What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-04-24 compared with 2025-10-23 · 51 added, 100 removed, 106 unchanged (59% of the section changed)

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(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.

(c) The reach of our market channels that gives access to more customers and more of their design projects, leading to better insight and knowledge of customer needs and the opportunity to sell more of our products into each design.

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

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Markets for our products

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 markets for our products are industrial, automotive, data center, personal electronics and communications equipment.

See our 2025 Form 10-K for more information.

Semiconductor cycle

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

The semiconductor market historically has been characterized by periods of tight supply caused by strengthening demand and/or insufficient manufacturing capacity, followed by periods of surplus inventory caused by weakening demand and/or excess manufacturing capacity.

It has been characterized by periods of tight supply caused by strengthening demand and/or insufficient manufacturing capacity, followed by periods of surplus inventory caused by weakening demand and/or excess manufacturing capacity.

These are typically referred to as upturns and downturns in the semiconductor cycle.

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We continue to invest to strengthen our competitive advantage in manufacturing and technology as part of our long-term capacity plan.

We are now mostly through a six-year elevated capital expenditures cycle that, when completed, will uniquely position TI to deliver dependable, low-cost 300mm capacity, scalability of capital expenditures, including capacity modularity, and free cash flow per share growth across a range of market conditions.

We are nearing the end of a six-year elevated capital expenditures cycle that, when completed, will uniquely position TI to deliver dependable, low-cost 300mm capacity, scalability of capital expenditures, including capacity modularity, and free cash flow per share growth across a range of market conditions.

With our planned capacity expansions to support demand over time, we expect our internal sourcing to continue to increase.

As our Lehi, Utah, manufacturing facility is in the early ramping stages, Embedded Processing is disproportionately impacted by costs associated with the site’s capacity expansion.

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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Conversely, as factory loadings increase, our fixed costs are spread over increased output and, absent other circumstances, our profit margins increase.

◦ Our LFAB facility, which primarily supports our Embedded Processing business, was purchased as an operating fab and is continuing to ramp production, so we expect factory loadings to increase over time.

As LFAB ramps, we expect Embedded to carry manufacturing costs that disproportionately benefit Embedded Processing operating profit as compared to Analog.

• For an explanation of free cash flow, see the Non-GAAP financial information section.

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Performance summary

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 first quarter revenue was $4.83 billion, net income was $1.55 billion and earnings per share (EPS) were $1.68.

Revenue increased 9% sequentially and 19% from the same quarter a year ago with growth led by industrial and data center.

Our cash flow from operations of $7.8 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 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.

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

On July 4, 2025, the U.S.

government enacted the One Big Beautiful Bill Act (OBBBA).

The OBBBA provides changes to U.S.

federal tax law, including expensing of U.S.

research expenditures and eligible capital expenditures, increasing the U.S.

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

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 – 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 $2.72 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%.

In first quarter, the overall analog and embedded semiconductor market recovery continued.

While uncertainty related to broader macroeconomic dynamics remains, growth of semiconductor content in electronics has continued to drive demand for our products, particularly in the industrial, automotive and data center markets.

We believe we are well positioned with inventory and capacity to support our customers with competitive lead times through the semiconductor cycle.

Acquisition of Silicon Labs

As announced on February 4, 2026, we have entered into a definitive agreement to acquire Silicon Labs for $231.00 per share in an all-cash transaction, representing a total enterprise value of approximately $7.5 billion.

Under the terms of the agreement, Silicon Labs stockholders will receive $231.00 in cash for each share of Silicon Labs common stock they hold at the time of closing, which is currently expected in the first half of 2027, subject to receipt of regulatory approvals and other customary closing conditions, including approval by Silicon Labs stockholders.

We expect to fund the transaction with a combination of cash on hand and debt financing to be arranged prior to closing.

Details of financial results – first quarter 2026 compared with first quarter 2025

Revenue of $4.83 billion increased $756 million, or 19%, due to 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 $2.80 billion was up $486 million, or 21%, primarily due to higher revenue, partially offset by higher manufacturing costs associated with our planned capacity expansions.

As a percentage of revenue, gross profit increased to 58.0% from 56.8%.

Operating expenses (R&D and SG&A) were $974 million compared with $989 million.

Acquisition charges were $17 million due to transaction-related costs associated with our planned acquisition of Silicon Labs.

Operating profit was $1.81 billion, or 37.5% of revenue, compared with $1.32 billion, or 32.5% of revenue.

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

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

OI&E was $47 million of income compared with $80 million of income.

