Texas Instruments (NASDAQ:TXN) Misses Q3 Sales Targets, Stock Drops

Jabin Bastian /
2021/10/26 4:13 pm EDT
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Analog chip manufacturer Texas Instruments (NASDAQ:TXN) missed analyst expectations in Q3 FY2021 quarter, with revenue up 21.6% year on year to $4.64 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $4.4 billion, or 1.85% below analyst estimates. Texas Instruments made a GAAP profit of $1.94 billion, improving on its profit of $1.35 billion, in the same quarter last year.

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Texas Instruments (TXN) Q3 FY2021 Highlights:

  • Revenue: $4.64 billion vs analyst estimates of $4.67 billion (0.58% miss)
  • EPS (GAAP): $2.07
  • Revenue guidance for Q4 2021 is $4.4 billion at the midpoint, below analyst estimates of $4.48 billion
  • Free cash flow of $1.94 billion, up 11.9% from previous quarter
  • Inventory Days Outstanding: 114, up from 112 previous quarter
  • Gross Margin (GAAP): 67.8%, up from 64.2% 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 4.96% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $3.81 billion to $4.64 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

Despite missing analyst estimates this quarter, 21.6% revenue growth for Texas Instruments's was still OK. This marks 5 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 still grow next quarter, and Wall St analysts are estimating growth 4.8% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as the cyclical nature of semiconductor supply and demand impacts profitability. In a tight supply environment, inventories tend to be low, allowing chipmakers to exert pricing power, which helps increase gross margins. The inverse also applies, as rising inventory levels tend to foreshadow weakening pricing power and declining gross margins.

Texas Instruments Inventory Days Outstanding

This quarter, Texas Instruments’s inventory days came in at 114, 22 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 Q3 Results

With a market capitalization of $184 billion, more than $9.78 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 enjoyed seeing Texas Instruments’s improve their gross margin materially this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and it missed analysts' revenue expectations this quarter. Overall, this quarter's results were definitely not the best we've seen from Texas Instruments. The company is down 5.17% on the results and currently trades at $186.7 per share.

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