TXN · Q3 2025 Earnings

Cautious

Texas Instruments

Reported October 21, 2025

30-second summary

Revenue of $4.74B (+14% YoY, +7% QoQ) cleared the high end of the prior guide ($4.45–$4.80B) on Analog strength (+16% YoY), and GAAP EPS of $1.48 landed at the midpoint. But the Q4 guide is the story: revenue midpoint of $4.40B implies a ~7% sequential decline, EPS midpoint of $1.26 is down 15% from Q3 actual, and management told Bernstein gross margin steps down to roughly 55% from 57.4%. The "range of scenarios" defensive posture from Q2 has hardened into an explicit slowdown call — "the semiconductor market recovery is continuing, though at a slower pace than prior upturns." Automotive was the clearest positive in the print, up ~10% sequentially and upper single digits YoY.

Headline numbers

EPS

Q3 FY2025

$1.48

Revenue

Q3 FY2025

$4.74B

+14.2% YoY

Gross margin

Q3 FY2025

57.4%

Free cash flow

Q3 FY2025

$1.07B

Operating margin

Q3 FY2025

35.1%

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$4.74B	+14.2%	$4.45B	+6.6%
EPS	$1.48	—	$1.41	+5.0%
Gross margin	57.4%	—	57.9%	-50bps
Operating margin	35.1%	—	35.1%	+0bps
Free cash flow	$1.07B	—	$0.56B	+92.4%

Guidance

Q3 beat on revenue with strong Analog growth; Q4 guidance implies sequential deceleration and incorporates new U.S. tax legislation reducing ETR assumption.

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q3 FY2025	$4.45B to $4.80B	$4.742B	+$0.062B above high end of guide	Beat
EPS (GAAP)	Q3 FY2025	$1.36 to $1.60	$1.48	in-line with midpoint of guide	Met

New guidance

Metric	Period	Guide	YoY
Effective Tax Rate	Q4 FY2025	about 13%	—
Effective Tax Rate	FY 2026	13% to 14%	—
Revenue	Q4 FY2025	$4.22B to $4.58B	—
EPS (GAAP)	Q4 FY2025	$1.13 to $1.39	—

Segment performance

Q3 FY2025

Segment	Q3 FY2025	YoY
Analog	$3.729B	+15.7%
Embedded Processing	$0.709B	+8.6%
Other	$0.304B	+10.5%
Analog Operating Profit Margin	39.9%	—
Embedded Processing Operating Margin	15.2%	—

Profitability

Q3 FY2025

Segment	Q3 FY2025
Operating Cash Flow (Q3)	$2.19 billion
Free Cash Flow Margin	22.5%
Trailing 12-Month Free Cash Flow	$2.415 billion
Trailing 12-Month FCF Margin	14.0%
Capital Expenditures (Q3)	$1.197 billion

Other KPIs

Q3 FY2025

Segment	Q3 FY2025
Cash Returned to Shareholders (TTM)	$6.56 billion

Management tone

Cycle confidence → tariff caution (Q2) → explicit deceleration call (Q3).

The recovery narrative downgraded for the second straight quarter, and this time it's specific rather than scenario-hedged. Last quarter the framing was "cyclical recovery is continuing" with tariff pull-ins as the muddying factor; this quarter it became "the overall semiconductor market recovery is continuing, though at a slower pace than prior upturns, likely related to the broader macroeconomic dynamics and overall uncertainty." That is the first time in this cycle management has compared the current upturn unfavorably to prior cycles. The Q4 guide — down 7% sequentially, gross margin collapsing ~240bps to ~55% — is the financial expression of that downgrade.

The inventory narrative inverted from headwind to footnote. Q2's framing: "customer inventories remain at low levels" — a demand tailwind in waiting. Q3's framing: "customer inventories remain at low levels and their inventory depletion appears to be behind us." Depletion ending should be unambiguously positive, but the phrasing — "appears to be behind us" rather than "is" — signals management isn't yet seeing the restocking that low inventories should mechanically produce. That gap between low inventory and absent restocking is the cycle anomaly.

Capex flexibility hardened into a directional bias toward the low end. In Q3 Q&A, Schneider (Goldman) explicitly asked whether the lower end of the $20–26B multi-year envelope was more likely; management's reply — "probably more probable" — is as close as TI gets to pre-committing to a capex cut. The TI capex story has flipped from "build for the next cycle" to "match capacity to a slower one."

