⚠ Supply Security Is Worth Most When Supply Is ShortModerate threat
Texas Instruments (TXN) — threat to the moat
Certainty was worth a fortune in 2021 and less every quarter since — while the cost of providing it stays exactly the same.
Owning the fabs is a choice that looks brilliant in a shortage and expensive in everything else.
TI's internal manufacturing gives it lower unit costs, supply-chain control and what it calls geopolitically dependable capacity for customers.1 All three were worth a great deal in 2021 and are worth less in a market with adequate supply.
The cost is permanent and visible. Capital expenditure was $4.55 billion in 2025 against $17.68 billion of revenue, and free cash flow was only 16.6% of revenue against operating cash flow at 40.5%.2 A fabless peer converts a far higher share of its cash flow into free cash flow, which is why Qualcomm's return on invested capital is 22.2% against TI's 18.6% despite a business under structural attack.3
The strategic bet is that the next decade rewards owning capacity — through shortages, trade policy and customer preference for supply security — more than the last one rewarded not owning it.
That bet is unresolved, and it will be settled by whether the fabs fill rather than by any argument about strategy.
The measure is free cash flow as a percentage of revenue, which is where the ownership cost shows up. It ran in the thirties historically and was 16.6% in 2025.
- ReportedTI's internal manufacturing gives it lower unit costs, supply-chain control and what it calls geopolitically dependable capacity for customers.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 ↗
- Moat Explorer calcCapital expenditure was $4.55 billion in 2025 against $17.68 billion of revenue, and free cash flow was only 16.6% of revenue against operating cash flow at 40.5%.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 ↗
- Moat Explorer calcCapital expenditure was $4.55 billion in 2025 against $17.68 billion of revenue, and free cash flow was only 16.6% of revenue against operating cash flow at 40.5%. A fabless peer converts a far higher share of its cash flow into free cash flow, which is why Qualcomm's return on invested capital is 22.2% against TI's 18.6% despite a business under structural attack.Return on invested capital for Texas Instruments computed from SEC EDGAR XBRL filings — NOPAT divided by average operating invested capital, where NOPAT is operating income after the effective tax rate and invested capital is total assets less current liabilities less cash. The series for 2015 to 2025 is 23.4%, 27.6%, 29.6%, 43.2%, 39.0%, 40.1%, 49.8%, 45.8%, 27.2%, 17.6% and 18.6%. The decline from the 2021 peak coincides with roughly $24 billion of capital expenditure over the decade to 2025 and a fall in revenue from $20,028M in 2022 to $15,641M in 2024. — 2015-2025 · publ. 2026-02-06 · source ↗