Tariff impact on chip business, Texas Instruments' guidance below expectations, stock price plummets | Earnings Report Insights

Texas Instruments' weak third-quarter outlook drags down stock price, tariff uncertainty impacts demand expectations.

After the U.S. stock market closed on Tuesday, traditional semiconductor giant Texas Instruments reported strong second-quarter earnings, with revenue and earnings per share both exceeding market expectations.

However, the company stated that the "exceptionally strong" performance in the second quarter may be due to tariff impacts, and it expects the midpoint of its third-quarter earnings per share guidance to be $1.48, below analysts' expectations of $1.50. At the same time, Texas Instruments emphasized that future tariff uncertainties will affect customer demand, and the recovery in the automotive industry will be slow:

• Financial Performance: Q2 results exceeded expectations, with revenue of $4.45 billion (up 16% year-on-year) and EPS of $1.41, both surpassing analyst expectations; net profit was $1.3 billion, up 15% year-on-year.

• Core Business: Revenue from the analog chip business was $3.5 billion, up 18% year-on-year, outperforming expectations; primarily serving the traditional semiconductor market for automotive and industrial applications.

• Weak Forecast: Q3 revenue forecast is $4.45-4.8 billion, with the midpoint of revenue guidance at $4.625 billion, only slightly above the expected $4.59 billion; earnings per share guidance midpoint is $1.48, below analysts' expectations of $1.50.

• Development Strategy: Plans to invest $60 billion to expand chip manufacturing plants in Texas and Utah, focusing on 300mm wafer manufacturing technology.

• Future Concerns: Pressure on gross margins, impacts of new tax policies, and changes in factory capacity utilization affecting cost structure.

Texas Instruments' stock price has risen about 15% year-to-date, but the pessimistic outlook for the third quarter caused its stock price to plummet nearly 12% in after-hours trading, erasing most of this year's gains.

The "Truth" of Performance: Orders "Rushed" by Tariffs?

The strong performance in the second quarter may not stem from a genuine recovery in end-demand, but rather from customers stockpiling inventory to avoid risks, which undoubtedly has pulled future sales forward.

CEO Haviv Ilan candidly pointed out the issue during the earnings call:

Tariffs and geopolitics are disrupting and reshaping global supply chains, and the recovery in the automotive industry has been very shallow.

This statement reveals the core challenges facing Texas Instruments. Although chip manufacturers have not yet directly faced the tariffs raised by the Trump administration, the costs of manufacturing equipment have already risen, and some end customers have cut back on spending.

When analysts asked whether tariffs prompted customers to place orders early and boosted revenue, Ilan acknowledged that "this possibility cannot be ruled out," adding:

When you see such a strong performance in the second quarter compared to the first quarter, you have to attribute part of it to the tariff environment.

This statement was a trigger for investor concerns, and more noteworthy is the subtle change in the management's tone. In the previous quarter, the company's leadership was still touting signs of a significant rebound in demand, but now they exhibit a clear cautious attitude. Analysts at Summit Insights pointed out:

The management has shown caution as they see some normalization (i.e., slowdown) in orders for the second quarter.

Double Pressure: Weak Demand and Margin Pressure

In addition to concerns about the sustainability of demand, the profit pressure faced by the company has also become clear.

First, the demand signals from the end market are poor. As a key growth engine for Texas Instruments, the recovery in the automotive market has been described by management as "shallow." This assessment directly undermines market expectations for a strong rebound following the previous "chip shortage" in the automotive sector.

Second, the company's internal costs and profit margins are being squeezed.

• Stagnation in Gross Margin Growth: Although the company is heavily investing in lower-cost 300mm wafer manufacturing technology, CFO Rafael Lizardi expects gross profit growth to remain flat in the third quarter. At the same time, the company anticipates that factory load levels in the third quarter will be on par with those in the second quarter, meaning fixed costs cannot be spread over more output, which is a negative signal for margins.

• Short-term Pain from Long-term Investments: The company plans to spend over $60 billion to expand capacity in the United States. While this grand plan aligns with the political correctness of bringing manufacturing back to the U.S. and lays the groundwork for long-term cost control, this massive capital expenditure will be a heavy burden in the short term.

• Rising Tax Rates: To make matters worse, the newly enacted U.S. tax legislation will result in the company facing higher tax rates in the third quarter and even into 2025, which will directly erode the company's net profits