Chip giants stumbled at the start of earnings season, with simulation overlord Texas Instruments Incorporated (TXN.US) having their "tariff bluff" exposed.

Focus on simulation chips and embedded processing solutions chip giant Texas Instruments Incorporated (TXN.US) announced its performance report in the morning of July 23. After releasing financial data and management performance outlook, the stock price of this major chip provider for global large automobile manufacturers and industrial equipment manufacturers fell by over 11% in after-hours trading in the US stock market, mainly due to market concerns that the surge in chip demand driven by Trump's tariff policy may be short-lived. Texas Instruments Incorporated did not kick off the chip giant's earnings season on a good note, and its performance announcement after earnings led to a noticeable weakening of US chip companies' stock prices after hours, including NVIDIA Corporation, Broadcom Inc., and AMD. The management of Texas Instruments Incorporated stated in a statement on Tuesday morning that total revenue for the third quarter will reach $44.5 billion to $48 billion. Although the average Wall Street analyst's expectation is $45.7 billion, some analysts' forecasts slightly exceed $48 billion. For Texas Instruments Incorporated, which has seen its stock prices climb to new highs this year and has market expectations for a surge in domestic analog chip demand driven by Trump's tariff policy, this cautious performance outlook apparently did not satisfy the market. For the third quarter, Texas Instruments Incorporated anticipates earnings per share of approximately $1.48, slightly lower than the average analyst expectation, bringing uncertainty to this US chip giant's return to growth path and the recovery process of analog chip demand. Texas Instruments Incorporated's overall revenue has been on a recovery path since 2024, but the uncertainty in demand outlook was caused by the global tariff battle initiated by Trump in April. Executives at Texas Instruments Incorporated stated in their earnings call with analysts that they did see strong domestic demand in the early part of the second quarter due to tariffs and some customers may have increased their inventory to counter potential price increases due to tariffs. However, after the second quarter, the company's chip order levels have returned to the expected range during the normal recovery period. Chief Financial Officer Rafael Lizardi stated in the earnings conference, "We have great confidence in our strategy, and we believe our opportunities outweigh the challenges." According to the midpoint of forecasts, third-quarter revenue is expected to grow by 11%, slowing down compared to the previous quarter. However, Lizardi expressed confidence that the chip manufacturer will ultimately exceed $20 billion in annual revenue once expansion is completed. After the release of financial reports and outlook, Texas Instruments Incorporated's stock price fell by more than 11% in after-hours trading. Since the beginning of the year, the continued recovery of demand for analog chips and MCUs driven by artificial intelligence and inventory factors has led to a significant increase in the stock price, outperforming the S&P 500 index by more than 15%. The King of Analog + MCU All-rounder: Texas Instruments Incorporated is known as the global barometer of the semiconductor industry. Texas Instruments Incorporated is the world's largest analog chip and MCU chip manufacturer, with its products performing simple but critical functions that are highly widely used globally, such as converting power in electronic devices to different voltages. More importantly, in recent years, analog chips have played an indispensable role in various key modules and systems in electric vehicles, including power management, battery management, sensor interfaces, audio and video processing, and motor control. Analog chips convert real-world signals such as sound, temperature, pressure, and current into digital signals, supporting scenarios such as ADAS in automobiles, industrial automation, IoT sensors, smart grids, etc. Analog ICs have high replacement difficulty and long design cycles, and once implemented, they exhibit long-term stickiness. MCUs act as the "brains" of electronic devices, controlling logic and real-time operations, and are present in almost all connected or electromechanical systems (home appliances, meters, vehicle controls, medical monitoring, etc.). Texas Instruments Incorporated's TI MSP430, C2000, and Arm-M series MCU products lead in low power consumption and industrial real-time control areas. Texas Instruments Incorporated has the broadest customer base and largest range of products among chip manufacturers, so the company's performance and outlook data can serve as an indicator of various industry demands. Most of its chip products are used in industrial and electric vehicles. Since 2024, the demand from many terminal customers in its industrial category has started to improve, sparking optimism about overall improvement. Texas Instruments Incorporated commands a market share of around 19-20% in the semiconductor industry and ranks among the top five in the MCU field, with a product lineup covering over 40,000 embedded devices. The company offers more than 80,000 analog, power, signal chain, and MCU products to over 100,000 large customers, penetrating almost all end markets (automotive, industrial, communication, consumer electronics, medical, etc.). This ubiquitous coverage has led its quarterly performance to be called a semiconductor demand barometer by Wall Street: changes in sales volume often predict downstream industry prosperity. Whether it is pre-purchasing due to tariff impact or inventory bottoming out, Texas Instruments Incorporated is the first to perceive and reflect on these trends through financial reports, guiding the market in predicting global electronic and macro-industrial demand trends. Apart from the automotive market, Texas Instruments Incorporated sees positive demand prospects in other areas It is reported that during the earnings call, Wall Street analysts repeatedly inquired about the company's outlook on analog chips and MCU demand, questioning whether it would turn pessimistic. The management of Texas Instruments Incorporated stated that, except for the automotive market, they maintain a long-term optimistic attitude towards the demand in all segments covered by the company. "The automotive market has not yet recovered," emphasized Texas Instruments Incorporated CEO Haviv Ilan during the earnings conference. The automotive chip revenue has been severely hit since the end of 2022 due to customer overstocking and a slowdown in orders. The acute shortage of automotive chips post-COVID-19 led