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Analog chip manufacturer Texas Instruments (NASDAQ:TXN) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 15.6% year on year to $3.82 billion. On the other hand, the company expects next quarter's revenue to be around $4.1 billion, slightly below analysts' estimates. It made a GAAP profit of $1.22 per share, down from its profit of $1.87 per share in the same quarter last year.
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Texas Instruments (TXN) Q2 CY2024 Highlights:
- Revenue: $3.82 billion vs analyst estimates of $3.82 billion (small beat)
- EPS: $1.22 vs analyst estimates of $1.16 (5% beat)
- Revenue Guidance for Q3 CY2024 is $4.1 billion at the midpoint, below analyst estimates of $4.12 billion (EPS guidance also below)
- Gross Margin (GAAP): 57.8%, down from 64.2% in the same quarter last year
- Inventory Days Outstanding: 232, down from 237 in the previous quarter
- Free Cash Flow of $507 million is up from -$231 million in the previous quarter
- Market Capitalization: $187.5 billion
Analog SemiconductorsDemand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales GrowthTexas Instruments's revenue has been declining over the last three years, dropping by 0.3% on average per year. This quarter, its revenue declined from $4.53 billion in the same quarter last year to $3.82 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
This was a slow quarter for the company as its revenue dropped 15.6% year on year, in line with analysts' estimates. This could mean that the current downcycle is deepening.
Texas Instruments may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 9.5% next quarter, analysts are expecting revenue to grow 6% over the next 12 months.
Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Texas Instruments's DIO came in at 232, which is 73 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Texas Instruments's Q2 Results It was good to see Texas Instruments improve its inventory levels, even if just slightly. On the other hand, its gross margin fell and its revenue guidance for next quarter missed Wall Street's estimates. Overall, this was a mediocre quarter for Texas Instruments. The stock traded up 4.9% to $207.99 immediately after reporting possibly because of low expectations going into the quarter.
