Texas Instruments (TXN) Q3 2026 earnings review
TI's profit nearly doubles, but its outlook keeps sales flat
Texas Instruments' factories are now full enough that most of each extra dollar of sales becomes profit. Revenue rose 28% from a year ago and profit per share climbed 77%, because the cost of making products fell to 36% of revenue. Chairman and chief executive Haviv Ilan said growth stayed broad, but the plan for the fourth quarter keeps sales level with this quarter.
| Revenue | $6.06B +28% from a year ago |
|---|---|
| Profit per share | $2.62 +77% from a year ago |
| Gross margin | 64.2% 57.4% a year ago |
| Fourth-quarter revenue outlook | $5.80–6.30B middle of the range: level with this quarter |
⚖️ Verdict: 🟢 Bullish
The story got better because profit margins widened more than the company's own plan pointed to. The fourth-quarter outlook also holds sales at this quarter's level, in a period that usually declines. One caution: inventories stopped falling, and buybacks stayed near zero while the share count moved up.
The question now is whether demand holds once customers finish rebuilding their own stocks of chips. Either orders keep coming and the flat fourth quarter is a pause, or the restocking is ending and this quarter is the top. The first-quarter outlook in January will tell.
🐂 Bull Case
Fuller Factories Turn Most New Sales Into Profit
Texas Instruments runs its own 300-millimetre chip factories, which cost about as much whether they run full or half empty. Chairman and chief executive Haviv Ilan credited "the benefit of 300mm production", and the numbers support him.
Revenue grew 28% from a year ago while plant costs barely moved, so far more of each sale stayed as profit. By our math, 89 cents of every extra sales dollar became gross profit, even though depreciation rose by $58 million.
- Cost of making products: 35.8% of revenue, down from 42.6%
- Gross margin: 64.2%, up 6.8 percentage points
- Analog operating margin: 51.0%, up from 39.8%
This matters because the gain was larger than the company's own plan pointed to. By our math the third-quarter earnings range implied a gross margin near 62%, and the reported figure beat that by two points. The gap says the plan was cautious, not that costs stop rising.
What to watch: fourth-quarter gross margin, due in January, against a revenue plan level with this quarter. A margin near 64% on unchanged sales would show the gain came from cost control, not volume.
Cash Flow Reached Half of Sales Without Subsidies
Texas Instruments counts CHIPS Act grants, the US government's payments for building chip factories at home, inside its free cash flow. Last year's figure leaned on those grants, which raised a doubt about how much cash the factories earned on their own.
- Free cash flow: $2.96 billion, 49% of revenue, against 23% a year ago
- Capital spending: $463 million, 7.6% of revenue, against 25% a year ago
- CHIPS Act grants this quarter: none; tax credits used: $79 million
This matters because the cash now comes from the factories, not from Washington, so the doubt carries less weight. But the company plans $2 to $3 billion of capital spending for 2026, and by our math it has spent $1.65 billion so far.
What to watch: fourth-quarter capital spending, due in January. Spending near $850 million, the middle of the annual plan by our math, would cut free cash flow but confirm the equipment orders for 2027.
Embedded Processing Now Earns 26 Cents per Dollar
Embedded Processing is the smaller of Texas Instruments' two main businesses and, a year ago, the weakest. Its operating margin was 15%, because a new factory ran well below capacity and its cost fell on too few chips.
This quarter revenue rose 21% from a year ago, and operating profit more than doubled. The margin climbed for a third straight quarter, to 26.5% from a low of 10.7% last December. The plant's fixed cost now spreads over many more chips.
What to watch: the division's operating margin in the fourth quarter, when the company plans flat revenue overall. A margin above 25% on unchanged sales would show the gain does not depend on volume.
Positives this quarter didn't test
Three drivers of the standing case got no numbers in the press release, so they stay where they were. Chairman and chief executive Haviv Ilan named "continued broad growth in industrial, automotive and data center" but gave no figures. The release says nothing about prices.
- Data center: no growth rate this quarter; a quarterly figure would show whether it still outgrows the company.
- Pricing: no disclosure; the first-quarter outlook in January, set after annual contract talks, would show whether higher prices add to 2027 revenue.
- Share gains from inventory on hand: no customer disclosure; Analog growth of 32% fits the claim but does not prove it.
🐻 Bear Case
The Outlook Holds Sales Flat Next Quarter
Chairman and chief executive Haviv Ilan described "continued broad growth in industrial, automotive and data center" customers. Yet the plan for the fourth quarter calls for revenue between $5.80 and $6.30 billion. The middle of that range is level with this quarter, after sales rose 11% from the second quarter.
