After breaking all-time highs yesterday ahead of the report, shares of Texas Instruments (TXN 113.05, -6.84) decline 5.7% as an underwhelming Q4 report and Q1 guidance puts a damper on the stock.
The semiconductor bellwether saw revenue growth dip below 10% for the first time in three quarters as demand for its products in the communications equipment sector declined. The company saw a string of two-years of bottom line beats dashed last night when the company reported earnings of $1.09 per share, excluding a $0.75 per share tax charge.
In terms of revenues, TXN saw Q4 revenue growth of just 9.8% year-over-year to $3.75 billion, incidentally its slowest growth since 4Q2016. Areas of strength in the quarter included the core Analog business, which saw 11% growth, and the Embedded Processing business, which grew 20%.
As mentioned, TXN saw soft demand in the communications equipment sector, a market which TXN management described as ‘traditionally choppy’. Despite this weakness, TXN saw mid-single digit growth in personal electronics in addition to strength in the Automotive and Industrials markets where demand remained strong.
Gross margin were up 250 basis points in Q4 to 65.1% reflecting the benefit of 300-millimeter Analog production. Management also pointed to a strong gross margin result due to higher revenues and lower manufacturing costs.
On tax, TXN commented that the 4Q2017 tax expense included about $800 million primarily related to the recently passed tax reform act. For 2018, the company told investors to assume a 23% annual operating tax rate before stock-based compensation. The effective tax rate should be about 21% for Q1, 22% in Q2 and Q3, and 23% in Q4 of 2018. Starting in 2019, TXN told investors to assume an annual operating tax rate of 18%, which does not include an estimate for stock-based compensation.
Guidance is also looking a bit tough to swallow. TXN guided Q1 earnings per share between $0.98-1.14, excluding an approximate $0.03 per share tax benefit. Investors are scrutinizing the revenue guide as well, where TXN sees about 7% growth at the midpoint of its 2.6-11.4% growth forecast of $3.49-3.79 billion compared to last year’s $3.40 billion.
Some investors could be looking at this period as justification to head for the exits. An in-line Q4 and a forecast for slowing revenue growth to start out FY2018 can’t bode well for TXN’s stock, and its peers for that matter, in the near term. The tailwind of lower taxes in the future, however, is reassurance for long term investors that TXN may weather the storm.
TXN peers lower today -- CY -2.42%, IDTI -2.02%, XLNX -1.99%, TSM -1.84%, MKSI -1.74%, AMAT -1.68%, LRCX -1.61%, MXIM -1.55%, ASML -1.41%, TER -1.40%, MU -1.32%.