Thinking about tripling capacity by 2030? Start thinking about our returns...
Notorious tech investment firm Elliott Management has penned a letter to Texas Instruments urging the company to change course on its aggressive plan to boost manufacturing capacity. that the chipmaker is investing way too much into its 2022 plan to almost triple production capacity by 2030. Elliott Management's core reasoning is that TI is projected to overshoot demand by a significant margin in the coming years: 54 percent in 2026 and 50 percent in 2030, when the plan will be complete.
"Elevated capex is not inherently negative and, in some cases, it presents a great opportunity when customer demand is high and return-on-investment is compelling," the letter reads."But here, TI is building to capacity levels that are 50 percent above consensus revenue expectations in 2026 and 2030 ."
Get out your hankies, because Elliott says the consequences for shareholders have been notable. Free cash flow per share, something that Texas Instruments has historically prided itself on, has decreased by more than 75 percent since 2022. By contrast, free cash flow per share grew at an annual rate of 17 percent from 2006 to 2019, Elliot complains.
Termed the"dynamic capacity-management approach," this strategy isn't actually new, not even to Texas Instruments, as Elliott points out. The semiconductor corp's Richardson, Texas fab started construction in 2004 but didn't become operational until 2009, since its capacity wasn't necessary. The facility was only equipped with chipmaking tools in 2009, which were apparently bought for"pennies on the dollar.
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