By Wallace Witkowski
Analog chipmaker to reveal more about capital management plan on February 2
Overall, semiconductor analysts will have to wait another week for more details on Texas Instruments Inc.’s decision to stay the course with long-term capacity building as the chip industry continues to search. a real hollow.
Late Tuesday, executives played it cool, assuring investors that Texas Instruments (TXN) would reveal the rest of its hand on Feb. 2 in regards to its strategy of building its long-term manufacturing capacity. Meanwhile, even this company – arguably one of the safest bets on the PHLX Semiconductor index over the past 12 months with its extensive portfolio of analog chips which has proven to be a core manufacturing product over the pandemic – feeling the pinch of falling demand.
This sense of expectation extended to Wall Street, as analysts weighed in on the strategy known so far.
Cowen analyst Joshua Buchalter, who has a market performance rating, calculated that with the additional $350 million from the US CHIPS Act, Texas Instruments now has about $400 million in investment credits. tax, he therefore expects “more clarity” on funding. and the mechanisms of its use.
Buchalter also said Texas Instruments’ willingness to build inventory when most chipmakers try to deplete theirs “served as a buffer to end market weakness,” but he added that digesting that inventory is “unlikely to be contained to a quarter” and gross margins and free cash flow are already starting to feel the pressure.
“We believe investors need visibility into when earnings may reaccelerate,” Buchalter said, as well as visibility into “the mechanics and magnitude of the benefits of the CHIPS Act to feel confident.” comfortable with near-medium [free cash flow] profile, and therefore the stock’s relative upside potential.”
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Bernstein analyst Stacy Rasgon said the capital spending meeting is likely to be “hectic” as it becomes “increasingly plausible” that Texas Instruments will use up a “good chunk” of the credit savings to further increase capital spending, leaving the prospect of 60% gross margins “probably within a few years.”
“Note that we are not necessarily reversing their strategy, as Texas Instruments will be one of the few companies actively developing some of the deep leak nodes that may remain tight as we move forward and into the future (5 years? 10 years ?), doubling down now could easily leave them in an advantageous position,” Rasgon said.
That said, Rasgon feels it’s hard to make the case for more upside on the stock at this point and stuck to his $145 price target and market performance rating.
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Evercore ISI analyst CJ Muse, who has an online rating and a price target of $190, said that with the March quarter outlook below expectations, worse-than-expected gross margins and the lack of a tangible bottom in the market, it puts a $160-$165 floor on the stock, with “mostly priced in weakness.”
“The correction is clearly there, the key question being the magnitude and duration – the direction indicating [three to four quarters of year-over-year] also likely declines,” Muse said.
Of the 32 analysts polled by FactSet who cover the stock, 10 have buy ratings, 19 have hold ratings and three have sell ratings, along with an average price target of $183.73, versus $178.87 two weeks ago.
Over the past 12 months, shares of Texas Instruments (TXN) are up less than 1%, while the PHLX Semiconductor index is down 13%, the S&P 500 is down 8% and the tech-heavy Nasdaq , is down 16%.
Unlike chipmakers such as Nvidia Corp. (NVDA) and Advanced Micro Devices Inc. (AMD), Texas Instruments operates its own factories, as does Intel Corp. (INTC) and Micron Technology Inc. (MU).
In 2022, industrial sales accounted for 40% of Texas Instruments’ revenue, while automotive chip sales accounted for about 25%, personal electronics 20%, communications equipment 7%, and business systems 6 %. An “Other” category made up of “mostly calculators” accounted for 2%, according to the company. Of all these categories, only auto chip sales saw growth.
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