TI Comes Out Ahead After Betting Big on Inventory Buildup

Texas Instruments said its sales and profits soared in the first quarter of the year as its strategy to build up inventory last year helped it better handle demand during a global chip shortage.

TI, the world's largest analog semiconductor maker, said its quarterly sales came out to $4.29 billion, up 29% year over year and 5% quarter over quarter, due to strong demand for chips used in cars, on factory floors, and in smartphones, personal computers, and other consumer electronics. The company landed profits of $1.75 billion, or $1.87 per share, up 49% from a year ago.

While other companies reined in production early last year as the coronavirus roiled the US economy. The analog chip giant continued investing in its production output. The strategy worked, and TI said that it has enough inventory in reserve and production capacity in place to keep up with most customers' orders. "When everybody was pulling back, we built through that cycle,” Rafael Lizardi, TI's chief financial officer, said on a recent conference call with analysts.

“That was a tactical decision enabled by our strategic position and our focus on industrial, automotive, and catalog parts with a low risk of obsolescence," he pointed out.

“We were able to build up through that cycle and be prepared on the other side once demand started returning" in the second half of 2020 and accelerated in early 2021, he added. TI, which competes with Analog Devices and Infineon Technologies, among many others, said that it has not been in a position where it has had to raise prices on its products, unlike several of its rivals.

The US and the rest of the world are experiencing a severe chip shortage, which has worsened due to rising demand for personal computers, game consoles, and other consumer electronics during the pandemic. Demand for consumer devices has also drained the supply of chips to the automotive industry, where shortages have spurred on a global scramble for foundry capacity.

Texas Instruments said about 80% of its products currently have stable lead times. But growing demand in the first quarter of the year forced it to expand its list of "hotspots" where lead times are longer than usual, executives said. Lizardi said that more than 50,000 of its 80,000 products, including most of its internally-produced analog chips, currently have "off-the-shelf" availability. 

“At the end of the day, things are going to be tight as long as demand remains ahead of supply," he said. "Lead times are going to be tight. But the key point is we have our own manufacturing."

“It's one of our competitive advantages,” he added. Texas Instruments plans to continue adding production capacity through the end of 2021 and into the first half of 2022. It is also counting on additional support from the start-up of its new 300-millimeter production plant, RFAB 2, which is on pace to start pumping out analog and other semiconductors by the second half of 2022. 

TI said that it could afford to build up inventory because most of its products—from analog and power management ICs to radar and microcontrollers (MCUs)—have long lifespans, with many of its products remaining on the market between 10 and 15 years before they become obsolete. It sells to more than 100,000 companies worldwide, giving it a highly diversified customer base.

TI said sales in its analog semiconductor business, which sells power-management, radio-frequency, data-converter, and other types of chips, improved 33% year over year and 5% quarter over quarter to $3.28 billion.

Executives said sales to the automobile industry soared by 25% over the last quarter as it worked with its customers to help them recover from supply chain disruptions. The consumer devices market continued to rebound for TI, with sales growing by 50% year over year in the first quarter but declining 10% from the fourth quarter, usually the best time of year for smartphone makers.

The company said its second-quarter revenue would land in the range of $4.13 billion to $4.47 billion, up from $3.24 billion a year ago. Its overall profit is projected to be $1.68 to $1.92 per share.