Texas Instruments (NASDAQ:TXN) Beats Expectations in Strong Q4, Stock Soars

Adam Hejl /
2022/01/25 4:13 pm EST
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Analog chip manufacturer Texas Instruments (NASDAQ:TXN) beat analyst expectations in Q4 FY2021 quarter, with revenue up 18.5% year on year to $4.83 billion. On top of that, guidance for next quarter's revenue was surprisingly good, being $4.7 billion at the midpoint, 6.59% above what analysts were expecting. Texas Instruments made a GAAP profit of $2.13 billion, improving on its profit of $1.68 billion, in the same quarter last year.

Is now the time to buy Texas Instruments? Access our full analysis of the earnings results here, it's free.

Texas Instruments (TXN) Q4 FY2021 Highlights:

  • Revenue: $4.83 billion vs analyst estimates of $4.43 billion (9.05% beat)
  • EPS (GAAP): $2.27
  • Revenue guidance for Q1 2022 is $4.7 billion at the midpoint, above analyst estimates of $4.4 billion
  • Free cash flow of $1.07 billion, down 44.6% from previous quarter
  • Inventory Days Outstanding: 117, up from 114 previous quarter
  • Gross Margin (GAAP): 69.3%, up from 64.9% same quarter last year

Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ: TXN) is the world’s largest producer of analog semiconductors.

Sales Growth

Texas Instruments's revenue growth over the last three years has been slow, averaging 6.58% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $4.07 billion to $4.83 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).

Texas Instruments Total Revenue

This was an OK quarter for Texas Instruments with revenues growing 18.5%, ahead of analyst estimates by 9.05%. This marks 6 straight quarters of revenue growth, implying we are mid-cycle for Texas Instruments, as a typical upcycle tends to last 8-10 quarters.

Texas Instruments believes the growth is set to continue, and is guiding for revenue to grow 15.3% YoY next quarter, and Wall St analysts are estimating growth 2.14% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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.

Texas Instruments Inventory Days Outstanding

This quarter, Texas Instruments’s inventory days came in at 117, 17 days below the five year average, showing that despite the recent increase there is no indication of an excessive inventory buildup at the moment.

Key Takeaways from Texas Instruments's Q4 Results

With a market capitalization of $164 billion, more than $9.73 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by how strongly Texas Instruments outperformed analysts’ revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, there was an increase in inventory levels. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company is up 5.7% on the results and currently trades at $184.12 per share.

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The author has no position in any of the stocks mentioned.