Analog chip manufacturer Texas Instruments (NASDAQ:TXN) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 8.4% year on year to $4.15 billion. On the other hand, next quarter’s revenue guidance of $3.85 billion was less impressive, coming in 5.6% below analysts’ estimates. Its GAAP profit of $1.47 per share was 7.1% above analysts’ consensus estimates.

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Texas Instruments (TXN) Q3 CY2024 Highlights:

• Revenue: $4.15 billion vs analyst estimates of $4.12 billion (in line)

• EPS: $1.47 vs analyst estimates of $1.37 (7.1% beat)

• EBITDA: $2.02 billion vs analyst estimates of $1.89 billion (6.8% beat)

• Revenue Guidance for Q4 CY2024 is $3.85 billion at the midpoint, below analyst estimates of $4.08 billion

• EPS (GAAP) guidance for the full year is $1.18 at the midpoint, missing analyst estimates by 77.1%

• Gross Margin (GAAP): 59.6%, down from 62.1% in the same quarter last year

• Inventory Days Outstanding: 233, up from 232 in the previous quarter

• EBITDA Margin: 48.8%, in line with the same quarter last year

• Free Cash Flow Margin: 10%, similar to the same quarter last year

• Market Capitalization: $178.7 billion

Company Overview

Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ:TXN) is the world’s largest producer of analog semiconductors.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Texas Instruments grew its sales at a weak 1.3% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.

Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but recency is neccessary for semiconductors because of Moore's Law, which suggests the pace of technological innovation is so high that yesterday's hit new product could be obsolete today. Texas Instruments’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 11.8% annually.