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Texas Instruments (TXN) is sharply higher after reporting its Q4 results last night. The company narrowly missed EPS expectations for a second straight quarter, while revenue increased 10% yr/yr to $4.4 bln, in line with expectations. The bigger driver, however, was its better-than-seasonal Q1 guidance, with EPS of $1.22-1.48 and revenue of $4.32-4.68 bln, both coming in above expectations at the midpoint.

• Management continues to state that the overall semiconductor market recovery is continuing, with the quarter coming in as expected. Analog revenue increased 14% yr/yr to $3.6 bln, Embedded Processing revenue increased 8% yr/yr to 662 mln.
• By end market, industrial was up 18% yr/yr with recovery described as broad-based across sectors, while automotive increased upper-single digits. Offsetting that, personal electronics declined upper-teens and communications equipment slipped low-single digits.
• TXN also reorganized its end-markets to include data center, better reflecting where it sees incremental growth opportunities for its Analog and Embedded products. Data center grew 70% yr/yr in Q4 and was up 64% for FY25 to $1.5 bln, representing about 9% of total revenue.
• Gross margin fell 150 bps sequentially to 56%, while inventory ended essentially stable at $4.8 bln with dollars modestly lower qtr/qtr. Management reiterated it is comfortable with its inventory position and will adjust production as demand dictates.
• A few factors are supporting the stronger Q1 guide, led by improving demand signals. Management said revenue trends strengthened month-to-month in Q4, as orders improved throughout the quarter. Backlog also built through the quarter, and turns activity remained elevated as customers placed more near-term orders for immediate shipment.
• Additionally, management said industrial continues to recover with plenty of room versus prior peaks, while data center is becoming a more meaningful contributor and is expected to grow again in Q1 after seven straight quarters of growth, exiting 2025 at roughly a $450 mln quarterly run rate.

Briefing.com Analyst Insight

The quarter itself was solid for TXN. While EPS narrowly missed expectations for a second straight quarter, results included a $0.06 headwind that was not in the original guidance due to a non-cash goodwill impairment and tax-related items. The standouts were industrial and automotive strength, which is encouraging because management noted both are still well below prior peaks and have room to build. It was also notable to see TXN formally break out data center as its own end market, better reflecting a growth engine that is becoming more meaningful contributor. On the softer side, personal electronics and communications declined, though within personal electronics the weakness was most pronounced in home theater/TV, while mobile phones held up better. Still, the spotlight lands on guidance, and what really stood out this quarter was the improvement in demand signals, with better linearity, improving orders, backlog building through the quarter, and healthy turns activity, supporting the better-than-seasonal Q1 outlook and improving confidence that demand is firming.