What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-23 compared with 2025-07-29 · 55 added, 50 removed, 151 unchanged (41% of the section changed)

19 unchanged sentences

Markets for our products

The major markets for our products are industrial, automotive, personal electronics, enterprise systems, communications equipment and other.

See our 2024 Form 10-K for more information.

The end markets for our products are industrial, automotive, personal electronics, enterprise systems and communications equipment.

See our 2024 Form 10-K for more information, where we also report calculators and other.

The “semiconductor cycle” refers to the ebb and flow of supply and demand and the building and depleting of inventories.

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We expect to continue to maintain sufficient internal manufacturing capacity to meet the majority of our production needs and to obtain manufacturing equipment to support new technology developments and revenue growth.

In 2020, we announced a multi-year plan to close our two remaining factories with 150mm production, which are more than 50 years old and located in Sherman and Dallas, Texas.

Production is transitioning from these sites to our more advanced and cost-effective 300mm wafer fabrication facilities.

Our objectives for inventory are to maintain high levels of customer service, maintain dependable and competitive lead times, minimize inventory obsolescence and improve manufacturing asset utilization.

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Inventory levels will vary based on market conditions and seasonality.

We adjust factory loadings as needed to execute on this inventory strategy.

Results of operations

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Performance summary

Our second quarter revenue was $4.45 billion, net income was $1.30 billion and earnings per share (EPS) were $1.41.

Revenue increased 9% sequentially, led by continued broad recovery in industrial, and 16% from the same quarter a year ago.

Our third quarter revenue was $4.74 billion, net income was $1.36 billion and earnings per share (EPS) were $1.48.

Revenue increased 7% sequentially and 14% from the same quarter a year ago with growth across all end markets.

Our cash flow from operations of $6.9 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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Macroeconomic factors

We believe tariffs and geopolitics are disrupting and reshaping global supply chains and affecting customer order behavior.

We believe trade dynamics and geopolitics are disrupting and reshaping global supply chains and affecting customer order behavior.

Our global manufacturing capabilities enable us to support our customers’ needs.

We also believe the semiconductor cycle recovery is continuing, while customer inventories remain at low levels.

The overall semiconductor market recovery is continuing, though at a slower pace than prior upturns, likely related to broader macroeconomic dynamics and overall uncertainty.

legislative update

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CHIPS and Science Act (CHIPS Act) investment tax credit (ITC) and changing other tax provisions.

The new law did not impact our financial condition and results of operations during the second quarter.

We are currently evaluating the impact of the legislation on future periods.

Based on our initial assessment, the changes are expected to result in a higher effective tax rate in the third quarter and full year 2025.

The effect of the new law results in a higher effective tax rate in the third quarter and full year 2025.

For 2026 and beyond, we expect the effective tax rate to be lower than it would have been under prior tax law.

Additionally, we expect tax-related cash payments to be lower for the next several years as a result of the changes.

Details of financial results – second quarter 2025 compared with second quarter 2024

Details of financial results – third quarter 2025 compared with third quarter 2024

Revenue of $4.74 billion increased $591 million, or 14%, due to higher revenue from increased demand in our Analog segment and, to a lesser extent, in our Embedded Processing segment, which were both impacted by the macroeconomic factors discussed above.

Gross profit of $2.58 billion was up $364 million, or 16%, due to higher revenue.

Our gross profit also benefited from reduced manufacturing costs related to increased factory loadings, offset by costs associated with our planned capacity expansions.

As a percentage of revenue, gross profit increased to 57.9% from 57.8%.

Operating expenses (R&D and SG&A) were $1.01 billion compared with $963 million.

Gross profit of $2.72 billion was up $249 million, or 10%, 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 57.4% from 59.6%.

Operating expenses (R&D and SG&A) were $975 million compared with $920 million.

Operating profit was $1.66 billion, or 35.1% of revenue, compared with $1.55 billion, or 37.4% of revenue.

This increase was primarily due to higher revenue and associated gross profit.

This change was primarily due to higher revenue, partially offset by higher manufacturing costs.

OI&E was $62 million of income compared with $131 million of income.

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Our provision for income taxes was $220 million compared with $192 million.

This increase was due to higher income before income taxes and lower discrete tax benefits of $34 million, due to stock-based compensation.

This increase was primarily due to changes in the effect of U.S.

tax benefits, including the effect of OBBBA, lower discrete tax benefits and higher income before income taxes.

Our effective tax rate, which includes discrete tax items, was 14% compared with 12%.

Net income was $1.30 billion compared with $1.13 billion.

Net income was $1.36 billion in both periods.

