China’s EV growth a record + for Texas Instruments
Texas Instruments saw its shares rise more than 4% on Wednesday after a third quarter earnings report signaled a recovery following eight straight quarters of revenue declines.
Revenues hit $4.1 billion, down 8% from a year ago, but up by 9% from the prior quarter. Net income was down by 20% over a year ago. Still, revenues exceeded analyst estimates.
CEO Haviv Ilan also added some optimism when he said an inventory correction is “ongoing, but I do expect that to start to recover.”
A bright spot has been sales to China in the automotive sector, he said. “In China, we have new records being established,” Ilan said. China makes up about 20% of TI’s automotive business, and the automotive market overall grew between 7% to 8%.
“I think it’s no surprise that there is momentum for EVs in China,” Ilan added. “I think there is growing momentum there. Our automotive revenue in China is in an all-new-time high. So I don’t think it goes down in the near future…The rest of the markets, I see continued weakness.”
TI makes about 70% of its revenues from industrial and automotive with the industrial market seeing a revenue peak in the third quarter of 2022 and then eight quarters of decline. The remaining 30% comes from personal electronics, enterprise systems and communication systems, which Ilan said are “pointing in the right directions…coming from a very low trough but showing momentum.” In years past, automotive has been more than 20% of overall TI revenue, with industrial at more than 40%. In 2023, automotive reached 34% of all revenues, with industrial at 40%.
Analog and embedded processing chips make up 90% of TI revenue. The company has put a focus on building more fabs and has attracted more than $4 billion in proposed grants from the US CHIPS Act, but also the ire of Elliott Investment Management, the $65 billion hedge fund, which made a $2.5 billion investment in TI in May.
Elliott wants TI to improve its free cash flow position with a less rigid plan for capital expenditures, including fabs, which it first adopted in 2022. Elliott wants the company to reach free cash flow of $9 a share by 2026, 40% above what a consensus of analysts have hoped for.
“TI is staying strong in its strategy despite the activist campaigns,” said Dylan Patel, chief analyst at Semianalysis, told CNBC. The strategy includes cutting prices in China to fight off new Chinese fabless players that are making analog and legacy semiconductors. “This is letting Texas Instruments keep a strong share in the EV sector where many companies such as BYD are trying to make their own chips.”
TI over the past decades has been a “fantastic” dividend and buy back player for investors, Patel added. “And Texas Instruments’ strategy now is completely different. It is, we’re going to invest a lot in upgrading our fabs to drive down our cost structure in the long term, but in the near term we’re not going to have a ton of cash flow to drive back into buy backs and dividends. This is so they can maintain competitiveness and have a cost advantage versus Chinese players cropping up.”
Elliott wants TI to invest less in fabs and not cut prices too much because that’s bad for cash flow, Patel added.
The TI success in China raises interesting questions of whether possible tariffs on EVs imported to the US will hurt or help TI’s sales there. Presidential candidate Donald Trump has said he wants a 100% tariff on imported EVs. TI did not respond to a request to comment on possible tariffs or export bans.
Texas Instruments saw its shares rise more than 4% on Wednesday after a third quarter earnings report signaled a recovery following eight straight quarters of revenue declines.
Revenues hit $4.1 billion, down 8% from a year ago, but up by 9% from the prior quarter. Net income was down by 20% over a year ago. Still, revenues exceeded analyst estimates.
CEO Haviv Ilan also added some optimism when he said an inventory correction is “ongoing, but I do expect that to start to recover.”
A bright spot has been sales to China in the automotive sector, he said. “In China, we have new records being established,” Ilan said. China makes up about 20% of TI’s automotive business, and the automotive market overall grew between 7% to 8%.
“I think it’s no surprise that there is momentum for EVs in China,” Ilan added. “I think there is growing momentum there. Our automotive revenue in China is in an all-new-time high. So I don’t think it goes down in the near future…The rest of the markets, I see continued weakness.”
TI makes about 70% of its revenues from industrial and automotive with the industrial market seeing a revenue peak in the third quarter of 2022 and then eight quarters of decline. The remaining 30% comes from personal electronics, enterprise systems and communication systems, which Ilan said are “pointing in the right directions…coming from a very low trough but showing momentum.” In years past, automotive has been more than 20% of overall TI revenue, with industrial at more than 40%. In 2023, automotive reached 34% of all revenues, with industrial at 40%.
Analog and embedded processing chips make up 90% of TI revenue. The company has put a focus on building more fabs and has attracted more than $4 billion in proposed grants from the US CHIPS Act, but also the ire of Elliott Investment Management, the $65 billion hedge fund, which made a $2.5 billion investment in TI in May.
Elliott wants TI to improve its free cash flow position with a less rigid plan for capital expenditures, including fabs, which it first adopted in 2022. Elliott wants the company to reach free cash flow of $9 a share by 2026, 40% above what a consensus of analysts have hoped for.
“TI is staying strong in its strategy despite the activist campaigns,” said Dylan Patel, chief analyst at Semianalysis, told CNBC. The strategy includes cutting prices in China to fight off new Chinese fabless players that are making analog and legacy semiconductors. “This is letting Texas Instruments keep a strong share in the EV sector where many companies such as BYD are trying to make their own chips.”
TI over the past decades has been a “fantastic” dividend and buy back player for investors, Patel added. “And Texas Instruments’ strategy now is completely different. It is, we’re going to invest a lot in upgrading our fabs to drive down our cost structure in the long term, but in the near term we’re not going to have a ton of cash flow to drive back into buy backs and dividends. This is so they can maintain competitiveness and have a cost advantage versus Chinese players cropping up.”
Elliott wants TI to invest less in fabs and not cut prices too much because that’s bad for cash flow, Patel added.
The TI success in China raises interesting questions of whether possible tariffs on EVs imported to the US will hurt or help TI’s sales there. Presidential candidate Donald Trump has said he wants a 100% tariff on imported EVs. TI did not respond to a request to comment on possible tariffs or export bans.