What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-26 · 45 added, 83 removed, 76 unchanged (63% of the section changed)

Management’s discussion and analysis of financial condition and results of operations

We design, make and sell semiconductors to electronics designers and manufacturers all over the world.

Technology is the foundation of our company, but ultimately, our objective and the best metric to measure progress and generate long-term value for owners is the growth of free cash flow per share.

Our strategy to maximize free cash flow per share growth has three elements:

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:

A great business model that is focused on analog and embedded processing products and built around four sustainable competitive advantages.

25 unchanged sentences

• All dollar amounts in the tables are stated in millions of U.S.

The coronavirus (COVID-19) pandemic and its effects are impacting and will likely continue to impact market conditions and business operations across industries worldwide, including at TI.

Therefore, we remain cautious about how the economy might behave for the next few years and continue to monitor potential impact on our operations.

In August 2022, the U.S.

government enacted the U.S.

CHIPS and Science Act (CHIPS Act).

The CHIPS Act provides funding for manufacturing grants and research investments, and it establishes a 25% investment tax credit for certain investments in U.S.

semiconductor manufacturing.

We are currently evaluating the benefit we will receive from the CHIPS Act.

Performance summary

Our third quarter revenue was $5.24 billion, net income was $2.30 billion and earnings per share (EPS) were $2.47.

Revenue increased 1% sequentially and increased 13% from the same quarter a year ago, about as expected.

During the quarter we experienced expected weakness in personal electronics and expanding weakness across industrial.

Our first quarter revenue was $4.38 billion, net income was $1.71 billion and earnings per share (EPS) were $1.85.

Revenue decreased 6% sequentially and decreased 11% from the same quarter a year ago.

During the quarter we experienced weakness across our end markets with the exception of automotive, as expected.

Our cash flow from operations of $7.7 billion for the trailing 12 months again underscored the strength of our business model.

Free cash flow for the same period was $4.4 billion and 23% of revenue.

This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter production.

This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-mm production.

Over the past 12 months we invested $3.5 billion in R&D and SG&A, invested $3.3 billion in capital expenditures and returned $7.5 billion to shareholders.

Results of operations – third quarter 2022 compared with third quarter 2021

Revenue of $5.24 billion increased $598 million, or 13%, primarily due to higher revenue from Analog and, to a lesser extent, Embedded Processing.

This increase benefited from higher prices and the mix of products shipped.

Gross profit of $3.62 billion was up $465 million, or 15%, primarily due to higher revenue.

As a percentage of revenue, gross profit increased to 69.0% from 67.9%.

Results of operations – first quarter 2023 compared with first quarter 2022

Revenue of $4.38 billion decreased $526 million, or 11%, primarily due to lower revenue from Analog, partially offset by higher revenue from Embedded Processing.

Gross profit of $2.86 billion was down $579 million, or 17%, due to lower revenue and higher manufacturing costs.

As a percentage of revenue, gross profit decreased to 65.4% from 70.2%.

Operating expenses (R&D and SG&A) were $929 million compared with $813 million.

Restructuring charges/other was $77 million due to integration charges at our Lehi, Utah, manufacturing facility.

This increase was due to higher employee-related costs as we invest to strengthen our competitive advantages.

Restructuring charges/other in the year-ago period was $66 million due to preproduction costs at our Lehi, Utah, manufacturing facility.

These costs transitioned primarily to cost of revenue after production began in December 2022.

Operating profit was $1.93 billion, or 44.2% of revenue, compared with $2.56 billion, or 52.3% of revenue.

OI&E was $33 million of income compared with $15 million of income.

OI&E was $80 million of income compared with $15 million of income, due to higher interest income.

Interest and debt expense of $68 million increased $16 million due to the issuance of additional long-term debt.

See Note 6 to the financial statements.

Our provision for income taxes was $238 million compared with $325 million.

This increase was due to higher income before income taxes, partially offset by higher discrete tax benefits.

