Below are the transcripts from the third quarter earnings call.
• TXN is encountering selling pressure. Get the details here.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
Mike Beckman (Head of Investor Relations)
Welcome to the Texas Instruments third quarter 2025 earnings conference call. I’m Mike Beckman, Head of Investor Relations and I’m joined by our Chief Executive Officer Haviv Ilan and our Chief Financial Officer Rafael Lazardi. For any of you who missed the release, you can find it on our ir this call is being broadcast live over the web and can be accessed through our website. In addition, today’s call is being recorded and will be available via replay on our website. This call will include forward looking statements that involve risks and uncertainties that could cause TI’s results to differ materially from management’s current expectations. We encourage you to review the notice regarding forward looking statements contained in the earnings release published today, as well as TI’s most recent SEC filings. For a more complete description, you likely saw Last week we announced that the Board of Directors has elected Haviv Ilon Chairman of the board beginning January 2026. Haviv succeeds rich Templeton who will retire as Chairman after a 45 year career with TI. I’m sure you will join me in congratulating them both. Today we’ll provide the following updates. First, HAVIV will start with a quick overview of the quarter. Next, he’ll provide insight into third quarter revenue results with some details on what we are seeing with respect to our end markets. Lastly, Rafael will cover the financial results. Kevin, give an update on capital Management as well as share the guidance for fourth quarter 2025. With that, let me turn it over to Haviv.
Haviv Ilan (CEO)
Thanks Mike. I’ll start with a quick overview of the third quarter. Revenue came in about as expected at $4.7 billion, an increase of 7% sequentially and an increase of 14% year over year. Analog and embedded both grew year on year and sequentially. Analog revenue grew 16% year over year and embedded processing grew 9%. Our other segment grew 11% from the year ago quarter. Let me provide a few comments about the current market environment. The overall semiconductor market recovery is continuing, though at a slower pace than prior upturns, likely related to the broader macroeconomic dynamics and overall uncertainty. That said, customer inventories remain at low levels and their inventory depletion appears to be behind us. We are well positioned with capacity and inventory and have flexibility to support a range of scenarios. Now I’ll share some additional insights into third quarter revenue by end market. First, the industrial market increased about 25% year on year and was up low single digits sequentially following a strong result in the second quarter. The automotive market increased upper single digits year on year and around 10% sequentially with growth across all regions. Personal electronics grew low single digits year on year and grew upper single digits sequentially. Enterprise Systems grew about 35% year on year, grew about 20% sequentially and lastly, communications equipment grew about 45% year on year and was up about 10% sequentially. With that, let me turn it over to Rafael to review profitability and capital management.
Rafael Lizardi (CFO)
Thanks Aviv and good afternoon everyone. As Aviv mentioned, third quarter revenue was $4.7 billion. Gross profit in the quarter was $2.7 billion or 57% of revenue sequentially. Gross profit margin decreased 50 basis points. Operating expenses in the quarter were $975 million, up 6% from a year ago and about as expected on a trailing twelve month basis. Operating expenses were $3.9 billion or 23% of revenue. Operating profit was $1.7 billion in the quarter or 35% of revenue and was up 7% from the year ago quarter. Net income in the quarter was $1.4 billion or $1.48 per share. Earnings per share included a $0.10 reduction not in our original guidance. This includes $0.08 of restructuring charges related to efforts to drive operational efficiencies to support our long term strategy, including the planned closures of our last two 150 millimeter fabs. Let me now comment on our Capital Management results starting with our cash generation. Cash flow from operations was $2.2 billion in the quarter and $6.9 billion on a trailing twelve month basis. Capital expenditures were $1.2 billion in the quarter and 4.8 billion dollars over the last twelve months. Free cash flow on a trailing twelve month basis was $2.4 billion. This includes $637 million of CHIPS Act incentives including a $75 million payment received in the third quarter related to the direct funding agreement. In the quarter we paid $1.2 billion in dividends and repurchased $119 million of our stock. In September we announced we would increase our dividend by 4%, marking our 22nd consecutive year of dividend increases. This reflects our continued commitment to return free cash flow to our owners over time. In total, we returned $6.6 billion to our owners in the past 12 months. Our balance sheet remains strong with $5.2 billion of cash and short term investments at the end of the third quarter. Total debt outstanding is $14 billion with a weighted average coupon of 4%. Inventory at the end of the quarter was $4.8 billion, up $17 million from the prior quarter and days were 215, down 16 days sequentially. We have executed well on building an inventory position which we believe will allow us to to consistently deliver high levels of customer service. Turning to our outlook for the fourth quarter, we expect TI’s revenue in the range of 4.22 to $4.58 billion and earnings per share to be in the range of $1.13 to $1.39. Our fourth quarter outlook includes changes related to the new U.S. tax legislation and now assumes an effective tax rate of about 13%. In addition, we expect our effective tax rate in 2026 to be about 13% to 14%. In closing, we will stay focused in the areas that add value in the long term. We continue to invest in our competitive advantages which are manufacturing and technology, a broad product portfolio, reach of our channels and diverse and long lived positions. We will continue to strengthen these advantages through disciplined capital allocation and by focusing on the best opportunities which we believe will enable us to continue to deliver free cash flow per share growth over the long term. With that, let me turn it back to Mike.
