Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue for the second quarter was $3.8 billion, an increase of 4% sequentially.
- Gross profit margin increased by 60 basis points sequentially, driven by higher revenue and lower manufacturing unit costs.
- Strong performance in personal electronics, with mid-teens sequential growth and nearly 20% year-over-year growth.
- Enterprise systems showed significant recovery, up about 20% sequentially.
- Texas Instruments Inc (TXN, Financial) continues to invest in expanding its 300-millimeter manufacturing capacity, reflecting confidence in future opportunities.
Negative Points
- Year-over-year revenue declined by 16%, with analog revenue down 11% and embedded processing down 31%.
- Operating profit was down 37% from the year-ago quarter.
- Automotive and industrial markets experienced sequential declines, with automotive down mid-single digits and industrial down low single digits.
- Operating expenses increased by 3% from the previous year.
- Inventory levels remain high, with 229 days of inventory, indicating potential overstock.
Q & A Highlights
Q: How is the geopolitical environment, particularly the China-Taiwan relationship, impacting your customers' buying decisions?
A: (Haviv Ilan, CEO) Geopolitical dependable capacity has been a growing concern for our customers, especially over the past few years. This is particularly relevant for high-level leadership at our customers' companies, who are looking to ensure their supply chains are resilient. Texas Instruments (TI) offers a unique advantage with our large-scale, affordable, and geopolitically dependable capacity, primarily built in the US. This has led to increased interest and share gains for us, especially in the automotive sector.
Q: Can you provide an update on the CHIPS Act and its impact on your financials?
A: (Rafael Lizardi, CFO) We are still in the process of finalizing details with the CHIPS program office. To date, we have accrued about $1.8 billion in total from the 25% investment tax credit (ITC). This benefit has started to flow through our income statement as lower depreciation. In Q2, we received $312 million in cash benefits and expect another $200 million in Q3, totaling $1 billion for 2024.
Q: What are your expectations for growth in Q3, and which end markets are driving this growth?
A: (Haviv Ilan, CEO) We expect revenue to grow about 7% at the midpoint of our guidance range for Q3. Personal electronics and enterprise systems have shown strong sequential growth, and we anticipate continued strength in these areas. Industrial and automotive markets have been declining but are expected to stabilize.
Q: How do you view the competitive landscape in China, and are you concerned about increased supply from Chinese competitors?
A: (Haviv Ilan, CEO) The competitive landscape in China is indeed intensifying, but we are confident in our ability to compete effectively. Our strategy focuses on providing high-quality, affordable, and geopolitically dependable capacity. We have seen strong sequential growth in China across all markets, indicating that we are well-positioned to gain market share.
Q: Can you provide more details on your CapEx and depreciation plans?
A: (Haviv Ilan, CEO) Our CapEx strategy remains focused on supporting revenue growth and providing flexibility. We plan to spend around $5 billion annually on CapEx. For depreciation, we expect it to be between $1.5 billion and $1.6 billion for 2024, and between $2 billion and $2.3 billion for 2025.
Q: What is the current state of your embedded processing business, and what are your expectations for its future?
A: (Haviv Ilan, CEO) The embedded processing business is strengthening, with a focus on industrial and automotive markets. We have seen significant design win momentum in areas like real-time control, connectivity, and radar systems. The transition to internal manufacturing will also improve margins over time.
Q: How is ti.com performing, and what are your long-term plans for this platform?
A: (Haviv Ilan, CEO) ti.com is a strategic investment for us, aimed at digitizing the customer interface and improving customer service. While orders through ti.com are down from their peak, the platform remains a valuable tool for understanding customer demand and providing timely support.
Q: How do you plan to manage inventory and capacity to avoid future shortages?
A: (Haviv Ilan, CEO) Our strategy is to invest in capacity and inventory ahead of demand to maintain high customer service levels through various market cycles. This approach is designed to mitigate the risk of shortages and support our customers effectively during upturns.
Q: What are your expectations for the China market, and do you believe the inventory correction is complete?
A: (Haviv Ilan, CEO) We have seen strong sequential growth in China, indicating that the inventory correction is largely complete. All markets in China grew significantly in Q2, suggesting that we are now shipping to end demand. We expect this momentum to continue.
Q: Is $5 billion still a reasonable estimate for CapEx this year?
A: (Rafael Lizardi, CFO) Yes, $5 billion is still our target for CapEx in 2024. The quarterly variations are just minor adjustments, but our overall strategy and investment plans remain unchanged.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
