After market close on Jan. 22, Texas Instruments Inc. (TXN, Financial) posted the results for its fourth quarter of fiscal 2019, which ended on Dec. 31.
Revenue for the quarter was $3.35 billion, beating analyst expectations of $3.25 billion, while diluted GAAP earnings per share came in at $1.12, beating analysts estimates of $1.03. These number compare to revenue of $3.71 billion and earnings of $1.27 per share in the prior-year quarter. Net income was $1.07 billion compared to $1.23 billion in the prior-year quarter.
For the full year, revenue was $14.38 billion, while net income was $5.01 billion. This compares to $15.78 billion and $5.58 billion for full-year 2018, respectively.
"Our cash flow from operations of $6.6 billion for the year again underscored the strength of our business model,” CEO Rich Templeton said in a statement. “Free cash flow for the year was $5.8 billion and 40% of revenue. This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter Analog production."
As of Jan. 22, Texas Instruments has a market cap of $124.64 billion, a price-earnings ratio of 24.78, a cash-debt ratio of 0.87 and a three-year revenue growth rate of 8.6%. According to the Peter Lynch chart, the stock is trading slightly above its fair value.
A difficult year for the industry
According to global research firm Garter Inc., worldwide semiconductor revenue fell 11.9% in 2019, marking an overall bad year for the industry. Garter’s research vice president, Andrew Norwood, said the memory market was particularly bad:
“The memory market, which accounted for 26.7% of semiconductor sales in 2019, experienced a 31.5% decline in revenue in 2019. Within memory, DRAM revenue declined 37.5% due to an oversupply that started at the end of 2018 and lasted throughout 2019.”
The trade war between the U.S. and China also helped drive down chip revenue as tariffs between the largest tech producers in the world were forced to cut prices even further.
The decline in the memory market is a result of one of the natural hazards facing tech companies: tech becoming outdated. Thus, Texas Instruments will need to keep its research and development strong in the coming years in order to stay ahead. In its notice regarding forward-looking statements, this is one of the potential headwinds that the company warned investors about.
Looking forward
For the first quarter of 2020, Texas Instruments issued guidance of $3.12 billion to $3.38 billion in revenue and earnings per share between 96 cents and $1.14.
Analysts estimate that the upcoming year will be a profitable one for the semiconductors industry, with 5G technology rolling out in full force. In 2019 alone, Texas Instruments spent more than $1.5 billion on researching and developing 5G products. While companies such as AT&T (T, Financial) and Verizon (VZ, Financial) are more in the public eye on 5G developments, the market hasn’t yet factored in much of the potential upside for other chipmakers like Texas Instruments, providing an opportunity to outperform expectations.
Disclosure: Author owns no shares in any of the stocks mentioned.
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