It’s the Alamo all over again.
They say everything is bigger in Texas, and Texas Instruments (TXN) shares took a 10-gallon dive on July 23 after the semiconductor company issued weak earnings guidance and raised concerns about the Trump administration’s tariffs.
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“I think the situation of tariffs and geopolitics is rough on supply chains,” Chief Executive Haviv Ilan said during the second-quarter-earnings call. “That’s not over. True, that we’re paused right now on the semiconductor tariffs, both in the U.S. and in China, but we have to be prepared for what the future may hold.”
“We want to make sure — and this is also the message to our customers — that we’ll remain flexible,” he added.
In April President Donald Trump unveiled a sweeping series of tariffs that rattled the markets and sparked retaliation from several countries.
Texas Instruments, which beat Wall Street’s earnings and revenue expectations, is not the only company to recently note the impact of tariffs.
TI: customer inventories low; company well positioned
General Motors (GM) executives said in the automaker’s quarterly earnings call that tariffs cost the company $1.1 billion over three months, paring the company’s profit margin to 6.1% from 9%.
Stellantis (STLA) , the automaker that owns the Chrysler, Jeep, Dodge and Ram brands, paid about $387 million in tariffs over the last quarter. And production pauses — a strategy to avoid paying tariffs — contributed to a 6% year-over-year decline in the number of vehicles the company shipped to dealers, NPR reported.
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American steelmakers are also raising prices on the heels of the tariffs on steel and aluminum.
Meanwhile, Trump on July 22 unveiled a deal with Japan that includes reciprocal tariffs of 15% on the country’s exports to the U.S., according to CNBC. Auto duties reportedly were lowered to that level as well.
In addition, the EU and the US are nearing a trade deal that would place 15% tariffs on most imports from the bloc, the Guardian reported.
During the call, Ilan told analysts the “the semiconductor cycle is playing out.”
The chip industry historically has tended to boom-and-bust periods roughly every three to four years.
However, analysts are reassessing the so-called silicon cycle amid geopolitical tensions and trade restrictions, particularly between the U.S. and China.
“Cyclical recovery is continuing,” Ilan said. “while customer inventories remain at low levels. In times like this, it is important to have capacity and inventory, and we are well-positioned.”
He said Q2 was likely a combination of “customers wanting to have a little bit more inventory because of tariffs, and also the cyclical recovery.”
Analyst: Texas Instruments EPS missed the mark
“When customers make orders, they don’t tell us why they want more parts,” he said. “I would assume that some of it was for … building a little bit of a of inventory on those shelves to protect themselves from tariffs.”
“I don’t know how the third quarter will play out,” Ilan continued, “but that’s part of the way we are forecasting Q3.”
Related: Unexpected chip deal may reshape the semiconductor market
Investment firms issued research reports following TI’s earnings report.
Morgan Stanley analyst Joseph Moore lowered his price target on Texas Instruments to $197 from $205 and affirmed an underweight rating on the shares, according to The Fly.
The June quarter was stronger than expected on strength in industrial, personal electronics, and communication infrastructure.
But guidance for 4% growth is “seasonal at best” since for the second year in a row the company followed up a better-than-seasonal June quarter with weaker September-quarter guidance, the analyst said.
TI said the automotive business hasn’t yet started to recover and TI stock’s valuation “leaves no room for error,” Moore added.
Susquehanna analyst Christopher Rolland lowered his price target on TI to $240 from $250 and maintained a positive rating on the shares.
While the company reported better top-line results and guidance, the EPS outlook missed the mark.
Additionally, management voiced caution on the pace of the cyclical recovery due to tariff-related uncertainty. TI executives struck a more cautious tone and said that outsized strength in Industrial and China might subside, Rolland said.
And Truist raised its price target on Texas Instruments to $196 from $171 and reiterated a hold rating.
Management characterized Q2 demand as strong, customer inventories as lean, and tariffs as mere noise.
But unless TI delivers significant upside to Q3 guidance, or sales growth reaccelerates later, the Q2 result looks like peak growth this cycle, the firm said.
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