TI sees 12% revenue decline in 2Q on auto market weakness

sign outside Dallas office
Texas Instruments saw a big hit in second quarter of more than 40% from weakness in the auto market, which purchases a wide array of chips. (Texas Instruments)

Texas Instruments on Tuesday reported a 12% decline in second quarter revenue compared to a year ago, driven primarily by weakness in the automotive market.

Analog chip revenue declined 4% while embedded processing dropped 31% from a year ago.

The company saw revenues of $3.24 billion and net income of $1.38 billion. Analysts had forecast revenue of $2.94 billion, leading to an initial stock rally, but the TI stock price dropped by nearly 3% Wednesday afternoon, reaching $131.63. Earnings were $1.48 a share, topping the Street consensus at 87 cents, and up from $1.36 a share a year ago.TI gave a third quarter outlook for revenue from $3.26 to $3.5 billion.

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The second quarter decline was not as severe as during the 2008 financial crisis, but TI remains cautious in how the economy might behave in coming quarters, said Dave Pahl, vice president and head of investor relations on a conference call after markets closed.

Pahl said the company will retain its R&D investments, since they are on a 5 to 10 year timeline. Also long-term manufacturing capacity will remain the same for 2022 to 2025.

TI's auto chip market was down by 40% compared to first quarter and down more than 40% compared to a year ago.  “The auto market appears to have bottomed in May as assembly plants resumed operations,” Pahl added.   “Auto manufacturers closed down due to Covid.”

Chief Financial Officer Rafael Lizardi said the long term outlook for auto is good, however. “Our confidence in content growth in autos remains very high for three to five years,” he said.

Pahl added that chips for medical uses are strong, while there has been strength for PCs and servers driven by the work from home phenomenon.

Personal computing was up 20% sequentially and 10% from a year ago.  Communications was up 20% sequentially and down 15% from a year ago.

TI makes about 100,000 parts and has about 100,000 customers. Up to 80% are industrial companies using a variety of chips.

Other chipmakers have seen weakness in parts sold for use in vehicles, all the way from analog power management chips to chips used in artificial intelligence work for driver assist and emerging autonomous vehicles. Carmakers in the second quarter reported revenue declines in the 30% to 40% range. 

Overall, Lizardi said TI is caution about the economy for the next several years. “We’ll maximize our optionality and will be able to meet forecasted demand from customers like we did in the second quarter,” he added. “The parts we sell are catalog parts that sell to many customers and last a long, long time. If we build up inventory that inventory won’t go bad and that plays well in our favor.”

RELATED: Covid-19 may cause long-term crunch on car sales, Deloitte finds

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