Texas Instruments Incorporated

10/23/2025 | Press release | Distributed by Public on 10/23/2025 11:51

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's discussion and analysis of financial condition and results of operations
Overview
We design and manufacture semiconductors that we sell to electronics designers and manufacturers all over the world. Technology is the foundation of our company, but ultimately, our objective and the best metric for owners to measure our progress is through the growth of free cash flow per share over the long term.
Our strategy to maximize long-term free cash flow per share growth has three elements:
1.A great business model that is focused on analog and embedded processing products and built around four sustainable competitive advantages. The four sustainable competitive advantages are powerful in combination and provide tangible benefits:
(a)A strong foundation of manufacturing and technology that provides lower costs and greater control of our supply chain.
(b)A broad portfolio of analog and embedded processing products that offers more opportunity per customer and more value for our investments.
(c)The reach of our market channels that gives access to more customers and more of their design projects, leading to the opportunity to sell more of our products into each design and gives us better insight and knowledge of customer needs.
(d)Diversity and longevity of our products, markets and customer positions that provide less single point dependency and longer returns on our investments.
Together, these competitive advantages help position TI in a unique class of companies capable of generating and returning significant amounts of cash for our owners. We make our investments with an eye towards long-term strengthening and leveraging of these advantages.
2.Discipline in allocating capital to the best opportunities. This spans how we select R&D projects, develop new capabilities, invest in manufacturing capacity or how we think about acquisitions and returning cash to our owners.
3.Efficiency, which means constantly striving for more output for every dollar spent.
We believe that our business model with the combined effect of our four competitive advantages sets TI apart from our peers and will for a long time to come. We will invest to strengthen our competitive advantages, be disciplined in capital allocation and stay diligent in our pursuit of efficiencies. Finally, we will remain focused on the belief that long-term growth of free cash flow per share is the ultimate measure to generate value.
Market and business characteristics
Markets for our products
The end markets for our products are industrial, automotive, personal electronics, enterprise systems and communications equipment. See our 2024 Form 10-K for more information, where we also report calculators and other.
Market cycle
The "semiconductor cycle" refers to the ebb and flow of supply and demand and the building and depleting of inventories. The semiconductor market historically has been characterized by periods of tight supply caused by strengthening demand and/or insufficient manufacturing capacity, followed by periods of surplus inventory caused by weakening demand and/or excess manufacturing capacity. These are typically referred to as upturns and downturns in the semiconductor cycle. Semiconductor cycles are affected by the significant time and money required to build and maintain semiconductor manufacturing facilities.
Seasonality
Our revenue is subject to some seasonal variation. Historically, our sequential revenue growth rate tends to be weaker in the first and fourth quarters when compared with the second and third quarters.
Manufacturing
We invest to make manufacturing and technology a core competitive advantage. The strategic decision to own our manufacturing, process and packaging technology provides us with tangible benefits of lower manufacturing costs and greater control of our supply chain and provides our customers with geopolitically dependable capacity. We own and operate both wafer fabrication and assembly/test facilities in North America, Asia, Japan and Europe. We have focused on creating a competitive structural cost advantage by investing in our 300mm wafer production, which describes the diameter of the wafer on which our chips are produced, and costs about 40% less than a chip built on a 200mm wafer. In addition, we selectively use capacity of outside suppliers, commonly known as foundries and subcontractors.
We continue to invest to strengthen our competitive advantage in manufacturing and technology as part of our long-term capacity plan. We are now mostly through a six-year elevated capital expenditures cycle that, when completed, will uniquely position TI to deliver dependable, low-cost 300mm capacity, scalability of capital expenditures, including capacity modularity, and free cash flow per share growth across a range of market conditions.
With our planned capacity expansions to support demand over time, we expect our internal sourcing to continue to increase. As our Lehi, Utah, manufacturing facility is in the early ramping stages, Embedded Processing is disproportionately impacted by costs associated with the site's capacity expansion. We expect to continue to maintain sufficient internal manufacturing capacity to meet the majority of our production needs and to obtain manufacturing equipment to support new technology developments and revenue growth.
In 2020, we announced a multi-year plan to close our two remaining factories with 150mm production, which are more than 50 years old and located in Sherman and Dallas, Texas. Production is transitioning from these sites to our more advanced and cost-effective 300mm wafer fabrication facilities.
