Texas Instruments’ cash flow
In the previous part of this series, we saw that Texas Instruments (TXN) is improving its profit margins by transitioning production to 300mm (millimeter) wafers and improving operating efficiency. Improving profits materialized as higher cash flow. Its operating cash flow almost doubled in the second quarter, rising YoY (year-over-year) from $917 million to $1.8 billion, of which $249 million went toward capital expenditure.
Its FCF (free cash flow) stood at $1.58 billion in fiscal Q2 2018. The company uses its cash flow to offer returns to shareholders and invest in the industrial and automotive chip markets, where it sees strong growth opportunities. Over the last 12 months, Texas Instruments’ FCF has comprised 36.6% of its revenue.
Returns to shareholders
Texas Instruments has returned almost 100% of its FCF to shareholders in the last 12 months—it earned FCF of $5.7 billion and returned $5.6 billion to shareholders. On a quarterly basis, the company’s shareholder returns are lower than its Q3 and Q4 FCF and higher than its Q1 and Q2 FCF. In fiscal Q2 2018, Texas Instruments’ EPS improved partially because it spent $1 billion on stock repurchases.
Texas Instruments rival Maxim Integrated (MXIM) also returns almost 100% of its FCF to shareholders. However, Analog Devices (ADI) halted its stock buyback program in 2016 when it acquired Linear Technology. ADI’s first priority is to reduce its debt.
Cash and debt positions
At the end of fiscal Q2 2018, Texas Instruments’ cash reserves stood at $5.13 billion and its long-term debt stood at $5.06 billion, indicating that the company has the financial flexibility to continue paying a dividend while investing in future growth opportunities. Next, we’ll see how Texas Instruments’ efforts to improve its profit margins are paying off.
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