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Texas Instruments, Altera, DuPont: Harbingers of Doom?


Texas Instruments, Altera, and DuPont all lowered guidance, indicating weakness in the macroeconomy.

Is the macro picture faltering as we close out 2011 and head toward 2012?

Three key companies with broad-based economic exposure -- semiconductor giants Texas Instruments (TXN) and Altera (ALTR), and chemical king DuPont (DD) -- seem to think so.

In the span of about 16 hours, each lowered its fourth-quarter guidance in reaction to slowing demand.

So let's look at what they had to say!

In yesterday's mid-quarter update, Texas Instruments cuts its fourth-quarter revenue outlook to $3.19 to $3.33 billion, compared with a prior range of $3.26 to $3.54 billion. Earnings guidance was similarly reduced to a range of $0.21 to $0.25 per share from $0.28 to $0.36 per share.

And in its press release, the company said "The reductions are due to broadly lower demand across a wide range of markets, customers and products, except for Wireless applications processors."

On the subsequent conference call, Texas Instruments noted an impact from the proposed merger between AT&T (T) and T-Mobile, which slowed down its equipment spending, supply-chain disruptions from the Thailand floods, and also consumer-electronics markets like televisions and video games. In general, customers are reducing inventories as a function of their weak economic outlooks, which is of course related to demand.
But as it noted in the press release, Texas Instruments is hanging pretty strong in wireless given design wins in key Google (GOOG) Android phones like the Samsung Galaxy Nexus II. Also, Texas Instruments is doing good business with chips supplied for's (AMZN) Kindle Fire tablet, and the Barnes & Noble (BKS) NOOK.

Now, let's move on to Altera.

Like Texas Instruments, Altera sells chips into a wide variety of end markets, ranging from automotive to medical to wireless.

Altera took a big hatchet to its fourth-quarter revenue outlook. While it previously expected a sequential decline of 7-11%, it now sees a 13-16% decrease.

And here's the commentary from the press release:


The revenue outlook has deteriorated across all major vertical markets, including both large and small customers. With the exception of North America , which will benefit from rising military sales, all geographic regions will be weak. As the quarter has progressed, economic uncertainty, macroeconomic concerns, and, in some instances, lower than planned sales have resulted in customers reducing demand on Altera.

Altera's biggest customers are Arrow Electronics (ARW) and Macnica, both of which are major distributors of electronics and computing components. Therefore, Altera's commentary doesn't exactly bode well for broader semiconductor demand heading into 2012.

Finally, let's look at the chemical giant DuPont (DD).

DuPont took a lighter cut to its outlook, now seeing full year earnings of $3.87 to $3.95 per share, which is only slightly below the prior outlok calling for $3.97 to $4.05 a share.

However, the company's commentary, particularly on the vital housing market, is far from constructive:

The earnings revision reflects destocking across polymers and certain industrial supply chains that has accelerated during the fourth quarter. Consumer electronics demand has further softened, and housing and construction markets remain weak. Other markets remain as expected. For example, markets for DuPont's agriculture and food businesses continue to be strong, including solid volume growth during the current Latin America summer season.

Adding It Up

All this bad news, which is coming just three weeks before the end of the fourth quarter, flies in the face of some of the more positive recent US economic data, which of course, is backward-looking.

Most importantly, the theme of customer inventory reductions implies poor business confidence, which is a product of end-market demand levels and future expectations. It's especially damaging that there wasn't anything remotely positive regarding cyclical sectors like housing.

On the upside, there were a few positive nuggets indicating pockets of relative strength within the global economy.

For one, Texas Instruments essentially gave the heads-up that the mobile-device party is still raging, which should be encouraging for investors in names like Apple (AAPL) and Qualcomm (QCOM).

Also, DuPont indicated that agriculture is strong, which should reassure holders of Deere (DE) and Monsanto (MON).

And Altera noted that North American military spending is holding up, which is positive for companies like Lockheed Martin (LMT) and Boeing (BA).

Again -- these are not cyclical chunks of the economy, so try as they may, there's ultimately not much for the bulls to hang their hats on here.

But more importantly -- is economic doom priced in? It's tough to say. Stock valuations are cheap on the surface, but remember how P/E ratios work -- a low P/E is only low when the E isn't shrinking.

So watch closely for any further warnings from the semi complex or cyclicals heading into year-end -- because for equities to hold up, that E needs to hang in there.

Twitter: @MichaelComeau

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