TI shrugs off Covid-19, chip shortages
Texas Instruments (TI) has shrugged off the effects of the Covid-19 pandemic in its 2020 results, and points to its in-house production and inventory management as key to avoiding the current chip shortages in the automotive industry.
“Revenue increased 7 percent sequentially, driven by strong demand in automotive, personal electronics and industrial markets, [up] 22 percent from the same quarter a year ago,” said Rich Templeton, chairman, president and CEO of TI. “In our core businesses, Analog revenue grew 9 percent and Embedded Processing grew 11 percent sequentially. From a year ago, Analog revenue grew 25 percent and Embedded Processing grew 14 percent.”
On a year-over-year basis, Analog revenue grew 25 percent and Embedded grew 14 percent. The ‘Other’ segment, mostly calculators, grew 4 percent from a year ago quarter.
First, the automotive market continued its rebound following the second quarter bottom, with 19 percent sequential growth and 25 percent year-over-year growth. The industrial market was up 7 percent sequentially and 16 percent from the year ago. The strength was seen across most market sectors. Personal electronics, including analog and power management chips for smartphones was up 11 percent sequentially and up 39 percent compared to a year ago. The strength was broad-based across sectors and customers within personal electronics.
Communications equipment was down 28 percent sequentially and down 8 percent from a year ago. Enterprise systems was down 2 percent sequentially and down 13 percent from a year ago.
For the full year, TI breaks down the results into six end markets: industrial; automotive; personal electronics, including products such as mobile phones, PCs, tablets and TVs; communications equipment; enterprise systems; and other. Total revenue of $14,461bn was up from $14.383bn in 2019 with a profit of $5.595bn, up from $5.017bn.
This is despite the closure of automotive manufacturing lines during the year.
Next: TI inventory and capacity management
“The best way to maybe describe what we’re seeing in the automotive market is a just in time supply chain that’s restarting from essentially a full stop that happened in second quarter. And just as a reminder, what we saw in third quarter was a 75% sequential increase followed by this last quarter with a 20% sequential increase. We aren’t seeing demand signals that would show us that there is anything that’s consistent with any of those constraints,” said a spokesman.
Industrial was 37 percent in the year, automotive up 20 percent, personal electronics 27 percent, communications equipment 8 percent, enterprise systems 6 percent, and other was 2 percent. Looking at the changes versus 2019, industrial increased one percentage point, automotive declined 1 percent, personal electronics increased 4 percentage point, communications equipment declined 3 percentage point, enterprise systems was even, and other declined one percentage point.
Across the year, industrial and automotive combined made up 57 percent of TI’s revenue, similar to last year and up from 42 percent in 2013.
“We see good opportunities in all of our markets, but we place additional strategic emphasis on industrial and automotive. Our industrial and automotive customers are increasingly turning to analog and embedded technology to make their end products smarter, safer, more connected and more efficient. These trends have resulted and will continue to result in growing chip content per application, which will drive faster growth compared to our other markets,” said spokesman.
Inventory management has been key to avoiding the problems in supplying automotive customers seen by the foundries, says chief financial officer Raphael Lizardi. The company has reduced the number of global distributors it uses to keep more control of inventory in the supply chain. Inventory of $216m at the end of 2019 was down to $46m by December 2020.
“Our long-term objective for inventory is to maintain high levels of customer service while we minimize inventory obsolescence,” said Lizardi. “Our parts are mainly catalogue parts that sell into industrial and automotive. Our focus is on those with very long product life cycle, so we can build inventory ahead of demand, we can position that inventory that served us well in 2020 and will continue to serve us well from a business model standpoint in order to maintain those high levels of customer service with our customers.”
He also points to long term foundry deals. “Having 80 percent of our wafer sourced internally, almost all of our analog is sourced internally and that is a great advantage for us. So overall lead times have remained stable.”
The larger digital chips from TI such as processors are outsourced to foundries that are seeing capacity problems. “At a high-level we have long-term agreements with these suppliers like we do with other suppliers,” said a spokesman. “Even though we only outsource a relatively small part of our loadings we are still a big company so we still get some decent leverage. We’re seeing some hotspots here and there, but to the largest degree we’re getting what we need.”
Investing in capacity was also a key element. The company expects to have its 300mm fab in Richardson, Texas, up and running in production by the end of 2022. When finished this can produce $5bn of products, says Lizardi.
“For the year, we have invested $1.5bn in R&D, an important element of our capital allocation. We’re pleased with our disciplined process of allocating capital to R&D, which we believe will allow us to continue to grow our top-line over the long term,” he said.
For Q1 2021, TI expects revenue between $3.79bn to $4.11bn, compared to $4,076bn in the previous quarter.
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