# How Texas Instruments makes money

CXProWealth Business Lens · Texas Instruments (TXN) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-10-23 with the SEC (accession 0000097476-26-000169): https://www.sec.gov/Archives/edgar/data/97476/000009747626000169/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $6.1B (+27.7% on the year)
- Operating income: $2.9B (operating margin 47.5%)
- Net income: $2.4B (net margin 40.0%)
- Gross margin: 64.2%
- Free cash flow: $3.0B (48.8% of revenue)
- Cash conversion (operating cash flow / net income): 1.41x
- Capital expenditure: 7.6% of revenue

## Where the money goes (Q3 FY2026)

- Analog → Revenue: $4.9B
- Embedded Processing → Revenue: $858.0M
- Other → Revenue: $286.0M
- Revenue → Cost of revenue (COR): $2.2B
- Revenue → Gross profit: $3.9B
- Gross profit → Research and development (R&D): $530.0M
- Gross profit → Selling, general and administrative (SG&A): $476.0M
- Gross profit → Acquisition charges: $7.0M
- Gross profit → Operating profit: $2.9B
- Operating profit → Interest and debt expense: $141.0M
- Operating profit → Income before income taxes: $2.7B
- Other income (expense), net (OI&E) → Income before income taxes: $72.0M
- Income before income taxes → Provision for income taxes: $380.0M
- Income before income taxes → Net income: $2.4B

## Where the revenue comes from

### Segments (Description of business, including segment and geographic area information - Segment Information (Details))

| Member | Value | Share |
|---|---:|---:|
| Analog | $4.9B | 81.1% |
| Embedded Processing | $858.0M | 14.2% |
| Other | $286.0M | 4.7% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Revenue | $6.1B | 100% |
| Cost of revenue (COR) | $2.2B | 35.8% |
| **Gross profit** | $3.9B | 64.2% |
| Research and development (R&D) | $530.0M | 8.8% |
| Selling, general and administrative (SG&A) | $476.0M | 7.9% |
| Restructuring charges/other | $0 | 0.0% |
| Acquisition charges | $7.0M | 0.1% |
| **Operating profit** | $2.9B | 47.5% |
| Other income (expense), net (OI&E) | $72.0M | 1.2% |
| Interest and debt expense | $141.0M | 2.3% |
| **Income before income taxes** | $2.8B | 46.3% |
| Provision for income taxes | $380.0M | 6.3% |
| **Net income** | $2.4B | 40.0% |
| Basic (in dollars per share) | $3 | 0.0% |
| Diluted (in dollars per share) | $3 | 0.0% |
| Basic (in shares) | 914,000,000 |  |
| Diluted (in shares) | 921,000,000 |  |
| **Net income** | $2.4B | 40.0% |
| Income allocated to RSUs | ($14.0M) | 0.2% |
| **Income allocated to common stock for diluted EPS** | $2.4B | 39.8% |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2007 | $13.8B | $3.5B | $2.7B | $4.4B | $686.0M | $3.7B |
| FY2008 | $12.5B | $2.4B | $1.9B | $3.3B | $763.0M | $2.6B |
| FY2009 | $10.4B | $2.0B | $1.5B | $2.6B | $753.0M | $1.9B |
| FY2010 | $14.0B | $4.5B | $3.2B | $3.8B | $1.2B | $2.6B |
| FY2011 | $13.7B | $3.0B | $2.2B | $3.3B | $816.0M | $2.4B |
| FY2012 | $12.8B | $2.0B | $1.8B | $3.4B | $495.0M | $2.9B |
| FY2013 | $12.2B | $2.8B | $2.2B | $3.4B | $412.0M | $3.0B |
| FY2014 | $13.0B | $3.9B | $2.8B | $4.1B | $385.0M | $3.7B |
| FY2015 | $13.0B | $4.3B | $3.0B | $4.4B | $551.0M | $3.8B |
| FY2016 | $13.4B | $4.9B | $3.6B | $4.6B | $531.0M | $4.1B |
| FY2017 | $15.0B | $6.1B | $3.7B | $5.4B | $695.0M | $4.7B |
| FY2018 | $15.8B | $6.7B | $5.6B | $7.2B | $1.1B | $6.1B |
| FY2019 | $14.4B | $5.7B | $5.0B | $6.6B | $847.0M | $5.8B |
| FY2020 | $14.5B | $5.9B | $5.6B | $6.1B | $649.0M | $5.5B |
| FY2021 | $18.3B | $9.0B | $7.8B | $8.8B | $2.5B | $6.3B |
| FY2022 | $20.0B | $10.1B | $8.7B | $8.7B | $2.8B | $5.9B |
| FY2023 | $17.5B | $7.3B | $6.5B | $6.4B | $5.1B | $1.3B |
| FY2024 | $15.6B | $5.5B | $4.8B | $6.3B | $4.8B | $1.5B |
| FY2025 | $17.7B | $6.0B | $5.0B | $7.2B | $4.6B | $2.6B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +13.0% (year before -10.7%): accelerating
- Operating income: +10.2% (year before -25.5%): accelerating
- Net income: +4.2% (year before -26.3%): accelerating
- Free cash flow: +73.8% (year before +11.0%): accelerating

