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Texas Instruments (TXN) Q4 earnings preview: Weak demand to hurt the results

Texas Instruments Incorporated (NASDAQ: TXN) is set to release its fourth-quarter 2019 earnings results on Wednesday after the market closes. The results will be hurt by the weakness in the overall demand, the increasing competition, and frequently changing customer demand.

The company continues to invest in manufacturing technologies for ensuring a consistent supply of products for its customers and also allows it to invest in technology that differentiates the features of products. The majority of the company’s resources are invested in Analog and Embedded Processing.

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The changes in customer demand could be the driving factor for top-line growth. The customer demand is evidenced by fluctuations in shipment volumes. The top line and margins are impacted by changes in demand for high or low priced products. A significant portion of operating cost is fixed as it owns much of its manufacturing capacity.

Texas believes the industrial and automotive markets represent the best growth opportunities. And, electrification and autonomous driving could be shaping its future growth. The free cash flow growth is important for maximizing shareholder value over the long term.

At the end of the third quarter, total cash was $5.07 billion while the total debt stood at $6.15 billion. The company remained cautious in increasing its debt more than the cash. The primary source of liquidity is cash flow from operations, while cash and cash equivalents, short-term investments, and revolving credit facilities are considered as additional sources.

Analysts expect the company’s earnings to dip by 20.50% to $1.01 per share and revenue will drop by 13.50% to $3.21 billion for the fourth quarter. The company has surprised investors by beating analysts’ expectations in all of the past four quarters. The majority of the analysts recommended a “hold” rating with an average price target of $128.11.

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For the third quarter, Texas Instruments posted a 9% drop in earnings due to broad-based weakness in the overall demand of its product portfolio as well as macro-environment uncertainty. The top line declined by 11% as most markets weakened further. In core businesses, Analog revenue declined 8% and Embedded Processing declined 19% from last year.

For the fourth quarter, the company expects revenue in the range of $3.07-3.33 billion and earnings in the range of $0.91-1.09 per share, which includes an estimated $5 million discrete tax benefits. For 2019, the company’s annual operating tax rate is still predicted to be about 16%.

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