Elliott Takes $2.5 Billion Aim at Texas Instruments’ Cash Flow

(Bloomberg) — Activist investor Elliott Investment Management has invested more than $2.5 billion in Texas Instruments Inc. and is pushing the chipmaker to improve its free cash flow.

Most Read from Bloomberg

Elliott is proposing that Texas Instruments introduce a strategy that, it says, would have the company achieving free cash flow of $9 or more per share by 2026. Last year, it generated $1.47 per share in free cash flow and was projected to deliver $1.87 this year, data compiled by Bloomberg show.

“Investors are concerned that TI appears to have deviated from its longstanding commitment to drive growth of free cash flow per share,” Elliott said in a statement on Tuesday.

Texas Instruments has embarked on an aggressive plan to bring most of its manufacturing back in house, raising its capital spending far above the level of recent years when it attracted investors with high returns. It has told shareholders that the push is temporary and that it will return to focusing on dividends and buying back stock. But that outlay, and weaker demand in some markets, has squeezed the amount of cash it has on hand.

“Free cash flow is likely to slow significantly,” Bloomberg Intelligence said in a note on May 20. “It’s investing $20 billion over four years to support a 2030 sales target of $45 billion that appears optimistic. Dividends may stay intact, but share buybacks and cash-flow margins could be subdued, and any economic setbacks would add pressure.”

Texas instruments rose 0.5% to $200.16 at 10:39 a.m. in New York trading, giving the company a market value of about $182 billion. The stock has gained 13% in the past year.

Texas Instruments and its peers have also been struggling through an industrywide slump in chip orders in recent months. But the company’s latest earnings outlook suggested that customers have begun to resume ordering chips after working through a glut of components. In April, the company projected sales in the current period of as much as $3.95 billion, surpassing the $3.78 billion that analysts had expected.

The forecast followed more than a year of shrinking sales. Revenue in the first quarter declined 16% to $3.66 billion, marking the lowest level since 2020. Analysts had estimated $3.6 billion. Profit was $1.20 a share, down from $1.85 a year earlier.

Texas Instruments’ stock has been lagging behind a rally by the Philadelphia Stock Exchange Semiconductor Index this year. Investors have poured money into companies such as Nvidia Corp., rewarding them for the surge in orders related to artificial intelligence computing.

Texas Instruments, meanwhile, is the biggest maker of analog semiconductors and embedded processors. Its products perform simple but vital functions, such as converting power to different voltages within electronics. Though some of its chips are used in the same machinery as Nvidia’s processors, many more of its products perform more prosaic roles in household electronics, factory machinery and vehicles.

Such chips generally require less advanced production techniques than digital products, but the company has embarked on a plan to revamp its manufacturing facilities. As part that effort, Texas Instruments will all but end outsourcing of production.

While Elliott is best known for taking stakes in some of the world’s biggest companies and pushing for changes, the firm’s strategies also span credit, commodities, real estate and private equity. The firm has built a large position in industrial giant Johnson Controls International Plc, whose performance has lagged its peers, Bloomberg News reported this month.

(Updates with additional details throughout)

Related Post