Texas Instruments CEO signals alignment with Elliott’s proposals

Texas Instruments CEO Haviv Ilan signaled on Thursday that the semiconductor giant would be open to a “constructive dialogue” with activist investor Elliott, and pointed to fresh financial metrics that aligned with the hedge fund’s proposals from earlier this week.

“We definitely look forward to engaging in a constructive dialogue with Elliott,” Ilan said at AllianceBernstein’s Strategic Decisions conference, marking his first public remarks since the activist revealed a $2.5 billion position in the company.

Elliott in a Tuesday letter first reported by CNBC said that it had “tremendous respect” for TI, but that the company had struggled compared to its peers to deliver shareholder returns. To solve that, Elliott said the company should adopt a “dynamic capacity-management strategy,” set a free cash flow target of $9 per share by 2026, above what investors currently expect, and align its capital expenditures to its revenue.

In his comments on Thursday, Ilan suggested the company would be willing to go beyond that $9 ask, pointing to Texas Instruments’ FCF trendline, which showed the company reaching $12 per share in 2026 and $13.3 by 2027.

“The trendline is there,” Ilan said. “This is what guides us.”

The CEO also said capital allocation beyond 2026 would be determined “based on where revenue is.” That could be from 0% to 10%, Ilan added.

Texas Instruments has spent heavily on chip fabrication plants, or fabs, as it seeks to maintain its dominant position in the analog semiconductor market. That has come through capex but also via M&A — in 2021, TI acquired a 300-mm fab in Utah for $900 million from Micron Technologies.

Elliott described TI’s overall business positively, noting its long history of sound strategy.

But that growth in capex has come at a significant cost to free cash flow per share, a self-declared key metric for TI, Elliott noted. By Elliott’s analysis, FCF per share fell from $6.40 in 2022 to $1.47 per share in 2023. Moreover, Elliott questioned whether TI was growing its capacity at a “magnitude and pace” that was appropriate relative to expected demand, observing that the 2026 revenue TI planned to achieve from the expanded capacity was more than 50% higher than what analysts thought the company could get.

Analog semiconductors have long been TI’s bread and butter. Analog semiconductors measure relatively straightforward data — temperature level or an electrical current, for example — compared to the more technologically advanced digital semiconductors that power computers. But it remains a giant business, accounting for $13 billion or 74% of TI’s revenue in 2023.