⚠ A Fixed-Cost Advantage Is a Fixed-Cost ProblemModerate threat

Texas Instruments (TXN) — threat to the moat

The same fab that produces a 61% gross margin full produces something much worse empty, and TI just added a great deal of fab.

A 40% cost advantage per chip is realised only when the wafers are moving, and TI has just spent six years adding capacity that was not.

Gross margin, same fabs, different utilisation~53%2024 trough57.0%202561.4%Q2 2026The 2024 figure is approximate. The assets did not change; the wafers moving through them did.
A fixed-cost advantage is a fixed-cost problem when the factory is empty.

The 300mm advantage is a fixed-cost advantage: the fab costs the same whether it runs at 60% or 95%.1 That is why gross margin was 57.0% in 2025 and 61.4% in the June 2026 quarter on the same physical assets — the difference is utilisation, not efficiency.23

In a downturn the effect reverses with more force than it does at a fabless competitor, because a fabless company's cost of revenue falls with its volumes and TI's does not. The 2023-24 worked example: revenue down 22% from the 2022 peak, operating profit down 46%.4

The new capacity makes the next cycle more expensive in exactly the same way. There is simply more fixed cost to absorb, and the depreciation from $24 billion of construction runs for years whatever demand does.

The offset is that the cost advantage is permanent while the underutilisation is temporary, provided the analog market grows into the capacity.

Watch gross margin through a decline rather than a recovery. The recovery number tells you nothing you did not already know.

References
  1. ReportedThe 300mm advantage is a fixed-cost advantage: the fab costs the same whether it runs at 60% or 95%.
    Texas Instruments Incorporated, Form 10-K for the year ended 31 December 2025 (SEC, CIK 97476) — Item 1, Business. TI's two reportable segments are Analog and Embedded Processing, with remaining activities in Other; operations began in 1930 and it has design, manufacturing or sales operations in more than 30 countries. The product portfolio includes more than 80,000 products. TI states four sustainable competitive advantages: a strong foundation of manufacturing and technology, a broad portfolio of analog and embedded processing products, the reach of its market channels, and the diversity and longevity of its products, markets and customer positions, which in combination it describes as difficult to replicate. An unpackaged chip built on a 300mm wafer costs about 40% less than one built on a 200mm wafer; TI continued qualifying and ramping production at its newest 300mm fabs in Richardson and Sherman, Texas, and Lehi, Utah, supporting external foundry transfers and internal transfers from its legacy 150mm facilities, and expects to maintain sufficient internal capacity to meet the majority of its production needs, offering customers geopolitically dependable capacity. TI sells to over 100,000 customers, with about half of revenue derived from customers outside its largest 50; more than 80% of revenue was direct in 2025, including TI.com. End markets as a percentage of 2025 revenue: industrial 33%, automotive 33%, personal electronics 21%, data centre 9%, communications equipment 3%, and calculators about 1%. About 60% of revenue comes from customers headquartered outside the United States; revenue from end customers headquartered in China represented about 20% of revenue in 2025, while revenue from products shipped into China represented about 50%. The analog and embedded processing markets remain highly fragmented, with significant global competition from dozens of large and small companies including emerging companies, particularly in Asia. The company's stated objective is the growth of free cash flow per share over the long term. — FY2025 · publ. 2026-02-06 · source ↗
  2. ReportedThe 300mm advantage is a fixed-cost advantage: the fab costs the same whether it runs at 60% or 95%. That is why gross margin was 57.0% in 2025 and 61.4% in the June 2026 quarter on the same physical assets — the difference is utilisation, not efficiency.
    Texas Instruments Incorporated, Form 10-Q for the quarter ended 30 June 2026 (SEC, CIK 97476). Revenue $5,463M against $4,448M a year earlier, and $10,288M for the six months against $8,517M; cost of revenue $2,111M; gross profit $3,352M against $2,575M — a 61.4% gross margin against 57.9%; research and development $535M against $527M; selling, general and administrative $490M against $485M; acquisition charges $17M; operating profit $2,310M against $1,563M. Income before income taxes $2,238M; provision for income taxes $258M; net income $1,980M against $1,295M. Basic EPS $2.16 and diluted EPS $2.14, against $1.42 and $1.41, on 920 million diluted shares. — Q2 2026 · publ. 2026-07-24 · source ↗
  3. ReportedThe 300mm advantage is a fixed-cost advantage: the fab costs the same whether it runs at 60% or 95%. That is why gross margin was 57.0% in 2025 and 61.4% in the June 2026 quarter on the same physical assets — the difference is utilisation, not efficiency.
    Texas Instruments Incorporated, Form 10-Q for the quarter ended 30 June 2026 (SEC, CIK 97476). Revenue $5,463M against $4,448M a year earlier, and $10,288M for the six months against $8,517M; cost of revenue $2,111M; gross profit $3,352M against $2,575M — a 61.4% gross margin against 57.9%; research and development $535M against $527M; selling, general and administrative $490M against $485M; acquisition charges $17M; operating profit $2,310M against $1,563M. Income before income taxes $2,238M; provision for income taxes $258M; net income $1,980M against $1,295M. Basic EPS $2.16 and diluted EPS $2.14, against $1.42 and $1.41, on 920 million diluted shares. — Q2 2026 · publ. 2026-07-24 · source ↗
  4. ReportedThe 2023-24 worked example: revenue down 22% from the 2022 peak, operating profit down 46%.
    Texas Instruments Incorporated, Form 10-K FY2025 — consolidated statements of income and segment results. Revenue $17,682M, up $2.04bn or 13.0%; gross profit $10,081M; operating profit $6,023M; other income net $230M; interest and debt expense $543M; income before income taxes $5,710M; provision for income taxes $709M at an effective rate of 12.4% (12.0% in 2024); net income $5,001M against $4,799M in 2024 and $6,510M in 2023. Basic EPS $5.47 and diluted EPS $5.45, against $5.20 and $7.07 in the two prior years, on 913 million diluted shares. By segment, Analog revenue $14,006M (2024 $12,161M, +15%) with operating profit $5,412M (2024 $4,608M, +17%) at 38.6% of revenue (37.9%); Embedded Processing $2,700M; Other the remainder. Revenue peaked at $20,028M in 2022 with operating profit of $10,140M, and troughed at $15,641M in 2024 with operating profit of $5,465M. — FY2025 · publ. 2026-02-06 · source ↗
Sources
Generated September 23, 2026