Texas Instruments Incorporated (NASDAQ:TXN) has helped to set an unfortunate tone to the tech sector in today’s trade. The stock has been whacked today following yesterday afternoon’s gloomy outlook. The headline print wasn’t the issue (Q3 EPS of $1.58, which beat the number, on revenues of $4.26 billion, which did not, and gross profit at 65.8% of revenue, up 130 basis points from 64.5% last year).
The problem was the statement by management that demand for the company’s main products was slowing across most of their end markets. That’s a problem because they have a very diverse pool of end markets and customers (about 100,000 different customers across 40 sectors through industrial, automotive, personal electronics, communications equipment, enterprise systems, and other segments). And they typically offer a very important leading read into the chip cycle.
Texas Instruments Incorporated (NASDAQ:TXN), in the most basic sense, designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide.
It operates in two segments, Analog and Embedded Processing.
The Analog segment offers power products to manage power requirements in various levels using battery management solutions, portable components, power supply controls, point-of-load products, switches and interfaces, integrated protection devices, high-voltage products, and mobile lighting and display products. This segment also provides signal chain products that sense, condition, and measure signals to allow information to be transferred or converted for further processing and control for use in amplifier, data converter, interface product, motor drive, clock, and sensing product end-markets; and integrated analog and standard products, which are primarily for sale into personal electronics, industrial, and automotive markets.
The Embedded Processing segment offers connected microcontrollers, such as microcontrollers, microcontrollers with integrated wireless capabilities, and stand-alone wireless connectivity solutions that are used in electronic equipment to sense, connect, log, and transfer data; and digital signal and applications processors for mathematical computations and specific computing activity. This segment offers products for use in various markets, principally industrial and automotive.
Hence, when they say they are seeing “slowing across almost all markets”, that’s not going to bode well for the SMH.
And right on cue, we are seeing big selling action across most of the semiconductor group today as evidenced by the 3.0% losses out of the VanEck Semiconductor ETF (SMH 93.24, -2.87) with key components NXPI -5.07%, ASML -5.01%, OLED -4.72%, ON -4.54%, and MXIM -4.33% also down in sympathy to the cautious industry commentary.
Taking a step back, it’s not just TI’s cautious outlook that drives chip stocks lower today. Semi company STMicroelectronics (STM 14.12, -1.76, -11.1%), too, gave a cautious outlook for the coming quarter in conjunction with its earnings release this morning. STM is the 20th weighted component in the SMH as of 10/23 (TXN is the 6th).
Nonetheless, the sense of confirmation is clearly important for the market.
One impact may be to set a lower bar for other semi plays and related themes. With XLNX, INTC, and AMD all coming out in the next 36 hours, that could tip the odds in favor of surprising upside on any non-confirmation of this early gloomy bias in the hardware cycle side of the market.