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TI says inventory remains lean, narrows Q2 sales guidance toward high end
2010/6/23 23:38:51
As expected by financial analysts, Texas Instruments Inc has narrowed its Q2 guidance toward the high end, now expecting between 8 and 12% revenue growth on a sequential basis.
The growth would move revenue to between $3.45 billion and $3.59 billion. While reporting on Q1 revenue of $3.21 billion in April, TI guided for Q2 sales between $3.31 billion and $3.59 billion.
TI also narrowed its EPS (earnings per share) estimate to between $0.60 to $0.64, compared with the prior estimated range of $0.56 to $0.64, for the quarter ending June 30.
Ron Slaymaker, TI's VP and head of investor relations, said on a scheduled conference call Tuesday afternoon that the company is seeing broad-based strength across its portfolio and noted the continuing trend for industrial to be the strongest market this quarter. He made specific note of TI product areas include high-performance analog, power analog products, and catalog embedded processing products. Slaymaker further said that TI is adding capacity to shrink lead times and that inventory remains lean.
"In general, we would expect strong sales out of our distribution channels this quarter. We believe distribution inventory remains lean by historical standards," he said. "As we have indicated recently, including at our analyst meeting, we are making good progress on bringing up our additional capacity. As a result, our lead times are being reduced and are being reduced in an orderly manner. They are not as short as we want them yet, but I would say the capacity additions have helped and will continue to help.
"Lead times are coming in because of higher levels of capacity, not because of any flowing of demand," he continued. "Demand, whether you measure it by revenue or by orders, has remained strong in the quarter, even as we have reduced inventory."
What the analysts are saying
Analysts remained positive on TI, a company that has every quarter since Q2 2009 improved or narrowed its revenue guidance toward the high end. Much of the reason behind TI's bettered guidances, as well as the analyst positivity, has been the company's analog business. TI in April said it would double capacity at its Richardson, Texas, 300-mm analog fab, a location it first opened in September 2009 after TI purchased semiconductor manufacturing equipment at an "opportune price" from struggling Qimonda.
"TI's recent strategic and operational executions have been commendable," said Craig Berger, a semiconductor industry analyst with FBR Capital Markets, in a research report this morning. "Further, the firm is building barriers to entry and competitive advantages with its leading analog market share, 300-mm manufacturing strategy, counter-cyclical capacity investments, unmatched manufacturing and product development scale, large sales force, and portfolio cross-selling capabilities."
"TXN's [TI's] competitive positioning remains strong and management remains committed to allocating appropriate resources to grow the analog business," Tim Luke, a semiconductor industry analyst at Barclays Capital, wrote in a separate report this morning. "We note that TXN's purchase of assets from bankrupt Qimonda to produce the world's first analog chips on 300-mm wafers could likely accelerate TXN competitive position as a low-cost producer of analog chips (likely 30% reduction in production cost from 200-mm wafers)."
Luke continued to show support for TI's embedded business. "We believe the embedded segment remains a key focus for management and offers meaningful opportunity longer term," he said. "The margin structure is similar to the analog business and there are broad end-market opportunities including video/imaging, auto, surveillance, infrastructure (3G, 4G, IP voice, and video infrastructure), industrial, and medical."
Luke also noted that while Barclays Capital expects a modest increase in TI's wireless revenue in the June quarter and that TI has 50 design wins that are expected to be ramping in production over the next 12 to 18 months, wireless baseband sales may continue to decline through 2012 as TI reduces investments in this area.
Second-half 鈥榮oft landing'
Looking further out to Q3, FBR Capital Markets estimated revenues are likely to grow sequentially at TI, despite contracting lead times.
"Given the strength of global end demand in PCs, smartphones, networking, communication, and industrial applications, and given the strength of our baseband-related checks for TI, we do think the firm's Q3 revenues can grow modestly on a sequential basis (despite still murky visibility into September)," Berger wrote. "While we forecast a modest 1.7% sequential revenue growth assumption, we think investors are overly concerned that falling lead times will lead to a revenue and EPS 鈥榤iss' for TI at some point. We do not think enough inventory exists in the channel for lead time-driven 鈥榗hoppiness' to impact chip shipments for more than month or so."
Berger reminded that TI's management has stated lead times are contracting as capacity ramps, and that the company has seen no corresponding order cancellations or de-booking. "This commentary remains consistent with our 鈥榮oft-landing' (modified super-cycle) thesis that 1H10 [first-half 2010] supply chain inventory replenishment will smoothly hand off to 2H [second half] seasonal strength without any revenue shrinkage (though likely with sub-seasonal Q3 growth for chip firms), a positive for chip firms," he said.
