Texas Instruments Incorporated

04/24/2026 | Press release | Distributed by Public on 04/24/2026 07:35

Quarterly Report for Quarter Ending March 31, 2026 (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 better insight and knowledge of customer needs and the opportunity to sell more of our products into each design.
(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 markets for our products are industrial, automotive, data center, personal electronics and communications equipment. See our 2025 Form 10-K for more information.
Semiconductor cycle
The semiconductor cycle refers to the ebb and flow of supply and demand and the building and depleting of inventories. It 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 nearing the end of 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. 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.
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.
◦Our LFAB facility, which primarily supports our Embedded Processing business, was purchased as an operating fab and is continuing to ramp production, so we expect factory loadings to increase over time. As LFAB ramps, we expect Embedded to carry manufacturing costs that disproportionately benefit Embedded Processing operating profit as compared to Analog.
•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 first quarter revenue was $4.83 billion, net income was $1.55 billion and earnings per share (EPS) were $1.68.
Revenue increased 9% sequentially and 19% from the same quarter a year ago with growth led by industrial and data center.
Our cash flow from operations of $7.8 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 $4.4 billion.
Over the past 12 months we invested $3.9 billion in R&D and SG&A, invested $4.1 billion in capital expenditures and returned $6.0 billion to shareholders.
Macroeconomic factors
In first quarter, the overall analog and embedded semiconductor market recovery continued. While uncertainty related to broader macroeconomic dynamics remains, growth of semiconductor content in electronics has continued to drive demand for our products, particularly in the industrial, automotive and data center markets. We believe we are well positioned with inventory and capacity to support our customers with competitive lead times through the semiconductor cycle.
Acquisition of Silicon Labs
As announced on February 4, 2026, we have entered into a definitive agreement to acquire Silicon Labs for $231.00 per share in an all-cash transaction, representing a total enterprise value of approximately $7.5 billion. Under the terms of the agreement, Silicon Labs stockholders will receive $231.00 in cash for each share of Silicon Labs common stock they hold at the time of closing, which is currently expected in the first half of 2027, subject to receipt of regulatory approvals and other customary closing conditions, including approval by Silicon Labs stockholders. We expect to fund the transaction with a combination of cash on hand and debt financing to be arranged prior to closing.
Details of financial results - first quarter 2026 compared with first quarter 2025
Revenue of $4.83 billion increased $756 million, or 19%, due to 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 $2.80 billion was up $486 million, or 21%, primarily due to higher revenue, partially offset by higher manufacturing costs associated with our planned capacity expansions. As a percentage of revenue, gross profit increased to 58.0% from 56.8%.
Operating expenses (R&D and SG&A) were $974 million compared with $989 million.
Acquisition charges were $17 million due to transaction-related costs associated with our planned acquisition of Silicon Labs.
Operating profit was $1.81 billion, or 37.5% of revenue, compared with $1.32 billion, or 32.5% of revenue. This change was primarily due to higher revenue and associated gross profit.
OI&E was $47 million of income compared with $80 million of income. This decrease was primarily due to lower interest income.
Interest and debt expense of $141 million increased $13 million. See Note 6 to the financial statements.
Our provision for income taxes was $169 million compared with $97 million. This increase was primarily due to higher income before income taxes. Our effective tax rate, which includes discrete tax items, was 10% compared with 8%.
Net income was $1.55 billion compared with $1.18 billion. EPS was $1.68 compared with $1.28.
First quarter 2026 segment results
Our segment results compared with the year-ago quarter are as follows:
Analog (includes Power and Signal Chain product lines)
Q1 2026 Q1 2025 Change
Revenue $ 3,924 $ 3,210 22 %
Operating profit 1,638 1,206 36 %
Operating profit % of revenue 41.7 % 37.6 %
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 and associated gross profit.
Embedded Processing (includes microcontrollers and processors)
Q1 2026 Q1 2025 Change
Revenue $ 723 $ 647 12 %
Operating profit 122 40 205 %
Operating profit % of revenue 16.9 % 6.2 %
Embedded Processing revenue increased 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.
Other (includes DLP® products and calculators)
Q1 2026 Q1 2025 Change
Revenue $ 178 $ 212 (16) %
Operating profit * 48 78 (38) %
Operating profit % of revenue 27.0 % 36.8 %
* Includes Acquisition charges
Other revenue decreased $34 million, and operating profit decreased $30 million.
Financial condition
At the end of the first quarter of 2026, total cash (cash and cash equivalents plus short-term investments) was $5.10 billion, an increase of $222 million from the end of 2025.
Accounts receivable were $2.25 billion, an increase of $282 million compared with the end of 2025. Days sales outstanding in the first quarter of 2026 were 42 compared with 40 at the end of 2025.
Inventory was $4.70 billion, a decrease of $109 million from the end of 2025. Days of inventory for the first quarter of 2026 were 209 compared with 222 at the end of 2025, which reflects the continued execution of our inventory strategy.
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 March 31, 2026, our credit facility was undrawn, and we had no commercial paper outstanding. Cash flows from operating activities for the first three months of 2026 were $1.52 billion, an increase of $671 million from the year-ago period due to higher net income and non-cash items, as well as lower cash used for working capital.
Investing activities for the first three months of 2026 used $47 million compared with $1.25 billion of cash provided in the year-ago period. Capital expenditures were $676 million compared with $1.12 billion in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods. U.S. CHIPS and Science Act (CHIPS Act) incentives provided cash proceeds of $555 million of direct funding compared with $260 million related to the investment tax credit (ITC) in the year-ago period. Short-term investments provided cash of $108 million compared with $2.16 billion in the year-ago period.
We are nearing the end of our six-year elevated capital expenditures cycle, and consistent with our capital management strategy, we are expecting to spend about $2 billion to $3 billion in 2026. Beyond 2026, capital expenditures will be dependent on revenue and growth expectations. We expect to continue benefiting from the CHIPS Act. This includes the 35% ITC on qualifying manufacturing investments as well as direct funding of up to $1.6 billion, of which we have received $630 million, for our three large-scale 300mm wafer fabs located in Sherman, Texas, and Lehi, Utah.
Financing activities for the first three months of 2026 used $1.15 billion compared with $2.54 billion in the year-ago period. We retired maturing debt of $750 million in the year-ago period. Dividends paid were $1.29 billion compared with $1.24 billion in the year-ago period, reflecting an increased dividend rate. We used $158 million to repurchase 0.8 million shares of our common stock compared with $653 million to repurchase 3.5 million shares in the year-ago period. Employee exercises of stock options provided cash proceeds of $309 million compared with $118 million in the year-ago period.
We had $3.55 billion of cash and cash equivalents and $1.55 billion of short-term investments as of March 31, 2026. 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
March 31,
2026 2025 Change
Cash flow from operations (GAAP) * $ 7,824 $ 6,150 27 %
Capital expenditures (4,103) (4,695)
Proceeds from CHIPS Act incentives 630 260
Free cash flow (non-GAAP) $ 4,351 $ 1,715 154 %
Revenue $ 18,438 $ 16,049
Cash flow from operations as a percentage of revenue (GAAP) 42.4 % 38.3 %
Free cash flow as a percentage of revenue (non-GAAP) 23.6 % 10.7 %
* Includes cash benefits of $335 million and $588 million from the CHIPS Act ITC used to reduce income taxes payable for the twelve months ended March 31, 2026 and 2025, respectively.
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