Citi Global TMT Conf. 2025: TI CFO on Semi Recovery, Mfg. Strategy, and Cap Allocation

Key Takeaways

TL;DR: TI struck a confident but measured tone at Citi Global TMT, signaling a broad-based cyclical recovery (ex-auto) and reaffirming its commitment to internal mfg., disciplined inventory, major US capex, and FCF growth. Near-term GP margin headwinds from factory loading expected, but TI is well positioned for LT growth in industrial, auto, and datacenter. CapEx intensity steps down in 2026 toward low end of framework, boosting FCF and supporting higher buybacks. China is YTD’s strongest geo; TI is more assertive on share gains. CHIPS Act/ITC incentives are a net positive with no forced gov’t equity risk. M&A remains non-core but opportunistic.

1. Macro & End Mkts: Recovery Progression

• Recovery underway (ex-auto):
  • 4/5 end mkts in recovery (industrial, personal electronics, comm infra, enterprise/other); auto lags (shallow trough post mild correction).
• Industrial leads:
  • Q2 industrial up mid-teens YoY & QoQ, but still below prior peak.
  • Inventory digestion done; factory automation +DD% growth, multi-region recovery.
• Auto:
  • Last to correct, still in shallow trough. China standout, but no clear inflection.
• China strength:
  • Strongest geo YTD (~20% of biz).
  • Share lost in 2021-22 (supply constraints) now regaining; more assertive on engagement/inventory.

2. Ops & Mfg. Strategy

• Internal mfg. as moat:
  • ~90% wafer fabs internal; 300mm footprint 40% less expensive/unit vs 200mm.
  • Supply chain control = cost, availability, integration edge vs peers (50%+ outsourced).
  • Higher internal mfg. = higher inventory (intentional/manageable).
• US mfg. footprint:
  • Expansions in Sherman, Richardson (TX), Utah; “phase 2” (brick & mortar) near complete.
  • “Phase 3” = modular tool/capacity adds as demand warrants.
  • US mfg. = geo-customer advantage, likely to grow.
• Lead times & inventory:
  • Capacity/inventory in place, building buffers.
  • Short lead times maintained even as recovery accelerates; supports turns biz, prevents double ordering.
  • Inventory elevated (internalization), but buffer strategy/loading adjustments to correct as demand firms.

3. Cap Intensity, CapEx, Cap Allocation

• CapEx:
  • $5B in 2025 (3rd yr in a row); 5/6 yrs at high intensity.
  • 2026 CapEx: $2B–$5B (likely low end).
  • Transitioning to “modular” phase—incremental tool buys per demand.
• D&A:
  • 2025: $1.8B–$2.0B
  • 2026: $2.3B–$2.7B (likely low end).
  • D&A pressure peaks in 2027 (if CapEx steps down).
• GP margin:
  • Rev. is key driver; ~80% incremental GP flow-through.
  • Short-term margin headwinds as utilization/loading adjusted for inventory.
  • “Temporary for a few Qs.”