Texas Instruments (NASDAQ:TXN) Q3: Beats On Revenue But Quarterly Guidance Underwhelms

Radek Strnad /
2022/10/25 4:09 pm EDT

Analog chip manufacturer Texas Instruments (NASDAQ:TXN) beat analyst expectations in Q3 FY2022 quarter, with revenue up 12.8% year on year to $5.24 billion. However, guidance for the next quarter was less impressive, coming in at $4.6 billion at the midpoint, being 6.93% below analyst estimates. Texas Instruments made a GAAP profit of $2.29 billion, improving on its profit of $1.94 billion, in the same quarter last year.

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Texas Instruments (TXN) Q3 FY2022 Highlights:

  • Revenue: $5.24 billion vs analyst estimates of $5.14 billion (1.9% beat)
  • EPS: $2.47 vs analyst estimates of $2.39 (3.18% beat)
  • Revenue guidance for Q4 2022 is $4.6 billion at the midpoint, below analyst estimates of $4.94 billion
  • Free cash flow of $1.97 billion, up 68.7% from previous quarter
  • Inventory Days Outstanding: 135, up from 126 previous quarter
  • Gross Margin (GAAP): 69%, up from 67.8% 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. 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 decent, averaging 12.1% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $4.64 billion to $5.24 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

Texas Instruments beat analysts' revenue estimates, in another ok quarter with a 12.8% revenue growth. This marks 9 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's revenue growth was positive this quarter, but the company is guiding to decline of 4.8% YoY next quarter, while analysts expect to see declines of 2.27% 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 135, which is exactly around the five year average, showing that despite the recent increase there is no indication of an unusual inventory buildup at the moment.

Key Takeaways from Texas Instruments's Q3 Results

With a market capitalization of $147 billion, more than $9.09 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.

It was good to see Texas Instruments outperform Wall St’s revenue expectations 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 inventory levels increased. Overall, this quarter's results could have been better. The company is down 4.74% on the results and currently trades at $154.47 per share.

Texas Instruments may have had a tough quarter, but does that actually create an opportunity to invest 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.