Shares of Texas Instruments (NASDAQ: TXN) tumbled more than 8% in premarket trading on Wednesday after the chipmaker issued a disappointing profit and revenue forecast for the fourth quarter.
The guidance deepened investor concerns about the pace of recovery in the analog semiconductor market, which continues to grapple with weak demand and trade-related uncertainty.
“There is a recovery, but it’s at a very moderate pace,” CEO Haviv Ilan said during a post-earnings call, noting that the company remains constrained by a prolonged glut of analog chips.
While Texas Instruments has attempted to mitigate tariff risks through new trade deals, uncertainty surrounding additional US levies under the Trump administration has delayed demand normalisation and weighed on investor sentiment.
Fourth-quarter guidance misses Wall Street expectations
The Dallas-based chipmaker forecast fourth-quarter revenue of about $4.4 billion and earnings per share of $1.26—both well below analysts’ estimates.
For the third quarter, TI reported earnings of $1.48 per share, just shy of the expected $1.49, with restructuring costs and lower factory utilisation hurting margins.
On the earnings call, analysts expressed disappointment over the implied gross margin guidance.
Management cited higher depreciation costs and lower factory utilisation as key pressures.
Texas Instruments has pledged over $60 billion to expand its US manufacturing footprint, underscoring its commitment to strengthening domestic supply chains.
The company’s analog and embedded processing chips are critical components in everything from industrial machinery and vehicles to consumer electronics.
Analysts cut targets amid margin concerns
The cautious guidance prompted several brokerages to slash their price targets.
“Guidance suggests that TI will incur factory underutilization that may limit gross margin to the 54%-55% range, below historical standards”, Morningstar analysts said.
Morgan Stanley maintained an “underweight” rating with a $175 target, calling the weak revenue outlook “a surprise” given prior expectations for modest margin pressure.
“While modest tailwinds are expected from the macro and inventory cycles, and order trends in industrial markets appear upbeat, it is surprising that this has not yet been reflected in TI’s performance,” it said.
JP Morgan, which remains “overweight” on the stock with a $210 target, said that although industrial demand trends are improving, the recovery remains slower than expected.
TD Cowen, with a “buy” rating and $200 target, cited depreciation and underutilization as mounting gross margin headwinds.
“It’s going to take time and a better backdrop to play out,” it said.
Jefferies reiterated a “hold” rating at $180, noting that a cyclical rebound in analog demand may not emerge until the second quarter of next year.
“We don’t love the Analog group here, given the lack of any cyclical recovery until maybe Q2 next year and remain on the sidelines for TXN, given the higher relative valuation vs. less revenue upside left in any potential cyclical recovery,” it said.
Citigroup also warned that TI’s cautious guidance could weigh on European chipmakers such as STMicroelectronics and Infineon.
“The bigger issue we see is around gross margin, where Texas Instruments management called out the need to again moderate fab loadings to manage inventory,” it said.
Market reaction and valuation
Texas Instruments shares have fallen about 3.5% so far this year, giving the company a 12-month forward price-to-earnings ratio of 29.03.
That compares with peers Analog Devices and Micron Technology at 26.24 and 11.98, respectively.
While analysts see modest tailwinds from easing inventories and improving macro trends, most agree the company faces a long road to recovery.
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