FILE PHOTO: A Texas Instruments Office is shown in San Diego, California, U.S., April 24, 2018. REUTERS/Mike Blake/File photo
(Reuters) -Texas Instruments shares sank 11% on Wednesday after executives adopted a markedly cautious tone and issued a weak quarterly profit forecast, intensifying investor concerns over the impact of tariffs.
After optimistic projections in April had boosted confidence in a demand rebound, TI said on Tuesday’s earnings call that a recovery in the auto industry was lagging and would likely be less robust as tariffs disrupt global supply chains
CEO Haviv Ilan also said he "can't rule out the possibility" that stronger-than-expected second-quarter revenue was driven by orders that customers pulled forward to avoid potential tariffs.
Bernstein analyst Stacy Rasgon noted a significant change in tone from the previous quarter's call and management's comments during the quarter, with a more cautious stance on geopolitics and tariffs, adding the shift "felt somewhat sudden".
Chipmakers such as TI are not yet directly affected by higher U.S. tariffs, but rising costs for chip-making equipment and reduced customer spending are beginning to weigh on the sector.
Both ASML, the world's biggest supplier of chip-making equipment, and TSMC, the biggest chip-making factory, warned about tariff-related uncertainty last week.
The effects of tariffs and trade are starting to show, and we expect demand to remain somewhat weaker than usual for this time of year, J.P. Morgan analysts said.
Some analysts also said TI's margins were under pressure from a U.S. manufacturing expansion aimed at increasing in-house manufacturing and staving off rising Chinese competition.
In June, the company announced plans to spend more than $60 billion to build or expand seven chip-making facilities at three sites in Texas and Utah.
The stock has risen about 15% so far this year, giving it a 12-month forward price-to-earnings ratio of 34.66, compared with rival Analog Devices' 27.64.
(Reporting by Akriti Shah and Siddarth S in Bengaluru; Editing by Vijay Kishore and Tasim Zahid)
