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The world’s largest analog IC maker, Texas Instruments(TI as below), will post it's latest, 22Q4, earning result on January 24th 2023. Due to its main product, Power Management IC, almost used everywhere, from consumer electronics, industrial, and aerospace to automobile, the company’s earning performance and forward-looking is usually seen as one of the most important indicators of the whole semiconductor market.
According to TI’s guidance, 22Q4 revenue would be between 4.4-4.8 billion, EPS 1.83-2.11 dollars. China’s pandemic restriction policy and broaden inventory correction from different end markets at the end of the year may make a negative implication on its revenue, but we believe somehow this already factored into its guidance. With LFAB entering into production in Dec, the demand for auto sustain, and favorable FX, its revenue may reach the high end of the guidance, around 4,790 billion, GM slip to 67.8%, OPM decrease to 48.6%, due to higher depreciation accompanied with the new fab, EPS was 2.1 dollars. 22Q4 may hit the bottom of this down-cycle.
(Millions of dollars) | 23Q1F | 22Q4F | QoQ | 22Q1 | YoY |
Revenue | 4,868 | 4,790 | 1.6% | 4,905 | -0.8% |
Gross Profit | 3,345 | 3,248 | 3.0% | 3,442 | -2.8% |
Operating Profit | 1,523 | 2,328 | -34.6% | 2,563 | -40.6% |
Net income | 1,295 | 1,978 | -34.6% | 2,201 | -41.2% |
Upcoming 23Q1, its peers, Diode, said the inventory correction started 22Q3, might near the end in the first half of 2023, and rebound in the third quarter at the latest. But we forecast TI’s revenue would pick up earlier due to its good position after China’s reopening, the cool-down of PPI(Production Pricing Index) around the world, and the most competitive product mix. In the 2023 CES, TI just announced many new products, which focus on a more diversified product line in Auto, like the newest BMC system, so Auto would be still the main growth driver, whether, in 23Q1 or 2023, China’s car association predicts the shipments of new energy car will keep growing to 9 million in 2023, given at a more moderate pace, industrial may see a U-turn in light of resilient macroeconomic in the first half of 2023. Hence considered into shorten working days due to China’s new year, revenue in 23Q1 would warm back to 4,868 million, up 1.6% from the prior quarter, and GM back to 68.7%, reflecting the rising revenue, EPS 2.19 dollars vs 2.35 last year.
(Millions of dollars) | Q4 2022F | Q3 2022 | Change | Q4 2021 | Change |
Revenue | 4,790 | 5,241 | -8.6% | 4,832 | -0.9% |
Gross Profit | 3,248 | 3,617 | -10.2% | 3,350 | -3.1% |
Operating Profit | 2,328 | 2,678 | -13.1% | 2,503 | -7.0% |
Net income | 1,978 | 2,295 | -13.8% | 2,138 | -7.5% |
2023 seems a soft year for the semiconductor industry, the largest contract chips maker TSMC forecasted semiconductor production value would contract by 4% year-to-year, except memory sector. How can TI keep outperforming the industry? We listed three factors below, first, resilient product mix, underpinned by broad end market, especially the Auto, helps the company defy the headwind; second, macroeconomic in 2023 might have been underestimated, soft landing gained more support lately and TI has been positioned well by more investment. Third, a healthier financial structure, whether growing cash return from dividend, repurchases or strong free cash flow make TI more attractive in the market. Our model forecast TI’s revenue in 2023 is 21,038 million, up 4.4% compared with 2022; Gross profit is 14,485 million, up 4%; net income is 9,165, which rose nearly 5%; EPS is 9.75 dollars vs 9.37 in 2022. Taking into account its growth from revenue, dividends, and free cash flow, we would use TI mid-cycle 24X P/E fwd (historical 16-32x range), the target price is 234 dollars, upside 35%。
(Millions of dollars) | 2023F | 2022F | Change |
Revenue | 21,038 | 20,148 | 4.4% |
Gross Profit | 14,485 | 13,932 | 4.0% |
Operating Profit | 10,657 | 10,292 | 3.6% |
Net income | 9,165 | 8,744 | 4.8% |
EPS | 9.75 | 9.37 | 4.1% |
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