Texas Instruments sees stock drop amid continued questions over China trade

Texas Instrument’s stock has dropped  nearly 15% over the past six months although the chipmaker was trading slightly upward on Tuesday at $142.52.  A big factor in the analog chipmaker’s near-term future is how declining sales to China businesses could continue to hurt its bottom line.

Last week’s third quarter earnings report didn’t help the company much, with revenue down 14% from a year ago at $4.53 billion. Operating profit was off by 29% compared to a year earlier, reaching nearly $1.9 billion.

A concern for analysts is how the current fourth quarter will unfold.  TI said it expecting revenue as high as $4.2 billion and earnings per share as high as $1.57. That revenue guidance would indicate a 9% drop over the third quarter.

Analysts have noted that TI could see better numbers if it were not investing so much in capital investments, but the company has committed to a 300-millimeter manufacturing expansion that will be $5 billion a year in 2023, 2024, 2023 and 2026, a point reiterated by TI’s Dave Pahl, head of investor relations, in comments to analysts.

 A big surprise for some analysts was continued growth in TI’s chips for the auto sector, up mid-single digits sequentially and up 20% year-on-year, even as industrial was down mid-single digits sequentially. Enterprise systems also grew in the upper single digits.

As for China, Pahl said TI sales of industrial chips continue to be weak. “A year ago or so, as China came out of Covid, I think most of us would have expected there to be a more significant rebound, which just hasn’t materialized,” he said.

Early in 2023, TI’s shipments to companies headquartered in China were about 20% of TI’s revenues, down by about 35% year over year for the first half of the year, according to some analysts. The TI annual report for 2022 said revenues from end customers headquartered in China represented about 25% of TI’s revenues.

Analysts at Best Anchor Stocks in Seeking Alpha wrote that the “geopolitical battle might have unforeseen consequences,” possibly making the China market less accessible for Western companies like TI.  But Best Anchor also said there’s enough data to claim a more intense competitive landscape in China is starting to weigh on results.  US government export controls on US companies selling to China have forced some semiconductor makers in China to move to manufacturing analog chips, which could lead to a price war with companies like TI.