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The silicon market is in such a dark place, Texas Instruments' revenue decline was rewarded

Profits down, shares up

Global silicon shipments might be falling off a cliff, but it's not all doom and gloom: American chipmaker Texas Instruments has just reported better-than-expected quarterly results off the back of fairly consistent analog component sales.

The company's revenue for Q2 FY 2019 ended 30 June totalled $3.67bn, beating analyst estimates, but down 9 per cent year-on-year "due to broad-based weakness" in the market, according to president and CEO Rich Templeton. And he's not lying – according to the latest projections from Gartner, global semiconductor revenues are expected to drop 9.6 per cent this year to $475bn, primarily due to oversupply in the DRAM and NAND markets.

The situation is so dire, DRAM sales prices in particular are expected to drop more than 40 per cent from their 2018 peak.

Texas Instruments makes both DRAM and NAND, but its wares are tiny specialist chips primarily designed for its own embedded systems. The company reported that revenues at the Embedded Processing business declined 16 per cent year-on-year to $790m, but the larger Analog business fared much better, sliding 6 per cent to $2.53bn. Revenue from the "other" category – which includes DLP products, calculators and custom ASICs – dropped 10 per cent to $344m.

"Broad-based weakness" was the theme running throughout the earnings call. "Industrial and automotive [end markets] together declined upper-single digits due to broad-based weakness," said Dave Pahl, veep and head of investor relations.

"Personal electronics declined low-double digits also due to broad-based weakness. In communications equipment, revenue declined sequentially, but was about even from a year ago versus a weak compare. And lastly, enterprise systems declined."

Since the overall chip-making environment is so challenging, TI's results were seen as a sign of recovery. Despite a sizeable drop in revenue, the company's stock jumped 6.5 per cent to $127.91 in after-hours trading, and investors hope that other chip makers will share positive news in the months to come.

Texas Instruments' capital expenditure for the quarter totalled $284m, and the company spent $390m on R&D, $420m on selling and administrative tasks, and paid £80m in acquisition charges.

Operating profit for the quarter stood at $1.5bn, down 12 per cent from more than $1.7bn in the same quarter in 2018. Net income for the quarter was $1.31bn, down 7 per cent from $1.41bn a year ago.

"We continue to focus our strategy on the industrial and automotive markets, where we have been allocating our capital and driving initiatives to strengthen our position," Pahl said. "This is based on a belief that industrial and automotive will be the fastest growing semiconductor markets."

He also revealed that sales to the controversial Chinese vendor Huawei were responsible for about 3 to 4 per cent of Texas Instruments' overall revenue.

The company announced earnings per share of $1.36, down 3 per cent year-on-year – and this number included a 7¢ benefit for items that were not in the company's original guidance. A part of this unexpected bonus resulted from the previously announced sale of the company's fab in Greenock, Scotland, to Diodes Inc for £50m.

TI forecast Q3 revenue of between $3.65bn and $3.95bn. ®

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