Texas Instruments Q4 2023 Earnings Forecast: Revenue at $4.6B Amid Expansion and Cooling Chip Demand

Texas Instruments (TXN), a semiconductor industry titan with nearly a century of innovation, is projected to report a decline in profits and revenue for Q4 2023, influenced by substantial expansion investments and a softening chip demand in select markets.

Key Highlights

• Significant capital expenditure on capacity expansion likely compressed gross profit margins.
• Automotive chip demand remains robust, offsetting weakness in other sectors.
• Estimated net income decline of 15% to $1.8 billion; revenue expected to decrease by 4% to $4.6 billion.

According to Visible Alpha estimates, Texas Instruments’ net income is anticipated to fall to $1.8 billion ($1.98 per share) from $2.1 billion ($2.28 per share) in the previous year’s quarter. Revenue is forecasted to decrease from $4.8 billion to $4.6 billion.

The company had previously cautioned in October that Q4 results would underperform analyst expectations, reflecting a broader semiconductor industry slowdown amid one of its most ambitious capacity expansions.

Despite these challenges, Texas Instruments’ stock has demonstrated resilience, declining only 2% over the past year compared to a 20% drop in the S&P 500 Information Technology Index.

Specializing in mid-range semiconductor chips for automotive, industrial, and personal electronics, Texas Instruments capitalized on pandemic-related supply chain disruptions by stockpiling inventory, enabling it to meet surging automotive demand. This strategy fueled a remarkable 27% revenue growth in 2021—its fastest pace in over a decade.

Strategic Capacity Expansion

To address ongoing inventory constraints, Texas Instruments committed to an annual $3.5 billion investment through 2025, surpassing analyst projections by $1 billion per year. Key initiatives include the construction of a $30 billion fabrication facility in Sherman, Texas, commenced in May, and the refurbishment of a recently acquired Utah plant formerly owned by Micron Technology.

These capital investments have exerted pressure on the company’s gross profit margins during Q4. Concurrently, chip demand has softened amid a broader U.S. economic slowdown and a cyclical correction impacting various semiconductor segments throughout 2022, as noted by Goldman Sachs.

In its Q3 2023 earnings report, Texas Instruments acknowledged a deceleration in its personal electronics segment and expanding weakness across industrial sectors, prompting a downward revision of its Q4 earnings guidance.

Nonetheless, the company continues to benefit from strong automotive sector demand and federal incentives from the CHIPS and Science Act, which supports domestic semiconductor manufacturing expansion.

However, trailing 12-month free cash flow declined by 17% in Q3—the steepest quarterly drop since 2010. As Texas Instruments increases inventory to satisfy auto industry needs amid a sluggish chip market, Goldman Sachs anticipates ongoing pressure on free cash flow growth in the upcoming quarters.

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