After reporting third-quarter results last Tuesday, it is about time to take a real close look at this uniquely positioned giant in the semiconductor industry
I'm a big fan of TXN, but (as we've discussed before), given the automotive industry presence, I prefer companies with a stronger SiC / GaN foothold (despite the lower gross margins for these companies).
Your CapEx assessment is interesting to me. Are you aware of the stance Elliott Management took when they approached TI?
My perception of this dialogue is that TI wanted to continue to invest bucketloads in CapEx, Elliott said, "are you sure you want to do this?", and TI then said, "maybe you're right, perhaps a FCF target is better". And dropped their CapEx plans.
As it happens, TI's CapEx was one of the things I called out in my deep dive of the Analogue Semiconductor industry, so I am glad to see this moderation, but it does make me wonder about the strategic direction of the TI BoM (if they can be persuaded to change their approach quite quickly by an activist).
Nonetheless, you are absolutely right - TI has been a titan for decades and is an incredibly strong company that I would be happy to hold if they had more SiC / GaN, were cheaper, and if I didn't already have holdings in the industry.
Yes, I am aware of the Elliot Management position and their stance toward TXN's Capex plans. It was hard to miss.
Indeed, under the influence of Elliott, management scaled back its Capex plans, which I was not too pleased about. Of course, I can see where they are coming from, but I also really appreciated management's commitment to long-term growth initiatives. During the COVID-19 crisis and subsequent chip shortage, TXN missed out on potential revenue and lost market share in certain parts due to a lack of capacity. With a powerful upcycle ahead due to a number of secular growth drivers, I understand why TXN wanted to invest heavily in capacity and technology. In addition, they have proven in the past to be good at managing their expenses and investing in the business.
Now, its capex plans still remain significant today, but, indeed, tuned down a bit. For me, it doesn't change an awful lot. Possibly, in terms of medium-term returns, higher FCF and lower Capex will be good for shareholder value, and management may have gone a bit overboard with its investment plans.
Time will tell. For the investment case, it doesn't change that much for me. Indeed, it is a great business, though I also prefer the likes of Infineon and maybe STM.
I'm a big fan of TXN, but (as we've discussed before), given the automotive industry presence, I prefer companies with a stronger SiC / GaN foothold (despite the lower gross margins for these companies).
Your CapEx assessment is interesting to me. Are you aware of the stance Elliott Management took when they approached TI?
https://www.cnbc.com/2024/05/30/texas-instruments-txn-activist-elliott-fcf-alignment.html
My perception of this dialogue is that TI wanted to continue to invest bucketloads in CapEx, Elliott said, "are you sure you want to do this?", and TI then said, "maybe you're right, perhaps a FCF target is better". And dropped their CapEx plans.
As it happens, TI's CapEx was one of the things I called out in my deep dive of the Analogue Semiconductor industry, so I am glad to see this moderation, but it does make me wonder about the strategic direction of the TI BoM (if they can be persuaded to change their approach quite quickly by an activist).
Nonetheless, you are absolutely right - TI has been a titan for decades and is an incredibly strong company that I would be happy to hold if they had more SiC / GaN, were cheaper, and if I didn't already have holdings in the industry.
Yes, I am aware of the Elliot Management position and their stance toward TXN's Capex plans. It was hard to miss.
Indeed, under the influence of Elliott, management scaled back its Capex plans, which I was not too pleased about. Of course, I can see where they are coming from, but I also really appreciated management's commitment to long-term growth initiatives. During the COVID-19 crisis and subsequent chip shortage, TXN missed out on potential revenue and lost market share in certain parts due to a lack of capacity. With a powerful upcycle ahead due to a number of secular growth drivers, I understand why TXN wanted to invest heavily in capacity and technology. In addition, they have proven in the past to be good at managing their expenses and investing in the business.
Now, its capex plans still remain significant today, but, indeed, tuned down a bit. For me, it doesn't change an awful lot. Possibly, in terms of medium-term returns, higher FCF and lower Capex will be good for shareholder value, and management may have gone a bit overboard with its investment plans.
Time will tell. For the investment case, it doesn't change that much for me. Indeed, it is a great business, though I also prefer the likes of Infineon and maybe STM.
Wow, this really opened my eyes to TI. Haven’t really looked at them as an investment in years.
Great write-up, Daan! Keep ‘em coming!
💪 Appreciate it!