Earnings Call Insights: Texas Instruments (TXN) Q3 2025
Management View
- CEO Haviv Ilan shared that “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.”
- Ilan noted the overall semiconductor market recovery is continuing, though at a slower pace than prior upturns, citing broader macroeconomic uncertainty. He emphasized that “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.”
- In terms of end markets, Ilan reported that “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 and grew about 20% sequentially. And lastly, communications equipment grew about 45% year-on-year and was up about 10% sequentially.”
- The company announced that Ilan will become Chairman of the Board in January 2026, succeeding Rich Templeton.
- CFO Rafael Lizardi stated, “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.”
- Lizardi explained, “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 250-millimeter fabs.”
Outlook
- Lizardi provided fourth quarter guidance: “We expect TI’s revenue in the range of $4.22 billion 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%.”
- Ilan described the outlook as “roughly seasonal” and pointed to a moderate recovery pace.
Financial Results
- Lizardi reported, “Cash flow from operations was $2.2 billion in the quarter and $6.9 billion on a trailing 12-month basis. Capital expenditures were $1.2 billion in the quarter and $4.8 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $2.4 billion.”
- The company paid $1.2 billion in dividends and repurchased $119 million of its stock. Inventory at the end of the quarter was $4.8 billion, up $17 million from the prior quarter, with days dropping to 215, down 16 days sequentially.
- Lizardi highlighted, “We have executed well on building an inventory position, which we believe will allow us to consistently deliver high levels of customer service.”
Q&A
- Timothy Arcuri, UBS, asked about bookings linearity and margin path; Ilan responded that the quarter “came in as expected and not similar to what we saw in Q2,” noting less volatility and a “more as expected” pattern. Lizardi explained that inventory levels are being managed by adjusting loadings downward into Q4 to avoid unnecessary inventory build-up.
- Christopher Danely, Citigroup, inquired about restructuring catalysts and benefits; Ilan cited the wind-down of 6-inch fabs and ongoing operational efficiency work, with cost benefits expected to phase in over coming quarters.
- Joseph Moore, Morgan Stanley, probed pricing and lead times; Ilan stated, “Short answer is no” regarding unusual pricing activity and expects a “low single-digit price reduction in 2025.” Beckman added lead times remained stable and competitive.
- Stacy Rasgon, Bernstein, pressed on gross margin guidance and seasonality; Lizardi confirmed a gross margin decline is expected due to lower revenue, higher depreciation, and reduced wafer starts. Ilan described the Q4 guide as “roughly seasonal” and indicated continued low customer inventories.
- Ross Seymore, Deutsche Bank, focused on depreciation and OpEx; Lizardi maintained depreciation guidance and expects OpEx to remain about flat from Q3 to Q4, excluding restructuring. Ilan highlighted investment priorities in industrial, automotive, and data center markets.
- James Schneider, Goldman Sachs, questioned China trends and CapEx; Ilan said “China came back to normal” in Q3, and CapEx for next year is likely at the lower end of the previously provided range amid moderate recovery.
- Christopher Caso, Wolfe Research, and Blayne Curtis, Jefferies, explored the pace of recovery and inventory management; Ilan and Lizardi described the recovery as “moderate” and explained that inventory and loadings will be kept relatively flat unless revenue improves.
- Tore Svanberg, Stifel, asked about data center breakout and communications strength; Ilan noted plans to break out data center as a market in Q1 and described it as TI’s fastest-growing segment, running at a $1.2 billion run rate in 2025 and growing over 50% year-to-date.
Sentiment Analysis
- Analysts repeatedly pressed on gross margin trajectory, the sustainability of recovery, and inventory management, indicating a slightly negative to neutral tone with recurring questions about caution, seasonality, and the pace of recovery.
- Management’s tone was measured and pragmatic, acknowledging “moderate” recovery and emphasizing readiness for various scenarios. Ilan frequently referenced being “well positioned” and “prepared for any scenario,” reflecting a careful and neutral to slightly positive sentiment.
- Compared to the previous quarter, both analysts and management demonstrated a similar cautious approach, but with less exuberance and more focus on inventory stabilization and recovery pace.
Quarter-over-Quarter Comparison
- Guidance for Q4 revenue and EPS is lower sequentially, reflecting a “roughly seasonal” pattern after a slightly above-expectation Q3. The company is now guiding for $4.22 billion to $4.58 billion in Q4 revenue versus a Q3 result of $4.7 billion.
- Strategic focus has shifted further toward inventory stabilization and operational efficiency, with explicit mention of fab closures and restructuring charges in Q3.
- Analysts’ questions have shifted from cycle acceleration to sustainability and risk management, reflecting ongoing uncertainty.
- Data center is being highlighted as a significant and growing opportunity, with management planning more disclosure in future calls.
- Management’s confidence is steady, but the tone is pragmatic and less optimistic than earlier in the year. Analysts’ tone remains probing and at times skeptical in light of moderate recovery.
Risks and Concerns
- Management cited broader macroeconomic uncertainty and a slower-than-typical upturn in the semiconductor cycle.
- The company is exposed to risks related to customer hesitancy in industrial and unclear policy/tariff environments, particularly in global markets.
- Restructuring and fab closures carry execution risks but are aimed at long-term operational efficiency.
- Analysts voiced concerns about margin compression, inventory management, and the sustainability of growth in key segments.
Final Takeaway
Texas Instruments management emphasized their readiness for a range of market conditions as the semiconductor cycle recovery continues at a moderate pace. The company is stabilizing inventory, managing loadings, and investing in high-potential areas like data center, while navigating restructuring and macroeconomic uncertainty. Management remains focused on long-term free cash flow per share growth and operational flexibility, positioning TI to capitalize on future opportunities as customer demand and market clarity improve.