Texas Instruments Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Texas Instruments designs and manufactures semiconductors, with reportable segments in Analog and Embedded Processing.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $4.379 billion | $4.905 billion | Down 11% |
| Gross profit / margin | $2.863 billion / 65.4% | $3.442 billion / 70.2% | Profit down 17%; margin down 4.8 percentage points |
| Operating profit / margin | $1.934 billion / 44.2% | $2.563 billion / 52.3% | Profit down 25% |
| Net income | $1.708 billion | $2.201 billion | Down 22% |
| Diluted EPS | $1.85 | $2.35 | Down 21% |
| Operating cash flow | $1.160 billion | $2.144 billion | Down $984 million |
| Capital expenditures | $982 million | $443 million | Up $539 million |
Quarterly operating cash flow less capital expenditures was approximately $178 million. For the trailing 12 months ended March 31, 2023, operating cash flow was $7.736 billion and free cash flow, a non-GAAP measure, was $4.400 billion (22.6% of revenue), down 32% from the comparable prior-year period.
Segments and material changes
- Analog: Revenue was $3.289 billion, down 14%; operating profit was $1.574 billion, down 27%. Revenue declined in both product lines, led by Power.
- Embedded Processing: Revenue was $832 million, up 6%; operating profit was $237 million, down 25%. Revenue growth reflected product mix; higher manufacturing costs weighed on profit.
- Other: Revenue was $258 million, down 16%; operating profit was $123 million, up 26%.
- Management reported weakness across end markets except automotive. Lower revenue and higher manufacturing costs reduced gross profit. R&D and SG&A rose to $929 million from $813 million, primarily due to higher employee-related costs and investment in the business.
- Q1 2022 included $66 million of Lehi facility preproduction costs in restructuring/other; after production began in December 2022, these costs shifted primarily to cost of revenue.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $4.477 billion and short-term investments were $5.068 billion at quarter-end, totaling $9.545 billion, up $478 million from year-end 2022.
- Total debt, including current debt, was $10.126 billion, versus $8.735 billion at December 31, 2022. In March, TI issued $1.40 billion of senior notes: $750 million at 4.90% due 2033 and $650 million at 5.00% due 2053. The $1 billion revolving credit facility was undrawn; no commercial paper was outstanding.
- Inventory rose $531 million from year-end to $3.288 billion; days of inventory increased to 195 from 157. Days sales outstanding rose to 39 from 37.
- Dividends paid were $1.125 billion, or $1.24 per share. TI repurchased $103 million of stock. Management cited $7.5 billion returned to shareholders over the trailing 12 months.
Outlook, risks and contingencies
The filing provides no specific revenue or EPS guidance. Management expects capital expenditures to remain higher than historical levels as it invests in manufacturing capacity and technology, and expects future cash benefits from the U.S. CHIPS and Science Act investment tax credit on qualifying expenditures. Management believes available resources and operating plans will cover working capital, capital expenditures, dividends, debt payments and other requirements for at least the next 12 months.
Key stated risks include semiconductor demand and customer inventory changes; competition and pricing; factory utilization and fixed-cost absorption; execution and returns on manufacturing-capacity investments; availability and cost of materials and equipment; geopolitical, trade and macroeconomic conditions; cybersecurity; and product, legal, tax and intellectual-property matters. TI said legal proceedings and product warranty or liability matters were not expected to have a material adverse effect; no material warranty accruals or payments were reported for the periods presented.
Important facts for investors to verify
- Whether end-market weakness persists, particularly outside automotive, and whether customer inventory levels normalize.
- Whether inventory growth and lower factory utilization continue to pressure margins and cash generation.
- Actual timing, scale and returns of elevated capital spending, including any benefits from CHIPS Act tax credits.
- Debt issuance, higher interest expense and the company’s capacity to sustain dividends and repurchases.
- Management’s cited trailing-12-month free cash flow and its reconciliation as a non-GAAP measure.