The balance sheet gives a second reason for care. Inventories rose by $67 million from June, the first increase after three quarterly declines, and receivables grew in line with revenue. The standing worry is that customers rebuilt their chip stocks during the shortage and will order less once those stocks are full.
This matters because a fourth quarter without growth is still better than the usual pattern, since last year's fourth quarter fell 7% from the third. But it is also the first plan since then that adds nothing to revenue, and Ilan has not said where the broad growth goes next.
What to watch: fourth-quarter revenue against the $6.05 billion middle of the range, and the first-quarter plan that comes with it in January. A first-quarter plan below this quarter's level would say the restocking has run its course.
Buybacks Stay Near Zero While Share Count Rises
Ilan said the company "returned $5.8 billion to owners" over the past 12 months, almost all of it as dividends. Repurchases have nearly stopped, because Texas Instruments is saving cash for its all-cash purchase of Silicon Labs, agreed in February; cash and investments reached $8.1 billion.
- Stock repurchases this quarter: $48 million, against $119 million a year ago
- Diluted share count: 921 million, up 7 million from a year ago
This matters because the chipmaker measures itself on free cash flow per share, yet the share count is moving the wrong way and repurchases cover under 2% of free cash flow by our math.
What to watch: the quarterly repurchase figure after the deal closes, expected in the first half of 2027. Repurchases above $500 million a quarter would show the pause was only about the deal.
Risks this quarter didn't answer
Four standing risks got no new information in the press release, which carries only a short statement from the chief executive and the financial tables. Each remains where it was, and each has a disclosure point that would move it.
- China, about a fifth of revenue: no regional sales figure; the annual filing's geographic table will show it.
- Personal electronics: not named among the growing markets; the fourth-quarter call will say whether it is still soft.
- Finance chief Julie Knecht's first full quarter: no statement from her in the release; her call commentary will set the cost and tax plan.
- Price increases provoking share loss: not readable without a pricing figure.
💲 Other KPIs
Growing in step with sales: up 27% from a year ago against revenue up 28%. Receivables are the money customers owe for chips already shipped, so a rise faster than revenue would mean slower payment. As a share of quarterly revenue they fell to 43% from 46% in the second quarter.
Half a point above the 13% the company planned in July. The underlying rate before one-off items was 13.9% by our math, and one-off items trimmed the bill by $10 million. The company said one-off items cut earnings per share by 1 cent, after adding 5 cents in each of the two previous quarters.
Down 6% from a year ago, the only one of the three reported businesses to shrink. The Other line groups the company's smaller product lines. Its operating profit doubled to $142 million, because last year's figure carried $85 million of restructuring charges and this year's carries only a small acquisition charge.
🔮 Guidance
New. The plan has fourth-quarter sales between $5.80 and $6.30 billion, with the middle of the range level with this quarter. Last year's fourth quarter fell 7% from the third, so the plan beats the seasonal pattern. It has met or beaten its own midpoint in eight straight quarters, by 3.9% on average over the last four; if the pattern holds, by our math fourth-quarter revenue would reach $6.28 billion.
New. The middle of the range is $2.62, the same as this quarter and double the $1.27 of a year ago. With sales also planned flat, the earnings plan leaves no room for a further margin gain, by our math. Over the last four quarters earnings per share came in above the middle of the range every time, by 12% on average.
❓ Key Questions
How much data center revenue did the quarter carry?
The company names data center as a growth area every quarter but has given only an annual dollar figure. A quarterly number would show whether it still grows faster than the company or has become one part of a broad recovery.
How large are the price increases, and who pays them?
Management said in July it was raising prices customer by customer, with the effect starting this quarter. The size of the increase and the share of revenue that reprices in the year-end contract talks decide how much of 2027 growth is price.
Why does the fourth-quarter plan hold revenue flat?
The company reports broad growth across its main markets, yet its plan has no sequential gain. Management should say whether this reflects seasonality, supply limits, or a slowdown in orders at any end market.
Will buybacks resume before the Silicon Labs deal closes?
Repurchases have fallen to under $50 million a quarter while the share count rises, and cash now exceeds $8 billion. Owners need to know whether the halt lasts until the close or marks a longer change in capital returns.
What will depreciation be in 2027?
Depreciation rose $58 million from a year ago to $555 million, and the 2026 spending plan implies more capital expenditure in the fourth quarter by our math. The 2027 figure decides how much of the next revenue gain reaches profit.