TI‘s latest performance has been released. How is the spot market?

01

Both month-on-month and year-on-year growth

On October 21st (local time), Texas Instruments (TI) reported third-quarter revenue of $4.74 billion and net profit of $1.36 billion. The revenue performance was roughly in line with expectations, with a 7% month-on-month increase and a 14% year-on-year growth, as all end markets registered gains.

Haviv Ilan, President and Chief Executive Officer of TI, stated: "Over the past 12 months, our operating cash flow reached $6.9 billion, which once again underscores the strength of our business model, the quality of our product portfolio, and the advantages of our 300-millimeter manufacturing. Our free cash flow during the same period stood at $2.4 billion."

                                                                           Source: Texas Instruments FY25Q3 financial report

Both the analog business and the embedded business achieved year-on-year and month-on-month growth. Specifically, the revenue of the analog business increased by 16% year-on-year, and the embedded processing business rose by 9% year-on-year. The "Other" business segment grew by 11% compared with the same period last year.

         Source: Texas Instruments FY25Q3 financial report

In the third quarter, the revenue highlights of each end market are as follows:

The industrial market maintained its strong performance from the second quarter, with a year-on-year increase of approximately 25% and a low single-digit month-on-month

 growth;• The automotive market achieved mid-single-digit year-on-year growth and a roughly 10% month-on-month increase, with growth momentum sustained across all

 regions;• The personal electronic devices market recorded low single-digit year-on-year growth and mid-single-digit month-on-month growth;• The enterprise systems market

 saw a year-on-year increase of around 35% and a month-on-month growth of approximately 20%;• The communications equipment market achieved a year-on-year growth of

 about 45% and a month-on-month increase of roughly 10%.

In the industrial market, compared with the previous quarter, due to tariff uncertainty, TI has observed some customers adopting a wait-and-see attitude. However, in the automotive market, long-term growth continues, which is expected to drive the market back to its previous peak level.

Notably, while data centers account for a small portion of TI’s revenue, the segment has recorded a growth rate of over 50% in the first three quarters of this year, making it TI’s fastest-growing market. Data centers are also the only area where TI has witnessed customers making rapid investments and taking swift actions amid robust growth.

As one of TI’s most important markets, China contributes approximately 19% of the company’s total revenue. In the third quarter, the Chinese market returned to a normal pattern, and the company no longer experienced the phenomenon of "advance orders."

Overall, affected by trade frictions and tariff issues, the market fluctuated sharply in the first half of the year. In contrast, the overall trend in this quarter (July-September) has become more stable, which is largely in line with TI’s expectations for a cyclical recovery.

By the end of the third quarter, TI had achieved remarkable results in inventory management. The inventory level reached $4.8 billion, an increase of $17 million compared with the previous quarter. The days of inventory outstanding was 215 days, a month-on-month decrease of 16 days. However, TI is not optimistic about the performance in the fourth quarter. The expected revenue for the fourth quarter is between $4.22 billion and $4.58 billion, with a median value of $4.4 billion, while the average previous expectation of analysts was $4.5 billion.

02

Continued Recovery

How is the chip spot market?

Regarding the current market environment, TI stated during its earnings conference call: "The overall recovery of the semiconductor market is still ongoing, but the growth rate has slowed down compared with the previous period, which may be related to the macroeconomic environment and overall uncertainties. Nevertheless, customer inventories remain at a low level, and inventory depletion appears to have entered the final stage. With sufficient production capacity and inventory reserves, we possess the flexibility to respond to various market scenarios."

TI also mentioned that it is currently slowing down the expansion and utilization of wafer production capacity. Rafael Lizardi, the company's Chief Financial Officer, stated in a previous interview that TI's capital expenditures for equipment and plant purchases will be approximately $5 billion this year, and this spending is likely to be reduced to around $2 billion to $3 billion next year.

Despite the slowdown in capacity expansion, it is largely in line with TI’s long-term plans. Currently, TI is pursuing a strategy centered on high capital expenditures and in-house production capacity, which is conducive to its long-term gross profit margin trajectory and supply security.

TI expects to invest an average of approximately $5 billion in annual capital expenditures between 2023 and 2025 (excluding subsidies under the CHIPS Act). Based on the projected revenue of $15.6 billion for fiscal year 2024, the capital expenditure ratio will reach as high as 32%. Its in-house wafer production capacity is expected to account for around 90% in fiscal year 2024, and the company aims to achieve over 70% of its own flexible 12-inch wafer production capacity by the end of fiscal year 2025 to safeguard its gross profit margin level. Capital expenditures for fiscal year 2026 are projected to range between $2 billion and $5 billion.

                                                                                                                                              Source: TI Capital Management

In the chip spot market, the overall demand for TI products remains sluggish. Back in September, affected by anti-dumping measures, prices rose and inquiries increased, but the actual number of orders closed was limited.

However, recently, driven by the incident of Arrow Electronics being restricted from shipping, the spot demand for TI products has surged in the short term. Many salespeople have observed an increase in TI's shipments; some have noticed a significant price rise in general-purpose models that previously experienced price inversion, and some traders even followed the trend to snap up stocks. Nevertheless, some industry insiders have reported little impact, stating that the overall price fluctuation was not obvious.

With Arrow Electronics being removed from the restricted list, the TI spot market has gradually stabilized this week, with demand declining and customers who rushed to stock up earlier starting to adopt a wait-and-see attitude. Although this turmoil may have helped the TI spot market digest part of its inventory in the short term, facing the still volatile market environment, some market participants have chosen to return to calm and rationality.