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Texas Instruments tumbles as weak chip demand saps forecast

San Francisco

TEXAS Instruments Inc, a chipmaker that mainly serves the industrial and automotive markets, reported third-quarter revenue that missed estimates and gave a disappointing sales and earnings forecast, indicating that customers may be slowing purchases amid a brewing trade war between the United States and China.

Shares tumbled in extended trading. Investors view Texas Instruments' financial outlook as a broader economic barometer because the company has the largest customer list and widest product range in the US$400 billion semiconductor industry. The lacklustre projections may mean that customers are bracing for weaker demand as a result of an escalating trade spat between the world's two largest economies.

Businesses have no incentive to stock up on components they're uncertain they will be able to use, said Tore Svanberg, an analyst at Stifel Nicolaus & Co.

"There was some slowdown related to tariffs in certain areas, and subsequently it's spread to everything," he added. "It's hard to keep inventory when you don't know if it's needed. Demand will be impacted somehow by these tariffs."

Texas Instruments shares dropped as much as 7.2 per cent in late trading after the report. They had earlier closed at US$100.25 in New York, leaving them down 4 per cent for the year.

Chief financial officer Rafael Lizardi said it's still too early to say whether the trade dispute is hurting demand, or if order reductions are a natural cooling off following two years of torrid chip-industry growth.

"Demand is slowing across most markets," Mr Lizardi said in an interview. "What we're trying to figure out is, is it just the semiconductor cycle or on top of that do we have end-demand slowing because of macro issues? We don't know."

Fourth-quarter profit will be US$1.14 to US$1.34 a share, the Dallas-based company said on Tuesday in a statement, and revenue will be US$3.6 billion to US$3.9 billion.

On average, analysts had predicted earnings of US$1.38 a share on sales of US$4 billion, according to data compiled by Bloomberg.

As electronic functions have been increasingly added to industrial equipment and cars, demand has driven a two-year expansion of Texas Instruments' revenue. That cycle now appears to be over - if the company comes in at the lower end of its predicted Q4 revenue range, it would post its first year-over-year decline since the first quarter of 2016.

The world's sixth-largest chipmaker reported Q3 net income of US$1.57 billion, or US$1.58 per share, compared with US$1.29 billion, or US$1.26 a share, in the same period a year earlier.

Revenue rose 3.5 per cent to US$4.26 billion. Analysts had estimated a profit of US$1.53 a share on sales of US$4.3 billion.

If needed, the company plans to slow production to avoid a build-up of inventory, which is currently within normal levels. Investors should expect some accumulation of unsold parts, but only in areas where chips have a long life span and can be sold and used years after they've been manufactured, Mr Lizardi said.

Spending on research and development won't be slowed, and the company plans to go ahead with building a new plant that uses better production technology.

The earnings announcement was Texas Instruments' second since reappointing Rich Templeton to the role of chief executive officer following the ouster of Brian Crutcher, who left after an unspecified code-of-conduct violation. Mr Templeton, who had previously held the job for more than 13 years, has taken the position permanently.

The company's analog chips perform the fundamental task of translating real-world inputs, like sounds and touch, into electronic signals. Unlike Intel Corp and Qualcomm Inc, it doesn't make chips that cost tens of millions of dollars to develop and then quickly become obsolete, meaning Texas Instruments is less vulnerable to sudden swings in demand or competitive pressure. BLOOMBERG

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