Texas Instruments Outlook Shows Chip Demand Remains Sluggish

Texas Instruments Inc., the chip industry’s most diversified maker of electronic components, gave a lackluster forecast for the current period, indicating that a slump in demand is spreading to previously unscathed areas.

(Bloomberg) — Texas Instruments Inc., the chip industry’s most diversified maker of electronic components, gave a lackluster forecast for the current period, indicating that a slump in demand is spreading to previously unscathed areas. 

Revenue in the second quarter will be $4.17 billion to $4.53 billion, the company said Tuesday. The midpoint of that range represents a 16.5% decline from a year earlier — worse than the 15% drop analysts were estimating.

The outlook suggests that even the chip industry’s bright spots, such as the industrial market, are getting swept up in a broader slowdown. Texas Instruments receives a large portion of its revenue from factory equipment, and that had helped the company sidestep a sales slide suffered by personal computers and smartphones.

Texas Instruments shares fell 2.7% in extended trading following the announcement. They had earlier closed at $169.39 in regular New York trading, leaving them up 2.5% this year.

The automotive industry, which has had an insatiable demand for chips in recent years, remains a robust market for the company. But everything else is suffering, Chief Executive Officer Haviv Ilan said.

“During the quarter we experienced weakness across our end markets, with the exception of automotive,” he said in the statement.

Profit will be $1.62 to $1.88 a share in the second quarter, versus an analysts’ prediction of $1.83.

Revenue in the first quarter fell 11% to $4.38 billion, in line with the $4.36 billion analysts projected. Sales of analog chips dropped 14%, while Texas Instruments’ embedded processors gained 6.4%. Other revenue declined 16%.

Earnings amounted to $1.85 a share in the period, down from $2.35 a year earlier. The results included a 3-cent benefit that wasn’t in Texas Instruments’ original guidance, the company said.

Texas Instruments executives generally prefer not to make broad projections about where demand is headed. Instead, they concentrate on telling investors that their products have a long shelf life and will remain valuable when the chip industry emerges from one of its periodic down cycles.

Texas Instruments’ chips typically perform simple but vital functions, like registering button presses, detecting changes in temperature and controlling motors in everything from space hardware to domestic appliances. Such chips generally require less advanced production than digital products.

That focus has allowed the company to invest less in expensive factories and gear than peers, boosting profit margins and allowing it to offer attractive dividends and buybacks. But executives have warned investors that it intends to increase its spending on factories over the next few years to build more in-house capacity.

(Updates shares in fourth paragraph.)

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