From the first quarter of 2016 to the third quarter of 2018, Texas Instruments was the chip industry's model of consistency. The No.7 player in the global semiconductor space reported year-over-year sales growth every quarter during that span. The streak stopped in the fourth quarter last year when sales slipped one percent. But Texas Instruments started another streak on Tuesday when it reported first-quarter earnings.
Texas Instruments said that sales declined 5% to $3.59 billion in the first quarter, its second straight quarter of year-over-year sales decline. Profits after subtracting production, taxes and other operating costs came out to $1.22 billion, down 11% from last year's first quarter. Earnings per share added up to $1.26. Over the last year, the company's core businesses—analog and embedded processing—contracted by 2% and 14%, respectively.
Texas Instruments is the world’s largest supplier of analog semiconductors, which are used in almost every electronic device. Because it sells tens of thousands of products to tens of thousands of customers, the company's earnings are often used to determine where the chip industry is headed. Texas Instruments C.E.O. Richard Templeton said that “demand for our products continued to slow across most markets" in the first quarter.
The slowdown that started in the second half of 2018 has continued into the first half of 2019. Texas Instruments owes much of its growth over the last three years to analog semiconductors used in cars and factories. But both businesses declined by mid-single-digit percents in the first quarter, the company said. Consumer electronics sales also declined over the last year due to stunted sales of smartphones and personal computers.
In contrast, sales of analog chips used in communications equipment jumped 30% year-on-year, according to Texas Instruments. The surge stemmed from the deployment of 5G networks, which are projected to be 10 times faster than 4G LTE networks while lowering latency. Texas Instruments vice president Dave Pahl warned, however, that "history would suggest that we should expect this market to be choppy in the future."
Demand will continue to drop in the second quarter, the Dallas, Texas-based company said. Texas Instruments said that it would report second-quarter sales of $3.46 billion to $3.74 billion. The midpoint of that range would represent an year-over-year decline of more than 10%. The company was stashing $2.13 billion of unsold inventory at the end of the first quarter, up from $2.03 last year but down from $2.22 billion in the fourth quarter.
Chief Financial Officer Rafael Lizardi said on a conference call that "the weakness we are seeing is primarily due to the semiconductor cycle." He said that these "cycles are always different, but typically the industry will have four to five quarters of year-on-year declines before year-on-year growth resumes." He added: "Given our experience, we will stay focused on [getting] stronger for the long-term, while remaining diligent in the short-term."
