Item 2. Management’s Discussion and Analysis
ITEM 2. 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 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. 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.
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.
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◦ 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.
• 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.
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 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. Free cash flow for the same period was $1.7 billion.
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 – 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 $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 discrete tax benefits.
Net income was $1.18 billion compared with $1.11 billion. EPS was $1.28 compared with $1.20.
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First quarter 2025 segment results
Our segment results compared with the year-ago quarter are as follows:
Analog (includes Power and Signal Chain product lines)
Q1 2025 Q1 2024 Change
Revenue $ 3,210 $ 2,836 13 %
Operating profit 1,206 1,008 20 %
Operating profit % of revenue 37.6 % 35.5 %
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)
Q1 2025 Q1 2024 Change
Revenue $ 647 $ 652 (1) %
Operating profit 40 105 (62) %
Operating profit % of revenue 6.2 % 16.1 %
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)
Q1 2025 Q1 2024 Change
Revenue $ 212 $ 173 23 %
Operating profit * 78 173 (55) %
Operating profit % of revenue 36.8 % 100.0 %
* Includes restructuring charges/other
Other revenue increased $39 million, and operating profit decreased $95 million.
Financial condition
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 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 first quarter of 2025 were 240 compared with 241 at the end of 2024.
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, 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.
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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. 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 $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 $2.76 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.
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,
2025 2024 Change
Cash flow from operations (GAAP) * $ 6,150 $ 6,277 (2) %
Capital expenditures (4,695) (5,337)
Proceeds from CHIPS Act incentives 260 —
Free cash flow (non-GAAP) $ 1,715 $ 940 82 %
Revenue $ 16,049 $ 16,801
Cash flow from operations as a percentage of revenue (GAAP) 38.3 % 37.4 %
Free cash flow as a percentage of revenue (non-GAAP) 10.7 % 5.6 %
* 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
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