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Activist Elliott urges Texas Instruments to increase free cash flow; a mutually beneficial resolution is possible.



Texas Instruments Inc. is a global semiconductor company that designs, manufactures, tests, and sells analog and embedded processing chips. It offers a wide range of products for markets such as industrial, automotive, and personal electronics. The company has two main segments: Analog and Embedded Processing. Analog products include Power and Signal Chain, while Embedded Processing includes microcontrollers, digital signal processors, and applications processors. Texas Instruments also offers DLP products for high-definition imaging, calculators, and custom semiconductors known as application-specific integrated circuits.

Recently, activist investor Elliott Investment Management announced that it has taken a $2.5 billion position in Texas Instruments and is calling on the company to adopt a dynamic capacity-management strategy and introduce a free cash flow per share target of $9.00+ in 2026. Elliott points to the company’s focus on free cash flow per share as a key indicator of value and management performance. Texas Instruments has significantly underperformed its peers in recent years despite its strong market position and high margins.

Texas Instruments has historically focused on manufacturing as a core competitive advantage, investing in 300-mm wafer production technology early on. However, a recent increase in capex spending and a plan to expand manufacturing capacity have led to a decline in free cash flow per share. Elliott recommends that the company modulate capex spending based on demand, as it has done successfully in the past. The firm believes that this will restore investors’ confidence and help Texas Instruments achieve its free cash flow per share target.

Elliott’s plan aims to restore free cash flow per share growth while still building excess capacity. The firm believes that this strategy creates short-term value without sacrificing long-term opportunities. Despite the potential for a proxy fight, Elliott’s reasonable ask and support for the company’s strategy outside of the capex decision suggest that a resolution may be reached amicably. Elliott has a history of successful activism in the technology sector and has the resources and conviction to bring about change at Texas Instruments.

Overall, Texas Instruments faces challenges in managing its capex spending and maintaining free cash flow per share. Elliott’s involvement as an activist investor highlights the need for prudent capital discipline and strategic planning to achieve sustainable growth and shareholder value. By adopting a dynamic capacity-management strategy, Texas Instruments can align its investments with market demand and optimize its financial performance in the long run.

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