By Arsheeya Bajwa
(Reuters) -Texas Instruments said on Tuesday its free cash flow (FCF) would jump in 2026 as demand rebounds and the analog chipmaker tightens capital spending after pressure from activist investor Elliott Investment Management.
The company has been building out its manufacturing capacity to prevent chip shortages such as those seen during the pandemic and address future demand, a move that drew investor scrutiny as expenses weighed on cash flow.
The chipmaker expects FCF per share to be between $8 and $12 in 2026, higher than an estimate of $6.91, according to Visible Alpha. It had fallen 77% to $1.47 in 2023, LSEG data showed.
Elliott, which in May disclosed a $2.5 billion stake, had pushed TI to tighten spending and adjust its production capacity to the changes in demand, arguing the strategy could improve FCF to $9 per share by 2026.
The activist investor said Tuesday's announcements, made at an off-cycle capital allocation event, were a "positive step" toward improving value for the company's shareholders.
TI has been bringing more production in-house and expanding 300mm production capacity due to its cost-effectiveness.
CEO Haviv Ilan attributed the FCF growth to the structure of its 300mm production capacity expansion. The initial stages of the transition will be completed in 2026, allowing it to phase out investments.
TI, which expects revenue between $20 billion to $26 billion for 2026, said capital expenditure for the year is estimated to be between $2 billion and $5 billion, compared with its initial plans to spend about $5 billion a year through 2026.
"This is a welcome announcement and not a total surprise as there were hints that TI's grand capital expenditure plans would tighten," said Michael Schulman, chief investment officer at Running Point Capital.
TI is also set to receive up to $1.6 billion for building new facilities under the U.S. CHIPS and Science Act.