Texas Instruments (TXN) stock dropped 12% after the company issued third-quarter guidance that fell short of Wall Street’s earnings expectations, raising concerns over the impact of ongoing tariffs and geopolitical uncertainty.
While the semiconductor firm delivered better-than-expected second-quarter results, investors appeared more focused on the company’s cautious tone for the quarters ahead.
The company expects Q3 earnings per share between $1.36 and $1.60, with a midpoint of $1.48, slightly below the LSEG consensus estimate of $1.50.
Revenue guidance for the quarter stands at $4.45 billion to $4.80 billion, with a midpoint of $4.63 billion, modestly ahead of analysts’ expectations of $4.59 billion.
Strong Q2 performance driven by analog and embedded segments
For the second quarter ended June 30, 2025, Texas Instruments reported earnings per share of $1.41, beating both its internal guidance range of $1.21 to $1.47 and the Zacks Consensus Estimate by 6.82%.
Earnings rose 15.6% year over year, while net income climbed to $1.3 billion from $1.13 billion a year ago.
Revenue for the quarter came in at $4.45 billion, also ahead of estimates and reflecting a 16% year-over-year increase.
Texas Instruments has now beaten earnings estimates for four consecutive quarters, with an average surprise of 11.23%.
The company’s performance was led by growth in its Analog segment, which contributed $3.45 billion, or 77.6% of total revenue, marking an 18% year-over-year increase.
The Embedded Processing division reported revenue of $679 million, up 10.4%, while the Other segment generated $317 million, up 13.6%.
On the profitability front, operating profit rose 25.2% to $1.56 billion, and the operating margin expanded by 250 basis points to 35.1%.
Gross profit increased 16% to $2.58 billion, with the gross margin holding steady at 58%.
Tariff headwinds and shallow automotive recovery weigh on guidance
During the company’s earnings call, CEO Haviv Ilan cited a “shallow recovery” in the automotive sector and lingering concerns among customers regarding tariffs and geopolitical uncertainty.
He suggested some of Q2’s strength may have been driven by pull-forward demand, as customers rushed to secure inventory ahead of potential tariffs.
Despite positive results, this cautious outlook influenced the company’s Q3 guidance, which includes a projected effective tax rate of 12–13%.
Analysts and investors are now watching closely to see how Texas Instruments navigates the evolving trade landscape and moderating demand.
Healthy cash flow, strong balance sheet, and capital return
Texas Instruments ended the quarter with a cash and short-term investment balance of $5.36 billion, up from $5 billion at the end of Q1.
Long-term debt increased to $14.04 billion from $12.85 billion.
The company generated $1.86 billion in operating cash flow during the quarter and returned a combined $1.54 billion to shareholders through $302 million in share repurchases and $1.24 billion in dividends.
For the first half of 2025, operating cash flow totaled $2.71 billion, while capital returns reached $3.44 billion.
Despite a short-term pullback in the stock, Texas Instruments’ solid fundamentals and strategic positioning in the automotive and industrial semiconductor markets continue to underpin its long-term outlook.
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