Apropos of Halloween, semiconductors have become a scary sector.
Texas Instruments (TXN) fell victim to the uncertain sector on Wednesday as it plummeted by 8.2% to $92.01 after acknowledging "softness" ahead in the semiconductor sector.
The slide in share price was reflected in the Philadelphia Semiconductor Index (SOXX) that likewise fell 6.6% on the anticipated cyclical downturn.
Earnings Kick Off the Slide
Shares of the Dallas-based company started the day's trading down after reporting mixed results on earnings, tempered by significantly lowered guidance.
For the quarter, Texas Instruments reported $4.26 billion in revenue, missing the consensus estimate of analysts by $40 million, while delivering on earnings of $1.58 per share, ahead of the expected $1.53 a share.
"Demand for our products slowed across most markets during the quarter," CFO Rafael Lizardi said.
Texas Instruments did not depict the slowing market as a momentary problem, either.
Instead, guidance for the fourth quarter set a revenue range of $3.6 billion to $3.9 billion, below the analyst consensus of $4 billion, and put earnings per share in a range of $1.14 to $1.34, well under the consensus of $1.38.
"We are heading into a softer market," Lizardi said. "Most end markets have slowed, that's what we know. And we believe this is mostly driven by a slowdown in semiconductors, meaning we really can't speak to any macro-driven event here."
Specifically, material weakness in the embedded processing unit that is expected to persist. While Analog revenues beat estimates by $30 million, embedded processing missed by $90 million more than offsetting the gain.
"Embedded processing revenue decreased by 4% from the year-ago quarter due to processors," CFO Lizardi said. "Analog and Embedded performed about the same directionally within most end markets."
Amid the pressure on the industry and the drag on the company's specific earnings, some experts are expecting more pain ahead.
"TXN is likely to be under selling pressure for the near term," Real Money technical analyst Bruce Kamich said in his column. "Prices could retest the support area beginning around $85. Do not be in a rush to try to pick a low or bottom for this stock."
Worth Waiting for a Turnaround?
Despite the slide today, many analysts were noting that the stock is still worth investing in for the long term amidst the short-term pain.
"The company will manage through the correction (shallow or deep) as they always do," Bernstein research analyst Stacy Rasgon wrote in a note on Wednesday. "TXN, as they typically do, should come out stronger than before."
He said that he expects the pain in shares at present to be short term, which should reward patient investors.
"In the meantime, while we wait, operational execution remains stellar and the capital-return story continues to play out," he said.
Rasgon acknowledged the sector-wide stink emanating from cyclical semiconductor stocks at the moment. "We recognize that many investors may not want to step into it (or any semi name right now)," he acknowledged. "That being said, even with a reasonably sizable near-term correction, we still see $6+ in earnings potential [for TXN] in the not-too-distant future, and the shares are currently trading among their cheapest relative to the S&P in the last five years (a timeframe that includes a number of other corrections)."
As such, he said the stock will be "one to own" as the most recent correction bottoms.
"We believe it is worth waiting for," he concluded, setting an outperform rating and a $115 price target.
Rasgon's analysis echoed the take from Rosenblatt Securities analyst Hans Mosesmann, who noted the long-term story for the company remains intact.
"Softer market conditions [are] not impacting strategic investment initiatives whatsoever," Mosesmann wrote on Wednesday morning. "Regardless of the duration of the current slowdown, TI will move forward with a new 300 mm wafer fab shell to be ready for equipment by the 2020/21 timeframe at a cost of $600-$800 million."
Mosesmann said that the company's continuing commitment to R&D is what sets it apart from other semiconductor stocks resigned to swoon in the slowdown. Additionally, he cited the company's strategy of "taking its medicine" early -- by lowering guidance and setting up more-achievable earnings estimates for next year.
"Relative to the usual garden-variety semiconductor company behavior into a down cycle, TI is not blinking," he said. "We think TI's guide is healthy and gives The Street what it wanted: a reset that would lead to achievable 2019 earnings."
Mosesmann reiterated his "Buy" rating for the stock, with a $120 price target.
Offering some hope for the bullish outlook is the fact that the company's shares are bouncing back from the oversold territory they fell into during the trading day, charting below the oversold band on the Relative Strength Index at market close.
About one hour after the close, shares were flat.