Texas Instruments Inc. provided a sales outlook that signals an inventory glut is coming to an end, reassuring investors that a revival is underway in key markets for the company’s chips.

Suppliers of electronic parts used in the industrial and automotive markets have seen their growth wiped out by slowing orders from customers who have found themselves stuck with too much inventory. Texas Instruments’ forecast stoked optimism that orders may now be on the rise and helped counter fresh concern caused by peer NXP Semiconductors NV, which on Monday gave projections that fell well short of estimates.

Texas Instruments Chief Executive Officer Haviv Ilan said that China, which is the largest market for semiconductors, has returned to growth after its electronics makers finished drawing down their stockpiles of unused components. Europe and Japan are still in the early phase of that process, Ilan said. Within the company’s industrial segment, about half of the markets are still working through inventory while others have returned to increasing orders, he said.

“It was a good quarter for our China business,” Ilan said on a conference call after Texas Instruments released results on Tuesday. There were “very distinct signals that customers have worked down their inventory.”

The company projected sales in the period ending in September will be $3.94 billion to $4.26 billion. Analysts, on average, estimated $4.14 billion, according to data compiled by Bloomberg. Profit will be $1.24 to $1.48 a share, Texas Instruments said in a statement, compared with an average projection of $1.38.

Still, the Dallas-based company is sticking to its policy of not predicting when the market for chips will pick up overall. The current cycle is unusual in that different areas and geographies are behaving differently, said Chief Financial Officer Rafael Lizardi. The projected sequential improvement in revenue during the current quarter is being driven by electronics makers preparing for the end-of-year holiday shopping season, he said.

Texas Instruments’ factories are running at closer to full capacity and inventory remains roughly flat, Lizardi said. Executives added that the company is able to fill most orders as soon as it receives them — an indication that supply and demand are roughly in balance.

Separately, Elliott Investment Management, which in May took a $2.5 billion position in Texas Instruments and expressed concern about the company’s increased spending on new plants, reversed course and praised Ilan’s comments on the call. The CEO appeared on the call usually handled by his CFO and head of investor relations and said he wanted to provide more details on the company’s plans.

“We appreciate the constructive dialogue that we have established with Texas Instruments, and we believe the steps announced today will support long-term value creation for all of its shareholders,” Elliott said in a statement.

The shares rose about 2.8% in premarket trading before New York exchanges opened on Wednesday. The stock had earlier closed at $198.29 in New York, leaving them up 16% in 2024. The company’s shares have lagged behind a rally in the Philadelphia Stock Exchange Semiconductor Index this year as investors have poured money into Nvidia Corp. and other companies that make parts for artificial intelligence computing.

In the second quarter, revenue declined 16% to $3.82 billion, marking the seventh consecutive contraction. Analysts projected $3.82 billion. Profit was $1.22 a share, compare with an estimate of $1.16.

Texas Instruments has the widest customer base and biggest product range among chipmakers, so the company’s results and forecasts act as an indicator of demand across a variety of industries. The majority of its chips go into industrial and automotive applications.

It’s the biggest maker of analog semiconductors and embedded processors. Its products perform simple but vital functions, such as converting power to different voltages within electronics.

The company is spending heavily on new plants, an effort to bring most production back in house, but weighing down its profit in the meantime. Texas Instruments has said that effort, when complete, will give it a cost advantage over rivals. The company will continue with that plan, it said today.

By: DocMemory
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