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Texas Instruments (TXN -6%) ended FY24 on a disappointing note, prompting modest selling pressure today. The analog and embedded chip maker may have exceeded Q4 earnings and revenue forecasts by a decent margin. However, Q1 earnings guidance came up a tad lighter than analysts projected. The underlying cause remains the same as what eroded TXN's quarterly outlook last quarter. The industrial end market, which comprises around 40% of annual revenue, remains stuck in decline, with revenue slipping by low-single-digits sequentially for the third straight quarter. TXN's industrial business has not seen sequential growth since early 2022.

• Ongoing weakness on the industrial side manifested in another quarter of yr/yr earnings and sales contraction. TXN delivered EPS of $1.28, a 12.3% drop, and revs of $4.01 bln, a 1.7% decline. Sequentially, revenue inched 3.4% lower, dragged down by the industrial and automotive markets, which, combined, make up 70% of TXN's annual revenue.
• The automotive market was down roughly 5% sequentially in Q4, following a +7-8% improvement in Q3. China remained an area of relative strength, underpinned by healthy EV adoption. However, similar to Q3, regions outside of China encountered demand softness, including Europe, the U.S., and Japan. The key difference in Q4 was that growth in China was moderately less pronounced than in Q3.
  • Even while China's economy wobbles, TXN's business in the region is performing well. The company noted that overall, China revs grew by a mid-teens percentage sequentially, supported by automotive strength as well as solid demand in personal electronics. Unfortunately, on the industrial side, TXN has yet to see the start of cyclical growth in China.
• Conversely, personal electronics and communication equipment maintained a piece of their positive momentum from last quarter, delivering a mid-single-digit and high-single-digit sequential revenue improvement. Despite Q1 typically being a quiet quarter for personal electronics, the market still posted growth, building on a 30% sequential jump in Q3. Likewise, communication equipment continued to trend higher even after recording a 25% pop in Q3.
• Nevertheless, due to stubborn headwinds in industrial and automotive, TXN projected underwhelming Q1 numbers, expecting EPS of $0.94-1.16 and revs of $3.74-4.06, representing another 2-3% sequential drop at the midpoint. Management reiterated that most industrial sectors are hovering at the bottom or already found the bottom. However, there are still some showing larger declines, particularly in industrial automation and energy infrastructure, both of which have yet to reach the trough.

TXN's Q4 report painted much the same picture as last quarter. That is, end markets aside from industrial are performing decently. While automotive did flip negative in Q4, TXN warned of this last quarter, noting that outside of China, the rest of the globe is encountering lingering weaknesses. However, unlike the upbeat response last quarter despite soft guidance, investors are beginning to grow more cautious over a potentially longer-than-expected recovery in TXN's largest end market, producing minor unease today.