Texas Instruments (NASDAQ:TXN) Exceeds Q1 Expectations, Stock Soars

Petr Huřťák /
2024/04/23 4:07 pm EDT

Analog chip manufacturer Texas Instruments (NASDAQ:TXN) announced better-than-expected results in Q1 CY2024, with revenue down 16.4% year on year to $3.66 billion. Guidance for next quarter's revenue was also better than expected at $3.8 billion at the midpoint, 1% above analysts' estimates. It made a GAAP profit of $1.20 per share, down from its profit of $1.85 per share in the same quarter last year.

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Texas Instruments (TXN) Q1 CY2024 Highlights:

  • Revenue: $3.66 billion vs analyst estimates of $3.61 billion (1.4% beat)
  • EPS: $1.20 vs analyst estimates of $1.07 (12.4% beat)
  • Revenue Guidance for Q2 CY2024 is $3.8 billion at the midpoint, above analyst estimates of $3.76 billion
  • Gross Margin (GAAP): 57.2%, down from 65.4% in the same quarter last year
  • Inventory Days Outstanding: 237, up from 221 in the previous quarter
  • Free Cash Flow was -$231 million, down from $776 million in the previous quarter
  • Market Capitalization: $148.7 billion

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

Analog Semiconductors

Demand 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 Growth

Texas Instruments's revenue growth over the last three years has been unimpressive, averaging 4.4% annually. This quarter, its revenue declined from $4.38 billion in the same quarter last year to $3.66 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

Even though Texas Instruments surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 16.4% year on year. This could mean that the current downcycle is deepening.

Texas Instruments looks like it's headed into the trough of the semiconductor cycle, as it's guiding for a year-on-year revenue decline of 16.1% next quarter. Analysts are also estimating a 2.8% decline over the next 12 months.

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Product Demand & Outstanding Inventory

Days 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.

Texas Instruments Inventory Days Outstanding

This quarter, Texas Instruments's DIO came in at 237, which is 83 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Texas Instruments's Q1 Results

It was encouraging to see Texas Instruments' top analysts' revenue and EPS expectations this quarter, driven by strong performance in its analog segment. We were also glad next quarter's revenue guidance was above Wall Street's estimates. On the other hand, its gross margin fell and its inventory levels increased. Overall, this was a decent quarter for Texas Instruments. The stock is up 5.5% after reporting and currently trades at $174.5 per share.

So should you invest in Texas Instruments right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.