Texas Instruments Sales Outlook Defies Trade Concerns

(Bloomberg) -- Texas Instruments Inc. gave stronger-than-predicted sales and profit forecasts for the current quarter, indicating demand for chips may be starting to improve.

Third-quarter earnings will be $1.31 a share to $1.53 a share on revenue of $3.65 billion to $3.95 billion, the Dallas-based company said Tuesday in a statement. On average, analysts predicted profit of $1.37 a share and sales of $3.84 billion, according to data compiled by Bloomberg. At the high end, that represents a revenue decline of 7.3% from a year earlier.

A better-than-feared outlook from Texas Instruments signals that a slump in orders for electronic components may end soon and helps counter concern that the China-U.S. trade dispute will hurt the overall economy. The company hasn’t experienced any sales hit related to trade or regional differences in orders, executives said on a conference call, repeating their stance that the industry is in a typical cycle of weaker demand that usually lasts about five quarters. Texas Instruments has now reported declining revenue for three consecutive quarters.

“Every cycle is unique, but if you look at at least the last two, they behave in the way where you have at least five negative quarters before growth resumes,” Chief Financial Officer Rafael Lizardi said in an interview. “I don’t know what the cycle is going to do. Our job is to be prepared.”

Texas Instruments’ semiconductors are part of almost everything that has an “on” switch, making it a bellwether for industry demand. The company gets the largest chunk of its revenue from makers of industrial equipment and vehicles. The U.S.-China trade dispute had raised concern that U.S. chipmakers might be shut out of the world’s biggest market for their products.

The company, which gets from 3% to 4% of its revenue from Huawei Technologies, halted shipments when the Chinese telecommunications company was blacklisted by the U.S. government. Texas Instruments resumed supplying some parts after verifying those shipments would be in compliance with the new rules, Dave Pahl, the company’s head of investor relations, said on the call.

Earlier, the world’s sixth-largest chipmaker reported second-quarter net income fell to $1.31 billion, or $1.36 per share, from $1.41 billion, or $1.40 a share, in the same period a year earlier. Revenue dropped 9.5% to $3.67 billion. Analysts had estimated a profit of $1.22 a share on sales of $3.6 billion.

Texas Instruments shares rose more than 6% in extended trading after closing at $120.07 in New York. The stock has gained 27% this year on optimism that the trade dispute will be resolved and inventory stockpiles will be cleared out later this year.

(Updates with comments from CFO in the fourth paragraph.)

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