Texas Instruments Inc., the world's largest analog chipmaker, gave a weak forecast for current-quarter earnings, adding to concerns about a faltering recovery in the semiconductor industry.

Third-quarter results

The semiconductor company reported a profit of $1.36 billion on Tuesday, roughly flat with the same period last year. Earnings per share were $1.48, compared to analysts' expectations of $1.49, according to FactSet.

Revenue rose 14% to $4.74 billion, beating analysts' forecast of $4.65 billion. Revenue in the company's analog division rose 16% to $3.73 billion. Revenue in the embedded processing division rose 9% to $709 million. Other revenue rose 11% to $304 million.

The company said in a statement on Tuesday that fourth-quarter revenue will be between $4.22 billion and $4.58 billion. Analysts had expected $4.5 billion on average. The company said fourth-quarter profit per share would be approximately $1.26, compared to its previous forecast of $1.39.

The outlook suggests that customers are slowing orders due to rising trade tensions and economic uncertainty. Texas Instruments' demand had been rebounding after a two-year slump, but the prospects for a recovery now appear less certain. The chipmaker's shares subsequently fell more than 8% in after-hours trading. The stock is down about 3% year to date as investors remain cautious about the impact of additional tariffs and trade negotiations on the company's business.

"The overall semiconductor market continues to recover, albeit at a slower pace than in previous upturns – likely related to broader macroeconomic dynamics and overall uncertainty," CEO Haviv Ilan said on a conference call with analysts.

He said industrial customers in particular are taking a "wait-and-see" approach to their factory expansion plans as governments consider tariffs and other actions.

Texas Instruments' stock, which has lagged the broader semiconductor market this year, fell about 8% in after-hours trading.

In the third quarter, sales rose 14% to $4.74 billion, with earnings per share of $1.48. Analysts had expected revenue of $4.65 billion and earnings per share of $1.49.

Three months ago, the Dallas-based company issued a weaker-than-expected earnings forecast, causing its stock to suffer its biggest one-day drop in 17 years.

At the time, the chipmaker said some Chinese customers may be increasing inventory to protect against higher costs due to tariffs. Texas Instruments, which gets about 20% of its sales from China, faces increasing competition from local customers.

The Chinese market returned to normal in the third quarter, Ilan said on a conference call. He said the "front-load demand" the company had previously experienced is no longer there.

Fourth quarter forecast data

Texas Instruments is the largest seller of analog chips, which convert real-world phenomena like sound and pressure into electronic signals. The company has the broadest product line and the longest customer list in the semiconductor industry, making its performance a key indicator of demand across the economy.

The chipmaker is investing heavily in new production capacity to bolster its resilience and provide more options in a global environment characterized by rising trade barriers. The company has four factories outside the United States, including one in China, and is also building new plants in the Dallas area and near its headquarters in Utah.

CFO Rafael Lizardi said in an interview that factory and equipment spending has cut into cash flow and profitability, reaching about $5 billion this year and likely shrinking to about $2 billion to $3 billion next year. He said the company has not yet finalized its plans and that they will be adjusted based on demand. Texas Instruments has pledged to refocus on shareholder returns once the expansion is complete.

Texas Instruments executives said the company's inventory has reached optimal levels and that it has begun slowing production at its factories to ensure it does not build up excess inventory. This will weigh on the company's profitability in the short term, they said.

Source: Content compiled from Bloomberg

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