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Item 2. Management’s Discussion and Analysis

2025-04-24 compared with 2024-10-23 · 42 added, 80 removed, 80 unchanged (60% of the section changed)

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The four sustainable competitive advantages are powerful in combination and provide tangible benefits:

A strong foundation of manufacturing and technology that provides lower costs and greater control of our supply chain.

A broad portfolio of analog and embedded processing products that offers more opportunity per customer and more value for our investments.

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.

Diversity and longevity of our products, markets and customer positions that provide less single point dependency and longer returns on our investments.

(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.

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Discipline in allocating capital to the best opportunities.

This spans how we select R&D projects, develop new capabilities like TI.com, invest in new manufacturing capacity or how we think about acquisitions and returning cash to our owners.

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.

Efficiency, which means constantly striving for more output for every dollar spent.

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

We are monitoring the geopolitical environment.

Any implication to our customers, suppliers or TI’s business, including customer demand and our supply chain, is uncertain and will likely evolve.

We currently do not see impact to second-quarter results.

Performance summary

Our third quarter revenue was $4.15 billion, net income was $1.36 billion and earnings per share (EPS) were $1.47.

Revenue decreased 8% from the same quarter a year ago and increased 9% sequentially.

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

Our first quarter revenue was $4.07 billion, net income was $1.18 billion and earnings per share (EPS) were $1.28.

Revenue increased 11% from the same quarter a year ago and increased 2% sequentially.

All of our markets grew sequentially with the exception of a seasonal decline in personal electronics.

Our cash flow from operations of $6.2 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.

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Over the past 12 months we invested $3.8 billion in R&D and SG&A, invested $4.7 billion in capital expenditures and returned $6.4 billion to shareholders.

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

Revenue of $4.15 billion decreased $381 million, or 8%, due to lower revenue from Embedded Processing and, to a lesser extent, Analog.

Gross profit of $2.47 billion was down $341 million, or 12%, primarily due to lower revenue and, to a lesser extent, higher manufacturing costs associated with our planned capacity expansions.

Results of operations – first quarter 2025 compared with first quarter 2024

Revenue of $4.07 billion increased $408 million, or 11%, primarily due to higher revenue from Analog.

Gross profit of $2.31 billion was up $218 million, or 10%, primarily 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 56.8% from 57.2%.

Operating expenses (R&D and SG&A) were $989 million compared with $933 million.

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

Operating profit was $1.32 billion, or 32.5% of revenue, compared with $1.29 billion, or 35.1% of revenue.

OI&E was $80 million of income compared with $123 million of income.

Interest and debt expense of $131 million increased $33 million due to the issuance of additional long-term debt.

Interest and debt expense of $128 million increased $12 million.

See Note 6 to the financial statements.

Our provision for income taxes was $97 million compared with $188 million.

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

This decrease was primarily due to discrete tax benefits.

Net income was $1.18 billion compared with $1.11 billion.

EPS was $1.28 compared with $1.20.

Third quarter 2024 segment results

First quarter 2025 segment results

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

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Operating profit % of revenue 37.6 % 35.5 %

Analog revenue decreased in Signal Chain due to the mix of products shipped.

Power was about even.

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

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

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

Embedded Processing (includes microcontrollers and processors)

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Operating profit % of revenue 6.2 % 16.1 %

Embedded Processing revenue decreased.

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

Embedded Processing revenue was about even due to the mix of products shipped.

Operating profit decreased due to higher manufacturing costs and R&D expenses.

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

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* Includes restructuring charges/other

Other revenue decreased $14 million, and operating profit decreased $1 million.

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

Revenue of $11.63 billion decreased $1.81 billion, or 13%, due to lower revenue from Analog and, to a lesser extent, Embedded Processing.

Gross profit of $6.78 billion was down $1.81 billion, or 21%, primarily due to lower revenue and, to a lesser extent, higher manufacturing costs associated with our planned capacity expansions.

As a percentage of revenue, gross profit decreased to 58.3% from 63.9%.

Operating expenses were $2.82 billion compared with $2.79 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 $4.09 billion, or 35.1% of revenue, compared with $5.80 billion, or 43.1% of revenue.

OI&E was $384 million of income compared with $327 million of income, primarily due to higher interest income.

Interest and debt expense of $378 million increased $123 million due to the issuance of additional long-term debt.

Our provision for income taxes was $500 million compared with $731 million.

This decrease was due to lower income before income taxes.

Net income was $3.59 billion compared with $5.14 billion.

EPS was $3.89 compared with $5.58.

Year-to-date segment results

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

YTD 2024 YTD 2023 Change

Revenue $ 8,987 $ 9,920 (9) %

Operating profit 3,371 4,541 (26) %

Operating profit % of revenue 37.5 % 45.8 %

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 $ 1,920 $ 2,616 (27) %

Operating profit 294 813 (64) %

Operating profit % of revenue 15.3 % 31.1 %

Embedded Processing revenue decreased.