Inventory
Our objectives for inventory are to maintain high levels of customer service, maintain dependable and competitive lead times, minimize inventory obsolescence and improve manufacturing asset utilization. To meet these objectives and to allow greater flexibility in periods of high demand, our strategy is to build ahead of demand our broad-based products that are used across a diverse set of applications and customers and have low risk of obsolescence. Inventory levels will vary based on market conditions and seasonality. We adjust factory loadings as needed to execute on this inventory strategy.
Results of operations
Management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document. In the following discussion of our results of operations:
•Our segments represent groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results. See Note 1 to the financial statements for more information regarding our segments.
•When we discuss our results:
◦Unless otherwise noted, changes in our revenue are attributable to changes in customer demand, which are evidenced by fluctuations in shipment volumes.
◦New products do not tend to have a significant impact on our revenue in any given period because we sell such a large number of products.
◦From time to time, our revenue and gross profit are affected by changes in demand for higher-priced or lower-priced products, which we refer to as changes in the "mix" of products shipped.
◦Because we own much of our manufacturing capacity, a significant portion of our operating cost is fixed. When factory loadings decrease, our fixed costs are spread over reduced output and, absent other circumstances, our profit margins decrease. Conversely, as factory loadings increase, our fixed costs are spread over increased output and, absent other circumstances, our profit margins increase.
•For an explanation of free cash flow, see the Non-GAAP financial information section.
•All dollar amounts in the tables are stated in millions of U.S. dollars.
Performance summary
Our third quarter revenue was $4.74 billion, net income was $1.36 billion and earnings per share (EPS) were $1.48.
Revenue increased 7% sequentially and 14% from the same quarter a year ago with growth across all end markets.
Our cash flow from operations of $6.9 billion for the trailing 12 months again underscored the strength of our business model, the quality of our product portfolio and the benefit of 300mm production. Free cash flow for the same period was $2.4 billion.
Over the past 12 months we invested $3.9 billion in R&D and SG&A, invested $4.8 billion in capital expenditures and returned $6.6 billion to shareholders.
Macroeconomic factors
We believe trade dynamics and geopolitics are disrupting and reshaping global supply chains and affecting customer order behavior. Our global manufacturing capabilities enable us to support our customers' needs. The overall semiconductor market recovery is continuing, though at a slower pace than prior upturns, likely related to broader macroeconomic dynamics and overall uncertainty.
U.S. legislative update
On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (OBBBA). The OBBBA provides changes to U.S. federal tax law, including expensing of U.S. research expenditures and eligible capital expenditures, increasing the U.S. CHIPS and Science Act (CHIPS Act) investment tax credit (ITC) and changing other tax provisions. The effect of the new law results in a higher effective tax rate in the third quarter and full year 2025. For 2026 and beyond, we expect the effective tax rate to be lower than it would have been under prior tax law. Additionally, we expect tax-related cash payments to be lower for the next several years as a result of the changes.
Details of financial results - third quarter 2025 compared with third quarter 2024
Revenue of $4.74 billion increased $591 million, or 14%, due to higher revenue from increased demand in our Analog segment and, to a lesser extent, in our Embedded Processing segment, which were both impacted by the macroeconomic factors discussed above.
Gross profit of $2.72 billion was up $249 million, or 10%, due to higher revenue, partially offset by higher manufacturing costs associated with our planned capacity expansions. As a percentage of revenue, gross profit decreased to 57.4% from 59.6%.
Operating expenses (R&D and SG&A) were $975 million compared with $920 million.
Restructuring charges/other was $85 million related to efforts to drive operational efficiencies to support our long-term strategy, including the planned closures of our two remaining factories with 150mm production.
Operating profit was $1.66 billion, or 35.1% of revenue, compared with $1.55 billion, or 37.4% of revenue. This change was primarily due to higher revenue, partially offset by higher manufacturing costs.
OI&E was $62 million of income compared with $131 million of income. This decrease was due to lower interest income.
Interest and debt expense of $141 million increased $10 million. See Note 6 to the financial statements.
Our provision for income taxes was $220 million compared with $192 million. This increase was primarily due to changes in the effect of U.S. tax benefits, including the effect of OBBBA, lower discrete tax benefits and higher income before income taxes. Our effective tax rate, which includes discrete tax items, was 14% compared with 12%.
Net income was $1.36 billion in both periods. EPS was $1.48 compared with $1.47.
