Texas Instruments Inc. (TXN) - Get Texas Instruments Incorporated Report tumbled 4.8% on Wednesday. Oct. 24, after the chipmaker posted weaker-than-expected third-quarter sales and cautioned it was heading into a "softer market" in the months ahead.
Texas Instruments said it sees revenue for the three months ending in December in the range of $3.6 billion to $3.9 billion, missing the Street consensus of around $4 billion, and earnings of between $1.14 and $1.34 per share, again shy of the consensus forecast. The outlook followed third quarter earnings that showed modest revenue growth of 3.4% to $4.26 billion that misses analysts' forecasts.
"We are heading into a softer market, and we plan to execute as we have in the past," CFO Rafael Lizardi told investors on a conference call late Tuesday. "Most end markets have slowed, that's what we know. And we believe this is mostly driven by a slowdown in semiconductors, meaning we really can't speak to any macro driven event here."
"As we have said before, the direct effect of the tariffs for us in any of the trade issues is minimal. It's really not there," Lizardi added. "So all we can judge is by what we see right in front of us, what our customers, the signal they send us and that's what we are basing this on."
"With semis being one of the best barometers for trends in global economic health, we believe the broader cause of a slowdown is the ongoing trade disputes and the uncertainty of the degree that higher tariffs will create inflation across a large number of end markets and ultimately what effect will higher prices have on consumer discretionary spending," said BMO Capital Markets Cody Acree, who kept a "buy" rating on the stock but lowered his price target by 11.1% to $120. "With this overhang, we believe most distributors and OEMs are taking a more conservative inventory and build approach."
The gloomy outlook hit European semiconductor stocks, as well, with key Apple Inc. (AAPL) - Get Apple Inc. (AAPL) Report supplier STMicroelectronics (STM) - Get STMicroelectronics NV ADR RegS Report falling nearly 9% in Paris after it posted trimmed its fourth quarter revenue guidance and echoed Texas Instruments' cautious outlook.
"We still face soft market conditions in China and some inventory corrections," said CFO Jean-Marc Chery after the group said operating income rose 38% over its fiscal third quarter to $398 million while gross margins held at 39.8%. Revenue growth for the final months of the year, STM said, will likely slow to 5.7%, but margins will hold at third quarter levels.
Austrian chipmaker AMS AG (AMSSY) was also sharply lower, falling another 10.3% in Zurich and extending its year-to-date decline past 62% after it forecast softer profit margins in the months ahead despite the solid third quarter earnings it posted yesterday.
Swiss-listed AMS, which designs facial recognition sensors thought to be used in Apple's iPhones, including its new suite launched earlier this year, said third quarter earnings rose 13% to $60.2 million, on sale of around $480 million, which rose 57%, but expects a fourth quarter operating margin in the range of 16% to 20%. Analysts estimate that AMS earns about 40% of its revenues from Apple, although the company has consistently declined to identify its biggest customer.
The Stoxx Europe 600 Technology subindex, the sector benchmark, was marked 1% lower by mid-morning in Frankfurt at 410.44 points, the lowest since March 2017 while the Philadelphia Semicondutor index ended Tuesday's session down 0.53% to extend its year-to-date decline past 10.1%.