Texas Instruments: Does Guidance Revision Suggest a V-Shaped Semiconductor Recovery?

The mid-quarter update by Texas Instruments (TXN) is a keenly watched event by Tech sector analysts mainly because it is seen as a good indicator of how the quarter will progress for the hardware sector in general.

Short-term recovery has been swift...

It was therefore interesting to look at how positive things have turned for TXN specific to this update (released on June 8, 2009) and how it positions the company's performance compared to historical revenue trends. First, a quick comparison on how TXN changed its quarter outlook from a revenue perspective in the Apr-Jun08 quarter and the Apr-Jun09 quarter i.e the start of the downtrend and now.

Exhibit I : Current quarter outlook seems to indicate a 'firm' demand environment compared to Apr-Jun08

Source: Gridstone Research

The above exhibit shows that while TXN narrowed the revenue outlook range in Jun08 by decreasing the upper estimate and improving the lower end of range, the revenue came in at the lower end of the revised range indicating worse-than-expected demand destruction as the quarter progressed. This time the range has been narrowed down but the lower end has been increased by almost ~15%(or ~$350M) indicating better demand as the quarter has progressed. My conclusion would be that they would probably come very close to their upper range when they report Q2 results and here's why:

Exhibit II: Actual revenue came in at upper end(lower declines) in Mar09 & Dec08, the worst quarters in the last five years

The exhibit above compared the actual YOY declines in reported revenue and the 'guided/expected' range of YOY declines that the company had forecast in their mid-quarter updates every quarter. Texas Instruments revenue in both Dec08 and Mar09 quarters came in at the upper end of the revised guidance range (i.e lower decline rates on a YOY basis). And these were the worst two quarters, in terms of revenue declines, in the five years of data that I looked at from Gridstone Research. Therefore the management execution based on outIook given seems spot on even in the worst of environments. With the demand upturn seen in recent months, TXN should be able to deliver a positive surprise, given its track record.

But trends still way below historical levels

I couldn't put all the quarter growth rates into one chart... but hopefully the trend is visible in the two charts below. Chart 1 gives the actual revenue growth/decline from Jun04 to Mar07 while chart 2 covers the periods from Mar07 to date with an extrapolation of the trend (my assumption) from Jun09 quarter to Sep09 and Dec09.

Chart 1: YOY revenue trend from Jun04 to Mar07 quarters

Chart 2: YOY revenue trend from Mar07 to date

Source: Gridstone Research

As per my extrapolation, I have assumed ~-15% decline in Sep09 and ~-5% decline in Dec09 quarters. With the mid-point of Jun09 guidance indicating a -27% revenue decline and my expectation of a straight line improvement in decline rates, based on past quarter 'actual' revenue vs 'guided' revenue, the declines assumed seem pretty reasonable.

Now comparing chart 2 with chart 1, it clearly shows that growth rates, despite the assumed sharp recovery, would still be lower than growth rates in any of the quarters in the last five years. (Point to note: Revenue decline between Jun06 and Mar07 was due to the divestiture of the Sensors & controls business.) So despite a quick turnaround in sales over the next few quarters, the total sales volume seems lesser than the numbers achieved in the 2006-08 period.

Cyclical Recovery but the 'past' still seems better!!!

From Jun03 to Jun09, the highest revenue came in the Jun06 quarter ($3.6Bn) and the revised revenue outlook for Jun09 ($2.3-2.5 Bn) is still way below the Jun06 quarter revenue and comes in close to the revenue achieved in Jun03 ($2.3B), when the semiconductor industry was seeing the first signs of recovery post the dot-com bust. While the revenue trends are showing a quick recovery in the short-term, it still seems way below the good quarters of previous years.

In effect, Texas Instruments can probably 'repeat' its past performance over the next semiconductor cycle, but it looks unlikely that it will do better.

Disclosure: No Positions

Comments

[tobyw:]

BS!!!
Where are the bread lines and soup kitchens?.

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On Jun 05 11:48 AM JudeJin wrote:

> advance in technology created much of the illusion of rising living
> standard.
>
> in reality the american families are much more broke than in 1929!!!

Jun 12 07:26 AM