Story Stocks^®

Texas Instruments (TXN) is powering to new all-time highs after reporting its Q1 results last night. The analog and embedded semiconductor supplier delivered a big EPS beat, while revenue increased 18.6% yr/yr to $4.83 bln, also well above expectations. Beyond the strong quarter, TXN followed with a very strong Q2 guide, expecting EPS of $1.77-2.05 and revenue of $5.00-5.40 bln, both well above consensus.

• The results were fueled by continued acceleration in industrial and data center, with the broader semiconductor recovery continuing.
• Analog revenue increased 22% yr/yr to $3.92 bln, accelerating from 14% growth in Q4, while Embedded Processing revenue increased 12% yr/yr to $723 mln.
• By end market, industrial was the standout, increasing more than 30% yr/yr and 20% sequentially, with growth broad across sectors and regions and accelerating through the quarter. Automotive increased mid-single digits yr/yr and was about flat sequentially, while personal electronics was flat yr/yr and communications equipment increased about 25% yr/yr and more than 30% sequentially.
• Data center also remained a bright spot, surging 90% yr/yr and marking its eighth straight quarter of sequential growth, with TXN still early in what it sees as a meaningful secular growth opportunity.
• Gross margin expanded 210 bps to 58%, supported by stronger growth and better-than-expected pricing, which held relatively stable sequentially and yr/yr.
• TXN said inventory and capacity are at comfortable levels, with no shortages and stable lead times, which it believes positions it to meet customer demand and continue taking share as the cycle improves.
• The strong results are also driving other analog names higher, including onsemi (ON +8.4%), Microchip (MCHP +7.4%), NXP Semiconductors (NXPI +5.9%), Analog Devices (ADI +5.8%) and Monolithic Power Systems (MPWR +3.6%).

Briefing.com Analyst Insight

This was a very strong quarter for TXN, but what stood out was the tone around the recovery, with TXN describing this as the first quarter where the broader industrial market started to "wake up" again after a long hibernation period. That is encouraging, though it stated last year also started strongly before easing, so it is still taking a quarter-by-quarter approach. That said, the strong Q2 guide suggests that renewed momentum is carrying forward, while TXN now appears to be moving past the heaviest part of its multiyear manufacturing buildout, allowing improving demand to translate more cleanly into free-cash-flow growth as capex moderates. Just as important, TXN noted that inventory and capacity are in good shape, with no shortages and stable lead times, which should help it support customers and continue taking share as the cycle improves. It also noted that if demand remains firm, pricing could become more supportive later this year, adding another potential tailwind. Overall, the report was encouraging not just because of the beat and strong guide, but because the strength was broad and there still appears to be more recovery ahead for TXN.