The growth would move revenue to between $3.45 billion and $3.59 billion. While reporting on Q1 revenue of $3.21 billion in April, TI guided for Q2 sales between $3.31 billion and $3.59 billion.
TI also narrowed its EPS (earnings per share) estimate to between $0.60 to $0.64, compared with the prior estimated range of $0.56 to $0.64, for the quarter ending June 30.
Ron Slaymaker, TI's VP and head of investor relations, said on a scheduled conference call Tuesday afternoon that the company is seeing broad-based strength across its portfolio and noted the continuing trend for industrial to be the strongest market this quarter. He made specific note of TI product areas include high-performance analog, power analog products, and catalog embedded processing products. Slaymaker further said that TI is adding capacity to shrink lead times and that inventory remains lean.
"In general, we would expect strong sales out of our distribution channels this quarter. We believe distribution inventory remains lean by historical standards," he said. "As we have indicated recently, including at our analyst meeting, we are making good progress on bringing up our additional capacity. As a result, our lead times are being reduced and are being reduced in an orderly manner. They are not as short as we want them yet, but I would say the capacity additions have helped and will continue to help.
"Lead times are coming in because of higher levels of capacity, not because of any flowing of demand," he continued. "Demand, whether you measure it by revenue or by orders, has remained strong in the quarter, even as we have reduced inventory."
What the analysts are saying
Analysts remained positive on TI, a company that has every quarter since Q2 2009 improved or narrowed its revenue guidance toward the high end. Much of the reason behind TI's bettered guidances, as well as the analyst positivity, has been the company's analog business. TI in April said it would double capacity at its Richardson, Texas, 300-mm analog fab, a location it first opened in September 2009 after TI purchased semiconductor manufacturing equipment at an "opportune price" from struggling Qimonda.
"TI's recent strategic and operational executions have been commendable," said Craig Berger, a semiconductor industry analyst with FBR Capital Markets, in a research report this morning. "Further, the firm is building barriers to entry and competitive advantages with its leading analog market share, 300-mm manufacturing strategy, counter-cyclical capacity investments, unmatched manufacturing and product development scale, large sales force, and portfolio cross-selling capabilities."
"TXN's [TI's] competitive positioning remains strong and management remains committed to allocating appropriate resources to grow the analog business," Tim Luke, a semiconductor industry analyst at Barclays Capital, wrote in a separate report this morning. "We note that TXN's purchase of assets from bankrupt Qimonda to produce the world's first analog chips on 300-mm wafers could likely accelerate TXN competitive position as a low-cost producer of analog chips (likely 30% reduction in production cost from 200-mm wafers)."
Luke continued to show support for TI's embedded business. "We believe the embedded segment remains a key focus for management and offers meaningful opportunity longer term," he said. "The margin structure is similar to the analog business and there are broad end-market opportunities including video/imaging, auto, surveillance, infrastructure (3G, 4G, IP voice, and video infrastructure), industrial, and medical."
Luke also noted that while Barclays Capital expects a modest increase in TI's wireless revenue in the June quarter and that TI has 50 design wins that are expected to be ramping in production over the next 12 to 18 months, wireless baseband sales may continue to decline through 2012 as TI reduces investments in this area.
Second-half 鈥榮oft landing'
Looking further out to Q3, FBR Capital Markets estimated revenues are likely to grow sequentially at TI, despite contracting lead times.
"Given the strength of global end demand in PCs, smartphones, networking, communication, and industrial applications, and given the strength of our baseband-related checks for TI, we do think the firm's Q3 revenues can grow modestly on a sequential basis (despite still murky visibility into September)," Berger wrote. "While we forecast a modest 1.7% sequential revenue growth assumption, we think investors are overly concerned that falling lead times will lead to a revenue and EPS 鈥榤iss' for TI at some point. We do not think enough inventory exists in the channel for lead time-driven 鈥榗hoppiness' to impact chip shipments for more than month or so."
Berger reminded that TI's management has stated lead times are contracting as capacity ramps, and that the company has seen no corresponding order cancellations or de-booking. "This commentary remains consistent with our 鈥榮oft-landing' (modified super-cycle) thesis that 1H10 [first-half 2010] supply chain inventory replenishment will smoothly hand off to 2H [second half] seasonal strength without any revenue shrinkage (though likely with sub-seasonal Q3 growth for chip firms), a positive for chip firms," he said.
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