What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 61 added, 24 removed, 97 unchanged (47% of the section changed)

31 unchanged sentences

Performance summary

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.

Our second quarter revenue was $4.53 billion, net income was $1.72 billion and earnings per share (EPS) were $1.87.

Revenue increased 3% sequentially and decreased 13% from the same quarter a year ago.

Similar to last quarter, we experienced weakness across our end markets with the exception of automotive.

Our cash flow from operations of $7.4 billion for the trailing 12 months again underscored the strength of our business model, the quality of our product portfolio and the benefit of 300-mm production.

Free cash flow for the same period was $3.2 billion and 17% of revenue.

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 $3.6 billion in R&D and SG&A, invested $4.2 billion in capital expenditures and returned $6.5 billion to shareholders.

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.

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

Revenue of $4.53 billion decreased $681 million, or 13%, due to lower revenue from Analog, partially offset by higher revenue from Embedded Processing.

Gross profit of $2.91 billion was down $715 million, or 20%, due to lower revenue and higher manufacturing costs associated with planned capacity expansion.

As a percentage of revenue, gross profit decreased to 64.2% from 69.6%.

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Our provision for income taxes was $280 million compared with $390 million.

This decrease was due to lower income before income taxes.

This decrease was primarily due to lower income before income taxes.

Net income was $1.72 billion compared with $2.29 billion.

EPS was $1.87 compared with $2.45.

First quarter 2023 segment results

Second quarter 2023 segment results

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

5 unchanged sentences

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

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

Operating profit decreased primarily due to lower revenue and higher manufacturing costs.

Embedded Processing (includes microcontrollers and processors)

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Other revenue decreased $40 million, and operating profit increased $18 million.

Results of operations – first six months of 2023 compared with first six months of 2022

Revenue of $8.91 billion decreased $1.21 billion, or 12%, due to lower revenue from Analog, partially offset by higher revenue from Embedded Processing.

Gross profit of $5.77 billion was down $1.29 billion, or 18%, due to lower revenue and higher manufacturing costs associated with planned capacity expansion.

As a percentage of revenue, gross profit decreased to 64.8% from 69.9%.

Operating expenses were $1.87 billion compared with $1.65 billion.

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 $132 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 $3.91 billion, or 43.8% of revenue, compared with $5.29 billion, or 52.2% of revenue.

OI&E was $199 million of income compared with $22 million of income, due to higher interest income.

Interest and debt expense of $157 million increased $56 million due to the issuance of additional long-term debt.

Our provision for income taxes was $518 million compared with $715 million.

This decrease was primarily due to lower income before income taxes.

Net income was $3.43 billion compared with $4.49 billion.

EPS was $3.72 compared with $4.80.

Year-to-date segment results

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

YTD 2023 YTD 2022 Change

Revenue $ 6,567 $ 7,808 (16) %

Operating profit 3,037 4,376 (31) %

Operating profit % of revenue 46.2 % 56.0 %

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

Operating profit decreased primarily due to lower revenue and higher manufacturing costs.

Embedded Processing

YTD 2023 YTD 2022 Change

Revenue $ 1,726 $ 1,603 8 %

Operating profit 555 639 (13) %

Operating profit % of revenue 32.2 % 39.9 %

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.

YTD 2023 YTD 2022 Change

Revenue $ 617 $ 706 (13) %

Operating profit* 314 271 16 %

Operating profit % of revenue 50.9 % 38.4 %

* Includes restructuring charges/other

Other revenue decreased $89 million, and operating profit increased $43 million.

Financial condition

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.

At the end of the second quarter of 2023, total cash (cash and cash equivalents plus short-term investments) was $9.55 billion, an increase of $485 million from the end of 2022.

Accounts receivable were $1.96 billion, an increase of $61 million compared with the end of 2022.

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

Inventory was $3.73 billion, an increase of $972 million from the end of 2022.

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

Days of inventory for the second quarter of 2023 were 207 compared with 157 at the end of 2022.

Liquidity and capital resources

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

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 of June 30, 2023, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first six months of 2023 were $2.56 billion, a decrease of $1.35 billion 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 six months of 2023 used $2.36 billion compared with $443 million in the year-ago period.

Capital expenditures were $2.43 billion compared with $1.04 billion in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

Short-term investments provided cash of $31 million compared with $525 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, our capital expenditures are expected to be higher than historical levels.

4 unchanged sentences

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.

See Note 9 to the financial statements.

Financing activities for the first six months of 2023 provided $187 million compared with $4.30 billion of cash used in the year-ago period.

In 2023, we received net proceeds of $3.00 billion from the issuance of fixed-rate, long-term debt, and we retired maturing debt of $500 million.

In the year-ago period, we retired maturing debt of $500 million.

Dividends paid were $2.25 billion compared with $2.12 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.

We used $182 million to repurchase 1.1 million shares of our common stock compared with $1.77 billion used in the year-ago period to repurchase 10.7 million shares.

Employee exercises of stock options provided cash proceeds of $150 million compared with $113 million in the year-ago period.

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

We had $3.44 billion of cash and cash equivalents and $6.11 billion of short-term investments as of June 30, 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.

15 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