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    Texas Instruments Inc (TXN)

    Q1 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$168.85January 1, 2024
    Final Price$173.17April 1, 2024
    Price Change$4.32
    % Change+2.56%

    What went well

    • Texas Instruments is investing $5 billion per year in capital expenditures over the next three years to expand manufacturing capacity, positioning the company for future growth and strengthening its competitive advantages.
    • TI's unique "geopolitically dependable capacity" outside of China and Taiwan is in high demand, especially from automotive customers seeking supply chain security, giving TI a competitive edge in the market.
    • Bookings increased each month of the quarter, and some industrial sectors are starting to recover from inventory corrections, indicating improving demand trends for TI's products.

    What went wrong

    • Significant year-over-year declines in key markets: The industrial market revenue declined 25%, communications equipment was down about 50%, and enterprise systems was down mid-teens, indicating ongoing weakness in these sectors.
    • Increasing competition in China from local suppliers: TI acknowledges that it is now harder to compete in China due to competent local competitors and subsidized capacity, which could potentially lead to loss of market share.
    • High capital expenditures reducing free cash flow and share repurchases: TI's free cash flow for the trailing 12 months was $940 million, while it returned $4.8 billion to shareholders, leading to reduced share repurchases to preserve cash amid high capital investments.

    Q&A Summary

    1. Financial Impact of ITC and CHIPS Act
      Q: Update on CHIPS Act funding and ITC benefits?
      A: We've accrued about $1.5 billion in ITC credits. Starting next quarter, we'll receive $300 million, totaling $1 billion for all of 2024. No update on CHIPS Act grant; still in process.

    2. Capital Allocation and Share Buybacks
      Q: When will share buybacks resume?
      A: As our free cash flow increases post-investment phase, we'll consider resuming buybacks. In the last 12 months, free cash flow was $940 million, and we returned $4.8 billion to owners.

    3. Demand Trends and Market Outlook
      Q: Is demand normalizing, and is inventory correction over?
      A: Some markets show recovery; personal electronics is behaving seasonally. Industrial sectors are mixed; some slowing declines, a few grew sequentially. Overall, Q2 is seasonally strong for us.

    4. China Competition and Market Share
      Q: How is China competition affecting you?
      A: Competition in China has increased over the years, but we continue to compete effectively. We're leveraging our advantages in manufacturing, portfolio breadth, and market reach.

    5. Pricing Trends and Margins
      Q: Any changes in pricing environment?
      A: Pricing returned to pre-pandemic trends with low single-digit declines. We continue to see this environment.

    6. Inventory Levels and Factory Utilization
      Q: Outlook for inventory levels and factory loadings?
      A: Adjusted factory loadings as we neared desired inventory levels, growing inventory by about $80 million in Q1. For Q2, we'll adjust loadings based on future demand.

    7. Supply Chain and Dependence on China
      Q: Impact of customers reducing China dependence?
      A: Customers seek "geopolitically dependable capacity"; we're positioned to support them. We're unique in building capacity at scale outside China and Taiwan.

    8. Year-over-Year End Market Performance
      Q: How did end markets perform year-over-year?
      A: Industrial down 25%; automotive down low single digits; personal electronics up single digits; communications equipment down 50%; enterprise systems down mid-teens.

    9. R&D Investment Allocation
      Q: Where are R&D investments focused?
      A: Increasing investments in industrial and automotive due to secular growth trends. Maintaining steady investments in personal electronics and communications equipment.

    10. Embedded Business Strategy
      Q: Update on embedded business progress?
      A: We continue to invest, aiming for growth and free cash flow contribution. Investing in capacity to gain control over supply and gain share.

    11. Bookings and Demand Signals
      Q: Are bookings recovering broadly?
      A: Bookings increased each month in Q1, behaving as expected. Demand signals are reflected in our guidance.

    12. Depreciation Expectations
      Q: Update on depreciation impact?
      A: Expecting $1.5 to $1.8 billion in depreciation this year, likely at bottom half. For 2025, expect $2 to $2.5 billion.

    13. Capital Management and Cash Usage
      Q: Any changes in cash usage and capital management?
      A: Increasing cash to protect $5 billion per year CapEx investments in manufacturing. Conscious of liquidity and repurchases.

    14. Pricing Strategy with Increased Capacity
      Q: Will increased capacity affect pricing strategy?
      A: No change in pricing strategy; we price to be competitive. Our competitive products and 300mm capacity support this.

    15. Automotive Market Inventory and Demand
      Q: Are automotive inventories normalizing?
      A: Customers are re-evaluating supply chains; seeking dependable capacity. We're positioned to support growth in this market.

    16. Industrial Sector Recovery
      Q: Which industrial sectors are recovering?
      A: Shorter-cycle sectors began recovery earlier; longer-term sectors are turning recently.

    17. Impact of China Insourcing
      Q: Is China insourcing affecting growth?
      A: Local suppliers account for about 12% of content; we aim to maintain and gain share in China.

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