EPS was $1.48 compared with $1.47.

Second quarter 2025 segment results

Third quarter 2025 segment results

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

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Operating profit % of revenue 39.8 % 40.8 %

Analog revenue increased in Power and, to a lesser extent, Signal Chain, due to higher demand, which was impacted by the macroeconomic factors discussed above.

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

Analog revenue increased in both product lines, led by Signal Chain, due to higher demand, which was impacted by the macroeconomic factors discussed above.

Operating profit increased primarily due to higher revenue, partially offset by higher manufacturing costs and operating expenses.

Embedded Processing (includes microcontrollers and processors)

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Embedded Processing revenue increased due to higher demand, which was impacted by the macroeconomic factors discussed above.

Operating profit increased primarily due to higher revenue, partially offset by increased manufacturing costs and R&D expenses.

Operating profit was about even due to higher manufacturing costs and operating expenses, offset by higher revenue.

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

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Operating profit % of revenue 22.7 % 46.9 %

Other revenue increased $38 million, and operating profit increased $32 million.

Details of financial results – first six months of 2025 compared with first six months of 2024

* Includes Restructuring charges/other

Other revenue increased $29 million, and operating profit decreased $60 million.

Details of financial results – first nine months of 2025 compared with first nine months of 2024

Revenue of $13.26 billion increased $1.63 billion, or 14%, due to higher revenue from increased demand in our Analog segment and, to a lesser extent, in our Embedded Processing segment, which were both impacted by the macroeconomic factors discussed above.

Gross profit of $7.61 billion was up $831 million, or 12%, due to higher revenue.

Our gross profit also benefited from reduced manufacturing costs related to increased factory loadings, partially offset by costs associated with our planned capacity expansions.

Our gross profit was also impacted by higher manufacturing costs associated with our planned capacity expansions, partially offset by reduced costs related to increased factory loadings.

As a percentage of revenue, gross profit decreased to 57.4% from 58.3%.

Operating expenses were $2.98 billion compared with $2.82 billion.

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.

Restructuring charges/other was $85 million related to efforts to drive operational efficiencies to support our long-term strategy, including the planned closures of our two remaining factories with 150mm production, compared with a credit of $124 million primarily due to a gain on the sale of a property during 2024.

Operating profit was $4.55 billion, or 34.3% of revenue, compared with $4.09 billion, or 35.1% of revenue.

This increase was primarily due to higher revenue and associated gross profit.

This change was primarily due to higher revenue and associated gross profit, partially offset by higher operating expenses.

OI&E was $190 million of income compared with $384 million of income.

1 unchanged sentence

Interest and debt expense of $402 million increased $24 million.

Our provision for income taxes was $280 million compared with $308 million.

This decrease was due to higher discrete tax benefits of $47 million, primarily related to our non-U.S.

operations, partially offset by higher income before income taxes.

Our effective tax rate, which includes discrete tax items, was 10% compared with 12%.

Our provision for income taxes was $500 million in both periods.

This includes an increase in taxes from higher income before income taxes and changes in the effect of U.S.

tax benefits, including the effect of OBBBA, offset by higher discrete tax benefits of $41 million, primarily related to our non-U.S.

Our effective tax rate, which includes discrete tax items, was 12% in both periods.

Net income was $3.84 billion compared with $3.59 billion.

6 unchanged sentences

Operating profit % of revenue 38.7 % 37.5 %

Analog revenue increased in Power and, to a lesser extent, Signal Chain, due to higher demand, which was impacted by the macroeconomic factors discussed above.

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

Analog revenue increased in both product lines, led by Power, due to higher demand, which was impacted by the macroeconomic factors discussed above.

Operating profit increased primarily due to higher revenue and associated gross profit, partially offset by higher operating expenses.

Embedded Processing

4 unchanged sentences

Embedded Processing revenue increased due to higher demand, which was impacted by the macroeconomic factors discussed above.

Operating profit decreased primarily due to higher manufacturing costs and R&D expenses, partially offset by higher revenue.

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

YTD 2025 YTD 2024 Change

5 unchanged sentences

Financial condition

At the end of the second quarter of 2025, total cash (cash and cash equivalents plus short-term investments) was $5.36 billion, a decrease of $2.22 billion from the end of 2024.

At the end of the third quarter of 2025, total cash (cash and cash equivalents plus short-term investments) was $5.19 billion, a decrease of $2.39 billion from the end of 2024.

Accounts receivable were $2.06 billion, an increase of $343 million compared with the end of 2024.

Days sales outstanding were 39 for both the second quarter of 2025 and at the end of 2024.