This decrease was due to lower interest income.

This decrease was primarily due to lower interest income.

Interest and debt expense of $141 million increased $13 million.

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Our provision for income taxes was $169 million compared with $97 million.

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.

This increase was primarily due to higher income before income taxes.

Our effective tax rate, which includes discrete tax items, was 10% compared with 8%.

Net income was $1.36 billion in both periods.

Net income was $1.55 billion compared with $1.18 billion.

EPS was $1.68 compared with $1.28.

Third quarter 2025 segment results

First quarter 2026 segment results

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

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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.

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

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

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

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

Other (includes DLP ® products and calculators)

Q1 2026 Q1 2025 Change

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Operating profit % of revenue 27.0 % 36.8 %

* 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 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 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 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.

This decrease was due to lower interest income.

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

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.

EPS was $4.18 compared with $3.89.

Year-to-date segment results

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

YTD 2025 YTD 2024 Change

Revenue $ 10,391 $ 8,987 16 %

Operating profit 4,017 3,371 19 %

Operating profit % of revenue 38.7 % 37.5 %

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

YTD 2025 YTD 2024 Change

Revenue $ 2,035 $ 1,920 6 %

Operating profit 233 294 (21) %

Operating profit % of revenue 11.4 % 15.3 %

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 operating expenses, partially offset by higher revenue.

YTD 2025 YTD 2024 Change

Revenue $ 833 $ 727 15 %

Operating profit * 300 423 (29) %

Operating profit % of revenue 36.0 % 58.2 %

* Includes Restructuring charges/other

Other revenue increased $106 million, and operating profit decreased $123 million.

* Includes Acquisition charges

Other revenue decreased $34 million, and operating profit decreased $30 million.

Financial condition

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.

At the end of the first quarter of 2026, total cash (cash and cash equivalents plus short-term investments) was $5.10 billion, an increase of $222 million from the end of 2025.

Accounts receivable were $2.25 billion, an increase of $282 million compared with the end of 2025.

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 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.

Days sales outstanding in the first quarter of 2026 were 42 compared with 40 at the end of 2025.

Inventory was $4.70 billion, a decrease of $109 million from the end of 2025.

Days of inventory for the first quarter of 2026 were 209 compared with 222 at the end of 2025, which reflects the continued execution of our inventory strategy.

Liquidity and capital resources

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

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.

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.

As of March 31, 2026, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first three months of 2026 were $1.52 billion, an increase of $671 million from the year-ago period due to higher net income and non-cash items, as well as lower cash used for working capital.

Investing activities for the first three months of 2026 used $47 million compared with $1.25 billion of cash provided in the year-ago period.

Capital expenditures were $676 million compared with $1.12 billion in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

CHIPS and Science Act (CHIPS Act) incentives provided cash proceeds of $555 million of direct funding compared with $260 million related to the investment tax credit (ITC) in the year-ago period.

Short-term investments provided cash of $108 million compared with $2.16 billion in the year-ago period.

We are nearing the end of our six-year elevated capital expenditures cycle, and consistent with our capital management strategy, we are expecting to spend about $2 billion to $3 billion in 2026.

Beyond 2026, capital expenditures will be dependent on revenue and growth expectations.

We expect to continue benefiting from the CHIPS Act.

This includes the 35% ITC on qualifying manufacturing investments as well as direct funding of up to $1.6 billion, of which we have received $630 million, for our three large-scale 300mm wafer fabs located in Sherman, Texas, and Lehi, Utah.

Financing activities for the first three months of 2026 used $1.15 billion compared with $2.54 billion in the year-ago period.

We retired maturing debt of $750 million in the year-ago period.

Dividends paid were $1.29 billion compared with $1.24 billion in the year-ago period, reflecting an increased dividend rate.

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.

We used $158 million to repurchase 0.8 million shares of our common stock compared with $653 million to repurchase 3.5 million shares in the year-ago period.

Employee exercises of stock options provided cash proceeds of $309 million compared with $118 million in the year-ago period.

We had $3.31 billion of cash and cash equivalents and $1.88 billion of short-term investments as of September 30, 2025.

We had $3.55 billion of cash and cash equivalents and $1.55 billion of short-term investments as of March 31, 2026.

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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For 12 Months Ended

September 30,

2026 2025 Change

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Free cash flow as a percentage of revenue (non-GAAP) 23.6 % 10.7 %

* 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.

* Includes cash benefits of $335 million and $588 million from the CHIPS Act ITC used to reduce income taxes payable for the twelve months ended March 31, 2026 and 2025, 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