Texas Instruments Incorporated (TXN) — FY2022 Form 10-K
Business context and reporting period: Annual report for the fiscal year ended December 31, 2022; this is not a standalone fourth-quarter report. TI designs and manufactures semiconductors, with reportable segments in Analog and Embedded Processing. Its strategy emphasizes long-term free-cash-flow-per-share growth, manufacturing investment, disciplined capital allocation and efficiency.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $20.03 billion | $18.34 billion |
| Gross profit / margin | $13.77 billion / 68.8% | $12.38 billion / 67.5% |
| Operating profit / margin | $10.14 billion / 50.6% | $8.96 billion / 48.8% |
| Net income | $8.75 billion | $7.77 billion |
| Diluted EPS | $9.41 | $8.26 |
| Cash flow from operations | $8.72 billion | $8.76 billion |
| Capital expenditures | $2.80 billion | $2.46 billion |
| Free cash flow (non-GAAP) | $5.92 billion; 29.6% of revenue | $6.29 billion; 34.3% of revenue |
Segments: Analog revenue was $15.36 billion, up 9%, with operating profit of $8.36 billion. Embedded Processing revenue was $3.26 billion, up 7%, with operating profit of $1.25 billion. Other revenue was $1.41 billion, up 13%, with operating profit of $528 million.
Liquidity and debt: Cash and cash equivalents plus short-term investments totaled $9.07 billion at year-end, down $672 million from 2021. Total debt carrying value was $8.74 billion, including $500 million current and $8.24 billion long-term. The $1 billion revolving credit facility was undrawn and no commercial paper was outstanding. Management said available resources and operating plans were sufficient for at least the next 12 months.
Capital returns: TI paid $4.30 billion in dividends and repurchased $3.62 billion of shares during 2022, returning $7.91 billion in total. Dividends paid were $4.69 per share for the year.
Changes versus the prior year
- Revenue increased 9.2%, principally from Analog, with higher prices and product mix also contributing. TI said demand weakened after a market correction began in 2022.
- Gross margin rose 1.3 percentage points and operating margin rose 1.8 points, reflecting higher revenue and manufacturing efficiency, including 300-mm production.
- Net income rose about 13% and diluted EPS rose about 14%.
- Operating cash flow was nearly flat, while free cash flow declined about 6%, mainly reflecting higher capital expenditures. Inventory increased $847 million to $2.76 billion; days of inventory rose to 157 from 116.
- Restructuring charges/other rose to $257 million from $54 million, primarily due to Lehi facility integration and preproduction costs. These costs shifted to cost of revenue after production began in December 2022.
Outlook, commentary and risks
- Management expected weaker product demand to continue into 2023, while maintaining long-term investment plans. No numerical revenue or earnings guidance is provided in this filing text.
- Capital expenditures are expected to remain above historical levels as TI expands manufacturing capacity. Construction began on two 300-mm facilities in Sherman, Texas; production at the first is expected to begin in 2025. TI also expects internal manufacturing to account for a greater share of wafer and assembly/test production over time.
- The company recognized $395 million of receivables under the U.S. CHIPS and Science Act, reducing the carrying amounts of qualifying manufacturing assets. It expects future cash benefits from investment tax credits and plans to apply for other incentives.
- Key risks include semiconductor cyclicality and demand/inventory shifts; competition and pricing pressure; fixed manufacturing costs and returns on capacity investments; geopolitical and trade exposure (including China); supply-chain constraints; cybersecurity; recruiting and retaining skilled personnel; regulatory and tax uncertainty; and product, intellectual-property and legal claims.
- TI reported no legal proceedings expected to have a material adverse effect. Warranty/product-liability payments and accruals were not material in the periods presented. The auditor issued unqualified opinions on the financial statements and internal controls; uncertain tax positions were identified as a critical audit matter.
- CEO succession was announced: Haviv Ilan was elected to become president and CEO effective April 1, 2023; Richard Templeton would remain chairman.
Investor facts to verify
- Whether demand, customer inventories and factory utilization continued to weaken after year-end, and the resulting effect on margins and inventory valuation.
- Execution, cost, timing and utilization of the large manufacturing expansion plan, including Sherman and the expected CHIPS Act incentives.
- Free-cash-flow conversion as capital expenditures rise, alongside dividend and share-repurchase commitments.
- Debt maturities, interest expense and liquidity needs relative to planned investment and shareholder returns.
- Exposure to China, trade restrictions and other geopolitical developments, distinguishing shipment destination from end-customer headquarters.
- Resolution of tax audits and uncertain tax positions, and any material changes to legal, cybersecurity or supply-chain contingencies.