## Operating figures stated in the filing

- Days of inventory: 194 days (as of 2026-09-30). "Days of inventory for the third quarter of 2026 were 194 compared with 222 at the end of 2025, which reflects the continued execution of our inventory strategy." (Item 2. Management’s discussion and analysis of financial condition and results of operations)
- Days of inventory: 222 days (as of 2025-12-31). "Days of inventory for the third quarter of 2026 were 194 compared with 222 at the end of 2025, which reflects the continued execution of our inventory strategy." (Item 2. Management’s discussion and analysis of financial condition and results of operations)
- Days sales outstanding: 39 days (as of 2026-09-30). "Days sales outstanding in the third quarter of 2026 were 39 compared with 40 at the end of 2025." (Item 2. Management’s discussion and analysis of financial condition and results of operations)
- Days sales outstanding: 40 days (as of 2025-12-31). "Days sales outstanding in the third quarter of 2026 were 39 compared with 40 at the end of 2025." (Item 2. Management’s discussion and analysis of financial condition and results of operations)

## Key insights

### Operating profit grew 2.6 times as fast as revenue

Revenue rose 27.7% but cost of revenue rose only 7.4%, so operating profit jumped 72.8% and the operating margin reached 47.5% from 35.1%.

Revenue was $6.06B against $4.74B a year earlier, up 27.7%. Cost of revenue rose 7.4% to $2.17B, so gross profit rose 42.8% to $3.89B and gross margin moved to 64.2% from 57.4%. R&D rose 2.3% to $530M and SG&A 4.2% to $476M, bringing them to 8.75% and 7.86% of revenue. Operating profit rose 72.8% to $2.87B, 47.5% of revenue against 35.1% a year earlier. _(from the filing)_
The filing names the mechanism: 'Because we own much of our manufacturing capacity, a significant portion of our operating cost is fixed.' It continues: 'as factory loadings increase, our fixed costs are spread over increased output and, absent other circumstances, our profit margins increase.' It attributes the change in operating profit primarily to higher revenue and associated gross profit. _(from the filing)_
The comparison is slightly flattered. The year-ago quarter carried an $85M restructuring charge tied to closing the company's last production on its oldest wafer size, while this quarter carried $7M of acquisition charges for the planned purchase of Silicon Labs. Below operating profit little changed: interest and debt expense was $141M in both quarters, and net income rose 77.8% to $2.43B. _(from the filing)_
Analysis: in this business the margin is largely a reading of how full the factories are. A quarter like this one shows the upside of that structure. It says less about where margins settle than how they behave across a full cycle. _(analysis)_

### Analog earns 87% of profit on 81% of sales

Analog brought in 81.1% of revenue but 87.2% of operating profit, at a 51.0% segment margin, about twice Embedded Processing's 26.5%.

