Texas Instruments shares fall as China’s COVID restrictions prompt cautious outlook

Shares of Texas Instruments Inc. fell in the extended session on Tuesday after the chipmaker offered a cautious outlook, not on weakening sales, but on how it sees the COVID-19 restrictions in China affecting operations. manufacturing for its customers.

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The shares, which initially fell as much as 7% in after-hours trading, were down about 5% at the end of a conference call with analysts as executives explained the rationale behind the guidance. The shares had closed the regular session down 3.2% at $168.44.

In its earnings release, the company said it expects second-quarter earnings of $1.84 to $2.26 per share on revenue of $4.2 billion to $4.8 billion, while analysts surveyed by FactSet, on average, had forecast earnings of $2.27 per share on revenue of $4.94 billion. .

Later on the call with analysts, David Pahl, head of investor relations at Texas Instruments, explained that the cautious guidance was due not so much to sales, but rather a top-down assessment of what the company is seeing. in its customers’ manufacturing operations.

“Our assessment in early April indicated that revenue would continue to grow incrementally again in the second quarter,” Pahl told analysts. “However, it became clear that we were experiencing lower demand, particularly due to the COVID-19 restrictions in China.”

“And just to be clear, customer behavior wasn’t changing when it came to backlogs or cancellations,” Pahl said. “In fact, we continue to see expedited deliveries. However, we saw that our customers’ manufacturing operations were being affected.”

With manufacturers still facing a global shortage of semiconductors and demand remaining high, analysts responded, asking why supply couldn’t simply be redirected to other customers.

Rafael Lizardi, chief financial officer of Texas Instruments, stressed that the top-down estimate is not intended to be precise and that inventory cannot be so easily redirected to meet demand from other customers during a shortage.

“Integrated into our process to the extent feasible, our processes allow for that inventory redirection,” Lizardi told analysts. “But keep in mind that we’re talking about 100,000 different parts, 100,000 different customers, so you never fit into a perfect situation where excess in one place can perfectly go in another place.”

Texas Instruments’ cautious outlook citing China’s COVID shutdowns will no doubt cloud reports from other chip sector companies this week. Qualcomm Inc. QCOM,
reports Wednesday, with Intel Corp. INTC,
and KLA Corp. KLAC,
both reporting on Thursday.

During the first quarter, Texas Instruments reported first quarter net income of $2.2 billion, or $2.35 per share, compared to $1.75 billion, or $1.87 per share, in the same period last year. The company said the earnings included a profit of 2 cents per share that was not listed in its original guidance.

Revenue rose to $4.91 billion from $4.29 billion in the prior-year quarter “primarily due to growth in manufacturing and automotive,” the company said.

Analysts had forecast earnings of $2.18 per share on revenue of $4.74 billion, based on the company’s outlook of $2.01 to $2.29 per share on revenue of $4.5 billion to $4.9 billion.

Sales of analog electronics, which convert real-world data such as sound or temperature, into digital data, rose 16% to $3.82 billion from the same period a year earlier, while analysts had forecast $3.7 billion. millions of dollars. Sales of embedded processors, which take that digital data and use it to perform specific tasks, rose 2% to $782 million, with analysts expecting $770.1 million.

In the latest earnings call, executives said they were putting more emphasis on serving industrial and automotive customers, which represented the hardest-hit end markets during the global chip shortage. On Tuesday, Pahl said industrial and automotive sales were up about 20%, communication equipment sales were up about 10%, enterprise systems sales were up 35% due to data center demand, while sales of personal electronics fell in the mid-singles.

Read: Why Semiconductor Stocks ‘Almost Uninvestable’ Despite Record Gains Amid Global Shortage

The company’s earnings report arrives just two days before its annual meeting of shareholders.

Over the past 12 months, Texas Instruments stock price has declined 12%. By comparison, the S&P 500 SPX Index,
is down 0.3%, the big tech Nasdaq COMP Composite Index,
has fallen 11.7%, while the PHLX Semiconductor Index SOX,
it has fallen 14.6% during that time.


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