Technology · Semiconductors
Texas Instruments (TXN)
Texas Instruments is the analog IDM in a six-year 300mm fab build: elevated capex, rising depreciation, and inventory days above 220.
Selborne Research · · Company Profile
Educational analysis. This profile is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
Snapshot
- FY2025 Revenue
- $17.7B
- Gross Margin
- 57.0% (FY2025)
- Operating Margin
- 34.1% (FY2025)
- Capex / Revenue
- 25.7% (FY2025)
- Inventory Days (Year-End)
- 231 (FY2025)
- Inventory Days (Company Basis)
- 222 (FY2025)
- FY2022 Gross Margin
- 68.8%
- Free Cash Flow
- $2.6B (FY2025)
Business Overview
Texas Instruments is an analog integrated maker in a six-year 300mm fab build. FY2025 revenue was $17.7B, against $20.0B in FY2022 and $15.6B in FY2024. Gross margin was 57.0%, down from 68.8% in FY2022. Operating margin was 34.1%. R&D was 11.8% of revenue, capex $4.6B (25.7% of revenue) and stock-based compensation 2.4%. Free cash flow was $2.6B.
Capex rose from $0.5B in FY2016 to $5.1B in FY2023 in what TI's 10-K calls a six-year elevated capital expenditures cycle. Depreciation rose from $1.5B in FY2024 to $1.9B in FY2025. Inventory days were 231 on year-end balances (cost of revenue basis) and 222 on the company's own stated basis (241 a year earlier). Both figures are correct on their stated basis. Cash conversion cycle was 235 days on the year-end calculation.
How the Numbers Read
Capex stayed elevated while revenue sat below FY2022. Gross margin at 57.0% against 68.8% in FY2022 shows under-absorption as depreciation rises ($1.5B to $1.9B in one year). Free cash flow of $2.6B already nets that capex.
Inventory days above 220 on both bases are deliberate: the 10-K describes building broad-based products ahead of demand to keep customer service high. The year-end calculation (231) and the company's figure (222) differ by method. The inventory-days guide places both beside peers.
How the Model Values This Kind of Company
An analog IDM is valued on capacity times utilisation times revenue per wafer. Utilisation below the mid-cycle rate compresses gross margin through fixed depreciation. Capex intensity and depreciation life are explicit inputs.
Inventory days can sit high at mid-cycle; they rise further when the cycle turns down. Terminal value uses mid-cycle free cash flow after the fab build's depreciation is absorbed at normal loading, and stock pay is charged. A reverse DCF on a fictional company shows what mid-cycle margin a typed price implies.
What to Watch in the Financials
Inventory days on both bases. 231 (year-end balances) and 222 (company basis). Watch the direction of each.
Capex versus the six-year elevated cycle. $4.6B (25.7% of revenue) in FY2025, after $5.1B in FY2023. A step down toward the older $0.5B level would free cash as the build ends.
Depreciation. $1.9B in FY2025 from $1.5B in FY2024. Further rises weigh on gross margin until utilisation catches up.
Gross margin versus FY2022. 57.0% against 68.8%. The gap is the under-absorption to close.
Key Risks
Elevated capex cycle. Elevated capex and rising depreciation without matching revenue recovery keep margins below FY2022.
Inventory buffer. Days above 220 on both bases mean a large stock position if end markets prolong the trough.
Revenue still below FY2022. $17.7B against $20.0B leaves operating leverage negative until volume returns.
Long cash conversion cycle. 235 days on the year-end basis ties up capital while the fabs fill.
A chip DCF carries the industry cycle through ten explicit years, then strikes the terminal value on what the business earns in a normal year, because the latest margin may sit at a peak or a trough.
- 17 sections, from the business models and the industry cycle to capital intensity, memory, inventory, equipment orders, stock pay and a reverse DCF
- 44 pages
- a chip designer, a foundry, a memory maker and an equipment maker, all fictional
- 4 worked valuations
- listed chip companies on filed margins, capital intensity, inventory days and stock pay, each with its fiscal year
- 6-company screen
The Excel model is the primer's through-cycle DCF live across 13 sheets: a chip designer, a foundry, a memory maker and an equipment maker, all fictional, plus a column for a company of your own in any of five business-model modes. Each mode turns the industry cycle into revenue its own way: units and selling prices, capacity times utilisation times revenue per wafer, bit demand against bit supply, orders and installed-base services, or wafer starts for a materials supplier. Depreciation sits in cost of goods for fab owners, capacity arrives two years after the capex that pays for it, and the terminal value is struck on mid-cycle cash flow. A reverse DCF reads the margin and the growth a price requires, and the sensitivity grids re-run the model in every cell.
See what's in the Semiconductors Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Technology industries
Learn the Concepts
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