Analog revenue was $4.91B, 81.1% of the $6.06B total, and it earned $2,505 million of the $2,874 million operating profit, 87.2%. Its segment margin was 51.0% of its revenue. Analog revenue rose 31.7% and its share of revenue rose 2.47 points; the filing says both product lines grew, 'led by Signal Chain'. _(from the filing)_
Embedded Processing, the microcontrollers and processors, brought in $858M, 14.2% of revenue, but earned $227M, 7.9% of operating profit, a 26.5% margin. Its revenue rose 21.0%. Other, mainly DLP products and calculators, earned $142M on $286M of revenue, a figure that includes the company's acquisition and restructuring charges. _(from the filing)_
The filing expects the gap to be shaped by one factory: 'Our LFAB facility, which primarily supports our Embedded Processing business, was purchased as an operating fab and is continuing to ramp production, so we expect factory loadings to increase over time.' It adds: 'As LFAB ramps, we expect Embedded to carry manufacturing costs that disproportionately benefit Embedded Processing operating profit as compared to Analog.' _(from the filing)_
Analysis: the company's results are, in practice, Analog's results, and Analog's share of profit grew this quarter. Embedded Processing is the line where the filing itself points to margin change, because its newest factory is not yet full. How far the gap narrows depends on loadings the filing does not quantify. _(analysis)_

### Factory spending now takes 13.5% of operating cash

Capital spending took 13.5% of operating cash flow, against 54.7% a year earlier and 79.0% in FY2023: the factory build is now returning cash.

Operating cash flow was $3.42B in the third quarter and capital expenditures were $463M, 13.5% of it, against $1.20B of spending on $2.19B of operating cash flow a year earlier, 54.7%. In FY2023 the company spent $5.07B on factories against $6.42B of operating cash flow, 79.0%, and free cash flow fell to $1.35B from $5.92B in FY2022. _(from the filing)_
Free cash flow, operating cash flow less capital expenditures, was $2.96B against $993M a year earlier. That is 48.8% of revenue and more than net income of $2.43B; a year earlier it was less than net income of $1.36B. Capital spending fell to 7.6% of revenue. _(from the filing)_
The filing describes the earlier spending as deliberate: 'We have invested in manufacturing capacity to support customer demand, enable external foundry transfers and prepare new factories to have cleanroom space available to support future growth.' It says spending beyond the current year will depend on revenue and growth expectations. The company's own free cash flow measure also adds proceeds from CHIPS Act incentives, so its reported figures differ from the one used here. _(from the filing)_
Analysis: once cleanroom space exists, more output mostly means buying equipment, which costs less than putting up buildings. That is how spending can fall while revenue rises. The low ratio lasts only while growth can be served from shells already built. _(analysis)_

### Margins still trail the FY2022 peak

Operating margin of 47.5% trails FY2022's 50.6%: the factory base the margin must cover has grown, a cost the filing ties to capacity expansions.

FY2022 revenue was $20.03B, gross profit $13.77B and operating income $10.14B: a 50.6% operating margin. This quarter's gross margin was 64.2% and its operating margin 47.5%. In FY2025 cost of revenue was $7.60B, up from FY2022's $6.26B, on revenue of $17.68B, 88.3% of FY2022's. _(from the filing)_
For the first nine months, the filing says gross profit rose 'primarily due to higher revenue, partially offset by higher manufacturing costs associated with our planned capacity expansions.' _(from the filing)_
Caveat: this sets a single quarter against a full year, and the filing notes that sequential revenue growth is historically stronger in the second and third quarters than in the first and fourth. The gap is indicative, not exact. _(analysis)_
Analysis: the comparison changes how this quarter's margin reads. The company added factory capacity ahead of filling it, so today's margin carries a larger cost base still being absorbed rather than a lever already at full stretch. How much room remains depends on loadings the filing does not disclose. _(analysis)_

