Texas Instruments Incorporated — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. TI designs, manufactures and sells semiconductors; its reportable segments are Analog and Embedded Processing. Dollar amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | First 9 months 2022 | First 9 months 2021 |
|---|---|---|---|---|
| Revenue | $5,241 | $4,643 | $15,358 | $13,512 |
| Gross profit / margin | $3,617 / 69.0% | $3,152 / 67.9% | $10,684 / 69.6% | $9,026 / 66.8% |
| Operating profit / margin | $2,678 / 51.1% | $2,305 / 49.6% | $7,964 / 51.9% | $6,457 / 47.8% |
| Net income | $2,295 | $1,947 | $6,787 | $5,631 |
| Diluted EPS | $2.47 | $2.07 | $7.27 | $5.99 |
| Operating cash flow | Quarterly value not separately provided | — | $6,678 | $6,399 |
| Capital expenditures | Quarterly value not separately provided | — | $1,830 | $1,180 |
- Q3 revenue rose 13% year over year and 1% sequentially. Management said revenue growth was driven chiefly by Analog, with higher prices and product mix also contributing.
- Q3 segment revenue grew 13% in Analog to $3,993, 11% in Embedded Processing to $821, and 20% in Other to $427. Analog generated 54.7% operating margin; Embedded Processing, 39.1%; Other, 40.3%.
- For the first nine months, revenue increased 14%, net income 21%, and diluted EPS 21% year over year. Operating margin rose to 51.9% from 47.8%.
- Trailing-12-month operating cash flow was $9,035 and free cash flow was $5,923, or 29.3% of revenue. Free cash flow declined 17% from the comparable period, as capital expenditures increased to $3,112 from $1,392.
Liquidity, debt and capital allocation
- At September 30, 2022, cash and cash equivalents were $3,169 and short-term investments were $5,921, totaling $9,090. Total debt, including current maturities, was $7,937; cash and short-term investments exceeded reported debt by approximately $1.15 billion.
- Operating activities provided $6,678 in the first nine months. Investing activities used $2,556 and financing activities used $5,584. Cash declined $1,462 from year-end 2021 to $3,169.
- First-nine-month dividends paid were $3,174 and share repurchases were $2,767, versus $2,824 and $385, respectively, in 2021. TI announced an 8% dividend-rate increase and an additional $15 billion share-repurchase authorization in September.
- TI issued $700 of senior notes in August, with $695 net proceeds, and repaid $500 of maturing debt in April. Its $1 billion revolving credit facility was undrawn, with no commercial paper outstanding.
- Management said it believes resources and operating plans are sufficient for working capital, capital expenditures, dividends, debt payments and other needs for at least the next 12 months.
Changes, outlook and risks
- Management reported expected weakness in personal electronics and expanding weakness across industrial. It said it remained cautious about economic conditions over the next few years; no specific forward revenue or earnings guidance is provided in this filing.
- TI expects capital expenditures to remain higher than historical levels as it invests in manufacturing capacity and technology. It expects a future cash benefit from the 25% U.S. investment tax credit under the CHIPS Act and was still evaluating the Act’s benefits.
- Q3 restructuring charges/other were $77, and first-nine-month charges were $209, related to integration at the Lehi, Utah, manufacturing facility. The filing also reports $29 of U.S. defined-benefit and $10 of non-U.S. defined-benefit settlement losses for the first nine months.
- The effective tax rate was 14% for both Q3 and the first nine months. TI did not expect the Inflation Reduction Act’s new 15% corporate minimum tax, effective in 2023, to have a material financial impact based on its current analysis.
- Risks cited include uncertain semiconductor demand, customer inventory adjustments, COVID-19 and macroeconomic conditions, trade and geopolitical developments, competition, manufacturing capacity and utilization, supply availability and costs, cybersecurity, regulation and tax changes. TI said pending legal matters and product warranty/liability matters were not expected to materially affect its financial condition, results or liquidity; it noted future indemnification liabilities cannot be reasonably estimated.
Important facts for investors to verify
- Whether industrial and personal-electronics weakness, and any customer inventory correction, deepen or affect subsequent-period demand.
- Whether elevated capital spending delivers expected capacity, returns and CHIPS Act tax-credit benefits, and how it affects free cash flow.
- How inventory growth ($494 since year-end) and days of inventory (133 versus 116 at year-end) develop alongside receivables and days sales outstanding.
- Whether margins and cash generation remain resilient as demand changes, given manufacturing fixed costs.
- How increased dividends and repurchases compare with investment needs and the company’s cash and debt position.