SAN FRANCISCO—Despite chip inventories that are low by historical standards, OEM customers and distributors are being cautious about new purchase orders, largely due to economic uncertainty, executives from Texas Instruments Inc. said Monday (Jul 23).
TI executives said the decline in new orders began in June and has continued into July, cutting into TI's order backlog for the third quarter. As a result, to Dallas-based chip maker provided third quarter a this ales target that was lower than analysts expected. The company also reported sales for the second quarter that fell slightly below analysts' expectations.
Kevin March, TI's chief financial officer, told analysts on a conference call following TI's second quarter report that TI believes both OEM customers and distributors are behaving cautiously in placing new orders either because they are worried about slowing demand for their own products, or because lead times for nearly all of TI's parts are low enough that they don't feel the need to order parts months in advance.
"It's really not apparent to us why that is the case," March said.
In a statement, Rich Templeton, TI's chairman, president and CEO, said that second quarter sales came in largely as expected, but that the slowing orders created uncertainty and limited visibility for the third quarter, causing the company to forecast that third quarter sales would be roughly the same as the second quarter. The company typically sees an average increase of about 6 percent in sales in the third quarter compared to the second quarter.
"If customer demand increases as the quarter progresses, we are ready to support higher shipments with short product lead times, a strong inventory position and available manufacturing capacity," Templeton said.
"We don't have all of the backlog visibility that we would normally have," said Ron Slaymaker, TI's vice president of investor relations.
TI's second quarter sales totaled $3.34 billion, up 7 percent from the first quarter but down 4 percent compared to the same period of 2011. The company's net income for the quarter totaled $446 million, up 68 percent from the previous quarter but down 34 percent compared with the year-ago quarter.
Second quarter sales fell just short of consensus analysts' expectations of $3.35 billion, according to Yahoo Finance.
Sales of TI's analog products increased by 7 percent compared to the first quarter, while embedded processing product sales grew by 8 percent and sales of other products including DL® products, custom ASIC products, calculators and royalties, grew 16 percent sequentially, TI said. Sales of wireless products—including baseband products, connectivity products and OMAP applications processor, declined by 8 percent compared to the first quarter, TI said. The company is phasing out its baseband chip business and expects sales of basebands to decline to zero by the first quarter of 2013.
TI said it expects third quarter sales to be between $3.21 billion to $3.47 billion, roughly flat at the midpoint with second quarter sales. March said third quarter sales typically improve by an average of 6 percent compared with the second quarter.
TI's third quarter sales target came up short of consensus analysts' expectations, which called for third quarter sales of about $3.54 billion, according to Yahoo Finance.
@daleste- TI was pressed on this during the analyst call. One analyst said Intel and Xilinx are not expecting sales to be down as much compared to a typical third quarter. Slaymaker basically said those are different companies and that TI has a broader product portfolio than both of them. He also said that different management teams will likely interpret what is happening in different ways.
@dylan.mcgrath: could it be that TI's product portfolio is not diverse enough to ride this ride out this slow down? After all, there are many common products between what TI had before NSC merger (like the power management ones)... though it certainly added more in customers.
That is true. There are products that need to be phased out because of compatible products between the two portfolios. I think TI is looking at personnel redundancies first, but the product line needs to be streamlined as well. I don't think the upper management of TI will notice any downturn in their pocketbook, but many of the rank and file will.
I would think that it is obvious that the current economy is at best faltering along, it does not surprise me that future sales orders are slowing. I am not sure how many companies feel strong about the next few quarters, given that it makes a lot of sense for cautionary buying. What surprises me is that we do not see more of this!
Don't be surprised if another round of mergers takes place over the next 6 months. Any thoughts on the next targets? Soon we will be down to only 2 major vendors in each key market. That may provide a clue...
Join our online Radio Show on Friday 11th July starting at 2:00pm Eastern, when EETimes editor of all things fun and interesting, Max Maxfield, and embedded systems expert, Jack Ganssle, will debate as to just what is, and is not, and embedded system.