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What is Driving Texas Instruments’s Revenue in Fiscal 2017?

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Jul. 31 2017, Updated 3:36 p.m. ET

Fiscal 2Q17 revenue

Texas Instruments (TXN) has exposure in diverse markets which helps it reduce the seasonal impact on its earnings. When demand from personal electronics is weak the demand in industrial is high. Hence, the company’s revenue growth and decline have been in low to mid-single digits. However, this trend broke in fiscal 1Q17 when it reported its first double-digit growth since 2010.

Texas Instruments’s revenue rose 13% YoY (year-over-year) in fiscal 1Q17. This momentum continued in fiscal 2Q17 with a 12.7% YoY growth in revenue to $3.7 billion, beating the analyst estimate of $3.57 billion. With this, the company beat analysts’ revenue estimates for the seventh consecutive quarter by an average of 3%. On a sequential basis, Texas Instruments’ revenue rose 8.5%.

Texas Instruments’s 12.7% YoY growth was higher than Maxim Integrated’s (MXIM) growth of 6% YoY but lower than Analog Devices (ADI) growth of 47% YoY during the same quarter. ADI’s strong revenue growth was a result of the integration of Linear Technology.

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Revenue by end-markets

Texas Instruments’ revenue growth was largely driven by strong demand in the automotive and industrial markets, which accounted for 18% and 33% of the company’s revenue. Industrial and automotive revenues have been increasing for the past three quarters. The company does not give revenue breakdown by end markets but we can get a fair idea of the growth in these markets by looking at the growth of ADI and Maxim.

ADI’s automotive revenue rose 9% YoY whereas Maxim’s automotive revenue rose 12% YoY in calendar 2Q17, indicating that Texas Instruments’s automotive revenue growth was in low-to-mid teens. On the industrial front, ADI’s revenue rose 20% YoY whereas Maxim’s revenue rose 18% YoY, indicating that Texas Instruments’s industrial revenue growth was in high-teens.

Texas Instruments also witnessed growth in communications equipment and personal electronics. However, revenue was flat in the enterprise systems market.

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Revenue by segment

From the product point, analog chips revenue rose 18% YoY $2.25 million in fiscal 2Q17 driven by strong demand in power and signal chain. Embedded chips revenue rose 15% YoY to $803 million driven by strong demand for processors and connected microcontrollers.

Revenue from others segment fell 13% YoY, or $60 million, as the company started reporting royalties under other income and expenses from 1Q17. The segment was also affected by weakness in custom ASIC (application-specific integrated circuit).

Fiscal 3Q17 revenue estimate

For fiscal 3Q17, Texas Instruments expects its revenue to grow 6% YoY to $3.9 billion at the midpoint which is higher than the analysts’ estimate of $3.8 billion. The growth would be driven strong demand in automotive and industrial markets and orders from Apple (AAPL).

Next, we will look at Texas Instruments’s profitability.

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