TXN • 10-Q • Q1 2024 • Neutral

Texas Instruments Revenue Drops 16% as Semiconductor Downturn Persists Despite Margin Resilience

April 24, 2024 • 1 min read

TL;DR

TI reported Q1 revenue of $3.66B, down 16.4% YoY, reflecting continued semiconductor industry weakness. Gross margins compressed to 57.2% from 65.4% YoY, though remained resilient given the revenue decline. Notable $124M restructuring charge signals operational optimization efforts. Strong inventory management maintained with 4.3% QoQ increase to $4.08B despite lower sales. Forward indicators suggest continued near-term pressure but management maintains long-term capacity expansion plans.

Financial Performance Overview: Revenue declined 16.4% YoY to $3.66B while operating profit fell 33.5% to $1.29B. Gross margin compressed 820bps YoY to 57.2%, though remained above pre-pandemic levels. Operating margin declined to 35.1% from 44.2% YoY, impacted by lower revenue and $124M restructuring charge. R&D investment increased 5.1% YoY to $478M (13.1% of revenue) signaling continued focus on long-term innovation despite cyclical pressures.
Strategic Initiatives and Operational Changes: Management implemented restructuring actions resulting in $124M charge, likely focused on operational optimization and capacity planning. Capital expenditures remained elevated at $1.1B indicating continued investment in manufacturing expansion. Inventory management showed discipline with 4.3% QoQ increase despite sales decline. Long-term analog and embedded processing focus maintained through continued R&D investment despite cyclical pressures.
Market Position and Competitive Dynamics: TI maintained leading analog market share position despite revenue decline. Broad customer and end-market diversification provided some buffer against downturn. Industrial and automotive segments likely remained relatively resilient versus consumer electronics. Direct sales strategy continues enabling stronger customer relationships and market intelligence. Competitive position appears stable with continued investment in capacity and R&D.
Operational Efficiency and Profitability: Despite 16.4% revenue decline, gross margin remained above 57% demonstrating operational resilience. Cost controls evident with SG&A declining 4% YoY. Manufacturing utilization likely declined but 300mm wafer production helping maintain margins. Working capital management remained strong with DSO at 41 days. Restructuring actions should drive improved efficiency as demand recovers.
Growth Catalysts and Material Risks: Near-term headwinds persist from inventory corrections and weak end-market demand. Long-term growth drivers remain intact in automotive and industrial markets. Rising debt levels ($2.97B increase QoQ) and interest expense warrant monitoring. Geopolitical risks around semiconductor manufacturing and trade tensions remain material concerns. Recovery trajectory likely gradual with automotive and industrial leading.

Revenue

$3.66B ( YoY, QoQ)

↓ -16.4%

Rd Spend

$478M ( YoY) and of revenue

↑ +5.1%

Net Income

$1.11B ( YoY) with margin

↓ -35.3%

Gross Margin

(-820bps YoY)

↑ 57.2%

Free Cash Flow

$1.29B operating cash flow

Operating Margin

(-910bps YoY)

↑ 35.1%

Growth Indicators

$1.1B maintained investment

Inventory $4.08B (+4.3% QoQ)

Debt Levels $14.2B (+$2.97B QoQ)

Key Risks

Extended demand weakness and inventory corrections impacting utilization
Rising debt levels and interest expense affecting financial flexibility
Geopolitical risks around semiconductor manufacturing and trade
Increasing competition in strategic growth markets

Key Opportunities

Automotive electrification driving content expansion ($5B+ TAM growth)
Industrial automation creating new analog/embedded applications
Manufacturing technology leadership enabling margin advantage
Capacity expansion positioning for next growth cycle

Bottom Line

TI's Q1 results demonstrate the company's operational resilience despite significant cyclical pressures. While near-term challenges persist, strategic investments in manufacturing capacity and R&D continue positioning for long-term growth. Restructuring actions should improve efficiency as demand recovers. Automotive and industrial end-markets likely lead the eventual upturn. Key metrics to watch include inventory levels, capacity utilization, and order patterns in coming quarters.