Texas Instruments Reports Strong Q2 Earnings Amid Chip Market Concerns

On July 22, Texas Instruments Inc. announced that its revenue for the second quarter of this year increased by 16% year-on-year and by 9% quarter-on-quarter, reaching $4.448 billion, surpassing analysts' expectation of $4.36 billion. Operating profit rose 25% year-on-year to $1.563 billion, while net profit grew 15% to $1.295 billion. Earnings per share increased by 16% to $1.41, also exceeding the forecast of $1.35 per share. Over the past 12 months, Texas Instruments generated $6.439 billion in operating cash flow, highlighting the advantages of its business model, product portfolio quality, and the efficiency of 300mm wafer production. Free cash flow for the past year reached $1.763 billion. The company invested $3.9 billion in research and administrative expenses and $4.9 billion in capital expenditures, returning $6.7 billion to shareholders. For the third quarter, Texas Instruments expects revenue to be between $4.45 billion and $4.8 billion. Although analysts anticipate an average revenue of $4.57 billion for Q3, some forecasts go as high as $4.8 billion. Earnings per share are projected to be between $1.36 and $1.60, with a median of $1.48 slightly lower than the average analyst expectation. Based on the median forecast, Texas Instruments' Q3 sales are expected to grow 11% year-on-year, though this represents a slowdown compared to Q2. CFO Rafael Lizardi expressed confidence that the company can exceed $20 billion in revenue this year, stating, 'We are very confident in our strategy and believe that opportunities outweigh challenges.' However, on July 23, Texas Instruments' stock fell sharply by 11% as concerns arose that the surge in demand driven by tariffs might be temporary. Despite the optimistic financial outlook, some investors expected a more conservative approach. Analysts noted a shift to a pessimistic stance regarding the market outlook, with fears that tariffs and trade disputes could hinder the nascent sales recovery. Although Q2 revenue grew by 16% year-on-year, executives acknowledged uncertainty about how much of this was driven by 'front-loading' purchases ahead of tariff implementation. Lizardi stated that the company has 100,000 customers, making precise judgments difficult. Executives indicated that strong order growth observed in early Q2, potentially driven by tariff concerns, has since returned to expected levels for a normal recovery cycle. Analysts pressed the management on whether they are pessimistic about demand prospects, to which the company responded that all segments outside the automotive market are improving. CEO Haviv Ilan explicitly stated, 'The automotive market has not recovered.' In Q2, revenue from the Chinese market increased by 32%, which Ilan described as 'too aggressive,' prompting a more cautious outlook for the current quarter. Texas Instruments derives about 20% of its revenue from China, where local chip competitors are emerging as China actively invests in semiconductor production to reduce reliance on imports. Texas Instruments acknowledged that competition is fierce in China, the world's largest semiconductor market. Following the report, Texas Instruments' stock dropped over 11% in pre-market trading on July 23. Prior to this, benefiting from a general rise in semiconductor stocks, the company's stock had seen a cumulative increase of 15% year-to-date as of July 22. Looking ahead, Texas Instruments leads the analog chip market, which converts real-world signals like sound and pressure into electronic signals. The company boasts the widest range of products and the largest customer base in the semiconductor field, making its financial data a significant indicator of demand across various industries. In the long term, Texas Instruments expects continued growth in chip demand due to the increasing integration of semiconductors in more products. However, intensifying US-China competition casts a shadow over the semiconductor industry, and tariff policies from the Trump administration have raised concerns about rising prices and slowing demand. Texas Instruments has invested heavily in new production capacity to enhance supply chain resilience and provide flexible options in an increasingly protectionist global environment. The company operates four factories outside the US (including one in China) and is building new production bases in the Dallas area and Utah. The downside is that investments in new facilities and equipment have impacted Texas Instruments' cash flow and profitability. The company has pledged to refocus on shareholder returns once the facilities are operational.