Introduction
Texas Instruments delivered strong third-quarter results with revenue beating estimates and 14% year-over-year growth, but investors sent the stock down sharply as conservative fourth-quarter guidance overshadowed the positive performance. The analog chipmaker’s reset of near-term expectations below Street forecasts, coupled with an unexpected $0.10 EPS reduction, highlighted the challenges of navigating inventory adjustments and cost pressures despite broad-based demand recovery across all end markets.
Key Points
- Analog segment revenue surged 16% year-over-year to $3.73 billion, driving the core recovery thesis while Embedded Processing grew 9% to $709 million
- Free cash flow inflection continues with TTM FCF up 65% to $2.42 billion, supporting $6.56 billion in capital returns despite $4.8 billion TTM capital expenditures
- Q4 guidance reset below Street expectations with revenue guidance of $4.22-4.58 billion and EPS of $1.13-1.39, reflecting measured near-term growth pace and $0.10 EPS headwind
Strong Q3 Performance Overshadowed by Guidance Reset
Texas Instruments reported third-quarter revenue of $4.74 billion, beating Wall Street estimates of $4.64 billion and representing 14% year-over-year growth. The company demonstrated broad-based recovery across all end markets, with sequential growth of 7% from the previous quarter. However, GAAP earnings per share of $1.48 narrowly missed the $1.49 consensus estimate by just one cent. The stock reacted negatively, dropping 6.63% heading into the earnings call and falling 3.5% immediately after market close, reflecting investor concern about the company’s near-term outlook.
The company’s segment performance confirmed the breadth of the recovery, with Analog revenue growing 16% year-over-year to $3.73 billion, Embedded Processing revenue increasing 9% to $709 million, and Other segments rising 11%. Operating margin improved by approximately 120 basis points to around 35%, demonstrating solid incrementals despite cost headwinds. CEO Haviv Ilan noted that the revenue growth across all end markets confirmed cyclical recovery breadth in Q3, but the subsequent guidance reset signaled a more measured pace heading into 2026.
Cash Dynamics and Capital Return Strategy Remain Strong
Despite the conservative near-term outlook, Texas Instruments demonstrated impressive cash generation and capital return discipline. Trailing twelve-month free cash flow surged 65% to $2.42 billion, reflecting the inflection point as the company’s 300mm fabs scale. This strong FCF performance occurred despite heavy capital expenditures of $4.8 billion over the same period, underscoring the efficiency of the company’s manufacturing strategy.
The company returned $6.56 billion to shareholders through dividends and buybacks, representing a 26% increase year-over-year. This included $4.95 billion in dividends and $1.61 billion in share repurchases. CFO Rafael Lizardi’s emphasis on capital return discipline remains intact, with the company continuing to prioritize returning all free cash flow to shareholders even while maintaining substantial capital investment in its manufacturing capabilities.
Sector Performance and Long-Term Strategy
The Analog segment, which represents the core of Texas Instruments’ business, showed particularly strong performance with 16% year-over-year growth. This supports the company’s multi-year thesis around 300mm manufacturing advantages and market share gains. Embedded Processing, while growing at a more modest 9%, showed early-cycle lift, though management noted that automotive and industrial recovery remains staggered.
Texas Instruments’ cycle playbook appears intact, combining Analog 300mm cost advantages with disciplined capital returns. While near-term concerns about the lower Q4 guide and EPS headwinds may cap multiple expansion, the broad-based demand recovery and rebuilding free cash flow support the company’s long-term strategy. The current quarter’s performance suggests that Texas Instruments’ fundamental recovery thesis remains valid, even as near-term execution faces headwinds from inventory adjustments and cost pressures.
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