TI-Soft Embedded Demand Hurts TXN's Q4 Revenues: How to Play the Stock?

Core Viewpoint - Texas Instruments Incorporated (TXN) reported mixed fourth-quarter 2024 results, exceeding earnings and revenue expectations but facing year-over-year declines, particularly in its Embedded Processing segment, which is crucial for growth [1][2]. Financial Performance - Earnings per share for Q4 were $1.30, surpassing the Zacks Consensus Estimate by$ 0.11, but reflecting a 12.8% decline from the previous year [2]. - Revenues reached $4.01 billion, exceeding consensus expectations by$ 136 million, yet showing a 1.7% year-over-year decrease [2]. Segment Analysis - The Embedded Processing segment generated revenues of $613 million, beating estimates of$ 576 million, but experienced an 18% decline year-over-year, indicating weak demand [3][4]. - This segment accounted for 15.3% of total revenues, highlighting its significance to overall performance [3]. Operational Challenges - The decline in the Embedded Processing segment was attributed to cyclical downturns and weakened demand in key markets, especially industrial applications [4][6]. - Underutilization of the Lehi factory, which supports a significant portion of the Embedded Processing business, negatively impacted revenues and margins [5]. - Broader macroeconomic challenges further contributed to reduced customer demand, particularly in industrial automation and energy infrastructure markets [6]. Positive Aspects - The Analog segment, which constitutes 79.2% of total revenues, grew by 2% year-over-year, marking a recovery after eight consecutive quarters of declines [8]. Margin and Guidance - Gross profit for Q4 was $2.31 billion, representing 58% of revenues, with a contraction of 200 basis points in gross margin year-over-year due to lower factory utilization and higher depreciation costs [9]. - For Q1 2025, Texas Instruments expects revenues between$ 3.74 billion and $4.06 billion and earnings per share between$ 0.94 and $1.16, indicating ongoing challenges in the industrial and automotive markets [10]. Market Sentiment - Following the earnings announcement, the Zacks Consensus Estimate for Q1 and full year 2025 saw downward revisions, with Q1 earnings revised down by$ 0.08 to $1.08 per share [11]. - The stock price dropped 7.5% after the results, underperforming the Zacks Semiconductor – General industry, which gained 97.4% over the past year [12]. Conclusion - The fourth-quarter results highlight a challenging environment for Texas Instruments, particularly due to the struggles in the Embedded Processing segment, while the Analog segment shows some resilience [14]. - Given the cautious guidance and ongoing market weaknesses, it is advisable for investors to refrain from investing in TXN until clearer recovery signs emerge [15].