Texas Instruments is set to report its second-quarter results, with revenues expected to decline by about 15% year-over-year to $3.84 billion, slightly ahead of estimates. Earnings are forecasted to come in at around $1.17 per share, in line with estimates. Despite a recovery in the semiconductor industry, Texas Instruments has faced headwinds as major customers reduce their purchases. Sales in Q1 declined by 16% year-over-year to $3.66 billion, with weaker sales of analog semiconductors and embedded products. Margins have also been under pressure, with gross margin contracting to 66.1% due to a smaller revenue base and higher production costs.
TXN stock has shown gains of 25% since January 2021, but returns have not been consistent. The stock underperformed the S&P 500 in 2021 and 2023, struggling to beat the benchmark index. In contrast, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period. The HQ Portfolio stocks provided better returns with less risk compared to the benchmark index. In the current uncertain macroeconomic environment, with high oil prices and elevated interest rates, will TXN face a similar situation as in 2021 and 2023 and underperform the S&P over the next 12 months?
There are some positives for Texas Instruments, as semiconductor content is expected to grow steadily in the industrial and automotive sectors. The company’s investments in expanding its wafer fabrication capacity in the U.S. help reduce geopolitical risks and improve efficiency. Activist investor Elliott has taken a $2.5 billion position in the company and is pushing for better management of capital spending and increased free cash flows. This could provide an upside for the stock. Texas Instruments is valued at about $175 per share, below the current market price of $207. The valuation will be updated after Q2 results are released.
Texas Instruments relies heavily on the industrial and automotive sectors, which accounted for about 75% of its revenue in 2023. These sectors have been growing at a rate of 10% annually since 2013, and this trend is expected to continue. With the increasing automation of production and the growth of connected and self-driving vehicles, semiconductor content in these sectors is set to expand. The company’s focus on these areas, along with its investments in capacity expansion and pressure from activist investors, may help drive future growth and improve its performance in the market.
In conclusion, Texas Instruments faces challenges in the short term due to reduced sales and pressure on margins. However, the company’s focus on the industrial and automotive sectors, along with investments in capacity expansion and pressure from activist investors, could position it for long-term growth. Investors will be closely watching the Q2 results to gauge the company’s performance and prospects for the future.
