On Thursday, Texas Instruments projected first-quarter profit to be below analysts' expectations due to an inventory surplus in its primary automotive and industrial markets. The company's shares dropped approximately 4% in after-hours trading as TI anticipated first-quarter revenue to align closely with estimates, disappointing investors hoping for a rebound in the analog chip market.
Challenges persist in the automotive segment as it struggles to deplete existing chip stocks amidst weak demand, impacting TI's chip orders during an extended analog downturn triggered by pandemic-driven hoarding. A similar scenario is evident in the industrial sector, where chips are utilized for automation purposes.
Stifel analyst Tore Svanberg remarked, "A genuine revival in analog market growth remains elusive."
Sequentially, fourth-quarter revenue from industrial and automotive sectors saw a single-digit decrease. While the Chinese automotive market showed growth, it was insufficient to counterbalance weakening trends in Europe, the U.S., and Japan, according to CEO Haviv Ilan during an earnings call.
Although the analog segment posted a 2% revenue increase in the fourth quarter—ending an eight-quarter decline—the industrial and automotive sectors, which constitute a significant portion of revenue, are yet to hit rock bottom, stated Ilan.
Furthermore, TI confirmed no knowledge of any investigations by China's commerce ministry into the company regarding U.S. government subsidies' alleged detrimental effects on the semiconductor sector, as mentioned by CEO Ilan during an analyst inquiry.
For the first quarter, the company projected earnings between 94 cents and $1.16 per share, below the analyst consensus of $1.17 per share based on LSEG data.
Due to elevated inventory levels in these markets, TI aims to reduce factory output to manage fixed costs efficiently. The surplus inventory is expected to impact gross margins in the short term, as mentioned by Summit Insights analyst Kinngai Chan.
TI's fourth-quarter inventory stood at $4.5 billion, a $231 million increase from the previous quarter. The company reported fourth-quarter revenue of $4.01 billion, surpassing estimates of $3.88 billion.