Resurgence of Analog Chips? Texas Instruments Expects Q1 Revenue to Grow Quarter-on-Quarter, First Time in Sixteen Years

Texas Instruments has provided a rare outlook for quarter-on-quarter growth, reinforcing expectations that demand for analog chips is recovering and directly boosting its stock price.

Texas Instruments jumped 8% after hours on Tuesday. The company’s financial report gave optimistic guidance, projecting first-quarter revenue of $4.32 billion to $4.68 billion. Based on the midpoint of the guidance, this would be higher than fourth-quarter revenue of $4.42 billion.

This signal of "year-end quarter-on-quarter growth" is uncommon in the company's history. Cantor Fitzgerald analyst Matthew Prisco noted that such quarter-on-quarter growth from the fourth quarter to the first quarter of the next year "has not occurred in 16 years," and called the financial results "unexpectedly positive." Matthew Prisco views this as an important sign of demand recovery and believes it supports the market’s core optimism about the company’s future cash generation capacity.

However, the optimism is not universal. Bernstein analyst Stacy Rasgon believes the results are “quite good,” but also warns that the pace of recovery may be slower than some investors expect, and the visibility brought by short lead-time orders is limited. Jefferies analyst Blayne Curtis commented that the analog recovery seems to be “stuck in first gear,” with more significant incremental growth coming from data center-related business.

Revenue largely in line with expectations, EPS slightly below consensus

As for the financials, Texas Instruments’ fourth-quarter revenue was $4.42 billion, roughly in line with consensus estimates. Earnings per share were $1.27, two cents lower than consensus.

The company stated in the financial report that this EPS "includes a six-cent reduction," which was not included in the company’s initial performance guidance.

For the bulls, free cash flow remains a key variable in the valuation framework.

Matthew Prisco said this report supports the view that the company will generate $9-10 billion in free cash flow next year, which is a core part of his bullish thesis.

Cautious investors are more focused on pace and certainty. Stacy Rasgon pointed out that capital market spending should decline this year, which will benefit free cash flow, but he also believes the recovery is not “rocket-like,” and that the quality of short-term improvement needs to be further observed in conjunction with order structure.

Rasgon emphasized, “A lot of the upside comes from short lead-time orders,” meaning visibility on future trends is limited, and there is a risk that demand is being pulled forward, which could affect future earnings flexibility.

Blayne Curtis added that the analog chip recovery remains rather moderate, but the contribution from the data center is more significant and is now easier to break down and identify in the financial report. This structural change is affecting investors’ judgment of Texas Instruments’ sources of growth and sustainability.

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