What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-07-24 compared with 2026-04-24 · 73 added, 33 removed, 124 unchanged (46% of the section changed)

35 unchanged sentences

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

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.

We have invested in manufacturing capacity to support customer demand, enable external foundry transfers and prepare new factories to have cleanroom space available to support future growth.

These investments have uniquely positioned TI to deliver dependable, low-cost 300mm capacity with the ability to equip and ramp factories to support customer demand.

We believe this approach supports 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.

11 unchanged sentences

◦ Unless otherwise noted, changes in our revenue are attributable to changes in customer demand, which are evidenced by fluctuations in shipment volumes.

Upturns in the semiconductor cycle are often characterized by rising customer demand, which drives higher revenue, while downturns in the semiconductor cycle are characterized by weakening customer demand, which results in lower revenue.

◦ 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.

8 unchanged sentences

Performance summary

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 second quarter revenue was $5.46 billion, net income was $1.98 billion and earnings per share (EPS) were $2.14.

Revenue increased 13% sequentially and 23% from the same quarter a year ago with broad growth led by industrial, data center and automotive.

Our cash flow from operations of $8.7 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.

1 unchanged sentence

Over the past 12 months we invested $3.9 billion in R&D and SG&A, invested $3.3 billion in capital expenditures and returned $5.8 billion to shareholders.

Macroeconomic factors

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.

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 expected in the first half of 2027, subject to receipt of regulatory approvals and other customary closing conditions.

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

In June 2026, we entered into a 364-day delayed draw term loan credit facility for borrowings up to $5 billion to support the Silicon Labs acquisition consideration and related transaction expenses.

As of June 30, 2026, there were no outstanding borrowings on the delayed draw term loan credit facility.

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

Revenue of $5.46 billion increased $1.02 billion, or 23%, due to increased demand in our Analog segment and, to a lesser extent, in our Embedded Processing segment.

Gross profit of $3.35 billion was up $777 million, or 30%, 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 61.4% from 57.9%.

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

Operating expenses (R&D and SG&A) were $1.03 billion compared with $1.01 billion.

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

2 unchanged sentences

OI&E was $69 million of income compared with $48 million of income.

This decrease was primarily due to lower interest income.

This increase was primarily due to higher interest income.

Interest and debt expense of $141 million increased $8 million.

1 unchanged sentence

Our provision for income taxes was $258 million compared with $183 million.

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%.

This increase was primarily due to higher income before income taxes, partially offset by higher discrete tax benefits of $35 million, related to stock-based compensation.

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

Net income was $1.98 billion compared with $1.30 billion.

EPS was $2.14 compared with $1.41.

First quarter 2026 segment results

Second quarter 2026 segment results

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

4 unchanged sentences

Operating profit % of revenue 45.6 % 38.4 %

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 and associated gross profit.

Analog revenue increased in both product lines, led by Signal Chain, due to higher demand.

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

Embedded Processing (includes microcontrollers and processors)

3 unchanged sentences

Operating profit % of revenue 21.3 % 12.5 %

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

Embedded Processing revenue increased due to higher demand.

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

6 unchanged sentences

Other revenue decreased $7 million, and operating profit decreased $3 million.

Details of financial results – first six months of 2026 compared with first six months of 2025

Revenue of $10.29 billion increased $1.77 billion, or 21%, due to increased demand in our Analog segment and, to a lesser extent, in our Embedded Processing segment.

Gross profit of $6.15 billion was up $1.26 billion, or 26%, 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 59.8% from 57.4%.

Operating expenses were $2.00 billion in both periods.

Acquisition charges were $34 million due to transaction-related costs associated with our planned acquisition of Silicon Labs.

Operating profit was $4.12 billion, or 40.0% of revenue, compared with $2.89 billion, or 33.9% of revenue.

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

OI&E was $116 million of income compared with $128 million of income.

This decrease was primarily due to lower interest income.

Interest and debt expense of $282 million increased $21 million.

Our provision for income taxes was $427 million compared with $280 million.

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

Our effective tax rate, which includes discrete tax items, was 11% compared with 10%.

Net income was $3.53 billion compared with $2.47 billion.

EPS was $3.82 compared with $2.69.

Year-to-date segment results

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

YTD 2026 YTD 2025 Change

Revenue $ 8,289 $ 6,662 24 %

Operating profit 3,630 2,531 43 %

Operating profit % of revenue 43.8 % 38.0 %

Analog revenue increased in both product lines, led by Signal Chain, due to higher demand.

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

Embedded Processing

YTD 2026 YTD 2025 Change

Revenue $ 1,511 $ 1,326 14 %

Operating profit 290 125 132 %

Operating profit % of revenue 19.2 % 9.4 %

Embedded Processing revenue increased due to higher demand.

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

YTD 2026 YTD 2025 Change

Revenue $ 488 $ 529 (8) %

Operating profit * 198 231 (14) %

Operating profit % of revenue 40.6 % 43.7 %

* Includes Acquisition charges

Other revenue decreased $41 million, and operating profit decreased $33 million.

Financial condition

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.

At the end of the second quarter of 2026, total cash (cash and cash equivalents plus short-term investments) was $7.00 billion, an increase of $2.12 billion from the end of 2025.

Accounts receivable were $2.52 billion, an increase of $557 million compared with the end of 2025.

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

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

Inventory was $4.61 billion, a decrease of $199 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.

Days of inventory for the second quarter of 2026 were 196 compared with 222 at the end of 2025, which reflects the continued execution of our inventory strategy.

Liquidity and capital resources

2 unchanged sentences

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

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.

As of June 30, 2026, our credit facility was undrawn, and we had no commercial paper outstanding.

Cash flows from operating activities for the first six months of 2026 were $4.22 billion, an increase of $1.51 billion from the year-ago period due to higher net income and non-cash items, as well as lower cash used for working capital.

Cash flows from operating activities for the first six months of 2026 and 2025 include cash benefits of $301 million and $203 million, respectively, from the U.S.

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

Investing activities for the first six months of 2026 used $1.75 billion compared with $82 million in the year-ago period.

Capital expenditures were $1.19 billion compared with $2.43 billion in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

In 2026, CHIPS Act incentives provided cash proceeds of $1.10 billion compared with $260 million in the year-ago period.

Short-term investments used cash of $1.66 billion compared with $2.10 billion of cash provided in the year-ago period.

Consistent with our capital management strategy, we expect between $2 billion to $3 billion of capital expenditures in 2026.

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

1 unchanged sentence

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.

Financing activities for the first six months of 2026 used $2.04 billion compared with $2.78 billion 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.

Dividends paid were $2.59 billion compared with $2.47 billion in the year-ago period, reflecting an increased dividend rate.

1 unchanged sentence

Employee exercises of stock options provided cash proceeds of $754 million compared with $233 million in the year-ago period.

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

We had $3.66 billion of cash and cash equivalents and $3.34 billion of short-term investments as of June 30, 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.

15 unchanged sentences

Free cash flow as a percentage of revenue (non-GAAP) 33.6 % 10.6 %

* 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.

* Includes cash benefits of $433 million and $479 million from the CHIPS Act ITC used to reduce income taxes payable for the twelve months ended June 30, 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