Major chipmaker Texas Instruments Inc. reported a decline in sales for the first time since 2020, offering a lukewarm projection of this quarter's revenue.
The company announced Tuesday that its quarterly earnings would range from $4.17 billion to $4.53 billion, against the average industry estimate of $4.41 billion. Meanwhile, the prediction of its profit per share ranges from $1.64 to $1.90, in contrast to the earlier forecast of $1.86.
Analysts said the forecast indicated that Texas Instruments might have difficulty recovering from the slowdown in sales over the coming months. Wall Street analysts predict that the revenue decline will continue throughout 2023 as the company's consumers prefer to go through its stocks of used chips rather than purchase new ones.
As one of the largest global chip producers with a long list of customers and the broadest product portfolio, Texas Instruments' forecasts have become an indicator of demand across multiple sectors in the economy. The company is also among the first big tech corporations to report its quarterly earnings this season.
Texas Instruments chief financial officer Rafael Lizardi said the company believed its sales would eventually recover due to the long-term trends in electronics. Lizardi, however, did not offer any projections for the rebound.
"Customers have done what they've done for decades — and will continue to do — they've built a little too much inventory," Lizardi said. "We'll see how long that takes to work itself out."
“As we expected, our results reflect weaker demand in all end markets with the exception of automotive.”
Rich Templeton, CEO of Texas Instruments
According to Texas Instruments's current CEO, Rich Templeton, there is a weaker demand across all sectors except for automotive.
Although Texas Instruments is considered a "bellwether" in the industry, its executives usually avoid offering details about its consumer research. The company prefers to discuss its plans in the long run, including its
efforts to return money to investors.
The chipmaker reported that it had beaten the earlier revenue estimate of $1.97 per share, gaining $2.13 a share in the last quarter of 2022. In Q4 of 2022, Texas Instruments' revenue fell by 3.4 percent to $4.67 billion. Analysts earlier predicted that it would gain $4.61 billion in revenue.
Texas Instruments produces analog and embedded processing chips — vital components for detecting temperature changes, controlling motors and registering button interactions.
Compared to other digital products, the production costs for Texas Instruments' products are relatively low. This allows the company to devote its profit to share buybacks and dividends.
Currently, Texas Instruments does not plan to trim its workforce to lower the fixed base costs. According to Lizardi, this was because the company did not "get ahead of itself" and excessively filled its employment quota over the past two years, unlike several other tech companies.
Other chipmakers also reported sales decline in recent quarters, especially those catering to the mobile and computer industries. Intel and Nvidia are among the biggest losers in the industry, as most of their customers reduce purchases significantly to get through their stockpiles.
While the automotive industry's demand remains stable lately, analysts predicted the sector would soon cut back purchases too.
Texas Instruments in stock market
The company's stock barely changed following the announcement of its revenue projection. Its stock concluded the trading session on Wall Street at $177.04.
Throughout 2022, the Philadelphia Stock Exchange Semiconductor Index — an index that tracks 30 semiconductor companies in the U.S. — lost 36 percent of its value. Beginning the New Year, the index has rallied and gained 15 percent. Data, however, shows that Texas Instruments lags behind its peers.
"The industry has been undergoing a broader-based inventory correction starting late in the third quarter last year," KeyBanc Capital Markets analyst John Vinh said.
"On average these corrections typically last four to five quarters, which would imply we bottom probably mid-year."