back to the United States. However, this will inevitably drag down its profits. The management of Texas Instruments stated that once this massive work is completed, it will give them a long-term cost advantage compared to their competitors.

Many analog chip manufacturers focusing on the industrial and electric vehicle markets, including Texas Instruments, have seen continued poor performance since 2023. Their revenue has been continuously hit by customer inventory overstock, with customer order sizes slowing down across the board. The rapid shortage of analog chips after the COVID-19 pandemic has led industrial customers to accelerate inventory hoarding, and more importantly, the sluggish demand for electric vehicles is difficult to alleviate. In a high-interest rate macro environment, global demand for electric vehicles has cooled significantly since last year, compounded by the gradual withdrawal of government subsidies related to electric vehicles globally, further weakening the demand for electric vehicles.

The weak performance data announced by automotive chip leader NXP Semiconductors (NXPI.US) after the U.S. stock market on Monday can be seen as a sign that the electric vehicle and automotive chip industries have not yet emerged from their "darkest moment." The sales of the largest business unit under NXP, the automotive chip department, fell by 7% year-on-year to $1.728 billion, and by 4% compared to the previous quarter. In the second quarter, NXP's Non-GAAP operating profit was $1.071 billion, down 7% year-on-year and 1% quarter-on-quarter.

Haviv Ilan, CEO of Texas Instruments, stated that China is currently the largest semiconductor market, and after electronic manufacturers in China have reduced their unused component inventory, China has basically resumed growth. However, Ilan mentioned that the European and Japanese markets are still in the early stages of this process. He mentioned that in the company's industrial sector, about half of the market is still dealing with excess inventory, while other business units have to some extent resumed order growth.

After announcing its performance, CEO Ilan stated in a conference call, "This was a very good quarter for our business in China." "There are very clear signals that customers have significantly reduced their inventory

Texas Instruments' latest performance outlook shows a significant reversal of inventory surplus, leading investors to believe that the chip manufacturer is returning to a growth path.Looking at the post-market trading of US stocks, Texas Instruments' optimistic performance forecast has sparked investors' optimism about accelerated growth in customer orders, helping to offset the analog chip inventory and demand anxiety triggered by NXP Semiconductors. After the Q2 performance and performance outlook data were announced, Texas Instruments' stock price rose more than 5% in after-hours trading.In terms of the performance outlook that the market is focusing on, Texas Instruments' management expects the total revenue for the quarter ending in September to be between $3.94 billion and $4.26 billion. The average Wall Street analyst expectation of about $4.14 billion falls within this range, with an expected earnings per share range of $1.24 to $1.48, and the analyst average expectation of $1.38 falls within this range.Nevertheless, the Dallas-based chip giant continues to adhere to its strategy of not predicting when the analog chip market will fully recover. The company's CFO Rafael Lizardi stated that the difference in this cycle is the vastly different performance in different regions and territories. However, he expects a sequential growth in total revenue this quarter, as some electronic product manufacturers are preparing capacity for the holiday shopping season at the end of the year.In addition, the globally renowned investment firm Elliott Investment Management announced in May that the firm holds up to $2.5 billion in Texas Instruments shares and expressed concerns about the company's spending on new factories. However, the firm changed its direction and praised Ilan's comments on the conference call. "We appreciate the constructive dialogue we have had with Texas Instruments, and we believe the measures announced by the company today will support the creation of long-term value for all shareholders," Elliott said in a statement.**Texas Instruments' optimistic performance outlook sets a good start for the chip giant's earnings season! The analog chip recovery process may have begun**Texas Instruments is the world's largest analog chip manufacturer, with products that perform simple yet crucial functions, such as converting power to different voltages in electronic devices. More importantly, analog chips have played an indispensable role in various key functional modules and systems in electric vehicles in recent years, including power management, battery management, sensor interfaces, audio and video processing, and motor control.Texas Instruments has the widest customer base and the largest product range among chip manufacturers, making its performance and performance outlook data a predictive indicator for various industry demands. Most of its chip products are used in industrial and electric vehicles. Three months ago, the company stated that demand from many end customers in the industrial category had begun to improve, sparking optimism about overall improvement.From Texas Instruments' optimistic performance outlook, the recovery process of the analog chip market may have quietly begun. Although the latest semiconductor industry outlook data released by the World Semiconductor Trade Statistics (WSTS) organization shows that the analog chip market is still sluggish, with the market size expected to shrink by 2.7% in 2024 after a 8.7% contraction in 2023.

However, the positive side is that WSTS expects the shrinkage pace of the analog chip market in 2024 to be significantly reduced compared to 2023. Combined with the performance release of analog chip giant Texas Instruments, which is expected to continue to show improvement on a quarter-on-quarter basis in Q3, largely indicates that the analog chip market is gradually entering a recovery phase.

Texas Instruments is the world's largest analog chip manufacturer, and its optimistic performance outlook has set a good start for the earnings season of US chip giants. This may continue to boost the bullish trend of the Philadelphia Semiconductor Index, known as the "global chip stock barometer," in the near future. Citigroup pointed out in a research report that some hedge funds have recently begun to buy Texas Instruments stock in large quantities.

Analog chip giants such as ON Semiconductor (ON.US), Intel (INTC.US), AMD (AMD.US), and NVIDIA (NVDA.US) will successively disclose the latest financial reports and performance outlook data from the end of July to the end of August. The performance of these chip giants is crucial for the global chip industry demand outlook, and in the financial markets, it is very important for the trend of the Nasdaq 100 Index