Texas Instruments Incorporated (TXN) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. TI designs, manufactures and sells semiconductors, principally through its Analog and Embedded Processing segments. Dollar amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $4.58 billion | $3.24 billion | $8.87 billion | $6.57 billion |
| Gross profit / margin | $3.08 billion / 67.2% | $2.08 billion / 64.3% | $5.87 billion / 66.2% | $4.17 billion / 63.5% |
| Operating profit / margin | $2.21 billion / 48.3% | $1.23 billion / 37.9% | $4.15 billion / 46.8% | $2.47 billion / 37.6% |
| Net income | $1.93 billion | $1.38 billion | $3.68 billion | $2.55 billion |
| Diluted EPS | $2.05 | $1.48 | $3.92 | $2.72 |
| Operating cash flow | Not presented separately for the quarter in this filing summary | $3.97 billion | $2.57 billion |
- Q2 revenue rose 41% year over year and 7% sequentially; management attributed growth to strong industrial, automotive and personal-electronics demand. Analog revenue increased 42% year over year and Embedded Processing 43%.
- For the first half, Analog revenue grew 38% and Embedded Processing grew 29% year over year. Q2 segment operating profit was $1.78 billion for Analog, $312 million for Embedded Processing and $123 million for Other.
- For the trailing 12 months through June 30, operating cash flow was $7.54 billion and capital expenditures were $1.05 billion, producing non-GAAP free cash flow of $6.49 billion, or 38.7% of revenue. The comparable prior-year free-cash-flow margin was 41.7%.
Balance sheet, liquidity and capital allocation
- At June 30, cash and cash equivalents were $3.65 billion and short-term investments were $3.74 billion, totaling $7.39 billion. Total cash and short-term investments increased $822 million from year-end 2020.
- Total debt, including current maturities and net issuance costs, was $6.25 billion, down from $6.80 billion at December 31, 2020. The estimated fair value of debt was $6.97 billion. TI retired $550 million of maturing debt during the first half.
- Current assets were $11.18 billion versus current liabilities of $2.20 billion. The $2 billion revolving credit facility was undrawn, and there was no commercial paper outstanding. Management said available resources and operating plans were sufficient for requirements over at least the next 12 months.
- First-half capital expenditures were $694 million, up from $291 million. Dividends paid were $1.88 billion; share repurchases were $246 million, versus $2.52 billion in the prior-year period.
- TI announced an agreement to buy Micron Technology’s 300-millimeter semiconductor factory in Lehi, Utah, for $900 million cash, with completion planned by year-end 2021.
Material changes, outlook and risks
- Profit and margins improved substantially alongside higher revenue. Q2 gross margin rose to 67.2% from 64.3%; operating margin increased to 48.3% from 37.9%.
- Q2 2020 included a $249 million discrete tax benefit from settlement of a depreciation-related uncertain tax position, as well as reversal of $46 million of accrued interest recorded in other income. Q2 2021 had a $311 million tax expense versus a $101 million benefit a year earlier. The estimated annual operating tax rate was about 14%, excluding discrete items.
- Management gave no specific revenue or EPS guidance in the provided filing text. It said the COVID-19 pandemic would likely continue to affect markets and operations and that it remained cautious about economic conditions over the next few years.
- Management emphasizes long-term free-cash-flow-per-share growth, manufacturing and technology, broad product offerings, market reach, disciplined capital allocation and operating efficiency. It noted that factory utilization affects margins because a significant portion of manufacturing costs is fixed.
- Disclosed risks include pandemic and macroeconomic effects, semiconductor demand and cyclicality, competition, supply and manufacturing capacity constraints, customer or distributor inventory changes, cybersecurity, product claims, regulation and tax matters. TI said ongoing legal proceedings and historical product warranty claims were not expected to have a material adverse effect; no material warranty accruals or payments were reported.
Important facts for investors to verify
- Whether strong industrial and automotive demand and elevated shipment growth persist, and how customer inventory adjustments affect orders.
- Execution, timing and total investment associated with the $900 million Lehi factory acquisition and broader manufacturing-capacity plans.
- Capital spending, factory utilization and whether margin and free-cash-flow performance can be sustained as demand and production levels change.
- Dividend and repurchase levels relative to cash generation, debt maturities and other capital requirements.
- Tax-rate assumptions and the impact of discrete tax items; reported year-over-year comparisons are affected by the prior-year tax benefit.
- COVID-19, supply-chain, geopolitical, regulatory and other risk developments referenced in the filing and the company’s latest Form 10-K.