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A welcoming surprise surrounding Texas Instruments' (TXN +3%) automotive end market in China during Q3 supports today's lively response, outshining downbeat Q4 earnings and revenue guidance. The chip maker, specializing in analog and embedded processors, derives three-quarters of its annual revs from industrial and automotive end markets, with around a third stemming from purely automotive-related products. The industrial component remained weak, declining sequentially for the sixth consecutive quarter. However, ongoing recoveries in TXN's other end markets, including automotive, personal electronics, enterprise systems, and communication equipment, helped ease the pain of stubbornly frail industrial end market demand.

• TXN's Q3 earnings and sales figures continued to improve sequentially, touting EPS of $1.44 when backing out a $0.03 benefit and revs of $4.15 bln. Notable positive standouts included TXN's more minor end markets -- those aside from industrial and automotive. Personal electronics delivered 30% sequential growth despite relatively sluggish demand across the PC and smartphone landscape. Meanwhile, enterprise systems and communication equipment enjoyed 20% and 25% sequential growth, respectively.
  • TXN attributed its outward strength to simple rebounding dynamics. For example, personal electronics is bouncing strongly off a deep trough in 1Q23. Management added that this market is still running around 20% lower than the 2021 peak.
• In automotive, sales ticked around +7-8% higher from Q2. Most of the growth came from China, supported by demand for electric vehicles (EVs). These autos contain far more chip content than traditional ICE vehicles, boosting demand for TXN's automotive products. The surprising piece regarding China was how quickly the region rebounded, experiencing a relatively quick correction over the past few quarters.
  • On a side note, the positivity branching from China is a good sign ahead of quarterly reports from TXN's peers with greater exposure to EVs, such as ON Semi (ON) and STMicroelectronics (STM).
• However, China is the sole silver lining related to automotive. The rest of the market is enduring ongoing weakness. Meanwhile, industrial demand cannot seem to break free from its perpetual softness as sales fell by low single digits sequentially in Q3, underpinned by ongoing inventory adjustments.
• Given the weight of industrial and automotive combined, the problems specific to these markets continue to dwarf the upward momentum in TXN's other end markets. This development led to TXN's bearish Q4 guidance, projecting EPS of $1.07-1.29 and revs of $3.7-4.0 bln, both missing analyst targets.

Today's uplifting price action reflects a market encouraged by a speedy automotive-related recovery in China and accelerating rebounding momentum across several of TXN's end markets. While seemingly unyielding headwinds in industrial remain problematic, TXN may already be through the thick of it, commenting that recovery is expected as most sectors have already bottomed or are hovering near a bottom. Given that other components of TXN's business are already amid a strong recovery, investors are growing excited over a long-awaited return to yr/yr growth.