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Item 2. Management’s Discussion and Analysis

2024-07-24 compared with 2024-04-24 · 64 added, 25 removed, 95 unchanged (48% of the section changed)

31 unchanged sentences

Performance summary

Our first quarter revenue was $3.66 billion, net income was $1.11 billion and earnings per share (EPS) were $1.20.

Revenue decreased 16% from the same quarter a year ago and 10% sequentially, as revenue declined across all end markets.

Our second quarter revenue was $3.82 billion, net income was $1.13 billion and earnings per share (EPS) were $1.22.

Revenue decreased 16% from the same quarter a year ago and increased 4% sequentially.

Industrial and automotive continued to decline sequentially, while all other end markets grew.

Our cash flow from operations of $6.4 billion for the trailing 12 months again underscored the strength of our business model, the quality of our product portfolio and the benefit of 300mm production.

Free cash flow for the same period was $940 million.

Free cash flow for the same period was $1.5 billion.

Over the past 12 months we invested $3.7 billion in R&D and SG&A, invested $5.0 billion in capital expenditures and returned $4.9 billion to shareholders.

Results of operations – first quarter 2024 compared with first quarter 2023

Revenue of $3.66 billion decreased $718 million, or 16%, primarily due to lower revenue from Analog and, to a lesser extent, Embedded Processing.

Gross profit of $2.10 billion was down $768 million, or 27%, primarily due to lower revenue and, to a lesser extent, higher manufacturing costs associated with reduced factory loadings and our planned capacity expansions.

Results of operations – second quarter 2024 compared with second quarter 2023

Revenue of $3.82 billion decreased $709 million, or 16%, primarily due to lower revenue from Analog and Embedded Processing.

Gross profit of $2.21 billion was down $699 million, or 24%, primarily due to lower revenue and, to a lesser extent, higher manufacturing unit costs associated with our planned capacity expansions and reduced factory loadings.

As a percentage of revenue, gross profit decreased to 57.8% from 64.2%.

Sequentially, gross profit margin increased 60 basis points, primarily due to higher revenue as well as lower manufacturing unit costs due to increased factory loadings and more manufacturing internally, with more wafers on 300mm.

Operating expenses (R&D and SG&A) were $963 million compared with $938 million.

Restructuring charges/other was a credit of $124 million primarily due to a gain on the sale of a property during 2024.

Operating profit was $1.25 billion, or 32.7% of revenue, compared with $1.97 billion, or 43.5% of revenue.

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Our provision for income taxes was $120 million compared with $280 million.

This decrease was due to lower income before income taxes, partially offset by discrete tax items.

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

Net income was $1.13 billion compared with $1.72 billion.

EPS was $1.22 compared with $1.87.

First quarter 2024 segment results

Second quarter 2024 segment results

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

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Operating profit % of revenue 35.8 % 44.6 %

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

Analog revenue decreased due to the mix of products shipped in both product lines, led by Signal Chain.

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

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* Includes restructuring charges/other

Other revenue decreased $85 million, and operating profit increased $50 million.

Other revenue decreased $80 million, and operating profit decreased $70 million.

Results of operations – first six months of 2024 compared with first six months of 2023

Revenue of $7.48 billion decreased $1.43 billion, or 16%, primarily due to lower revenue from Analog and, to a lesser extent, Embedded Processing.

Gross profit of $4.31 billion was down $1.47 billion, or 25%, primarily due to lower revenue and, to a lesser extent, higher manufacturing unit costs associated with reduced factory loadings and our planned capacity expansions.

As a percentage of revenue, gross profit decreased to 57.5% from 64.8%.

Operating expenses were $1.90 billion compared with $1.87 billion.

Restructuring charges/other was a credit of $124 million primarily due to a gain on the sale of a property during 2024.

Operating profit was $2.53 billion, or 33.9% of revenue, compared with $3.91 billion, or 43.8% of revenue.

OI&E was $253 million of income compared with $199 million of income, primarily due to higher interest income.

Interest and debt expense of $247 million increased $90 million due to the issuance of additional long-term debt.

Our provision for income taxes was $308 million compared with $518 million.

This decrease was due to lower income before income taxes.

Net income was $2.23 billion compared with $3.43 billion.

EPS was $2.42 compared with $3.72.

Year-to-date segment results

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

YTD 2024 YTD 2023 Change

Revenue $ 5,764 $ 6,567 (12) %

Operating profit 2,055 3,037 (32) %

Operating profit % of revenue 35.7 % 46.2 %

Analog revenue decreased due to the mix of products shipped in both product lines, led by Signal Chain.