This decrease was due to lower income before income taxes.

Net income was $1.71 billion compared with $2.20 billion.

EPS was $1.85 compared with $2.35.

Third quarter 2022 segment results

First quarter 2023 segment results

Our segment results compared with the year-ago quarter are as follows:

4 unchanged sentences

Operating profit % of revenue 47.9 % 56.3 %

Analog revenue increased in both product lines, led by Signal Chain.

Operating profit increased primarily due to higher revenue and associated gross profit.

Analog revenue decreased in both product lines, led by Power.

Operating profit decreased primarily due to lower revenue and associated gross profit.

Embedded Processing (includes microcontrollers and processors)

3 unchanged sentences

Operating profit % of revenue 28.5 % 40.3 %

Embedded Processing revenue increased.

Operating profit increased due to higher revenue and associated gross profit.

Embedded Processing revenue increased due to the mix of products shipped.

Operating profit decreased primarily due to higher manufacturing costs, partially offset by higher revenue.

Other (includes DLP ® products, calculators and custom ASIC products)

3 unchanged sentences

Operating profit % of revenue 47.7 % 31.9 %

* Includes acquisition charges and restructuring charges/other

Other revenue increased $70 million, and operating profit increased $20 million.

Results of operations – first nine months of 2022 compared with first nine months of 2021

Revenue of $15.36 billion increased $1.85 billion, or 14%, primarily due to higher revenue from Analog and, to a lesser extent, Embedded Processing.

This increase benefited from higher prices and the mix of products shipped.

Gross profit of $10.68 billion was up $1.66 billion, or 18%, primarily due to higher revenue.

As a percentage of revenue, gross profit increased to 69.6% from 66.8%.

Operating expenses were $2.51 billion compared with $2.43 billion.

Restructuring charges/other was $209 million due to integration charges at our Lehi, Utah, manufacturing facility.

Operating profit was $7.96 billion, or 51.9% of revenue, compared with $6.46 billion, or 47.8% of revenue.

OI&E was $55 million of income compared with $134 million of income.

Our provision for income taxes was $1.08 billion compared with $825 million.

This increase was due to higher income before income taxes and lower discrete tax benefits.

Net income was $6.79 billion compared with $5.63 billion.

EPS was $7.27 compared with $5.99.

Year-to-date segment results

Our segment results compared with the year-ago period are as follows:

YTD 2022 YTD 2021 Change

Revenue $ 11,801 $ 10,292 15 %

Operating profit 6,561 5,295 24 %

Operating profit % of revenue 55.6 % 51.4 %

Analog revenue increased in both product lines, led by Signal Chain.

Operating profit increased primarily due to higher revenue and associated gross profit.

Embedded Processing

YTD 2022 YTD 2021 Change

Revenue $ 2,424 $ 2,285 6 %

Operating profit 960 881 9 %

Operating profit % of revenue 39.6 % 38.6 %

Embedded Processing revenue increased.

Operating profit increased primarily due to higher revenue and associated gross profit.

YTD 2022 YTD 2021 Change

Revenue $ 1,133 $ 935 21 %

Operating profit* 443 281 58 %

Operating profit % of revenue 39.1 % 30.1 %

* Includes acquisition charges and restructuring charges/other

Other revenue increased $198 million, and operating profit increased $162 million.

* Includes restructuring charges/other

Other revenue decreased $49 million, and operating profit increased $25 million.

Financial condition

At the end of the third quarter of 2022, total cash (cash and cash equivalents plus short-term investments) was $9.09 billion, a decrease of $649 million from the end of 2021.

Accounts receivable were $2.04 billion, an increase of $339 million compared with the end of 2021.

Days sales outstanding for the third quarter of 2022 were 35 compared with 32 at the end of 2021.

At the end of the first quarter of 2023, total cash (cash and cash equivalents plus short-term investments) was $9.55 billion, an increase of $478 million from the end of 2022.

