Evercore ISI Analyst on Texas Instruments: Buy the Dip Amidst Inventory Correction

Texas Instruments' Inventory Dynamics

• 📉 Shares of Texas Instruments are down due to a weaker-than-expected fourth-quarter outlook, with the semiconductor industry recovery proceeding at a slower pace.
• 💡 Evercore ISI has added TI to its tactical outperform list, advising investors to buy the dip despite a lowered price target.
• ⚠️ The current situation is attributed to supply chain partners experiencing "bad PTSD" from the COVID-era inventory build, leading them to avoid rebuilding safety stock.
• ⚡ Instead of rebuilding inventory, partners are willing to pay expedite and broker fees for scarce chips, causing lead times to stretch and inventories to deplete.

The "Coiled Spring" Effect

• ⏳ This inventory depletion and stretching lead times are creating a "coiled spring" effect, suggesting a potential rebound in the next six to nine months.
• 🏭 Texas Instruments is lowering its utilization rates, a move that historically leads to stretched lead times due to the 13-week chip manufacturing process.
• 🗓️ Checks suggest that by the first half of next year, possibly as early as the first or second quarter, the market could face tight supply and allocation.

Market Demand and Sector Strength

• 📊 While industrial and auto sectors show some softness, other areas like AI, data center, defense, and parts of the EV market remain strong.
• 📈 Communications and enterprise equipment saw sequential growth of 10% and 20% respectively.
• 🧩 The semiconductor industry's position early in the supply chain means inventory piles up at multiple stages (distributors, contract manufacturers, OEMs).
• ✅ Texas Instruments has a history of conservative guidance, beating expectations by 2-4% in the last four quarters, and is currently tracking at the higher end of their guidance.