Texas Instruments tops estimates, but chip demand concerns linger

Myles Udland, Brian Sozzi, and Julie Hyman discuss what is next for Texas Instruments and other chipmakers after the company reported Q2 earnings that beat expectations due to a boost from double-digit revenue growth and bigger profits, although revenue forecast for the current period disappointed some investors.

Video Transcript

MYLES UDLAND: Let's transition now over to the chip story, and some news last night out of Texas Instruments. The company giving guidance that the Street did not care for, guiding to a flat quarter, flat Third Quarter when compared to the Second Quarter. The Company giving guidance for a range $4.4 to $4.76 billion. Now, Sozzi, the Street was basically expecting Southwest to not come out and say things are flat. I mean, a comment I saw from an analyst what the Street didn't like is there was no explanation for why Texas Instruments is not going to be aggressively growing into this chip supercycle.

BRIAN SOZZI: No. No words. No explanation. And I remain on the warpath on how earnings are being presented to investors right now. Texas Instruments, its earnings call last night was a waste of seven minutes of my life on this planet. Only had the CFO on there. Only the head of investor relations to answer no questions why they came out here with cautious guidance. Analysts essentially got nothing. In turn, the Street is coming out this morning really voicing concern about the path forward for Texas Instruments, and really questioning has demand peaked. Now, if that is in fact case for Texas Instruments, will it be the case with an Intel, Julie, after the close later?

JULIE HYMAN: Well, to get a little bit more specific on that call that you say was a waste of time. The CFO who was on the call, Rafael Lizardi, said, quote, "Our job isn't to predict the future, it's to prepare the company so we can handle anything and we've done that. Some would argue that this time it's different but that's a dangerous argument." And what we've seen in the past and what we could potentially be seeing this time, is panic buying, right? You see in the news, you hear from your customers, et cetera, that there's a chip shortage and so you go out and order a lot of chips. And then, you don't need chips anymore and demand falls off a cliff because you've sort of stockpiled the chips when you could. We'll see if that happens this time.

Raymond James, to your point on in terms of analyst reaction here, said in a note that the report was puzzling because revenue was ahead of expectations last quarter, but then the guidance for this quarter is flat, and there's not much explanation, as you guys say. And Raymond James says, quote, "We now consider the guidance to be meaningless." So you don't see language like that quite too often from the sell side in reaction to these types of reports. So sort of explaining here the disgruntlement with the Texas Instruments guidance. As for Intel, which as you say reports after the close of trading, the company's predicted to post about a 10% drop in its sales. $17.8 billion is the number that we're looking for there.

But as you know, Brian, because you've covered the company very closely, you know, Intel is sort of in this transition period. So we'll see how much weight investors give to last quarter, or even a forecast, when Intel itself-- the message is trying to present-- is to look more long term. We'll see if people do that.

BRIAN SOZZI: Yeah, I think investors also need to pay attention here with Texas Instruments, in this guidance, the disappointing guidance they did, in fact, come out with, what does it mean for the computer makers, in HP, Dell. Keep in mind it was about two weeks ago that HP had a very aggressive downgrade on the street by street analysts calling out the potential for demand that already have peaked. So the pull forward in demand that we saw during the pandemic may be priced into the stock already, so something to watch out for going forward.

MYLES UDLAND: Yeah, and it's interesting just with the chip space in general to track the way the market has gone from penalizing companies that don't say we're investing into this cycle, or penalizing companies who say we are investing, into rewarding companies who say we are investing. Essentially, if you can't keep up at this point, it seems like with the basically multi-year chip boom that we have heard from so many businesses. If you are not building into that cycle and continuing to grow on a sequential basis because the year-over-year comps, of course, are going to be kind of screwed up anyway. If you're not growing on a sequential basis certainly the street unhappy. And again, at last check, Texas Instruments shares off about 5% as we get set for this trading session.