Analog chipmaker TI expects free cash flow to jump in 2026

(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 spending on increasing 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 eight analysts polled by Visible Alpha. It had fallen 77% to $1.47 in 2023, according to LSEG data.

Elliott, which in May disclosed a $2.5 billion stake, had pushed the company to tighten spending and adjust its production capacity to the changes in demand. It had said the strategy could improve FCF to $9 per share by 2026.

Elliot did not immediately respond to a Reuters request for comment.

The company has embarked on a plan to bring more production in house with the construction of three new chip facilities amid improving end-market demand. It has also been expanding 300mm production capacity due to its cost-effectiveness.

In a conference call with analysts, CEO Haviv Ilan attributed the FCF growth to the way the expansion of 300 mm production capacity is structured. The initial stages of the transition will be completed in 2026, allowing the company 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.

The company will maintain capital expenditure of $5 billion through 2025. It is also set to receive up to $1.6 billion for building new facilities under the U.S. CHIPS and Science Act, the company said last week.