Texas Instruments announced on Tuesday that its free cash flow (FCF) would increase in 2026 as a result of tighter capital spending following pressure from Elliott Investment Management, an activist investor, and a comeback in demand.
TakeAway Points:
- Texas Instruments said that its free cash flow (FCF) would jump in 2026 as demand rebounds and the analogue chipmaker tightens capital spending after pressure from activist investor Elliott Investment Management.
- The chipmaker expects FCF per share to be between $8 and $12 in 2026, higher than an estimate of $6.91, according to Visible Alpha. It had fallen 77% to $1.47 in 2023, LSEG data showed.
- Texas Instruments also announced on Friday that it would receive up to $1.6 billion in funds from the U.S. Commerce Department towards the building of three new facilities.
Free cash flow (FCF) increase by 2026
The company has been building out its manufacturing capacity to prevent chip shortages such as those seen during the pandemic and address future demand, a move that drew investor scrutiny as expenses weighed on cash flow.
The chipmaker expects FCF per share to be between $8 and $12 in 2026, higher than an estimate of $6.91, according to Visible Alpha. It had fallen 77% to $1.47 in 2023, LSEG data showed.
Elliott, which in May disclosed a $2.5 billion stake, had pushed TI to tighten spending and adjust its production capacity to the changes in demand, arguing the strategy could improve FCF to $9 per share by 2026.
The activist investor said Tuesday’s announcements, made at an off-cycle capital allocation event, were a “positive step” towards improving value for the company’s shareholders.
TI has been bringing more production in-house and expanding its 300mm production capacity due to its cost-effectiveness.
CEO Haviv Ilan attributed the FCF growth to the structure of its 300mm production capacity expansion. The initial stages of the transition will be completed in 2026, allowing it to phase out investments.
TI, which expects revenue between $20 billion and $26 billion for 2026, said capital expenditure for the year is estimated to be between $2 billion and $5 billion, compared with its initial plans to spend about $5 billion a year through 2026.
“This is a welcome announcement and not a total surprise, as there were hints that TI’s grand capital expenditure plans would tighten,” said Michael Schulman, chief investment officer at Running Point Capital.
TI is also set to receive up to $1.6 billion for building new facilities under the U.S. CHIPS and Science Act.
Chipmaker Texas Instruments to receive $1.6 billion in funding from US
On Friday, Texas Instruments also revealed that it would receive up to $1.6 billion in funding from the U.S. Commerce Department towards the construction of three new facilities, the latest government outlay aimed at bolstering domestic chip production.
The funding, under the U.S. CHIPS and Science Act, will help the company build two factories in Texas and one in Utah. Texas Instruments has pledged more than $18 billion through 2029 to the projects, which are expected to create 2,000 manufacturing jobs.
The chipmaker also expects to receive about $6 billion to $8 billion in investment tax credits from the U.S. Treasury Department and $10 million in funding for workforce development.
“With plans to grow our internal manufacturing to more than 95% by 2030, we’re building geopolitically dependable, 300mm capacity at scale to provide the analogue and embedded processing chips our customers will need for years to come,” CEO Haviv Ilan said.
The United States is trying to boost domestic output and reduce reliance on semiconductor hub Taiwan through the CHIPS Act, which was passed in 2022 and can provide $52.7 billion in subsidies for chip production and research.
It awarded nearly $20 billion in grants and loans to and $6.1 billion in grants to memory chipmakers earlier this year.
“This $1.6 billion will go a long way in helping Texas Instruments stay competitive,” said Kinngai Chan, senior analyst at Summit Insights Group.
“While TI doesn’t play in the cutting-edge process node, mature node (a less advanced technology) is still very important for the US semiconductor industry,” Chan said, noting China was also spending on mature nodes, which represent about half the global chip demand.
Texas Instruments is benefiting from a rebound in demand for its chips, which are used in everything from smartphones to cars. It topped quarterly earnings estimates last month.