Days sales outstanding were 39 for both the third quarter of 2025 and at the end of 2024.

Inventory was $4.83 billion, an increase of $302 million from the end of 2024.

Days of inventory for the second quarter of 2025 were 231 compared with 241 at the end of 2024, which reflects the continued execution of our inventory strategy.

Days of inventory for the third quarter of 2025 were 215 compared with 241 at the end of 2024, which reflects the continued execution of our inventory strategy.

As our current inventory levels align with our objectives, we expect to moderate factory loadings accordingly.

Liquidity and capital resources

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

As of June 30, 2025, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first six months of 2025 were $2.71 billion, an increase of $121 million from the year-ago period primarily due to higher net income and non-cash items, partially offset by higher cash used for working capital.

Cash flows from operating activities for the first six months of 2025 and 2024 includes cash benefits of $203 million and $312 million, respectively, from the CHIPS Act ITC used to reduce income taxes payable.

Investing activities for the first six months of 2025 used $82 million compared with $3.33 billion in the year-ago period.

Capital expenditures were $2.43 billion compared with $2.31 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 CHIPS Act incentives.

Short-term investments provided cash of $2.10 billion compared with $1.20 billion of cash used in the year-ago period.

As of September 30, 2025, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first nine months of 2025 were $4.90 billion, an increase of $579 million from the year-ago period primarily due to higher net income and non-cash items, partially offset by higher cash used for working capital.

Cash flows from operating activities for the first nine months of 2025 and 2024 includes cash benefits of $246 million and $532 million, respectively, from the CHIPS Act ITC used to reduce income taxes payable.

Investing activities for the first nine months of 2025 used $763 million compared with $3.82 billion in the year-ago period.

Capital expenditures were $3.63 billion in both periods and were primarily for semiconductor manufacturing equipment and facilities.

For the first nine months of 2025, we received proceeds of $335 million from CHIPS Act incentives, including $75 million in direct funding.

Short-term investments provided cash of $2.55 billion compared with $346 million of cash used in the year-ago period.

We are now mostly through a six-year elevated capital expenditures cycle, and consistent with our capital management strategy, we are currently evaluating our capital expenditure levels to determine if they will remain at elevated levels in 2026 and beyond, dependent on revenue and growth expectations.

For qualifying manufacturing investments, we expect to benefit from the 25% 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.

tax law changes within the OBBBA included an increase to the CHIPS Act ITC from 25% to 35% for qualifying manufacturing investments placed in service after December 31, 2025.

Financing activities for the first six months of 2025 used $2.78 billion compared with $517 million of cash provided in the year-ago period.

In 2025, we received net proceeds of $1.20 billion from the issuance of fixed-rate, long-term debt and retired maturing debt of $750 million.

We expect to continue benefiting from the CHIPS Act, including the 25% ITC on qualifying manufacturing investments that increases to 35% for assets placed in service after December 31, 2025, and direct funding of up to $1.6 billion for our three large-scale 300mm wafer fabs located in Sherman, Texas, and Lehi, Utah.

In September 2025, we announced we would increase our quarterly cash dividend by 4% to $1.42 per share, marking 22 consecutive years of dividend increases.

Financing activities for the first nine months of 2025 used $4.03 billion compared with $879 million in the year-ago period.

We received net proceeds of $1.20 billion from the issuance of fixed-rate, long-term debt and 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 and retired maturing debt of $300 million.

Dividends paid were $3.71 billion compared with $3.56 billion in the year-ago period, reflecting an increased dividend rate.

We used $955 million to repurchase 5.4 million shares of our common stock compared with $74 million to repurchase 0.4 million shares in the year-ago period.

We used $1.07 billion to repurchase 6.1 million shares of our common stock compared with $392 million to repurchase 2.0 million shares in the year-ago period.

Employee exercises of stock options provided cash proceeds of $358 million compared with $430 million in the year-ago period.

We had $3.04 billion of cash and cash equivalents and $2.32 billion of short-term investments as of June 30, 2025.

We had $3.31 billion of cash and cash equivalents and $1.88 billion of short-term investments as of September 30, 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.

7 unchanged sentences

For 12 Months Ended

September 30,

2025 2024 Change

6 unchanged sentences

Free cash flow as a percentage of revenue (non-GAAP) 14.0 % 9.3 %

* Includes cash benefits of $479 million and $312 million from the CHIPS Act ITC used to reduce income taxes payable for the twelve months ended June 30, 2025 and 2024, respectively

* Includes cash benefits of $302 million and $532 million from the CHIPS Act ITC used to reduce income taxes payable for the twelve months ended September 30, 2025 and 2024, respectively.

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