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Weak Macro Environment to Hurt Texas Instruments’ 2019 Earnings

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Texas Instruments

Among the most anticipated earnings for the first quarter are those of Texas Instruments (TXN), a company that supplies analog chips and microcontrollers to five end markets: industrial, automotive, personal electronics, communication equipment, and enterprise systems.

The company earned 56% of its revenue from the fast-growing industrial and automotive segments in 2018. Within these two markets, it caters to 19 sectors. TXN’s multiple end markets bring it stable growth, as declines in some sectors can be offset by growth in others.

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Last year was a good one overall for TXN, as a 13% sequential decline in the fourth quarter was more than offset by strength in the first three quarters. The first half of the year tends to be seasonally stronger than the second half for TXN. However, this year, TXN expects its first-quarter revenue to fall 8.2% year-over-year and 6.45% sequentially to $3.48 billion—a level it last saw in the first quarter of 2017.

No growth in sight for TXN in 2019 

Many companies are hoping for growth to revive in the second half of 2019. However, some Wall Street analysts don’t expect a recovery in demand in the second half given high inventory levels and weak demand. Even economic data suggest slow or no growth.

The IHS Markit Germany Manufacturing PMI (purchasing managers’ index) contracted to 44.7 in March from 47.6 in February due to a slowdown in the automotive industry and economic uncertainty caused by Brexit and the US-China (FXI) trade war. Vehicle sales are expected to fall in the United States and China, affecting TXN, which earns 20% of its revenue from the automotive space and 44% of its revenue from China. Auto chip maker Infineon has also lowered its fiscal 2019 YoY revenue growth guidance from 9% to 5.3% due to declining car sales in China.

In its upcoming first-quarter earnings report, which is set to release on April 23, TXN could report weaker-than-expected guidance, which could pull the stock down in the mid to high single digits in the following two days. The stock rose 12% in the first quarter, underperforming the VanEck Vectors Semiconductor ETF (SMH), which rose 24.8%.

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