TXN slips as auto and industrial headwinds persist; Will investors look past weak guidance?
3min read Texas Instruments (TXN) released its fourth-quarter 2024 earnings report, delivering mixed results that beat revenue and earnings expectations but raised concerns with weak guidance for the first quarter of 2025. The company’s stock reacted negatively, pulling back nearly 4% in after-hours trading and testing the critical $195 support level, which coincides with the 50-day and 200-day moving averages. This zone stands as a key inflection point for investors gauging whether TXN can regain momentum despite near-term headwinds.
EPS and Revenue Performance
For the fourth quarter, Texas Instruments reported earnings per share (EPS) of $1.30, comfortably surpassing the analyst consensus of $1.20 but falling short of the $1.49 reported in the same period last year. Revenue came in at $4.01 billion, exceeding Wall Street’s expectations of $3.875 billion, although it marked a year-over-year decline of 1.7% and a sequential drop of 3%. The company’s Analog segment was a bright spot, generating $3.17 billion in revenue, up 1.7% year-over-year and above estimates of $3.07 billion. However, the Embedded Processing segment faced challenges, with revenue declining 18% year-over-year to $613 million, slightly below expectations of $620.6 million. Other revenue rose 7.3% to $220 million but still missed the Street’s forecast of $233 million.
Key Metrics and Market Performance
Operating profit for the quarter was $1.38 billion, down 10% from the prior year, while gross margins fell by 190 basis points sequentially to 58% due to lower utilization rates, higher depreciation expenses, and weaker factory loadings. The company’s free cash flow for the quarter was $806 million, a 3.9% year-over-year increase, supported by disciplined cost management and robust cash generation. Inventory levels rose to $4.5 billion, representing 241 days of inventory, up 10 days sequentially, as the company slowed production to align with weaker demand in certain end markets.
Texas Instruments’ end markets painted a mixed picture. The automotive market declined mid-single digits sequentially, with weakness in Europe, the U.S., and Japan outweighing modest growth in China. Industrial markets also saw low single-digit declines, with persistent softness in industrial automation and energy infrastructure. On the other hand, personal electronics posted mid-single-digit sequential growth, while communication equipment grew upper single digits.
Guidance and Strategic Focus
Looking ahead, Texas Instruments provided underwhelming guidance for the first quarter of 2025, projecting revenue in the range of $3.74 billion to $4.06 billion, compared to the consensus estimate of $3.848 billion. The company anticipates EPS between $0.94 and $1.16, below Wall Street’s expectation of $1.17. Gross margins are expected to decline by several hundred basis points sequentially, as underutilization and depreciation expenses continue to weigh on profitability.
Despite the near-term challenges, the company emphasized its long-term strategic focus on industrial and automotive markets, which accounted for 70% of its 2024 revenue. Management highlighted the secular growth opportunities in analog and embedded technology, which drive increasing chip content per application across these sectors. Additionally, Texas Instruments remains committed to its elevated capital expenditure (CapEx) plan, investing $4.8 billion in 2024 to expand 300mm manufacturing capacity, which it expects to provide significant cost advantages in the future.
Key Drivers and Analyst Commentary
Analysts were split in their reaction to the results. KeyBanc highlighted the strength in China, where revenue grew 15% year-over-year, driven by robust demand in the automotive and personal electronics segments. The firm remains optimistic that industrial markets are nearing a bottom and reiterated its Overweight rating on TXN. Meanwhile, Citi maintained its Buy rating, noting that analog inventory replenishment could drive a sharp rebound in 2025, with gross margins expected to recover as utilization improves and depreciation expenses taper. Citi’s bullish stance is rooted in its view that Texas Instruments can achieve peak EPS of over $10.00 and represents the best risk-reward play in the analog semiconductor space.
On the bearish side, concerns remain over the persistent weakness in industrial automation and energy infrastructure, which have yet to find a bottom. Additionally, the company’s decision to slow production further into a seasonally weaker first quarter could exacerbate gross margin pressures. Analysts also noted that while the company’s elevated CapEx strategy positions it for long-term growth, it limits near-term flexibility and free cash flow generation.
Price Action and Technical Analysis
Following the earnings release, Texas Instruments’ stock fell nearly 4% in after-hours trading, testing the critical $195 support level. This area coincides with the 50-day and 200-day moving averages, making it a key battleground for bulls and bears. If the stock can regain and hold above this level, it may signal renewed confidence among investors despite the weak guidance. Conversely, a sustained break below $195 could open the door for further downside, as sentiment shifts toward a more cautious outlook.
Recent price action reflects broader trends in the semiconductor sector, where inventory adjustments and slowing demand in key end markets have weighed on performance. However, the company’s focus on high-margin industrial and automotive segments, combined with its strong balance sheet and disciplined capital allocation, positions it well to capitalize on a cyclical recovery when it materializes.
Conclusion
Texas Instruments’ Q4 2024 results underscore a challenging operating environment, with mixed performance across end markets and ongoing margin pressures. While revenue and EPS beat expectations, weak guidance for the first quarter of 2025 has raised concerns among investors, leading to a pullback in the stock. Nonetheless, the company’s strategic focus on industrial and automotive markets, coupled with its long-term investments in 300mm manufacturing, provides a solid foundation for future growth. Investors will be closely watching the stock’s performance around the $195 support level, as it could serve as a critical indicator of market sentiment and the potential for a near-term rebound.
