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Texas Instruments’ Q1 2019 Revenue Hit by Semiconductor Weakness

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Texas Instruments’ business model

Texas Instruments (TXN) is the world’s largest manufacturer and supplier of analog chips that convert real-world signals like touch and sound into digital signals. Analog chips are among the basic semiconductors that go inside all electronic devices with an “on” switch.

Analog chips aren’t specialized chips that need advanced technology nodes or specialized designs like a CPU. They can be built on old technology, which helps analog companies generate high-profit margins and cash flows. One way analog chip makers can boost revenue is by diversifying their revenue streams and through volume sales.

Texas Instruments is increasing its exposure in industrial and automotive markets, which have diverse sectors, long product cycles, and a growing need for semiconductor content. However, these two markets are directly proportional to the macro-economic environment as consumers cut down on car purchases and industries reduce their spending during macro-economic weakness.

Texas Instruments’ revenue

The macroeconomic downturn created by the United States–China (FXI) trade war slowed down 2018 holiday season sales and saw most chip companies report weak first-quarter guidance. Earnings of almost all chip companies, except the ones with high exposure to 5G, are expected to hit a bottom in the first quarter, and this outlook is visible in TXN’s and TSMC’s (TSM) first-quarter earnings.

In the first quarter, TXN’s revenue fell 5.3% YoY (year-over-year) to $3.59 billion—its second YoY decline in 12 quarters. 30% YoY growth in communication equipment was partially offset by declines in industrial, automotive, personal electronics, and enterprise. The world’s largest foundry, TSMC also reported a 16% YoY decline in revenue after 11 quarters of growth.

TXN expects its revenue to fall 12.2% YoY to $3.6 billion in the second quarter as demand weakness continues in all end markets except communications where demand is fueled by the 5G rollout.

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