Elliott Management Texas Instruments Seeks Growth through Prudence

Elliott Management, a renowned activist investor, has been actively involved with Texas Instruments, a leading semiconductor company.

Elliott Management's partnership with Texas Instruments is a prime example of how prudence can lead to growth.

Texas Instruments has a long history of innovation, with a legacy dating back to 1930.

Elliott's investor and partner structure is notable for its experienced leadership. Paul Singer and Jonathan Pollock serve as co-chief investment officers.

These two executives are at the helm of the firm's investment decisions, overseeing the direction of Elliott's investments. They have a wealth of experience and knowledge in the field.

Gordon Singer, Paul Singer's son, manages Elliott's London office, providing a strong presence in the European market.

Elliott has seven equity partners, which is a significant number that suggests a robust and experienced team.

Paul Singer and Jonathan Pollock are co-chief investment officers, indicating a strong leadership presence at the firm.

Gordon Singer, Paul Singer's son, manages Elliott's London office, showing a family connection and international presence.

Steven Kasoff, a former senior portfolio manager, was named an equity partner in January 2015, highlighting the importance of experienced professionals within the firm.

Steve Cohen, Dave Miller, Jesse Cohn, and Zion Shohet are also listed as equity partners at the firm, as of November 2020, demonstrating a diverse range of expertise.

Texas Instruments' commitment to building the world's largest US-based 300-mm analog semiconductor capacity is a strategic move with far-reaching implications.

This investment positions TI at the forefront of the analog chip market, important for various industries including automotive, industrial and consumer electronics.

The 300-mm wafer technology offers cost advantages and improved efficiency compared to smaller wafers.

By localizing production in the US, TI mitigates supply chain risks and aligns with the growing trend of tech sovereignty.

The projected $12 free cash flow per share by 2026 is impressive, potentially driving significant stock appreciation.

The modular capex plan provides a safety net, allowing TI to adjust investments based on market dynamics, which is important in the cyclical semiconductor industry.

TI's focus on US-based 300-mm analog semiconductor capacity positions the company well in the current geopolitical climate, potentially benefiting from government initiatives supporting domestic chip production.

Elliott Management has a rich history of investing in distressed debt, which dates back to the early 1990s recession. They refocused on this area following the 1987 stock market crash.

The firm is known for restructuring several high-profile companies, including Telecom Italia SpA and Elektrim, overseas. This expertise has been crucial to their growth and success.

Elliott Management has a proven track record of turning around struggling companies, such as Telecom Italia SpA and Elektrim, by restructuring them.

Elliott's early activities were primarily focused on convertible arbitrage. This strategy allowed the company to capitalize on market fluctuations and generate returns.

The 1987 stock market crash and early 1990s recession led Elliott to refocus its efforts on distressed debt investing. This shift in strategy proved to be a wise move, as it enabled the company to identify undervalued assets and create value.

Elliott's expertise in restructuring was put to the test with the likes of TWA, MCI, WorldCom, and Enron. The company successfully restructured these U.S. firms, helping them navigate through financial difficulties.

Elliott's reach extended beyond the U.S. borders, with notable restructuring successes in overseas companies such as Telecom Italia SpA and Elektrim. These international endeavors showcased the company's ability to adapt and thrive in diverse markets.

Building fabs is a significant investment, but Texas Instruments found a clever way to manage its capacity. The company built its Richardson, Texas fab in 2004 but didn't equip it with all the necessary tools until 2009.

This strategy, called the "dynamic capacity-management approach", allowed Texas Instruments to only equip its fab with the tools it needed, avoiding excess capacity. In 2012, the company's excess capacity was around 30 percent, which is a significant reduction.

By not fully equipping its fab initially, Texas Instruments saved a lot of money. The company bought chipmaking tools in 2009 for "pennies on the dollar", which is a great example of smart financial management.

If Texas Instruments were to pursue this approach again, it could bring its excess capacity down to 39 percent by 2026, according to Elliott. This would be a significant improvement, and it could also boost the company's free cash flow per share.

Elliott Management has a significant stake in Oncor Electric Delivery, a Texas transmission and distribution electric utility. They held $1.8 billion in debt related to Oncor.

In August 2017, Elliott tried to block Berkshire Hathaway's bid to acquire Oncor.

Texas Instruments' financial performance has been a subject of discussion, particularly with Elliott Management's involvement.

Elliott Management proposed a "dynamic capacity-management strategy" to increase free cash flow to $9 per share by 2026.

The company's free cash flow has seen a significant decline, from $6.40 per share in 2022 to an expected $1.83 per share this year.

Elliott argued that the 2022 capital expenditure plan, which increased spending to $5 billion annually or 23% of revenues from a previous 5% over the last decade, has reduced shareholder returns.

Texas Instruments' management has received and is reviewing Elliott's letter, stating that their focus is on making decisions in the best interest of the company and its shareholders.

The company's projected $12 free cash flow per share by 2026 is an impressive target, potentially driving significant stock appreciation.

This target is part of Texas Instruments' capital allocation update, which signals a strong commitment to shareholder value.

Texas Instruments Stock has performed well in recent years, with a 5-year return of 116.39%. The company's current stock price stands at $200.18, representing a 0.50% increase since market open.

The company's market cap is a significant $181.35 billion, and its PE ratio (TTM) is 31.02. Texas Instruments' profit margin stands at 35.16%, with a return on assets (ttm) of 12.76% and a return on equity (ttm) of 36.66%.

The company's revenue (ttm) is $16.8 billion, with a net income (ttm) of $5.88 billion. Texas Instruments has a strong financial position, with total cash (mrq) of $10.39 billion.

However, the company's total debt/equity (mrq) stands at 83.55%, which may be a point of concern for some investors. The forward dividend & yield is $4.96 (2.49%), with an ex-dividend date of May 1, 2024.