Triple Signals Validate Recovery of Analog Chip Sector

Texas Instruments (TXN) released its first-quarter financial report this week, which has attracted far more attention on Wall Street than just a single company. The global leader in analog chips saw a sequential increase in industrial revenue of over 20%, and data center revenue grew by 25%. The mid-point guidance for second-quarter revenue reached $5.2 billion, exceeding market expectations by 7.1%.

Goldman Sachs analysts stated in a research report: "We view this report as a positive indication for the entire analog chip sector."

Demand Is Spreading Across the Board

The biggest difference between this cycle of analog chip recovery and previous ones is that the source of demand improvement has spread from a single scenario to a multi-point resonance.

The recovery in the industrial sector is the most important signal. Industry is the largest traditional application scenario for analog chips and has seen the deepest decline during the past two years of destocking. TXN's industrial revenue increased by more than 20% on a sequential basis, which, in the view of Morgan Stanley analyst Joseph Moore, has already exceeded expectations. His channel surveys also confirmed this trend - in March 2026, bookings in the industrial, defense, and power management sectors have noticeably strengthened, and PMI data is also on a consistent track of improvement.

At the same time, the pull from data centers and AI infrastructure plays a new role in this recovery. TXN's data center revenue grew by 25% on a sequential basis, and telecommunication equipment revenue increased by 30%. This aligns highly with the industry logic revealed in the financial reports of GE Vernova and ABB, where orders for data center electrification have skyrocketed—next to each GPU in data center construction, a large number of analog chips are required to perform power management, signal conversion, and temperature detection.

Morgan Stanley wrote in the preseason report: "We expect the recovery of analog/MCU to have significantly accelerated on the margin and is spreading to a broader range of end markets."

Inventory Inflection Point Has Arrived

From the end of 2022 to 2024, the entire supply chain fell from overstock to a prolonged destocking, and semiconductor company stocks faced repeated pressure as profit expectations continued to be revised downward. The biggest market concern is: when demand data begins to improve, is it a real demand recovery or another round of premature restocking by channels?

The current inventory data is providing a more convincing answer.

TXN's own inventory decreased by about $100 million to $4.7 billion this quarter, and inventory days on hand decreased by 13 days on a sequential basis to 209 days. More importantly, the industry's inventory is also improving in sync: Morgan Stanley's tracking data shows that the inventory days for semiconductor customers decreased by 6 days to 52 days on a sequential basis, already below the historical median; distributor inventory days have continued the downward trend of the past four quarters.

Pricing Weight Returning to Equipment Manufacturers

Demand recovery is only half the story; changes are also occurring on the supply side.

Analog chips mainly rely on 8-inch wafers and mature process production. During the past two years of weak demand, the utilization rate of mature process wafer factories has been low for a long time, and thus the bargaining space for customers has been quite ample. This pattern is quietly changing.

Morgan Stanley documented a series of price signals in its latest report: United Microelectronics Corporation (UMC) is reportedly proposing a price increase for the second half of 2026, citing the continued resilience of demand related to communications, industry, consumer, and AI, as well as tight capacity; Vanguard, Power Semiconductor Manufacturing Corporation (PSMC), and Semiconductor Manufacturing International Corporation (SMIC) have also raised prices, mainly driven by demand for PMIC and AI peripheral chips.

Morgan Stanley stated, "Compared to a month ago, the focus of market discussions has more distinctly shifted towards supply tightness."

With the recovery of demand and the tightening of supply, this combination means that the gross margin expansion of analog chip companies in the coming quarters will have a more solid support than ever before.