### Competitive edge

- **Owned factories give a cost and supply edge** Making most of its own chips held cost of revenue to 35.8% of sales and gives customers capacity the company itself controls.
- **A wide catalog spreads research over years of sales** R&D grew 2.3% while revenue grew 27.7%, falling to 8.75% of sales, and the filing says no single launch moves revenue much.
- **Stock built ahead lets it serve the upturn** Days of inventory fell to 194 from 222 at year-end as stock built in softer years met returning demand.

### What to watch

- **The same fixed costs deepen a downturn** When FY2024 revenue fell to 78.1% of FY2022's, operating income fell to 53.9% of it, as factory costs stayed while volume dropped.
- **A cyclical upturn can turn back into stock** The filing calls this a strong cyclical recovery; in a slowdown the build-ahead strategy would move cash back into inventory.
- **An all-cash acquisition still to close and fund** The planned Silicon Labs purchase awaits regulatory approval, and the company expects to fund it partly with debt, on top of $141M of quarterly interest.

## Operating income by segment

- Analog: $2.5B (87.2% of operating income)
- Embedded Processing: $227.0M (7.9% of operating income)
- Other: $142.0M (4.9% of operating income)

## Investor view

**Texas Instruments' owned factories turned more volume into a 47.5% operating margin, as costs grew far slower than sales**

### How it makes money

Texas Instruments designs and manufactures chips that it sells to electronics makers worldwide, through two reportable businesses. Analog chips condition real-world signals such as sound, temperature and pressure, and manage power in every kind of equipment; they brought in $4.91B of the third quarter's $6.06B revenue, or 81.1%. Embedded Processing, the microcontrollers and processors the filing calls 'the digital "brains" of many types of electronic equipment', brought in $858M, or 14.2%. Other, mainly DLP products and calculators, was $286M. _(from the filing)_
Analog carries the profit. It earned $2,505 million of the quarter's $2,874 million operating profit, 87.2% of the total, at a segment margin of 51.0% of its revenue. Embedded Processing earned $227M, a 26.5% margin. Other earned $142M, a 49.7% margin, a figure that includes the company's acquisition and restructuring charges. _(from the filing)_
The company makes most of its own chips. 'The strategic decision to own our manufacturing, process and packaging technology provides us with tangible benefits of lower manufacturing costs and greater control of our supply chain.' Cost of revenue was $2.17B in the quarter, 35.8% of revenue, which left a gross margin of 64.2%. _(from the filing)_
Management names one scorecard: 'the best metric for owners to measure our progress is through the growth of free cash flow per share over the long term.' In the third quarter free cash flow was $2.96B, 48.8% of revenue, and operating cash flow of $3.42B was 1.41 times net income of $2.43B. _(from the filing)_

### What shifted

Revenue rose 27.7% to $6.06B while cost of revenue rose only 7.4%, to $2.17B. The filing explains why the two diverge: 'Because we own much of our manufacturing capacity, a significant portion of our operating cost is fixed.' Fuller factories spread that cost over more chips, so gross profit rose 42.8% to $3.89B and gross margin moved to 64.2% from 57.4% a year earlier. _(from the filing)_
Operating costs barely moved. R&D rose 2.3% to $530M and SG&A rose 4.2% to $476M, so R&D fell to 8.75% of revenue, down 2.17 points, and SG&A to 7.86%, down 1.78 points. Operating profit rose 72.8% to $2.87B. The year-ago quarter also carried an $85M restructuring charge for closing the company's last line on its oldest wafer size; this quarter carried $7M of acquisition charges for the planned purchase of Silicon Labs. _(from the filing)_
The mix tilted further toward Analog. Analog revenue rose 31.7% and its share of revenue rose 2.47 points to 81.1%; the filing says both product lines grew, 'led by Signal Chain'. Embedded Processing rose 21.0% and Other fell 5.9%. The company describes the demand as broad: 'During the quarter, we saw broad demand, with revenue growth across all end markets and regions.' Revenue has risen every quarter this year, from $4.83B to $5.46B to $6.06B. _(from the filing)_
Spending on factories fell sharply while cash rose. Capital expenditures were $463M in the quarter against $1.20B a year earlier, 7.6% of revenue, and free cash flow was $2.96B against $993M. Inventory turned faster too: days of inventory were 194 against 222 at the end of last year, 'which reflects the continued execution of our inventory strategy', and days sales outstanding were 39 against 40. _(from the filing)_

