Texas Instruments Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. TI designs, manufactures and sells semiconductors worldwide, primarily through its Analog and Embedded Processing businesses.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First 9 months 2021 | First 9 months 2020 |
|---|---|---|---|---|
| Revenue | $4.643 billion | $3.817 billion | $13.512 billion | $10.385 billion |
| Gross profit / margin | $3.152 billion / 67.9% | $2.453 billion / 64.3% | $9.026 billion / 66.8% | $6.623 billion / 63.8% |
| Operating profit / margin | $2.305 billion / 49.6% | $1.609 billion / 42.2% | $6.457 billion / 47.8% | $4.081 billion / 39.3% |
| Net income | $1.947 billion | $1.353 billion | $5.631 billion | $3.907 billion |
| Diluted EPS | $2.07 | $1.45 | $5.99 | $4.17 |
Q3 revenue rose 22% year over year, driven by strong demand in industrial, automotive and personal electronics. Analog revenue increased 24% to $3.548 billion; Embedded Processing rose 13% to $738 million. For the first nine months, Analog revenue grew 33% and Embedded Processing 24%. Higher revenue and associated gross profit drove higher segment operating profits and margins.
Cash flow, liquidity and debt
- Operating cash flow for the first nine months was $6.399 billion, up from $4.014 billion in 2020. Capital expenditures were $1.180 billion, versus $437 million.
- For the trailing 12 months, operating cash flow was $8.524 billion and free cash flow (a non-GAAP measure) was $7.132 billion, or 40.6% of revenue. TI reported free cash flow of $5.168 billion, or 37.6% of revenue, for the comparable prior-year period.
- At September 30, cash and cash equivalents were $5.663 billion and short-term investments were $4.119 billion, totaling $9.782 billion. Current assets were $13.585 billion and current liabilities $2.413 billion.
- Total debt, including the current portion, was $7.739 billion, compared with $6.798 billion at year-end 2020. TI issued $1.5 billion of senior notes in September and repaid $550 million of maturing debt during the first nine months. The $2 billion revolving credit facility was undrawn; no commercial paper was outstanding.
- Dividends paid in the first nine months were $2.824 billion; stock repurchases used $385 million. TI said it increased its dividend by 13% in September and returned $4.2 billion through dividends and repurchases over the trailing 12 months.
Material changes and unusual items
- Compared with Q3 2020, revenue increased $826 million, gross profit increased $699 million, and operating profit increased $696 million. Operating expenses were broadly stable.
- Year-to-date income tax provision was $825 million versus $183 million a year earlier. The 2020 period included a $249 million discrete tax benefit from settlement of a depreciation-related uncertain tax position, plus reversal of $46 million of accrued interest. TI estimated an annual operating tax rate of about 14%, excluding discrete items.
- Capital spending increased substantially year over year, primarily for semiconductor manufacturing equipment and facilities. Management expected capital expenditures to continue increasing.
- After quarter-end, in October 2021, TI completed its acquisition of Micron Technology’s 300-millimeter semiconductor factory in Lehi, Utah, for approximately $900 million cash.
Outlook, commentary and risks
Management emphasized long-term free-cash-flow-per-share growth, investment in manufacturing capacity and technology, disciplined capital allocation, and operating efficiency. It expressed caution about how the economy might behave over the next few years amid the ongoing COVID-19 pandemic. The filing provides no specific revenue or earnings guidance for the next quarter or full year. TI stated that it had resources and plans sufficient to fund working capital, capital expenditures, dividends, debt payments and other requirements for at least the next 12 months.
Key risks cited include changing semiconductor demand, especially in industrial and automotive markets; COVID-19 and broader economic or geopolitical conditions; competition; supply availability and costs; manufacturing execution and capacity utilization; cybersecurity; customer and distributor inventory or purchasing changes; product claims; tax and regulatory changes; and intellectual-property matters. TI said pending legal and administrative proceedings were not expected to materially affect its financial condition, results or liquidity. It reported no material warranty or product-liability accruals or payments in the periods presented. Disclosure controls were deemed effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether demand and segment growth—particularly in Analog, industrial and automotive—are sustainable, and how customer inventory levels evolve.
- How planned higher capital expenditures and the Lehi factory acquisition affect capacity, costs, cash generation and returns on invested capital.
- Whether free cash flow and margins remain strong as manufacturing investment increases; free cash flow is non-GAAP.
- Debt maturity and interest-cost implications of the new notes, alongside dividend growth and share repurchases.
- Tax-rate comparability: the prior-year nine-month results included a material discrete tax benefit.
- Exposure to the filing’s stated pandemic, supply-chain, geopolitical, competitive, cybersecurity and customer-demand risks.