Texas Instruments' Q4 2024 Earnings: A Mixed Bag for Investors

As the calendar turned to 2025, Texas Instruments (TXN) reported its fourth-quarter 2024 earnings, providing investors with a mixed bag of results. The semiconductor giant, known for its analog and embedded processing products, saw a decline in revenue and profitability, but also managed to beat analysts' estimates. Let's dive into the key takeaways from the earnings call and what they mean for investors.

Revenue and Profitability Drops, but Beats Estimates

Texas Instruments reported revenue of $4.01 billion, down 3% sequentially and 2% year-over-year. Operating profit and net income also declined by 10% and 12% respectively, compared to the same quarter a year ago. However, the company managed to beat analysts' estimates, with earnings per share (EPS) coming in at $1.30, compared to the expected $1.22.

Segment Performance: Analog vs. Embedded Processing

The Analog segment, which accounts for about 60% of Texas Instruments' revenue, saw a 3% decline in revenue sequentially, while the Embedded Processing segment saw a 5% decline. The Analog segment's gross margin decreased by 190 basis points, primarily due to lower revenue, higher depreciation, and reduced factory loadings. The Embedded Processing segment's gross margin decreased by 140 basis points, driven by lower revenue and higher depreciation.

Capital Management and Free Cash Flow

Texas Instruments returned $5.7 billion to owners in the past 12 months, through dividends and share repurchases. The company's free cash flow for the trailing 12 months was $1.5 billion, or 10% of revenue. This reflects the strength of Texas Instruments' business model and its decision to invest in 300mm manufacturing assets and inventory to support its overall objective of maximizing long-term free cash flow per share.

Outlook and Guidance

For the first quarter of 2025, Texas Instruments expects revenue in the range of $3.74 billion to $4.06 billion and EPS between $0.94 and $1.16. The company now expects its 2025 effective tax rate to be about 12%.

Investment Implications

Texas Instruments' Q4 2024 earnings call highlights the challenges the company faces in its core businesses, particularly in the Embedded Processing segment. However, the company's ability to beat analysts' estimates and maintain strong free cash flow suggests that it is well-positioned to weather the current economic storm. As an investor, it's essential to monitor Texas Instruments' performance closely, as the company's strategic focus on 300mm manufacturing and inventory management could drive long-term free cash flow growth. However, the divergence in revenue growth and profitability between the Analog and Embedded Processing segments may warrant a closer look at the company's product portfolio and market positioning.