Sales will be $4.2 billion to $4.8 billion in the second quarter, Texas Instruments said Tuesday, below the $4.96 billion predicted by analysts. Profit will be $1.84 to $2.26 a share, the company said, also short of estimates, which averaged $2.28.
Texas Instruments is the largest maker of analog and embedded processing chips, which go into everything from household appliances to military and space hardware. It has tens of thousands of products and customers, making its predictions an indicator of demand across the economy. The company cited the return of lockdowns in parts of China as hurting production of electronics.
“This outlook comprehends an impact due to reduced demand from Covid-19 restrictions in China,” the company said in a statement.
Texas Instruments’ earnings are an important signpost for investors who are concerned the chip industry is poised to suffer one of its periodic gluts after ramping up too much production. The Philadelphia Stock Exchange Semiconductor Index has fallen 26% this year, worse than the major indexes.
Market research firm Gartner Inc. expects overall industry sales to grow 14% this year, but it sees the increase decelerating to just 3.6% in 2023. The slowdown follows a 26% surge last year, when the pandemic helped fuel demand for chips.
Texas Instruments shares fell as much as 8.9% in extended trading Tuesday after closing at $168.44 in New York. The stock, which gained 15% last year, had declined less than other chipmakers in 2022 through Tuesday’s close.
Fourth-quarter net income rose to $2.35 a share from $1.87 a share a year earlier. Revenue increased 14% to $4.9 billion. On average, analysts estimated $2.20 a share on revenue of $4.72 billion.
Analysts and investors have become concerned that while there are still shortages of some types of chips, there’s growing unused stockpiles of others. Once key parts become available, that might cause a fall off in orders, some have predicted.
Texas Instruments has reported that its in-house inventory is increasing but that stockpiles are still at levels that are lower than it would normally carry.
Unlike management teams at some chipmakers, Texas Instruments leaders have been cautious about predicting an extended period of growth for the industry. Many of the company’s peers have argued that the increasing use of chips in a wider variety of devices makes the market more stable. Texas Instruments executives, in contrast, have said that the future balance between supply and demand is impossible to gauge with any degree of certainty.
Texas Instruments manufactures about 80% of its chips in its own factories, and the Dallas-based company is investing to expand that footprint. Most other chipmakers are more reliant on outsourced manufacturing, which has impeded their ability to meet the flood of orders received during the pandemic.