What TXN’s Q1 Revenue Says about the Semiconductor Industry

Texas Instruments’revenue growth trend

Texas Instruments’ (TXN) revenue had been falling on a YoY (year-over-year) basis after ten quarters of growth, and the rate of decline is increasing with every quarter. Its revenue fell 0.8% in the fourth quarter of 2018 and 5.3% in the first quarter, and revenue is expected to fall 12.2% in the second quarter on a YoY basis. The revenue decline comes as end demand remains weak—except in communications.

What TXN’s Q1 Revenue Says about the Semiconductor Industry

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Automotive and Industrial

United States–China trade tensions have reduced demand in TXN’s core markets of automotive and industrial, where it earns more than 55% of its revenue. TXN’s first-quarter revenue from its automotive and industrial segments fell by mid-single digits YoY. This drop shows that automotive chip giant NXP Semiconductors (NXPI) is likely to report YoY revenue declines in the first quarter.

Smartphones

The first quarter of a calendar year is seasonally weak for smartphones and PCs. However, weak holiday season sales in the fourth quarter of 2018 created high inventory levels in these markets. So TXN’s revenue from personal electronics fell by low double-digits on a YoY basis, especially due to weak demand for Apple’s (AAPL) iPhones for which it supplies touch screen controllers, power management chips, and control device.

Apple’s sole foundry partner TSMC (TSM) also reported a 33% sequential revenue decline from the smartphone market in the first quarter. TSM’s and TXN’s earnings show that Apple and its suppliers are set to report double-digit YoY and sequential revenue declines in the first quarter.

Communication

Amid the overall economic weakness, the demand is strong in the communication market as telecom companies are deploying 5G networks. TXN’s revenue from communications rose 30% YoY in the first quarter, and Xilinx (XLNX) also reported 23% YoY growth in the first quarter because of 5G-driven demand.

However, TXN’s growth in communications will not be able to mitigate the declines in automotive and industrial in the longer term as communications demand will stabilize after the 5G deployment is complete. So TXN continues to invest in the industrial and automotive markets as they offer diverse revenue streams and increasing semiconductor content per device.

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