### Risks in the filing

This quarterly report does not restate its risk factors; it incorporates them by reference from the company's annual report. Its own discussion names the semiconductor cycle as the central exposure: periods of tight supply followed by surplus inventory as demand weakens or capacity overshoots. 'Semiconductor cycles are affected by the significant time and money required to build and maintain semiconductor manufacturing facilities.' _(from the filing)_
Owning the factories cuts both ways. The filing states it plainly: 'When factory loadings decrease, our fixed costs are spread over reduced output and, absent other circumstances, our profit margins decrease.' It also notes seasonality, with sequential growth historically weaker in the first and fourth quarters than in the second and third. _(from the filing)_
Inventory carries an obsolescence risk the company manages by choosing what to stock. Its strategy is to 'build ahead of demand our broad-based products that are used across a diverse set of applications and customers and have low risk of obsolescence', and one of its stated objectives is to minimize inventory obsolescence. Levels vary with market conditions, and the company adjusts factory loadings to execute the strategy. _(from the filing)_
The Silicon Labs acquisition is not yet closed. It is 'subject to receipt of regulatory approvals and other customary closing conditions', and 'We expect to fund the transaction with a combination of cash on hand and debt financing.' The company also relies on government support for its factory build: 'We expect to continue benefiting from the CHIPS Act.' _(from the filing)_
Of these, the fixed-cost exposure is the one the company's own record already shows. In the downturn years before this one, operating profit fell much faster than revenue; this quarter it rose much faster. Both movements come from the same cost base, which is why the margin level of any single quarter says less about the business than how margins behave across a full cycle. _(analysis)_

## Founder view: mechanisms

### Owned factories make volume the margin lever

Texas Instruments owns most of its wafer fabs and assembly sites, so a large part of its cost is the factories themselves: depreciation, maintenance and the people who run them. Those costs do not shrink or grow with each unit shipped. When orders rise, each extra chip carries little extra cost and margin expands faster than revenue. The price of that upside is symmetry: in a downturn the same costs stay, and margins fall faster than sales. _(analysis)_

### Inventory built ahead as a service promise

The company deliberately builds stock of broad-use, slow-to-obsolesce parts ahead of demand. In tight markets that stock lets it quote dependable lead times when others cannot; in soft markets building it keeps factories loaded and fixed costs absorbed. Inventory here is a chosen buffer that links the service promise to the factory economics, not a leftover from misjudged orders. _(analysis)_

### Capacity built early, cash harvested later

The company front-loaded its capital spending, putting up factory shells and cleanroom space before demand required them and accepting several years of depressed free cash flow. Once the buildings exist, adding output means buying equipment, which is cheaper and faster than building. Spending can fall while output rises, and the cash the earlier years absorbed comes back in the later ones. _(analysis)_

### A broad catalog of long-lived parts

The company sells a very large number of products across many markets, and once a part is designed into a customer's product it tends to sell for years. No single launch carries the results, research spending is spread over a long tail of revenue, and the sales channel can place more parts into each design. Breadth and longevity together make revenue less dependent on any one customer or product. _(analysis)_

## Member research

Signed-in members read, on the page: what Texas Instruments's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Texas Instruments 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/97476/000009747626000169/ (2026-10-23)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02