Please ensure Javascript is enabled for purposes of website accessibility

Why Texas Instruments Stock Lost 13.5% in October

By John Ballard – Updated Nov 6, 2018 at 12:59PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A weak outlook for the fourth quarter sent the shares tumbling last month.

What happened

Shares of Texas Instruments (TXN 1.30%) declined 13.5% in October, according to data provided by S&P Global Market Intelligence. For perspective, the S&P 500 was down 6.91%. 

TXN Chart

TXN data by YCharts.

The stock was in positive territory year to date through the month of August, but it started to fall along with the broader market in September. The stock's decline began to snowball after management issued weak guidance during the company's third-quarter earnings report in late October.

So what

Texas Instruments' reported solid third-quarter operating results. Revenue met expectations, growing 4% year over year to $4.3 billion. Earnings per share beat Wall Street's expectations by surging 25% to $1.58 per share. However, management's fourth-quarter guidance of revenue between $3.6 billion to $3.9 billion was lower than the $4 billion analysts were expecting. Investors didn't like the sound of that, which sent the shares down 8.22% immediately following the news. 

A computer circuit board.

IMAGE SOURCE: GETTY IMAGES.

Vice President David Pahl said, "demand for our products slowed across most markets during the quarter." Pahl attributed weak demand to the broader semiconductor market slowing down after several years of growth. Other companies in the industry, such as Advanced Micro Devices (AMD 1.77%) and Cypress Semiconductor (CY), also reported weakness in demand, while Intel (INTC 0.89%) showed strength in its latest quarter. 

Now what

The Philadelphia semiconductor index has soared 147% over the last five years, which is well ahead of the S&P 500's return of 54%. Texas Instruments and other chip makers have seen booming demand for processors from the automotive and industrial markets in recent years, driving those impressive gains.

The performance of semiconductor companies is seen as a forward indicator for how the broader economy is performing since processors are used in several industries across consumer electronics, mobile devices, home appliances, cars, factories, and many other applications. This is one reason investors were so quick to bail on shares of Texas Instruments after it gave a weak outlook.

Intel's strong quarter seemed to ease concerns for the time being, with most chip stocks rebounding since Intel reported its results in late October. It's possible that Texas Instruments may just be experiencing a temporary slowdown before demand picks up again. It's also worth noting that the uncertainty surrounding the mid-term elections may have something to do with weakening demand in the short term.

We'll know more when Texas Instruments reports its fourth-quarter earnings early next year.

John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Cypress Semiconductor. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Texas Instruments Incorporated Stock Quote
Texas Instruments Incorporated
TXN
$162.80 (1.30%) $2.09
Intel Corporation Stock Quote
Intel Corporation
INTC
$27.13 (0.89%) $0.24
Cypress Semiconductor Corporation Stock Quote
Cypress Semiconductor Corporation
CY
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$68.36 (1.77%) $1.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.