Texas Instruments Projects Q3 2025 Revenue Between $4.45B and $4.80B Amid Supply Chain Challenges

Key Highlights from Texas Instruments' Q2 2025 Earnings Call

Texas Instruments (TXN) reported strong financial results for the second quarter of 2025, with revenue reaching $4.4 billion, reflecting a 9% sequential increase and a 16% year-over-year growth. CEO Haviv Ilan emphasized that both Analog and Embedded segments performed well, with Analog revenue growing 18% year-over-year and Embedded Processing rising 10%. The company’s other segment also saw a 14% increase compared to the same period last year.

Ilan highlighted the company’s ability to navigate ongoing tariffs and geopolitical challenges by leveraging its global manufacturing capabilities. He noted that the cyclical recovery is continuing, with customer inventories remaining at low levels. This situation underscores the importance of having capacity and inventory, which Texas Instruments is well-positioned to provide.

The industrial market experienced upper teens growth year-on-year, while the automotive sector saw mid-single-digit growth but a slight decline in the sequential period. Personal electronics grew around 25% year-on-year, enterprise systems increased by about 40%, and communications equipment recorded more than 50% growth.

CFO Rafael R. Lizardi provided additional insights into the financial performance. Gross profit for the quarter was $2.6 billion, or 58% of revenue. Sequentially, gross profit margin improved by 110 basis points. Operating expenses were $1 billion, up 5% from the previous year. Net income reached $1.3 billion, or $1.41 per share, with an additional $0.02 benefit not included in initial guidance.

Cash flow from operations was $1.9 billion for the quarter, with a trailing 12-month total of $6.4 billion. Capital expenditures were $1.3 billion in the quarter and $4.9 billion over the past 12 months. Free cash flow on a trailing 12-month basis was $1.8 billion.

Outlook for Q3 2025

Lizardi provided third-quarter guidance, projecting revenue between $4.45 billion and $4.80 billion, with earnings per share expected to range from $1.36 to $1.60. The guidance assumes an effective tax rate of 12% to 13% and does not include changes related to recently enacted U.S. tax legislation.

Ilan and Beckman indicated a more cautious outlook for Q3, citing potential normalization after a particularly strong Q2 in the industrial and China markets. Ilan noted that China showed signs of being "a little bit hot" in Q2, but this was not across all sectors.

Financial Results Overview

For Q2 2025, Texas Instruments reported revenue of $4.4 billion, with gross profit of $2.6 billion and operating profit of $1.6 billion. Net income was $1.3 billion, or $1.41 per share. The company paid $1.2 billion in dividends and repurchased $302 million of stock. Inventory ended at $4.8 billion, with inventory days at 231, down 9 days sequentially.

The balance sheet shows $5.4 billion in cash and short-term investments, with total debt outstanding at $14.15 billion and a weighted average coupon of 4%.

Q&A Insights

During the Q&A session, analysts raised several questions regarding management's tone and guidance. Stacy Aaron Rasgon from Bernstein Research asked about the shift in confidence levels, prompting Ilan to explain that while the industrial market is now the fourth of five end markets in recovery, the automotive sector has not yet fully recovered. He cited continued geopolitical uncertainty and the need for flexibility.

Rasgon also questioned gross margins, with Lizardi clarifying that despite higher depreciation, the gross profit margin remained flat. He noted that operating expenses were flat, but the net of other income and expense, along with interest expense, would be unfavorable by about $20 million due to lower cash levels.

Harlan L. Sur from JPMorgan inquired about business growth and industrial sector resilience amid tariffs. Ilan confirmed an acceleration in the second quarter, while Beckman added that the recovery was broad across industrial sectors.

Ross Clark Seymore from Deutsche Bank focused on seasonality and tariff impacts on Q3 guidance. Ilan explained that early Q2 saw an acceleration of demand due to tariff uncertainty, which normalized through the quarter, leading to a more typical seasonal forecast for Q3.

Vivek Arya from BofA Securities questioned the apparent conservatism in Q3 guidance after a strong Q2. Ilan attributed the caution to Q2 being "very hot" in industrial and China markets, warranting a wait-and-see approach for Q3.

Christopher James Muse from Cantor and others inquired about gross margin dynamics, capital expenditures, and tax law impacts. Lizardi stated that the new U.S. tax law is expected to lower cash tax rates from 2026 onward but is not reflected in current guidance.

William Stein from Truist Securities asked about reconciling management's prior bullishness with current guidance. Ilan reiterated that there were dynamics within the quarter that made it more "noisy," and the company wants to take a responsible approach.

Sentiment Analysis

Analysts frequently returned to the theme of management's more cautious tone and questioned the sustainability of recent growth, indicating a slightly negative to neutral sentiment. Rasgon pressed, "it doesn't sound maybe quite exuberant as maybe sounded a few months ago, like what's going on?"

Management's sentiment in prepared remarks was measured and focused on flexibility and readiness, but Q&A responses reflected a more cautious and defensive tone, particularly when discussing guidance and market uncertainties. Ilan signaled caution: "I want to be cautious for Q3, right? We have seen China running again a little bit hot in Q2."

Compared to the previous quarter, both analysts and management displayed a more guarded sentiment, with less overt optimism about the pace and breadth of recovery.

Quarter-over-Quarter Comparison

Q2 revenue increased to $4.4 billion from $4.1 billion in Q1, gross profit rose to $2.6 billion from $2.3 billion, and net income improved to $1.3 billion from $1.2 billion.

Management's tone shifted from cautious optimism in Q1 to increased caution in Q2, especially regarding Q3 guidance. In Q1, Ilan stated, "we remain cautious, as there are many things still changing," but Q2 remarks more explicitly referenced normalization and possible pull-in effects from tariffs.

Analyst focus in Q2 centered on sustainability of growth, normalization of industrial and China markets, and the potential for pull-forward demand, whereas Q1 focused on signs of cycle recovery and inventory rebuilding.

Strategic focus remained on supply chain flexibility and capital allocation, but Q2 brought forward discussion of new U.S. tax legislation and its projected cash flow benefits for 2026 and beyond.

Risks and Concerns

Management identified ongoing tariffs and geopolitics as disruptive to global supply chains, with Ilan stating, "tariffs and geopolitics are disrupting and reshaping global supply chains."

The cyclical semiconductor recovery is underway, but there are concerns about possible over-extension in industrial and China markets leading to normalization or slower growth in upcoming quarters.

Customer inventories remain low, but management acknowledged the challenge of predicting demand drivers, especially regarding the impact of tariffs and customer behavior.

The effect of new U.S. tax law is unquantified for Q3 but expected to benefit cash flow in future years.

Final Takeaway

Texas Instruments closed Q2 2025 with solid growth across most end markets and continued improvement in profitability, but management flagged a more cautious approach to Q3 as potential normalization follows a strong Q2 in industrial and China. The company remains focused on supply chain resilience and long-term free cash flow per share growth, while monitoring the evolving impact of tariffs, customer behavior, and new U.S. tax legislation on future performance.