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

Embedded Processing

YTD 2024 YTD 2023 Change

Revenue $ 1,267 $ 1,726 (27) %

Operating profit 185 555 (67) %

Operating profit % of revenue 14.6 % 32.2 %

Embedded Processing revenue decreased.

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

YTD 2024 YTD 2023 Change

Revenue $ 452 $ 617 (27) %

Operating profit * 294 314 (6) %

Operating profit % of revenue 65.0 % 50.9 %

* Includes restructuring charges/other

Other revenue decreased $165 million, and operating profit decreased $20 million.

Financial condition

At the end of the first quarter of 2024, total cash (cash and cash equivalents plus short-term investments) was $10.39 billion, an increase of $1.82 billion from the end of 2023.

At the end of the second quarter of 2024, total cash (cash and cash equivalents plus short-term investments) was $9.69 billion, an increase of $1.11 billion from the end of 2023.

Accounts receivable were $1.71 billion, a decrease of $76 million compared with the end of 2023.

Days sales outstanding for the first quarter of 2024 were 41 compared with 39 at the end of 2023.

Days sales outstanding for the second quarter of 2024 were 40 compared with 39 at the end of 2023.

Inventory was $4.11 billion, an increase of $107 million from the end of 2023.

Days of inventory for the first quarter of 2024 were 235 compared with 219 at the end of 2023.

Days of inventory for the second quarter of 2024 were 229 compared with 219 at the end of 2023.

Liquidity and capital resources

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

As of March 31, 2024, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first three months of 2024 were $1.02 billion, a decrease of $143 million from the year-ago period primarily due to lower net income, partially offset by lower cash used for working capital.

Investing activities for the first three months of 2024 used $3.33 billion compared with $28 million of cash provided in the year-ago period.

Capital expenditures were $1.25 billion compared with $982 million in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

Short-term investments used cash of $2.23 billion compared with $1.01 billion of cash provided in the year-ago period.

As of June 30, 2024, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first six months of 2024 were $2.59 billion, an increase of $29 million from the year-ago period primarily due to lower cash used for working capital, partially offset by lower net income.

Cash flows from operating activities for the first six months of 2024 include a cash benefit of $312 million from the U.S.

CHIPS and Science Act investment tax credit used to reduce income taxes payable.

Investing activities for the first six months of 2024 used $3.33 billion compared with $2.36 billion in the year-ago period.

Capital expenditures were $2.31 billion compared with $2.43 billion in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

Short-term investments used cash of $1.20 billion compared with $31 million of cash provided 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 remain at elevated levels.

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semiconductor manufacturing.

We will begin receiving the cash benefit associated with the investment tax credit for qualifying capital expenditures in the second quarter of 2024.

We began receiving the cash benefit associated with the investment tax credit for qualifying capital expenditures in the second quarter of 2024.

See Note 9 to the financial statements.

We have also submitted applications for the manufacturing grants provided by the legislation.

Financing activities for the first three months of 2024 provided $1.83 billion compared with $239 million in the year-ago period.

In 2024, we received net proceeds of $2.98 billion from the issuance of fixed-rate, long-term debt.

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

Financing activities for the first six months of 2024 provided $517 million compared with $187 million in the year-ago period.

In 2024, we received net proceeds of $2.98 billion from the issuance of fixed-rate, long-term debt and retired maturing debt of $300 million.

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

Dividends paid were $2.37 billion compared with $2.25 billion in the year-ago period, reflecting an increased dividend rate.

We used $3 million to repurchase shares of our common stock compared with $103 million in the year-ago period.

We used $74 million to repurchase 0.4 million shares of our common stock compared with $182 million in the year-ago period to repurchase 1.1 million shares.

Employee exercises of stock options provided cash proceeds of $313 million compared with $150 million in the year-ago period.

We had $2.48 billion of cash and cash equivalents and $7.91 billion of short-term investments as of March 31, 2024.

We had $2.74 billion of cash and cash equivalents and $6.95 billion of short-term investments as of June 30, 2024.

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.

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Free cash flow as a percentage of revenue (non-GAAP) 9.3 % 16.9 %

* Includes a cash benefit of $312 million from the U.S.

CHIPS and Science Act ITC used to reduce income taxes payable for the twelve months ended June 30, 2024

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