to accelerated stockpiling by customers, but since the rate hike cycle by the US Federal Reserve in 2022, the demand for electric vehicles has been sluggish. In a high-interest rate macro environment and amid oversupply, global demand for electric vehicles has significantly cooled off, further weakened by the gradual withdrawal of government subsidies related to electric vehicles globally. Texas Instruments Incorporated unexpectedly saw a significant 32% revenue increase in the Chinese market in the second quarter. However, Ilan mentioned that this performance was "a bit overheated," leading him to be more cautious for the current quarter. In the second quarter, Texas Instruments Incorporated's overall revenue grew by 16% year-on-year to $44.5 billion, with earnings per share of $1.41, achieving a 16% year-on-year growth. Comparatively, Wall Street analysts had previously expected revenue of around $43.6 billion and earnings per share of about $1.35, exceeding both expectations. Texas Instruments Incorporated recorded an operating profit of approximately $1.563 billion in the second quarter, a 25% year-on-year surge. However, the company's executives admitted that they were uncertain how much of this was due to the "pull effect" related to tariffsmeaning customers making early purchase decisions to avoid price increases due to tariffs. Texas Instruments Incorporated holds an absolute leading position in the analog chip market, with these chips converting real-world signals such as sound and pressure into electronic signals. The company has the broadest range of chip terminal products and a super large customer list in the semiconductor field, making its financial data and outlook an important indicator of various industry demands, ultimately affecting investors' expectations for the overall demand curve in the chip industry. Looking ahead, the company expects continued growth in terminal chip demand, benefitting from the widespread adoption of semiconductors in more products. However, growing US-China competition and the tariff policy led by the Trump administration are casting shadows on industry demand, with the market concerned that rising product prices may inhibit the demand recovery path of the chip industry since 2024. Approximately one-fifth of Texas Instruments Incorporated's revenue comes from the Chinese market, but local chip manufacturers in the country are rapidly rising. Chinese chip companies are heavily investing in production with government support, aiming to reduce import dependence. The company has stated that China, being the world's largest semiconductor market, has seen intense competition in recent years. To enhance its fundamental resilience and gain more leverage in the intensifying trade barriers environment, Texas Instruments Incorporated has invested heavily in expanding production capacity and continuously integrating generative AI modules with consumer electronics and industrial applications. The company has four factories outside the US, including a large factory in China, and is accelerating the construction of new factories in the Dallas area and Utah. On the other hand, the large-scale construction of new factories and investments in new equipment are eroding cash flow and profitability. The company has pledged to focus on rewarding shareholders once the expansion is completed. Texas Instruments Incorporated sets the stage for the chip giant earnings season! Will global chip demand continue to expand in 2025? Texas Instruments Incorporated, as the world's largest analog chip manufacturer, has the potential to kick off the chip giant earnings season on a positive note if it announces optimistic performance outlook, which could continue to boost the bullish trend of the Philadelphia Semiconductor Index, also known as the global chip stock barometer. However, the latest facts indicate otherwise, and the less-than-expected performance outlook of Texas Instruments Incorporated has sparked a downturn in the US chip sector post-market. ON Semiconductor Corporation (ON.US), Intel Corporation (INTC.US), AMD (AMD.US), and NVIDIA Corporation (NVDA.US), among other chip giants, will gradually disclose their latest financial reports and performance outlook data between the end of July and the end of August. The performance of these chip giants is crucial for the outlook of global chip industry demand. In the financial market, the strength of chip giant performance is crucial for the NASDAQ 100 index, which has hit new highs this year, and for the continued bullish trend of the benchmark US stock indexes, such as the S&P 500 index, making chip stocks one of the core drivers of the long-term bull market in the US stock market since 2023. The latest research report from the major Wall Street firm Goldman Sachs Group, Inc. shows that the chip sector is currently the most crowded investment target in the Technology, Media, and Telecommunications (TMT) field, being seen as the purest way to express enthusiasm for AI. Despite being widely held by various types of investors, including long funds, hedge funds, and retail investors, Goldman Sachs Group, Inc. observes ongoing capital inflows into this sector. The most popular long targets include NVIDIA Corporation, Broadcom Inc., Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, Micron Technology, Texas Instruments Incorporated, Analog Devices, Inc., and Microchip Technology Incorporated. The most popular short targets include Intel Corporation, Qualcomm, Qualcomm, Skyworks Solutions, Inc., Qorvo, and GlobalFoundries. The latest semiconductor industry outlook data released by the World Semiconductor Trade Statistics (WSTS) organization shows that global chip demand is expected to continue its recovery from 2025 to 2026, with analog chips, which have been facing soft demand since the end of 2022, expected to enter a strong recovery curve. WSTS predicts that after a strong rebound in 2024, the global semiconductor market will grow by 11.2% in 2025, reaching a total value of $700.9 billion. This growth is mainly attributed to the strong momentum in the logic chip sector dominated by GPUs and the storage sector led by HBM, with both areas expected to achieve strong double-digit growth. This is driven by the continued strong demand in areas such as AI inference systems, cloud computing infrastructure, and cutting-edge consumer electronics. WSTS forecasts that the global semiconductor market will continue to grow by 8.5% in 2026 on top of the strong recovery in 2025, reaching $760.7 billion. The organization anticipates growth to be widespread in various regions and across various chip product categories, including analog chips and MCUs. Storage chips are expected to lead the growth again, with logic and analog chips also making significant contributions.