Texas Instruments' latest report added to pessimism around a slow recovery in semiconductor demand. Analysts are split on its big bet on expanding chip manufacturing in the U.S.
Texas Instruments (ticker: TXN) shares were down 5.6% in premarket trading on Wednesday at $138.75 after the chip maker forecast revenue for the current quarter of $3.93 billion to $4.27 billion, below the consensus forecast of $4.5 billion.
The stock is down 11% this year so far through to Tuesday's close. The chip maker sells the basic building-block chips that go into products in nearly every sector of the economy.
"Texas Instruments sees continued weakness across end markets except for auto, particularly in industrial, where softness has broadened, and in communications equipment, where customers continued to destock inventory amid macro challenges," wrote KeyBanc analyst John Vinh.
Vinh lowered his target price on the stock to $180 from $200 but kept an Overweight rating.
The KeyBanc analyst's longer term optimism is partly based on Texas Instruments' buildout of a series of facilities to construct 300 millimeter semiconductor wafers, a larger size than traditional 200 mm wafers. The move should lower manufacturing costs as it enables the production of more individual chips per wafer.
Texas Instruments is making a big bet on American-made chips as part of its transition, with an investment of up to $30 billion in manufacturing facilities in Texas. Some analysts are wary of the investment, with Bernstein reiterating an Underperform rating on the stock ahead of the earnings report due to potential overcapacity.
However, company executives are still bullish on the project, which will require capital expenditure of around $5 billion a year through 2026.
"[The facilities] will provide geopolitically dependable capacity to support customer growth for the coming decade," said Dave Pahl, the company's head of investor relations on an earnings call on Tuesday.
Texas Instruments is hoping for tax credits and potential grants from the Biden administration's CHIPS and Science Act—which included roughly $52 billion in funding to boost domestic chip manufacturing—to offset its costs.
The market might take some more convincing. Oppenheimer analyst Rick Schafer kept a Perform rating on the stock with no target price.
"We remain on the sidelines as underutilization, depreciation, and pricing pressure gross margins over the near/medium-term. CHIPS Act investment tax credit and potential grant funding tailwinds are partial offsets," wrote Schafer.