Texas Instruments: 3 Key Takeaways for Long-Term Investors

During its earnings call for the third quarter of 2026 on October 21, Texas Instruments (NASDAQ: TXN) reported a revenue of $6.1 billion, reflecting robust demand in both industrial and data center sectors, indicating a cyclical recovery in the market. The company’s strategy to expand its internal manufacturing capabilities aims to meet long-term chip demand while reducing dependence on external manufacturing partners. Three key points highlighted by management during the call are particularly noteworthy.

Firstly, the demand from industrial and data center sectors has significantly enhanced profit margins. Revenue from data center products nearly doubled compared to the previous year, and industrial sales reached an all-time high following a four-year recovery period. This operational leverage, coupled with a favorable mix of products, resulted in a gross margin increase of 2.8 percentage points from the previous quarter, bringing it to 64%. Julie C. Knecht, the Chief Financial Officer, noted, "Yes, our margins in the third quarter were really driven by higher revenue. That is the largest reason for that increase. But we also did have some benefit from pricing, loadings, and some product and end market mix."

Secondly, the limited capacity for analog chips has allowed Texas Instruments to exercise selective pricing power. Since 2022, there has been a scarcity of capacity additions for analog chips, which are essential for processing real-world signals such as temperature and sound, particularly outside of China and Taiwan. Management capitalized on urgent mid-year supply requests from clients to negotiate higher prices for certain products. Chief Executive Officer Haviv Ilan explained, "Regarding pricing specifically, most of our pricing discussions are done once a year with our customers, but we did see some areas in the middle of the year where we had the opportunity to talk to customers that wanted more supply more urgently."

Lastly, the company is expanding its internal factory capabilities to maintain control over its supply chains. By investing in clean room space and wafer fabrication facilities during previous downturns in the industry, Texas Instruments has created a reliable production hub. The management plans to increase capital expenditures to approximately $3 billion in 2026 to install new assembly tools and fulfill rising customer orders. Ilan stated, "We are in a position to control our destiny. We have taken care of the long lead time investments on clean rooms, including all the subfab and all the -- to be fair, the equipment that takes right now a very long time to get and build and get qualified."

Looking ahead, demand across industrial, automotive, and data center markets is expected to boost fourth-quarter guidance beyond typical seasonal trends, and management expressed their contentment with this outlook. Operating its own wafer fabrication and packaging facilities gives Texas Instruments a structural cost advantage, ensuring the availability of supply as they continue to navigate the market.