Texas Instruments Incorporated (TXN.US) Q1 earnings guidance falls short of expectations, with the industrial and automotive chip markets continuing to languish.

Due to weak chip demand and rising manufacturing costs, Texas Instruments Incorporated (TXN.US) announced lower-than-expected earnings guidance. The company said in a statement on Thursday that first-quarter earnings will be between 94 cents and $1.16 per share; the midpoint of the range is $1.05 per share, significantly lower than the analyst average expectation of $1.17 per share. Sales guidance was revised down to $37.4 billion to $40.6 billion, slightly higher than the expected $38.6 billion. The majority of the electronics industry is still in a slump, leading to nine consecutive quarters of declining sales for the company. Texas Instruments executives mentioned that manufacturing costs also impacted profits. The company derives its largest sales share from industrial equipment and automotive manufacturers, making its forecasts a key indicator for the economies of most regions globally. Three months ago, executives said that some end markets showed signs of recovering from excess inventory, but the rebound wasn't as fast as some investors expected. CEO Haviv Ilan stated on Thursday that industrial demand remains sluggish. "The industrial automation and energy infrastructure sectors have not yet bottomed out." In the automotive sector, the major growth in Asia is not as robust as before, which means it cannot offset the anticipated weakness in other parts of the world. Although the company sees "bright spots," Ilan said, "We haven't hit bottom yet let me be clear about that." In contrast to the disappointing guidance, Texas Instruments' performance in the fourth quarter easily exceeded analysts' expectations. Although sales fell by 1.7% year-on-year to $40.1 billion, analysts had expected $38.6 billion. Earnings were $1.30 per share, higher than the expected $1.21 per share. Headquartered in Dallas, Texas Instruments is the largest chip manufacturer, with its chips performing simple but essential functions in various electronic devices. It's also the first major U.S. chipmaker to report data in the current earnings season. Chief Financial Officer Rafael Lizardi said on a conference call that some factories haven't reached full capacity yet in order to reduce inventory. This has impacted profits. When chip companies reduce production, they include what's known as "underutilization costs." This issue affects the gross margin, which is the percentage of sales remaining after deducting production costs. Chip manufacturers in other parts of the world have mixed feelings about demand for their products. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), Samsung Electronics, and SK Hynix have all noted that data center products continue to be strong with the help of the artificial intelligence boom. But overall growth is still affected by other markets such as smartphones and personal computers. The industrial and automotive markets together account for approximately 70% of Texas Instruments' total revenue. The chipmaker produces analog and embedded processors, which are a large category of semiconductors. While these chips handle important functions like power conversion within electronic devices, their prices are not as high as those focusing on artificial intelligence like NVIDIA Corporation (NVDA.US) or even Intel Corporation (INTC.US) chips. By business category, Q4 analog revenue increased by 1.7% year-on-year to $31.7 billion, while embedded processing revenue decreased by 18% to $613 million. Revenue from other segments of Texas Instruments grew by 7.3% year-on-year to $2.2 billion. Texas Instruments' chips typically do not require the most advanced production processes. Nevertheless, the company has started expanding actively and upgrading its facilities in the United States. Although these expenses have put pressure on profitability, the company stated that in the long run, this move will help lower costs and compete with rivals. Ilan also noted that in the past 12 months, Texas Instruments has invested $3.8 billion in research and development and SG&A, spent $4.8 billion in capital expenditures, and returned $5.7 billion to shareholders. Operating cash flow over the past 12 months was $6.3 billion, with free cash flow of $1.5 billion in the same period.