Mike Beckman (Head of Investor Relations)
Thanks Rafael. Operator, you can now open the line for questions. In order to provide as many of you as possible an opportunity to ask your questions, please limit yourself to a single question. After our response, we’ll provide you an opportunity for an additional follow up.
Operator
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate a line is in the question queue. You may press Star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the start keys. One moment please. While we poll for questions, our first question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.
UBS Equity Analyst
Thanks a lot. Haviv, I’m wondering if you can talk about the linearity of bookings through the quarter. I know in the June quarter things had softened throughout the quarter, but this quarter it seemed like things got a little better as you move through the quarter. So can you talk about that as you sort of head into CQ4?
Haviv Ilan (CEO)
Yes, I’ll give some high level comments. And Mike, please add anything with more details. Yeah, this quarter was kind of came in as expected and nothing not similar to what we saw and the second quarter it was a little bit hectic with the tensions related to trade and tariffs. We saw a lot of change through the quarter. This was more of as expected quarters through the quarter in July, August and September. Mike, anything to add on that one?
Mike Beckman (Head of Investor Relations)
We had talked about the turns portion of the business had kind of started out strong at the beginning of second and had moderated near the end. We didn’t see that same behavior again in third. It really that portion kind of followed what you’d expect to see in a kind of a cyclical recovery that we saw in third. You have a follow up?
UBS Equity Analyst
I do, yeah. Rafael, I wanted to ask about loadings that are assumed in the fourth quarter. I know you usually come in at the high end, but if we assume the midpoint of the guidance and I assume that depreciation grows like it’s has the past few quarters, gross margin if I exclude the depreciation. So on a cash basis it’s down like sub 67. So it hasn’t been that low in like 10 years. And you are already sitting on a lot of inventory. I don’t think you want to build more. So sort of, what’s the path to get cash margins on a better path here? I mean it’s below where it was seven to eight quarters ago when revenue was six to $700 million lower than where it is today. Thanks.
Rafael Lizardi (CFO)
Yeah, let me try to answer that. There were several questions there, so let me see if I can hit most of them first. Your question is maybe fundamentally on inventory. So let me start there. We’re very pleased with our current inventory position. That objective for inventory is to support customers, to keep lead time short and have just great customer delivery, customer satisfaction so that we are achieving and we’re pleased to with where the inventory is now given where revenue, the midpoint of our revenue in order to continue to maintain those levels of inventory and where we want to be in inventory, we’re adjusting the loadings down into fourth quarter. We did some of that in third quarter and we’re going to do some more into fourth quarter. So as we do that and as you pointed out, when you look at fourth quarter, you have lower revenue, you have higher depreciation, you have the hit on the lower loadings. So that’s how you get to the EPS range that we have listed.
OPERATOR
All right, we’ll move on to the next caller. Thank you. Our next question comes from the line of Chris Danley with Citibank. Please proceed with your question.
Citibank Equity Analyst
Thanks guys and thanks for pronouncing my last name correctly. Operator. Hey guys, could you just talk a little bit more about the restructuring maybe what was the catalyst for it? And then any benefits to expenses, either gross margins or opex going forward.
Haviv Ilan (CEO)
High level. It’s related to actually two things. First, I think we announced several years back that we are winding down our 6 inch fabs or 150 millimeter fabs. We have one in Sherman, the old site, the old fab in the site and one in Dallas. Both of them have actually started the last wafer this month. And we will see a gradual reduction in cost related to these ...