Third quarter 2025 segment results
Our segment results compared with the year-ago quarter are as follows:
Analog (includes Power and Signal Chain product lines)
Q3 2025 Q3 2024 Change
Revenue $ 3,729 $ 3,223 16 %
Operating profit 1,486 1,316 13 %
Operating profit % of revenue 39.8 % 40.8 %
Analog revenue increased in both product lines, led by Signal Chain, due to higher demand, which was impacted by the macroeconomic factors discussed above. Operating profit increased primarily due to higher revenue, partially offset by higher manufacturing costs and operating expenses.
Embedded Processing (includes microcontrollers and processors)
Q3 2025 Q3 2024 Change
Revenue $ 709 $ 653 9 %
Operating profit 108 109 (1) %
Operating profit % of revenue 15.2 % 16.7 %
Embedded Processing revenue increased due to higher demand, which was impacted by the macroeconomic factors discussed above. Operating profit was about even due to higher manufacturing costs and operating expenses, offset by higher revenue.
Other (includes DLP®products, calculators and custom ASIC products)
Q3 2025 Q3 2024 Change
Revenue $ 304 $ 275 11 %
Operating profit * 69 129 (47) %
Operating profit % of revenue 22.7 % 46.9 %
* Includes Restructuring charges/other
Other revenue increased $29 million, and operating profit decreased $60 million.
Details of financial results - first nine months of 2025 compared with first nine months of 2024
Revenue of $13.26 billion increased $1.63 billion, or 14%, due to higher revenue from increased demand in our Analog segment and, to a lesser extent, in our Embedded Processing segment, which were both impacted by the macroeconomic factors discussed above.
Gross profit of $7.61 billion was up $831 million, or 12%, due to higher revenue. Our gross profit was also impacted by higher manufacturing costs associated with our planned capacity expansions, partially offset by reduced costs related to increased factory loadings. As a percentage of revenue, gross profit decreased to 57.4% from 58.3%.
Operating expenses were $2.98 billion compared with $2.82 billion.
Restructuring charges/other was $85 million related to efforts to drive operational efficiencies to support our long-term strategy, including the planned closures of our two remaining factories with 150mm production, compared with a credit of $124 million primarily due to a gain on the sale of a property during 2024.
Operating profit was $4.55 billion, or 34.3% of revenue, compared with $4.09 billion, or 35.1% of revenue. This change was primarily due to higher revenue and associated gross profit, partially offset by higher operating expenses.
OI&E was $190 million of income compared with $384 million of income. This decrease was due to lower interest income.
Interest and debt expense of $402 million increased $24 million.
Our provision for income taxes was $500 million in both periods. This includes an increase in taxes from higher income before income taxes and changes in the effect of U.S. tax benefits, including the effect of OBBBA, offset by higher discrete tax benefits of $41 million, primarily related to our non-U.S. operations. Our effective tax rate, which includes discrete tax items, was 12% in both periods.
Net income was $3.84 billion compared with $3.59 billion. EPS was $4.18 compared with $3.89.
Year-to-date segment results
Our segment results compared with the year-ago period are as follows:
Analog
YTD 2025 YTD 2024 Change
Revenue $ 10,391 $ 8,987 16 %
Operating profit 4,017 3,371 19 %
Operating profit % of revenue 38.7 % 37.5 %
Analog revenue increased in both product lines, led by Power, due to higher demand, which was impacted by the macroeconomic factors discussed above. Operating profit increased primarily due to higher revenue and associated gross profit, partially offset by higher operating expenses.
Embedded Processing
YTD 2025 YTD 2024 Change
Revenue $ 2,035 $ 1,920 6 %
Operating profit 233 294 (21) %
Operating profit % of revenue 11.4 % 15.3 %
Embedded Processing revenue increased due to higher demand, which was impacted by the macroeconomic factors discussed above. Operating profit decreased primarily due to higher manufacturing costs and operating expenses, partially offset by higher revenue.
Other
YTD 2025 YTD 2024 Change
Revenue $ 833 $ 727 15 %
Operating profit * 300 423 (29) %
Operating profit % of revenue 36.0 % 58.2 %
* Includes Restructuring charges/other
Other revenue increased $106 million, and operating profit decreased $123 million.
Financial condition
At the end of the third quarter of 2025, total cash (cash and cash equivalents plus short-term investments) was $5.19 billion, a decrease of $2.39 billion from the end of 2024.
Accounts receivable were $2.06 billion, an increase of $343 million compared with the end of 2024. Days sales outstanding were 39 for both the third quarter of 2025 and at the end of 2024.