Accounts receivable were $1.88 billion, a decrease of $18 million compared with the end of 2022.

Days sales outstanding for the first quarter of 2023 were 39 compared with 37 at the end of 2022.

Inventory was $3.29 billion, an increase of $531 million from the end of 2022.

Days of inventory for the third quarter of 2022 were 133 compared with 116 at the end of 2021.

Days of inventory for the first quarter of 2023 were 195 compared with 157 at the end of 2022.

Liquidity and capital resources

2 unchanged sentences

We also have a variable-rate, revolving credit facility.

As of September 30, 2022, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first nine months of 2022 were $6.68 billion, an increase of $279 million from the year-ago period due to higher net income, partially offset by higher cash used for working capital.

Investing activities for the first nine months of 2022 used $2.56 billion compared with $1.87 billion in the year-ago period.

Capital expenditures were $1.83 billion compared with $1.18 billion in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

Short-term investments used cash of $788 million compared with $657 million in the year-ago period.

As we continue to invest to strengthen our competitive advantage in manufacturing and technology as part of our long-term capacity planning, we expect our capital expenditures to be higher than historical levels.

For qualifying capital expenditures in the U.S., we expect to receive the cash benefit associated with the 25% investment tax credit that was established under the CHIPS Act in future periods.

Financing activities for the first nine months of 2022 used $5.58 billion compared with $1.98 billion in the year-ago period.

In 2022, we received net proceeds of $695 million from the issuance of fixed-rate, long-term debt and retired maturing debt of $500 million.

In the year-ago period, we received net proceeds of $1.50 billion from the issuance of fixed-rate, long-term debt, and we retired maturing debt of $550 million.

Dividends paid were $3.17 billion compared with $2.82 billion in the year-ago period, reflecting an increased dividend rate.

We used $2.77 billion to repurchase 16.8 million shares of our common stock compared with $385 million used in the year-ago period to repurchase 2.1 million shares.

As of March 31, 2023, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first three months of 2023 were $1.16 billion, a decrease of $984 million from the year-ago period due to lower net income and higher cash used for working capital, as we continued to strategically build inventory.

Investing activities for the first three months of 2023 provided $28 million compared with $1.67 billion of cash used in the year-ago period.

Capital expenditures were $982 million compared with $443 million in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

Short-term investments provided cash of $1.01 billion compared with $1.21 billion of cash used in the year-ago period.

As we continue to invest to strengthen our competitive advantage in manufacturing and technology as part of our long-term capacity planning, our capital expenditures are expected to be higher than historical levels.

In August 2022, the U.S.

government enacted the U.S.

CHIPS and Science Act, which provides funding for manufacturing grants and research investments and establishes a 25% investment tax credit for certain investments in U.S.

semiconductor manufacturing.

We expect to receive the cash benefit associated with the investment tax credit for qualifying capital expenditures in future periods.

Financing activities for the first three months of 2023 provided $239 million compared with $1.60 billion of cash used in the year-ago period.

In 2023, we received net proceeds of $1.40 billion from the issuance of fixed-rate, long-term debt.

Dividends paid were $1.13 billion compared with $1.06 billion in the year-ago period, reflecting an increased dividend rate, partially offset by fewer shares outstanding.

We used $103 million to repurchase 0.6 million shares of our common stock compared with $589 million used in the year-ago period to repurchase 3.4 million shares.

Employee exercises of stock options provided cash proceeds of $85 million compared with $57 million in the year-ago period.

In September 2022, we announced we would increase our dividend rate by 8% and also increased our share repurchase authorizations by $15 billion.

We had $3.17 billion of cash and cash equivalents and $5.92 billion of short-term investments as of September 30, 2022.

We had $4.48 billion of cash and cash equivalents and $5.07 billion of short-term investments as of March 31, 2023.

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.

7 unchanged sentences

For 12 Months Ended

September 30,

2023 2022 Change

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis