by Calculated Risk on 7/20/2009 06:40:00 PM

Texas Instruments is seeing a pickup in orders, but is this just inventory restocking or because of a pickup in end demand?

From the conference call (ht Brian):

Analyst: You mentioned that visibility has improved markedly. And it's obvious in a way because your bookings were up and your backlog is higher. Are there -- is there anything that you're hearing or seeing from your customers that says to you what we're seeing is more sustainable than one might have thought a quarter ago?

TXN: Well, the signals that we're seeing, Glen, have to do with the rate of decline that we're seeing in their inventory levels. It has slowed substantially. Which certainly signals to us that they believe their inventories are much better aligned now with their true end demand. So that's probably one of the better signals that we're seeing. And the second, of course, is the orders. We actually saw our backlog for the current quarter increase about 27% versus where we were 90 days ago. In other words, starting the third quarter, we had 27% more backlog than we did starting the second quarter. So that's given us increased visibility and increased confidence for the third quarter.

Analyst: your guidance [for Q3 indicates] the mid-point would be up 7.8% from where you came in in Q2. I'm curious how much of that you feel is [inventory] restocking which might occur in the channel. I just note that a little more typical seasonal might be up maybe 3% to 4%.

TXN: Where we have great visibility in terms of actually knowing the specifics of inventory trends will be at distribution. When we start moving out into the OEMs and EMS , we generally will have a feel for what's going on, but it's difficult to be specific. If you just look at for example last quarter, our largest customer which did report last week announced that they reduced their inventory 14%, the other area where I said we had great visibility was at distribution where we saw inventory go down 10%. So, between those two guys alone, they represent half of our revenue, in second quarter we continued to ship below the rate at which they're shipping out. The other half of our revenue basically we think there are general trends that probably match the other half -- the first half I described. So going into third quarter, we know based upon the half of our revenue that I just described, our shipments entering the quarter are below the rate at which the customers are shipping out. So we know or we believe there's more room to go in terms of what I would call the convergence of our shipments and the rate at which our customers are [shipping]. Does it go beyond that and have those customers start to replenish inventory, that wouldn't be surprising just given the seasonality of third quarter coming into the holiday market. But I don't want to speculate on what will or will not happen other than a normal seasonal trend would indicate that.

It sounds like TI's customers are trying to match their inventory to their new lower level of shipments, but it isn't clear there is any pickup in end demand.