Inventory was $4.83 billion, an increase of $302 million from the end of 2024. Days of inventory for the third quarter of 2025 were 215 compared with 241 at the end of 2024, which reflects the continued execution of our inventory strategy. As our current inventory levels align with our objectives, we expect to moderate factory loadings accordingly.
Liquidity and capital resources
Our primary source of liquidity is cash flow from operations. Additional sources of liquidity are cash and cash equivalents, short-term investments and access to debt markets. We also have a variable-rate, revolving credit facility. As of September 30, 2025, our credit facility was undrawn, and we had no commercial paper outstanding. Cash flows from operating activities for the first nine months of 2025 were $4.90 billion, an increase of $579 million from the year-ago period primarily due to higher net income and non-cash items, partially offset by higher cash used for working capital. Cash flows from operating activities for the first nine months of 2025 and 2024 includes cash benefits of $246 million and $532 million, respectively, from the CHIPS Act ITC used to reduce income taxes payable.
Investing activities for the first nine months of 2025 used $763 million compared with $3.82 billion in the year-ago period. Capital expenditures were $3.63 billion in both periods and were primarily for semiconductor manufacturing equipment and facilities. For the first nine months of 2025, we received proceeds of $335 million from CHIPS Act incentives, including $75 million in direct funding. Short-term investments provided cash of $2.55 billion compared with $346 million of cash used in the year-ago period.
We are now mostly through a six-year elevated capital expenditures cycle, and consistent with our capital management strategy, we are currently evaluating our capital expenditure levels to determine if they will remain at elevated levels in 2026 and beyond, dependent on revenue and growth expectations. We expect to continue benefiting from the CHIPS Act, including the 25% ITC on qualifying manufacturing investments that increases to 35% for assets placed in service after December 31, 2025, and direct funding of up to $1.6 billion for our three large-scale 300mm wafer fabs located in Sherman, Texas, and Lehi, Utah.
In September 2025, we announced we would increase our quarterly cash dividend by 4% to $1.42 per share, marking 22 consecutive years of dividend increases.
Financing activities for the first nine months of 2025 used $4.03 billion compared with $879 million in the year-ago period. We received net proceeds of $1.20 billion from the issuance of fixed-rate, long-term debt and retired maturing debt of $750 million. In the year-ago period, we received net proceeds of $2.98 billion from the issuance of fixed-rate, long-term debt and retired maturing debt of $300 million. Dividends paid were $3.71 billion compared with $3.56 billion in the year-ago period, reflecting an increased dividend rate. We used $1.07 billion to repurchase 6.1 million shares of our common stock compared with $392 million to repurchase 2.0 million shares in the year-ago period. Employee exercises of stock options provided cash proceeds of $358 million compared with $430 million in the year-ago period.
We had $3.31 billion of cash and cash equivalents and $1.88 billion of short-term investments as of September 30, 2025. We believe we have the necessary financial resources and operating plans to fund our working capital needs, capital expenditures, dividend and debt-related payments, and other business requirements for at least the next 12 months.
Non-GAAP financial information
This MD&A includes references to free cash flow and ratios based on that measure. These are financial measures that were not prepared in accordance with generally accepted accounting principles in the United States (GAAP). Free cash flow is calculated as cash flows from operating activities (also referred to as cash flow from operations) less capital expenditures, plus proceeds from CHIPS Act incentives.
We believe that free cash flow and the associated ratios provide insight into our liquidity, our cash-generating capability and the amount of cash potentially available to return to shareholders, as well as insight into our financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures.
Reconciliation to the most directly comparable GAAP measures is provided in the table below.
For 12 Months Ended
September 30,
2025 2024 Change
Cash flow from operations (GAAP) * $ 6,897 $ 6,244 10 %
Capital expenditures (4,817) (4,776)
Proceeds from CHIPS Act incentives 335 -
Free cash flow (non-GAAP) $ 2,415 $ 1,468 65 %
Revenue $ 17,266 $ 15,711
Cash flow from operations as a percentage of revenue (GAAP) 39.9 % 39.7 %
Free cash flow as a percentage of revenue (non-GAAP) 14.0 % 9.3 %
* Includes cash benefits of $302 million and $532 million from the CHIPS Act ITC used to reduce income taxes payable for the twelve months ended September 30, 2025 and 2024, respectively.
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