4Q23 results below expectations, guiding for a weaker 1Q24
- 4Q23 earnings declined 30% y-o-y on the back of 13% drop in revenue; 1Q24 guidance below consensus.
- Weakness in industrial and automotive segments as customers work to reduce their inventory levels.
- Maintain BUY with TP of $204.20, for its strong cash generation capabilities with generous dividend payout while riding on the longer term growth in the embedded technology space.
4Q23 earnings declined 30% y-o-y on the back of 13% drop in revenue. TXN posted revenue of $4.08bn (-13% y-o-y) in 4Q23, slightly below consensus estimate of c.$4.1bn. Earnings declined 30% y-o-y to $1.37bn. For the year, the company reported profit of $6.51bn (-25.6% y-o-y), or EPS of $7.07 per share, on the back of $17.52bn (-12.5% y-o-y) revenue. Gross profit margin decreased 650 basis points in 4Q23, primarily due to lower revenue, higher manufacturing costs associated with planned capacity expansions, and reduced factory loadings. Compared to 3Q23, TXN saw increasing weakness in industrial, down mid-teens q-o-q, and sequential decline in automotive, down mid-single digits after three and a half years of strong growth, as customers work to reduce their inventory levels. Personal electronics was about flat while communications equipment was down low-single digits q-o-q. As a percentage of revenue for 2023, industrial was 40%, automotive 34%, personal electronics 15%, communications equipment 5%, enterprise systems 4%, and other was 2%. For 1Q24, TXN is guiding for revenue in the range of $3.45bn to $3.75bn and EPS between $0.96 and $1.16, below consensus estimates. Revenue is 11.8% lower q-o-q while EPS is expected to decline c.29%, using the mid-point guidance as a gauge.
Strong cash generation capabilities with generous dividend payout; continues to ride on longer term growth in embedded technology space. Cash flow from operations of $6.4bn for the trailing 12 months remained strong. This underscores the strength of its business model with the bulk of the manufacturing done in-house, and the benefit of the higher yield 300mm wafer production. TXN has increased its dividend per share by 5% in 4Q23, marking its 20th consecutive year of dividend increases. TXN continues to place strategic emphasis on industrial and automotive. Its industrial and automotive customers are increasingly turning to analog and embedded technology to make their end products more reliable, more affordable and lower in power usage. These trends have resulted and will continue to result in growing chip content per application, which will drive faster growth ahead.