The narrative around Texas Instruments, a stalwart of the semiconductor industry, is often viewed through the lens of its immediate quarterly performance. However, as Mark Lipacis, Senior Analyst at Evercore ISI, articulated on CNBC’s ‘The Exchange,’ the current dip in Texas Instruments’ stock, following a weaker-than-expected fourth-quarter outlook, presents a strategic buying opportunity. His analysis delves beyond the surface, suggesting a unique inventory dynamic within the broader semiconductor supply chain that positions companies like Texas Instruments for a significant rebound.
Lipacis spoke with Morgan Brennan at CNBC's 'The Exchange' about Evercore ISI's bullish stance on Texas Instruments, specifically addressing the apparent slowdown in the semiconductor industry's recovery and the underlying factors contributing to it. His commentary offered a nuanced perspective for investors and industry insiders, highlighting the cyclical nature of chip manufacturing and the strategic decisions shaping its immediate future.
A central tenet of Lipacis’s argument revolves around what he terms the supply chain’s "bad PTSD" from the prior COVID-induced inventory build. Rather than rebuilding safety stocks, many players are opting to pay expedite fees for chips in short supply. This cautious approach, driven by a reluctance to repeat past overstocking mistakes, means that "lead times are stretching and inventories continue to deplete, so it becomes a bit of a coiled spring on the way up." This "coiled spring" effect suggests that while current demand may appear subdued, the underlying depletion of inventory across the supply chain is creating pent-up demand that will eventually unleash a powerful restocking cycle.
This inventory reluctance is not merely a transient phenomenon; it is a direct consequence of the extensive two-year period where the supply chain actively worked to lower the massive inventory accumulated during the pandemic. The semiconductor manufacturing process itself compounds this effect. As Lipacis noted, "it takes like 13 weeks to make a chip." When companies lower utilization rates in response to perceived softness, this 13-week lead time creates a significant lag, ensuring that any subsequent surge in demand will quickly outstrip available supply, thereby forcing a rapid rebuilding of stock.
Texas Instruments, in particular, is positioned to benefit from this impending upswing. Lipacis highlighted that TI’s management is "historically conservative," consistently beating their revenue outlook by an average of 3% over the past six quarters. This conservative guidance, coupled with strong underlying demand in critical end-markets, implies that the company often sets a low bar, allowing for positive surprises. The firm’s free cash flow growth story and its robust presence in data centers remain strong foundational elements, providing stability amidst market fluctuations.
Indeed, the underlying demand drivers for semiconductors are not weakening but shifting. Lipacis pointed to "very healthy end markets in AI and data center, defense is very strong, you have certain parts of the EV market that’s strong." These high-growth sectors continue to consume chips at an increasing rate, even as the broader industrial and automotive markets experience some softness. The sequential growth figures he cited – industrial up 4%, auto up 10%, and communication/enterprise equipment up 10-20% – underscore pockets of robust demand that defy the overall sentiment of a slow recovery.
The distinct structure of the semiconductor supply chain further amplifies these cyclical swings. Unlike many S&P 500 companies that sell directly to consumers, semiconductor firms operate several layers removed, selling to distributors, who sell to contract manufacturers, who then sell to OEMs, and so on. Each of these intermediary steps holds inventory. Consequently, when lead times expand, every player in the chain over-orders to secure supply, leading to inflated revenues. Conversely, when lead times shrink, as they have recently, everyone liquidates their excess stock, causing a revenue dip that may not accurately reflect actual end-consumer demand.
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Lipacis believes the industry is currently at the bottom of this inventory cycle, setting the stage for an inevitable restocking phase. The conservative guidance from Texas Instruments, which has a track record of exceeding its own forecasts, further strengthens this outlook. The firm’s strategic focus on long-lived industrial and automotive markets, which constitute a significant portion of its revenue, also provides a stable base less prone to the rapid shifts seen in consumer electronics.
Ultimately, Evercore ISI’s “Tactical Outperform” rating on Texas Instruments stems from a deep understanding of these complex semiconductor dynamics. The current period of inventory correction and cautious supply chain management is seen not as a sign of fundamental weakness, but as the precursor to a powerful rebound. The confluence of depleted inventories, stretching lead times, conservative management, and enduring demand in critical growth areas paints a picture of a sector poised for resurgence, with Texas Instruments positioned advantageously to capitalize on the coming upswing.