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

YTD 2024 YTD 2023 Change

Revenue $ 727 $ 906 (20) %

Operating profit * 423 444 (5) %

Operating profit % of revenue 58.2 % 49.0 %

* Includes restructuring charges/other

Other revenue decreased $179 million, and operating profit decreased $21 million.

Other revenue increased $39 million, and operating profit decreased $95 million.

Financial condition

At the end of the third quarter of 2024, total cash (cash and cash equivalents plus short-term investments) was $8.75 billion, an increase of $177 million from the end of 2023.

At the end of the first quarter of 2025, total cash (cash and cash equivalents plus short-term investments) was $5.01 billion, a decrease of $2.58 billion from the end of 2024.

Accounts receivable were $1.86 billion, an increase of $141 million compared with the end of 2024.

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

Days sales outstanding for the first quarter of 2025 were 41 compared with 39 at the end of 2024.

Inventory was $4.69 billion, an increase of $160 million from the end of 2024.

Days of inventory for the third quarter of 2024 were 231 compared with 219 at the end of 2023.

Days of inventory for the first quarter of 2025 were 240 compared with 241 at the end of 2024.

Liquidity and capital resources

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

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

Cash flows from operating activities for the first nine months of 2024 were $4.32 billion, a decrease of $176 million from the year-ago period primarily due to lower net income, partially offset by lower cash used for working capital.

Cash flows from operating activities for the first nine months of 2024 include a cash benefit of $532 million from the U.S.

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

Investing activities for the first nine months of 2024 used $3.82 billion compared with $4.05 billion in the year-ago period.

As of March 31, 2025, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first three months of 2025 were $849 million, a decrease of $168 million from the year-ago period primarily due to higher cash used for working capital, partially offset by higher net income.

Investing activities for the first three months of 2025 provided $1.25 billion compared with $3.33 billion of cash used in the year-ago period.

Capital expenditures were $1.12 billion compared with $1.25 billion in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

Short-term investments used cash of $346 million compared with $164 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 remain at elevated levels.

We expect to receive an estimated $6 billion to $8 billion through 2034 from the U.S.

Department of Treasury’s investment tax credit for qualified U.S.

manufacturing investments.

We have received $532 million of the associated cash benefit for qualifying capital expenditures in the first nine months of 2024.

Additionally, in August 2024, we signed a non-binding preliminary memorandum of terms with the U.S.

Department of Commerce for up to $1.6 billion in direct funding under the CHIPS Act.

In September 2024, we announced we would increase our dividend by 5%, marking 21 consecutive years of dividend increases.

Financing activities for the first nine months of 2024 provided $879 million compared with $929 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.

In 2025, we received proceeds of $260 million from U.S.

CHIPS and Science Act (CHIPS Act) incentives.

Short-term investments provided cash of $2.16 billion compared with $2.23 billion of cash used in the year-ago period.

As we continue to invest to strengthen our competitive advantages in manufacturing and technology, as part of our long-term capacity planning, our capital expenditures are expected to remain at elevated levels.

For qualifying manufacturing investments, we expect to benefit from the 25% investment tax credit (ITC) established by the CHIPS Act, as well as direct funding of up to $1.6 billion for our three large-scale 300mm wafer fabs currently under construction in Sherman, Texas, and Lehi, Utah.

Financing activities for the first three months of 2025 used $2.54 billion compared with $1.83 billion of cash provided in the year-ago period.

In 2025, we 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.

Dividends paid were $1.24 billion compared with $1.18 billion in the year-ago period, reflecting an increased dividend rate.

We used $392 million to repurchase 2.0 million shares of our common stock compared with $228 million in the year-ago period to repurchase 1.3 million shares.

We used $653 million to repurchase 3.5 million shares of our common stock compared with $3 million in the year-ago period.

Employee exercises of stock options provided cash proceeds of $118 million compared with $65 million in the year-ago period.

We had $2.59 billion of cash and cash equivalents and $6.16 billion of short-term investments as of September 30, 2024.

We had $2.76 billion of cash and cash equivalents and $2.24 billion of short-term investments as of March 31, 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.

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These are financial measures that were not prepared in accordance with generally accepted accounting principles in the United States (GAAP).

Free cash flow was calculated by subtracting capital expenditures from the most directly comparable GAAP measure, cash flows from operating activities (also referred to as cash flow from operations).

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.

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For 12 Months Ended

September 30,

2025 2024 Change

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Capital expenditures (4,695) (5,337)

Proceeds from CHIPS Act incentives 260 —

Free cash flow (non-GAAP) $ 1,715 $ 940 82 %

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Free cash flow as a percentage of revenue (non-GAAP) 10.7 % 5.6 %

* Includes a cash benefit of $532 million from the U.S.

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

* Includes a cash benefit of $588 million from the CHIPS Act ITC used to reduce income taxes payable for the twelve months ended March 31, 2025

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