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Texas Instruments Cuts Chip Prices:The Rise and Fall of the Chip Industry

Texas Instruments (TI) has announced that it will cut chip prices across the board in response to weakening demand and rising inventory levels. The company has forecast lower-than-expected revenue and profit for the second and fourth quarters of 2023, signaling that the chip industry boom is coming to an end.

TI’s decision to lower chip prices reflects the changing dynamics of the semiconductor market, which has been hit by a supply glut, inflationary pressures, and slowing demand from key end-markets such as personal electronics, industrial, and data center servers. TI derives about 70% of its revenue from these markets, with industrial comprising about 40%.

According to TI, order cancellations increased during the third quarter of 2023, as customers adjusted their inventory levels to match the softening demand. The company said it experienced expected weakness in personal electronics and expanding weakness across industrial in the third quarter, and expects this trend to continue in the fourth quarter.

The only exception to this trend was the automotive sector, which showed strong demand for TI’s semiconductors in the third quarter. However, some analysts have warned that the automotive demand may also decline in the first half of next year, as automakers adjust their orders to reflect the actual demand for vehicles.

TI’s announcement has sent a negative signal to the chip industry, which has enjoyed a two-year boom driven by tight supply and high demand. However, as supply catches up with demand and customers become more cautious about spending, chip makers are facing a downturn that could last for several quarters.

TI’s competitors, such as Advanced Micro Devices (AMD) and Micron Technology (MU), have also warned of worsening demand and lower margins in their recent earnings reports. The chip industry slump has also affected TI’s share price, which has fallen about 14% so far this year.

TI said it does not expect a significant impact from the U.S. restrictions on exports to China, where it makes 25% of its revenue from. The company said it has a diversified customer base and a broad portfolio of products that can mitigate the effects of trade tensions.

TI also said it will continue to invest in its manufacturing capacity and technology leadership, despite the challenging market conditions. The company has forecast capital expenditure to average around $5 billion per year from 2023 to 2026, aiming to increase its market share and profitability in the long term.

In conclusion, TI’s decision to cut chip prices across the board is a strategic move to cope with the weakening demand and rising inventory levels in the semiconductor market. The company has forecast lower-than-expected revenue and profit for the second and fourth quarters of 2023, indicating that the chip industry boom is over. TI faces challenges from a supply glut, inflationary pressures, and slowing demand from key end-markets such as personal electronics, industrial, and data center servers. However, the company also has strengths such as a strong presence in the automotive sector, a diversified customer base, a broad portfolio of products, and a commitment to invest in its manufacturing capacity and technology leadership. TI hopes to weather the storm and emerge stronger in the post-boom era.

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