Texas Instruments is a well-known global semiconductor company that designs, manufactures, tests, and sells analog and embedded processing chips for various markets. The company has a long history of innovation and strategic decision-making that has positioned it as a leader in the industry. However, recent reports from activist investor Elliott Investment Management suggest that Texas Instruments needs to improve its free cash flow to enhance shareholder value.
Elliott has taken a $2.5 billion position in Texas Instruments and is calling on the company to adopt a dynamic capacity-management strategy and set a free cash flow per share target of $9.00+ in 2026. The activist investor believes that Texas Instruments has focused too much on increasing capital expenditures without considering the impact on free cash flow per share.
While Texas Instruments has historically been successful in growing free cash flow per share and outperforming its peers, recent years have seen a significant decline in this metric. The company’s aggressive capex plan has led to a decrease in free cash flow per share, raising concerns among investors.
Elliott’s proposed plan aims to restore free cash flow per share growth while still allowing for capacity expansion, albeit at a more moderate pace. The activist investor suggests that Texas Instruments should adjust its capex spend based on demand to avoid building excess capacity.
Despite Elliott’s concerns, the firm supports Texas Instruments’ overall strategy and management. However, it believes that a more prudent approach to capital discipline will benefit the company in the long run. Elliott’s plan aims to create short-term value without sacrificing long-term opportunities or value.
While a proxy fight at Texas Instruments would be challenging, Elliott’s track record and resources make it a formidable opponent. The activist investor has a strong conviction in its position, as evidenced by its significant investment in the company. Texas Instruments would be wise to consider Elliott’s recommendations and work towards a resolution that benefits both shareholders and the company’s long-term growth.
In conclusion, Texas Instruments is facing pressure from activist investor Elliott Investment Management to improve its free cash flow and adopt a more prudent approach to capital expenditure. The company’s history of innovation and strategic decision-making will be essential in navigating these challenges and finding a resolution that benefits all stakeholders.