Tariff uncertainties and sluggish demand cause Texas Instruments to slump

The analog chip manufacturer saw its share price plunge after reporting lower-than-expected earnings. The reasons cited were sluggish demand, growing geopolitical tensions, and tariffs that are indirectly weighing on its business. The market is questioning the strength of the recovery, particularly in the automotive sector.

Texas Instruments saw its share price fall 12% at the start of European trading on Wednesday, following a decline on Wall Street the previous day, after presenting financial forecasts that investors deemed disappointing. The reasons for this were weaker-than-expected demand for its analog chips and a fragile business environment due to uncertainties surrounding customs duties.

While semiconductor manufacturers such as Texas Instruments are not yet directly affected by the increased tariffs imposed by President Donald Trump, the cost of manufacturing equipment has risen and several end customers have reduced their spending.

"Tariffs and geopolitical tensions are disrupting and reshaping global supply chains," CEO Haviv Ilan said at a post-earnings conference. "The recovery in the automotive sector remains tentative."

For the third quarter, the group expects EPS of between $1.36 and $1.60, with a midpoint slightly below market expectations ($1.49 according to LSEG). Revenue is expected to be between $4.45bn and $4.80bn, compared with a consensus of $4.59bn.

In the second quarter, Texas Instruments reported revenue of $4.45 billion, exceeding estimates.

Ripple effects across the industry

The uncertainty surrounding tariffs is affecting the entire sector. ASML, the world's leading supplier of chip manufacturing equipment, warned last week that it may not see any revenue growth in 2026 due to delayed investment decisions by its US customers.

TSMC, the world's largest chipmaker, also signaled a cautious approach to its forecasts due to the potential impact of trade disruptions related to tariffs.

Responding to questions from analysts, Ilan did not rule out that tariffs may have led to advance orders in the second quarter, temporarily boosting revenues. "When you see such an acceleration between the first two quarters, you have to attribute part of that movement to the tariff environment," he acknowledged.

Harlan Sur, semiconductor analyst at JPMorgan, notes a cyclical improvement driven by industrial and Chinese demand, but points to growing caution related to catch-up effects and weakness in the auto sector. "The conservative outlook reflects headwinds related to demand expectations and a still sluggish auto market," he observes. The sector remains promising, but tariff uncertainties are hampering visibility. "The constructive momentum is there, but the impact of tariffs is starting to weigh," the broker concludes.

Pressure on margins

Texas Instruments has invested heavily to expand its 300-millimeter wafer production capacity, with a plan to spend more than $60 billion to expand its manufacturing presence in the United States.

But the company expects its factory utilization rate to remain stable in the third quarter, a level that could weigh on margins, according to Tore Svanberg, an analyst at Stifel. A higher ramp-up would have allowed for better distribution of fixed costs and improved profitability.

Chief Financial Officer Rafael Lizardi said gross margin is expected to remain stable in the third quarter.

Finally, the group said its earnings forecasts did not yet include the effects of Donald Trump's recent tax reform. Texas Instruments expects the new regime to result in a higher tax rate in the third quarter and for the whole of 2025, before falling from 2026 onwards.