Texas Instruments Faces Tariff Uncertainty, Earnings Report Awaited

Analysts at Wells Fargo have expressed concerns that Texas Instruments (TXN.US) and other analog chip suppliers may face a challenging situation due to the uncertainty surrounding tariff policies. This uncertainty could impact their quarterly performance and future outlook, potentially leading to a difficult environment for investors.

Joe Quatrochi, an analyst at Wells Fargo, noted in a report to clients that while the second-quarter guidance should reflect the continued recovery of the industry cycle, investor concerns about demand pull-forward due to tariff policies may prevent stock prices from rising. The market sentiment towards the chip sector, including Texas Instruments, Analog Devices, NXP Semiconductors, and Allegro Microsystems, is generally pessimistic. Most investors find it difficult to hold onto these stocks due to the uncertainties surrounding tariffs.

Quatrochi highlighted that market discussions are focused on the possibility of demand pull-forward in the second quarter and the potential demand vacuum in the third quarter. Even if the performance exceeds expectations, stock prices may not see a corresponding increase. Investors are more inclined towards the industrial sector rather than automotive electronics, with most expecting consumer electronics to be the most affected by demand pull-forward in the second quarter.

Quatrochi also pointed out that the scale of the China automotive market, which accounts for approximately 20% of Texas Instruments' automotive business revenue, could significantly impact the company. China's retaliatory tariffs could pose a substantial challenge for Texas Instruments. The company is scheduled to release its quarterly financial report after the market closes on April 23, with market expectations of earnings per share at $1.10 and revenue at $3.91 billion.

Among the individual stocks in the sector, Analog Devices is favored by Wells Fargo due to its design order advantages and streamlined channel inventory, which could provide a relatively optimistic outlook. NXP Semiconductors, with its lower channel inventory levels compared to its peers, may also offer positive signals to investors.

Quatrochi mentioned that Allegro Microsystems' recent stock price decline, following the termination of its acquisition of ON Semiconductor, may present an opportunity for a rebound. The market sentiment towards ON Semiconductor is negative, primarily due to concerns about sustained weakness in end-market demand, particularly in areas related to Tesla and silicon carbide business.