TI Q2 Profits Exceed Expectations, China Market Up 20%

Texas Instruments (TI) reported profits for the second quarter that exceeded analysts' expectations, thanks to stable demand for analog chips in personal electronics and reduced manufacturing costs. The rebound in smartphone and personal computer sales allowed the company to clear excess inventory accumulated during the pandemic, boosting chip orders.

Despite this, TI's revenue for the second quarter dropped by 16% to $3.82 billion, marking the seventh consecutive quarterly decline. Analysts had predicted revenue of $3.82 billion. The earnings per share (EPS) stood at $1.22, surpassing the expected $1.16.

Looking ahead to the third quarter, TI forecasts sales between $3.94 billion and $4.26 billion, while analysts estimate an average of $4.14 billion. TI's projected EPS is between $1.24 and $1.48, with analysts' average prediction at $1.38.

However, TI remains cautious about predicting when the chip market will fully recover. CFO Rafael Lizardi noted the current cycle's unusual nature, with varying performance across different regions and sectors. He expects sequential revenue growth in the third quarter, driven by electronics manufacturers preparing for the year-end holiday shopping season.

Rafael Lizardi also mentioned that TI's factories are nearing full capacity, with inventory levels stable. Executives added that the company can fulfill most orders promptly upon receipt, indicating a balanced supply-demand scenario.

TI is heavily investing in new facilities, aiming to bring most production in-house, though this has impacted short-term profits. The company believes this strategy will provide a cost advantage over competitors once completed and plans to continue with this initiative.

In the second quarter, TI's capital expenditures were $1.06 billion, below the expected $1.25 billion. Michael Schulman, CIO at Running Point Capital, suggested this lower spending indicates TI is tightening its budget and responding to activist investor Elliott's $2.5 billion stake in the company. However, some analysts believe TI is unlikely to deviate from its capital investment strategy.