Texas Instruments Incorporated — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. TI designs, manufactures and sells semiconductors, primarily through its Analog and Embedded Processing segments.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $18.344 billion | $14.461 billion |
| Gross profit / margin | $12.376 billion / 67.5% | $9.269 billion / 64.1% |
| Operating profit / margin | $8.960 billion / 48.8% | $5.894 billion / 40.8% |
| Net income | $7.769 billion | $5.595 billion |
| Diluted EPS | $8.26 | $5.97 |
| Cash flow from operations | $8.756 billion | $6.139 billion |
| Capital expenditures | $2.462 billion | $649 million |
| Free cash flow (non-GAAP) | $6.294 billion | $5.490 billion |
| Free cash flow margin | 34.3% | 38.0% |
Revenue grew 27%, net income 39% and diluted EPS 38%. Gross margin expanded 3.4 percentage points, reflecting higher revenue and manufacturing efficiency, including 300-millimeter production. Free cash flow increased about 15%, but its margin declined as capital expenditures rose substantially.
Segments and markets
- Analog: Revenue of $14.050 billion, up 29%; operating profit of $7.393 billion, up 51%. Growth was led by Signal Chain.
- Embedded Processing: Revenue of $3.049 billion, up 19%; operating profit of $1.174 billion, up 58%.
- Other: Revenue of $1.245 billion, up 24%; operating profit of $393 million. Includes DLP products, calculators, custom ASICs and certain corporate or restructuring items.
- Industrial and automotive represented 41% and 21% of revenue, respectively. Personal electronics represented 24%. TI said it places strategic emphasis on industrial and automotive markets.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $4.631 billion and short-term investments were $5.108 billion at year-end, totaling $9.739 billion, up $3.17 billion year over year.
- Total debt, including current maturities, was $7.741 billion, compared with $6.798 billion in 2020. Cash and short-term investments exceeded reported debt by approximately $2.0 billion.
- The $2 billion revolving credit facility was undrawn; TI had no commercial paper outstanding. Management said available resources and plans were sufficient for at least the next 12 months.
- Dividends paid were $3.886 billion, or $4.21 per share. TI repurchased $527 million of shares; total dividends and repurchases were approximately $4.41 billion.
- Capital expenditures were $2.462 billion, including manufacturing investments and the $893 million purchase of a 300-millimeter factory in Lehi, Utah. Management expects capital expenditures to remain above historical levels.
Outlook, commentary and notable matters
- TI provided no specific revenue or earnings guidance in the supplied filing text. Management expressed caution about economic conditions and continued monitoring of COVID-19 effects.
- Capacity plans include RFAB2 production expected to begin in the second half of 2022, the Lehi facility expected to begin production in early 2023, and planned Sherman, Texas, facilities with production expected in 2025. TI says these investments are intended to support growth over the next 10 to 15 years.
- Key risks include semiconductor-cycle and demand volatility, constrained supply and inventory forecasting, competition and pricing pressure, fixed manufacturing costs, supply-chain dependencies, trade tensions and restrictions affecting China, cybersecurity, and execution and returns on capacity investments.
- Products shipped to China represented about $10.0 billion, or roughly 55% of FY2021 revenue; TI cautions that shipment destination does not necessarily indicate end-market demand. About 90% of revenue came from shipments outside the United States.
- Income tax provision increased to $1.150 billion from $422 million; the 2020 comparison included a $249 million benefit from settlement of an uncertain tax position. The 2021 effective tax rate was 12.9%, versus 7.0% in 2020; the annual operating tax rate was 14% in both years.
- FY2021 restructuring/other charges were $54 million, including $104 million of Lehi integration costs, partly offset by a $50 million gain on an asset sale. The filing also reports a multiyear plan to close remaining 150-millimeter factories, with completion expected by 2025; future closure charges could not be reasonably estimated.
- TI disclosed dealings with the Russian Federal Security Service, solely to permit import, distribution and use of certain catalog products under a U.S. general license. It reported no directly attributable gross revenue or net profit and said it intended to continue as legally permitted.
- TI reported ordinary-course legal proceedings as not expected to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether industrial and automotive demand, and the strong 2021 segment growth, are sustainable through semiconductor-cycle changes.
- Whether planned capacity additions and elevated capital spending deliver expected utilization, cost advantages and free-cash-flow growth.
- How supply constraints, inventory levels and customer or distributor adjustments affect future shipments and margins.
- How the increase in debt and the substantial shareholder distributions compare with future investment needs and free-cash-flow generation.
- Potential effects of tax examinations, trade restrictions and China exposure, and the timing and cost of planned factory closures.