Release Date: January 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Texas Instruments Inc (TXN, Financial) reported a 2% year-over-year growth in Analog revenue after eight quarters of decline.
- The company increased its dividend per share by 5% in the fourth quarter, marking the 21st consecutive year of dividend increases.
- Texas Instruments Inc (TXN) has a strong balance sheet with $7.6 billion in cash and short-term investments.
- The company is strategically emphasizing growth in the industrial and automotive markets, which now make up about 70% of its revenue.
- Texas Instruments Inc (TXN) received a $1.6 billion CHIPS Act grant, which will support its new 300-millimeter wafer fabs, enhancing its manufacturing capabilities.
Negative Points
- Fourth-quarter revenue decreased by 3% sequentially and 2% year-over-year, with Embedded Processing declining by 18%.
- Gross profit margin decreased by 190 basis points due to lower revenue, higher depreciation, and reduced factory loadings.
- Operating profit was down 10% from the same quarter a year ago.
- The company is experiencing a seasonal decline in Q1 revenue, expected to be down 2% to 3% sequentially.
- Embedded business margins are under pressure due to underutilization of the Lehi factory, impacting profitability.
Q & A Highlights
Q: You're guiding Q1 revenue down 2% to 3% sequentially. Can you provide some color by end market, especially regarding automotive and China?
A: For Q1, we expect a seasonal decline, particularly in personal electronics, which usually shows a significant drop in Q1. Automotive and industrial markets should see less pronounced declines. In Q4, industrial and automotive markets behaved similarly to the overall company, with some sectors like industrial automation and energy infrastructure still declining. In automotive, China grew but not enough to offset declines in Europe, the US, and Japan.
Q: The earnings outlook for Q1 shows a significant drop in EPS. Can you provide context on this?
A: The drop is primarily due to gross margin impacts from lower revenue, increased depreciation, and reduced factory loadings. We expect gross margin percentage to decrease by a few hundred basis points from Q4 to Q1. Operating expenses will increase 3% to 5% due to normal seasonal increases and ongoing investments. Additionally, interest income is decreasing by about $50 million due to lower short-term interest rates and cash levels.
Q: Can you explain the divergence between the analog and embedded businesses, particularly regarding margins?
A: The divergence is due to different cyclical behaviors. Embedded grew in 2023 while analog declined, leading to a sharper decline in embedded now. The embedded business is disproportionately impacted by underutilization at the Lehi factory, which serves embedded more than analog, affecting its margins.
Q: Can you provide an update on the situation in China, especially regarding the automotive and industrial markets?
A: Our China business grew both sequentially and year-over-year in Q4, driven by automotive strength and personal electronics. Automotive growth in China is supported by a higher share of EVs, which have higher content. However, we haven't seen a cyclical upturn in industrial markets in China or globally. The strength in China is mainly from automotive and personal electronics.
Q: How do you view the pricing environment, and has it changed recently?
A: The pricing environment has remained stable, with pricing declining low single digits per year, similar to pre-COVID behavior. The mix of revenue has changed, with industrial declining and personal electronics growing, but like-for-like part pricing has behaved as expected. We don't anticipate significant changes in 2025 across geographies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
