Texas Instruments faces decline amid tariff uncertainty

Texas Instruments Faces Challenges Amid Tariff Uncertainty and Supply Chain Shifts

Texas Instruments, a leading semiconductor manufacturer, recently issued a quarterly profit forecast that failed to meet investor expectations. The company highlighted weaker-than-expected demand for its analog chips from certain customers, while also pointing to ongoing uncertainty related to tariffs. This news sent shares of the company tumbling by 11.4% in extended trading on Tuesday, despite a year-to-date gain of over 13%.

Although chipmakers like Texas Instruments have not yet faced direct impacts from U.S. President Donald Trump’s elevated tariffs, the rising costs of chip-making tools and reduced spending by end customers have begun to affect the industry. CEO Haviv Ilan acknowledged these challenges during a post-earnings call, stating, “Tariffs and geopolitics are disrupting and reshaping global supply chains.” He also noted that the recovery in the automotive sector has been “shallow.”

TI’s third-quarter earnings are expected to range between $1.36 per share and $1.60 per share, with the midpoint falling short of analysts’ estimates of $1.49 per share. Revenue is projected to be between $4.45 billion and $4.80 billion, compared to market expectations of $4.59 billion. While the company reported sales of $4.45 billion for the second quarter—beating estimates—investors remain cautious about future performance.

Global Chip Industry Under Pressure

Other major players in the semiconductor industry have also voiced concerns about the impact of tariffs and geopolitical tensions. ASML, the world’s largest supplier of chip-making equipment, warned last week that it may not achieve revenue growth in 2026 due to uncertainty surrounding tariff negotiations. U.S. chipmakers have been delaying investments as a result of this uncertainty.

TSMC, the world’s largest chip manufacturing company, has adopted a more conservative outlook to account for potential disruptions caused by tariff-related issues. During a recent earnings call, TI CEO Ilan did not rule out the possibility that tariffs could be influencing customer order patterns. “When you see such a strong behavior in quarter two versus quarter one, you have to attribute some of it to the tariff environment,” he said.

Analysts have also pointed to a shift in tone from TI’s leadership compared to previous quarters, when executives had expressed optimism about a significant demand rebound independent of tariff factors. Summit Insights analyst Kinngai Chan noted, “Management voiced caution as they saw some normalization of orders through the second quarter.”

Margin Pressures and Strategic Investments

Texas Instruments has made substantial investments to expand its capacity for cost-effective 300-millimeter wafer manufacturing technology. The company plans to invest more than $60 billion to enhance its U.S. manufacturing footprint. However, these expansions come with challenges, particularly in terms of margins.

Stifel analyst Tore Svanberg pointed out that TI expects factory loadings in the third quarter to remain at the same level as the second quarter. This could negatively impact margins, as increasing factory loadings typically helps spread fixed costs over more output, thereby improving profitability. Svanberg noted that TI’s stock fell post-market because investors were expecting stronger results, especially for the third quarter outlook, including for gross margins.

CFO Rafael Lizardi stated that TI expects gross margin growth to be flat in the third quarter. The company’s profit outlook does not include changes related to recently enacted U.S. tax legislation. After Trump signed into law a massive package of tax and spending cuts earlier this month, TI anticipates a higher tax rate in the third quarter and through 2025. However, the company expects this rate to decrease in 2026 and beyond.