Instruments (TXN 95.82, -4.43, -4.42%) trades lower today, paring opening
losses, after the company reported underwhelming third quarter revenues and
guided Q4 below expectations.
Jumping right into the print, Texas Instruments reported better than expected Q3 earnings per share (EPS) of $1.58 on revenues which weren’t as strong as investors had hoped at $4.26 bln, up 3.5%. Gross profit was 65.8% of revenue, up 130 basis points from 64.5% last year.
Discussed in both the press release and in the conference call last night, was the concession from management that demand for TI’s products had slowed across most markets. This is causing mirrored selling action across most of the semiconductor group today as evidenced by the 3.0% losses out of the VanEck Semiconductor ETF (SMH 93.24, -2.87) with key components NXPI -5.07%, ASML -5.01%, OLED -4.72%, ON -4.54%, and MXIM -4.33% also down in sympathy to the cautious industry commentary.
TI’s cash flow from operations was $2.11 bln in Q3, up $384 mln mostly due to a lower tax rate and higher revenue, which includes more 300-millimeter Analog revenue.
In that regard, Analog was the sole segment which saw growth in the period. Sales from the segment were up roughly 8% to $2.907 bln as products saw double-digit growth, including early 5G product ramps.
Embedded Processing sales fell 4% yr/yr to $894 mln as weakness in communications equipment weighed on the segment. Management highlighted that ex-communications equipment the Embedded business would have grown on a yr/yr basis.
Sales classified as Other from TI were down approximately 6% versus last year to $460 mln, as expected, generally due to custom products.
Management also gave guidance for the final quarter of FY18. TI’s disappointing outlook for Q4 EPS is $1.14-1.34 while revenue guidance came in equally tepid at $3.6-3.9 bln, flat at the midpoint.
On the conference call last night management also broke out expected discrete tax benefits for next year; for Q1, TI will register a benefit of $20 mln, for Q2 and Q3 the company will register a $10 mln benefit, and for Q4 a $5 mln benefit. Therefore, the effective tax rate for next year would be 15% for Q1 and 16% in Q2 through Q4.
TI also outlined plans for their next phase of 300-millimeter capacity expansion to be available as soon as 2020 or 2021. Management stated that a slowdown would have little effect on the company’s timing to get the next 300-millimeter factory shell in place.
Taking a step back, it’s not just TI’s cautious outlook that drives chip stocks lower today. Semi company STMicroelectronics (STM 14.12, -1.76, -11.1%), too, gave a cautious outlook for the coming quarter in conjunction with its earnings release this morning. STM is the 20th weighted component in the SMH as of 10/23 (TXN is the 6th). The semi reports don’t stop anytime soon either as Xilinx (XLNX 72.95, -1.85, -2.5%) is slated to announce tonight with Intel (INTC 43.90, -0.60, -1.4%) scheduled for tomorrow evening.
Semis haven’t been spared in the recent broader market-driven selloff which has seen the SMH shed north of 10% since the start of October. The worst losses on the month come out of NVIDIA (NVDA 213.75, -7.31, -3.3%) at -24%, STM at -23.2%, and Advanced Micro (AMD 23.89, -1.20, -4.8%) at -22.9%.
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