Texas Instruments (NASDAQ:TXN) Exceeds Q2 Expectations, Provides Encouraging Quarterly Guidance

Radek Strnad /
2022/07/26 4:08 pm EDT
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Analog chip manufacturer Texas Instruments (NASDAQ:TXN) beat analyst expectations in Q2 FY2022 quarter, with revenue up 13.7% year on year to $5.21 billion. Guidance for next quarter's revenue was $5.1 billion at the midpoint, 2.67% above the average of analyst estimates. Texas Instruments made a GAAP profit of $2.29 billion, improving on its profit of $1.93 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) Q2 FY2022 Highlights:

  • Revenue: $5.21 billion vs analyst estimates of $4.64 billion (12.1% beat)
  • EPS (GAAP): $2.45
  • Revenue guidance for Q3 2022 is $5.1 billion at the midpoint, above analyst estimates of $4.96 billion
  • Free cash flow of $1.17 billion, down 31.1% from previous quarter
  • Inventory Days Outstanding: 126, down from 128 previous quarter
  • Gross Margin (GAAP): 69.5%, up from 67.1% same quarter last year

Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ: TXN) is the world’s largest producer of 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. The biggest secular growth drivers currently are the adoption of electric vehicles, 5G networks and Internet of Things connectivity, and demand for chips that reduce power consumption. 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 unremarkable, averaging 10% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $4.58 billion to $5.21 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

While Texas Instruments beat analysts' revenue estimates, this was a slower quarter with 13.7% revenue growth. This marks 8 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

Texas Instruments' appears to be headed for a downturn. While the company is guiding to growth of 9.84% YoY next quarter, analyst consensus sees 0.64% declines over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

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 126, 8 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from Texas Instruments's Q2 Results

Sporting a market capitalization of $150 billion, more than $8.38 billion in cash and with positive free cash flow over the last twelve months, we're confident that Texas Instruments has the resources it needs to pursue a high growth business strategy.

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. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company is up 1.34% on the results and currently trades at $163 per share.

Should you invest in Texas Instruments right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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