Capital return is now the headline message. TTM cash returned to shareholders hit $6.56B and trailing FCF was up 65% YoY — both cited repeatedly in Q&A. With revenue guide down and capex moderating, management is explicitly redirecting attention from growth to FCF/share. The "free cash flow per share growth over the long term" line in the qualitative guidance is doing more work than it did a quarter ago. Automotive's ~10% sequential print, growing across all regions, was the cleanest data point in support of the cyclical-recovery-still-intact framing.

Recurring themes management leaned on this quarter:

Semiconductor market recovery moderatingInventory stabilization at low levelsEnd-market divergence (comms/enterprise strong, personal electronics weak)Operational efficiencies and fab consolidationCapital return and dividend growth continuationTax rate optimization through U.S. legislation

Risks management surfaced:

Broader macroeconomic dynamics and overall uncertaintySlower pace of recovery than prior upturnsCustomer inventory remaining at low levelsU.S. tax legislation changes impacting effective tax rate

Q&A highlights

Timothy Arcuri · UBS

Inquiry about quarterly bookings linearity and loading assumptions for Q4, including gross margin trajectory (cash basis excluding depreciation) and inventory management strategy given the company is sitting on high inventory levels.

Management confirmed Q3 bookings came in as expected with consistent performance through July-September. On Q4 loadings, they explained they are moderating wafer starts downward to maintain desired inventory levels while supporting customer demand. Lower revenue combined with higher depreciation and reduced loadings results in compressed gross margins. Management emphasized inventory management is deliberate and positioned to support customers with short lead times.

Q3 bookings were as expected with consistent performance through the quarterLoadings being adjusted down in Q4 to maintain inventory targetsDepreciation increases expected second to third and third to fourth quartersInventory levels at $4.8 billion, company satisfied with current position

Joe Moore · Morgan Stanley

Questions about pricing trends and lead time dynamics across the company's product portfolio, including whether pricing is tracking company expectations and any areas where lead times are lengthening.

Management confirmed pricing is tracking low single-digit annual decline assumptions, consistent with year-to-date trends and expectations for full year 2025. Lead times remain competitive and consistent sequentially with no material changes. Management attributed strong lead time performance to deliberate inventory positioning and emphasized meeting and exceeding customer service metrics.

Pricing trending to low single-digit decline for full year 2025Lead times consistent with prior quarter, remain competitiveNo sequential changes in lead timesInventory positioned to support competitive lead times and customer satisfaction

Chris Dainley · Citibank

Two-part question: catalyst for restructuring actions and expected benefits to gross margins or OPEX; follow-up on industrial vs. automotive segment trends and why industrial is slowing while auto is stronger than expected.

Restructuring driven by two factors: (1) wind-down of six-inch (150mm) fabs in Sherman and Dallas, with last wafers run in Q3 and gradual cost reduction through H1 2026, and (2) R&D consolidation to improve returns. Benefits will accrue to both COGS and OPEX over coming quarters. Q4 OPEX expected flat to Q3. Industrial growth in Q3 was low single-digit sequentially (better than historical Q2-Q3 seasonality); automotive grew sequentially across all regions and recovered to pre-cycle levels after shallow trough.

Six-inch fab wind-downs in Sherman and Dallas completed (last wafers in Q3)Cost reduction from fab closures expected through H1 2026R&D consolidation underway to improve capital efficiencyQ4 OPEX expected flat to Q3

Stacy Rasgan · Bernstein Research

Two-part: (1) explicit Q4 gross margin guidance estimate given lower loadings and higher depreciation; (2) seasonality normalization and expectations for Q1 given apparent return to pre-COVID seasonal patterns.

Management confirmed gross margin guidance is approximately 55% for Q4, driven by lower revenue, higher depreciation ($1.8-2.0B for full year), and moderate loadings. Emphasized long-term focus on free cash flow per share growth (up 65% trailing 12-month). Q4 guide is roughly seasonal (down ~7%) due to moderate recovery pace. For Q1, historically it is typically down slightly sequentially from Q4, but management is not providing guidance, only historical context.

Q4 gross margin guidance approximately 55%Full-year depreciation guidance $1.8-2.0 billion2026 depreciation guidance $2.3-2.7 billion (expecting to be on lower end)Q4 revenue guidance implies ~7% sequential decline, consistent with historical seasonal patterns

James Snyder · Goldman Sachs

Two-part: (1) China market conditions and whether pull-forward demand from Q2 reverted in Q3; (2) CapEx expectations for next year given slower recovery and whether guidance should be toward lower end of previously communicated range.

