Texas Instruments falls on signs that chip recovery is slowing

Shares of Texas Instruments Inc., the biggest maker of analogue chips, fell the most in three months after the company gave a lacklustre forecast for the current period, adding to concerns that a semiconductor industry recovery is sputtering.

Revenue will be $4.22 billion to $4.58 billion in the fourth quarter, the company said in a statement Tuesday. Analysts had estimated $4.5 billion on average. Profit in the period will be roughly $1.26 a share, the company said, versus a projection of $1.39.

The outlook suggests that customers are slowing orders as they navigate mounting trade tensions and a shaky economy. Texas Instruments had been enjoying a rebound in demand following a two-year slump, and now the comeback is looking less certain.

“The overall semiconductor market recovery is continuing, though at a slower pace than prior upturns — likely related to the broader macroeconomic dynamics and overall uncertainty,” Chief Executive Officer Haviv Ilan said on a conference call with analysts.

Industrial customers in particular are taking a “wait and see” approach to their factory expansion plans, he said, as governments consider tariffs and other actions.

Texas Instruments shares, which have already trailed a broader semiconductor rally this year, slid as much as 9.8% to $163.04 after markets opened in New York on Wednesday, their biggest intraday decline since July 23.

In the third quarter, sales grew 14% to $4.74 billion, yielding a profit of $1.48 a share. Analysts had estimated revenue of $4.65 billion and earnings of $1.49.

Three months ago, a lacklustre projection from the Dallas-based company caused the stock to suffer its worst one-day decline in 17 years.

At the time, the chipmaker said that some Chinese customers were likely building up inventory to guard against a rise in costs caused by tariffs. Texas Instruments gets about 20% of its sales in China, where it’s facing increasing competition from local customers.

In the third quarter, the market in China returned to normal patterns, Ilan said on the call. There was none of the “pull forward” demand that the company had experienced, he said.

Texas Instruments is the biggest seller of analogue chips, which convert real-world phenomena like sound and pressure into electronic signals. It has the broadest lineup of products and the longest customer list in the semiconductor business, making the company’s reports an important indicator of demand across the economy.

The chipmaker has spent heavily on new production to try to make itself more resilient and provide options in a world with growing trade barriers. The company has four plants outside of the US, including one in China. It’s also building new factories near its home base in the Dallas area and in Utah.

Spending on plants and equipment, which has cut into cash flow and profitability, will be about $5 billion this year, with that outlay likely shrinking to about $2 billion to $3 billion next year, Chief Financial Officer Rafael Lizardi said in an interview. The company hasn’t finalised its plans, which will vary according to demand, he said. Texas Instruments promised to switch back to a heavy focus on shareholder returns once the build-out is complete.

Texas Instruments has reached optimal levels of inventory and has now started to slow down work at its factories to make sure it doesn’t create too big a stockpile, executives said. That will act as a drag on profitability in the short term, they said.