That statement, of course, led me straight to the balance sheet to see how much the correction improved its inventory situation. Imagine my surprise when I saw that inventories were actually up during the quarter, to $1.42 billion. The sequential increase of 1% was smaller than the increase in sales, but the year/year increase of 7% was against a similar decrease in sales.
Looking at it from a longer term perspective, the days sales in inventory rose to 75.3, the highest they have been in the post-bubble period. Given that the high operating leverage inherent in semiconductor production means each chip produced costs less than the prior, it is no surprise that gross margins were a record - that is what should happen when inventory is being built.
Not being that gullible, investors realize that the boost to this period’s margins will mean a drag on the period in which the inventory is actually corrected. And that, I believe, is why the stock is down after the report - not because guidance was “only in line.”
Disclosure: The author has a short position in SMH put options at time of publication.
TXN 1-yr chart: