Texas Instruments Gives Upbeat Forecast on Industrial Demand

Updated on
  • Company says distributor inventory levels at normal levels
  • Shares slip on concern that growth in chip demand may peak

Texas Instruments Inc. gave an upbeat forecast and reported earnings that indicated semiconductor orders remain strong from industrial-equipment manufacturers and automakers.

Fourth-quarter profit will be $1.01 to $1.15 a share, the Dallas-based company said Tuesday in a statement. Revenue will be $3.57 billion to $3.87 billion. Analysts on average projected net income of $1 a share on sales of $3.67 billion, according to data compiled by Bloomberg.

Though Texas Instruments is one of the oldest companies in technology, its components still play a central role in everything from satellite hardware to home electronics. The company has the broadest product range in the chip industry, making its earnings a reliable indicator of spending across the economy. The automotive industry’s attempt to give vehicles a mind of their own has helped lift demand for the company’s chips. At the same time, industrial equipment makers are adding advanced functions to machinery to make their products more intelligent and efficient.

“Slowly but surely, the macro is improving and the semiconductor market is doing better than the general economy,” Chief Financial Officer Rafael Lizardi said in an interview. “The growth has been broad-based and it’s across all of the sectors we have in industrial and automotive.”

Chip distributors have about four weeks of inventory, Lizardi said, similar to levels in preceding quarters. Some analysts had expressed concern that there is a buildup of unsold chips that will drag on future orders. Lizardi said that Texas Instruments can only see backlog levels at chip resellers, and it has no window into how much inventory direct customers are holding. Some investors are worried that the growth spurt in the company’s orders is outrunning expansion in the overall market, said Stifel Nicolaus & Co. analyst Tore Svanberg.

“Things are clicking on all cylinders,” he said. “The big question is how long is it going to continue. People are concerned about maybe the industry is overheating.”

Texas Instruments shares, which have gained 32 percent so far this year, declined about 1.5 percent in extended trading after closing at $96.44 in New York.

Third-quarter net income was $1.29 billion, or $1.26 a share, compared with $1.02 billion, or 98 cents a share, a year earlier. Sales rose 12 percent to $4.1 billion. Analysts estimated $3.9 billion in revenue.

Texas Instruments has transitioned from a competitor to Intel Corp. and Qualcomm Inc. in digital chips to a specialized maker of analog semiconductors, the basic components that convert real-world phenomena into electronic signals. The change has helped cushion earnings from swings in demand that characterize companies that rely too much on one end product, such as personal computers.

The strategy hurt overall growth at first as Chief Executive Officer Rich Templeton exited markets such as digital modems, though this year revenue has increased more than 10 percent for three straight quarters.

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