Operating performance and margins
With a market cap of $54 billion, Texas Instruments Incorporated (TXN) is a leading player in the semiconductor market. Of its three operating segments, the analog and embedded processing segments are growing best. However, when it comes to margins, it’s the analog and other segments that contribute most. As noted earlier in the series, both the analog and other segments have 30%+ operating margins.
Cash, debt, and cash flows
As of 3Q14, Texas Instruments generated an operating cash flow of $2.62 billion. It holds cash and short-term investments worth $3.19 billion and carries a total debt of $4.64 billion. The company has decent cash reserves. Until 2011, the company had no debt on its books. But in order to pay $6.5 billion in cash to acquire National Semiconductor, the company took leverage.
Texas Instruments announced dividends per share, or DPS, of 30 cents per share for 4Q14.
Funds allocated to research and development (or R&D) decline
As the above chart shows, Texas Instruments spends less on R&D than most of its peers, including Intel Corporation (INTC), Broadcom Corporation (BRCM), Qualcomm, Inc. (QCOM), and NVIDIA Corporation (NVDA). The real concern here, however, is that its R&D as a percentage of revenue is declining with each passing year.
As a result, Texas Instruments has one of the lowest R&D ratios of any major chip maker in the market. In fact, Taiwan Semiconductor is the only large-scale chip maker that has a lower R&D ratio than Texas Instruments. And the likely reason for this is that it’s a foundry, and so it doesn’t develop its own chip designs.
Thus far, declining R&D as a percentage of revenue hasn’t affected Texas instrument’s revenues in a negative way. If anything, the company’s returns seem to be supported by the fact that the majority of its products have long product cycles that simply require less R&D expenditure.