China demand returned to normal in Q3 and expected to continue into Q4. Industrial in China did not grow sequentially (was the only regional industrial market that didn't grow) but remains up ~40% year-on-year, suggesting prior period pull-forward did not repeat. On CapEx, management indicated probability of being lower than previously guided $26B upper end is 'probably more probable.' However, will provide more detail in February with Q4 results and at Capital Management Day. CapEx depends on recovery pace; ready for any scenario but free cash flow will grow if recovery remains moderate.

China demand returned to normal in Q3, expected to continue in Q4Industrial in China flat sequentially in Q3 (no regional growth), +40% YoYEvidence suggests Q2 pull-forward did not repeat in Q3CapEx range originally 20-26 billion for 2026

Answers to last quarter's watch list

Industrial sequential trajectory in Q3 — Industrial decelerated to low single-digit sequential growth (vs. a strong Q2), which management framed as matching historical Q2→Q3 seasonality. The Q2 surge was at least partially tariff-driven pull-in, but the cycle didn't break — it just normalized. Status: Resolved positively (the cycle case held; no reversion).

China revenue concentration and sequential change — China industrial was flat sequentially in Q3 (the only region not growing) but +40% YoY. Management explicitly said Q2's pull-forward "did not repeat" and that demand "returned to normal." Status: Resolved positively (no concentration shock; pull-forward thesis confirmed and absorbed).

Automotive sequential direction — Auto inflected positively: up ~10% sequentially, upper single digits YoY, growth across all regions, with management characterizing it as "recovered to pre-cycle levels after shallow trough." The clearest positive read in the print. Status: Resolved positively.

FCF margin trajectory vs. capex intensity — Q3 standalone FCF margin jumped to 22.5% on $1.07B FCF and $1.20B capex; TTM FCF +65% YoY; TTM cash returned $6.56B. Management signaled 2026 capex likely toward the low end of the $20–26B envelope. Status: Resolved positively (capex bias down + FCF inflecting = FCF/share thesis intact).

Whether full-year guidance returns next quarter — No FY revenue or EPS guide. Only forward FY item disclosed was the 2026 effective tax rate (13–14%). The "range of scenarios" posture persists. Status: Resolved negatively (visibility has not been restored).

Embedded Processing margin recovery — Op margin printed 15.2% on $108M operating profit, with no explicit margin-expansion commentary or target. Improvement looks like operating leverage on +4.4% QoQ revenue rather than structural change. Status: Continue monitoring (data point positive, narrative absent).

What to watch into next quarter

Whether Q4 actual gross margin holds ~55% or breaks lower — management telegraphed ~55%; a print below that (say 54%) would suggest loadings cuts are deeper than disclosed and 2026 ramp risk is real. A print above 56% would suggest the conservative guide is just sandbagging tax-legislation uncertainty.

Q1 2026 sequential framing on the February call — management said Q1 is "historically down slightly" from Q4 but declined to guide. If the actual Q1 guide is meaningfully worse than "down slightly," the cycle thesis breaks; if it's flat-to-up, the deceleration was Q4-specific.

2026 capex hard number at February Capital Management Day — Schneider got "probably more probable" on the low end of $20–26B. Watch whether the actual disclosure lands at $20–22B (FCF-positive read) or $23–26B (cycle-optimistic but FCF-dilutive).

Embedded Processing op margin progression — 15.2% in Q3 needs to hold or expand to validate operating leverage; reversion would reinforce the segment as a structural drag.

TTM FCF margin breaking above 15% — currently 14.0%; with capex moderating and Q3 standalone FCF margin at 22.5%, the TTM should crack 15% by Q4. If it doesn't, capex is still running too hot for the revenue base.

China industrial sequential direction in Q4 — flat in Q3 was acceptable framing; another flat-to-down sequential print would suggest the +40% YoY is purely compare-driven and the underlying demand is rolling.

Sources

TXN Q3 2025 press release (8-K exhibit 99-ER1), filed with SEC: https://www.sec.gov/Archives/edgar/data/97476/000009747625000056/q32025txnex99-eredgarversi.htm
TXN Q3 2025 earnings call Q&A (as provided in extraction inputs; no full transcript URL on file).

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