The MoatWide moat

Texas Instruments (TXN) — moat facet

TI publishes its own four competitive advantages. Three of them survive inspection, and building the first one halved the return on capital.

Texas Instruments publishes its own moat, in its own annual report, in one sentence — and the useful exercise is to check it rather than repeat it.

Return on invested capitalWACC ~9%23.4%201529.6%201739.0%201949.8%202127.2%202317.6%202418.6%2025It halved because $24bn of fabs landed while the cycle took revenue down 22%.
Still above the hurdle at the bottom of a capital cycle, which is the whole wide-moat case.

The company says it has four sustainable competitive advantages: a strong foundation of manufacturing and technology, a broad portfolio of analog and embedded processing products, the reach of its market channels, and the diversity and longevity of its products, markets and customer positions. In combination, it says, these are difficult to replicate.1

Three of the four survive inspection easily. The manufacturing advantage is arithmetic: an unpackaged chip built on a 300mm wafer costs about 40% less than the same chip on a 200mm wafer, and TI has spent six years and roughly $24 billion converting its capacity to 300mm at Richardson and Sherman in Texas and Lehi in Utah.23 In a market where the product is often a fifty-cent part, cost per chip is the competition. The portfolio is more than 80,000 products — a catalogue no customer needs all of and no rival can assemble quickly, because each part earns too little to justify building alone.4 The diversity is real and unusually measurable: more than 100,000 customers, about half of revenue from outside the largest fifty, and industrial and automotive at 33% each.

The fourth — channel reach — is the one that has changed most and is least like a moat. TI moved deliberately from distribution to direct selling, and more than 80% of revenue was direct in 2025, including TI.com. That captured margin and customer data that distributors used to hold. It is a good decision rather than a defensible position, and it made TI's own former channel into a competitor.

What the company does not say, and what matters most right now, is what happened to the returns while it was strengthening the first advantage. Return on invested capital fell from 49.8% in 2021 to 17.6% in 2024, recovering to 18.6% in 2025 — still comfortably above a cost of capital nearer 9%, and less than half what it was.5 Building the cost advantage consumed the return the cost advantage exists to produce. That is a timing problem rather than a moat problem, and it has lasted long enough to bring an activist onto the register.6

The verdict is wide. Very few businesses have 80,000 products, 100,000 customers, no concentration, a structural cost advantage in the physical process, and a 57% gross margin at the bottom of a cycle. The number that tests it is return on invested capital: the moat is intact if it climbs back toward the forties as the fabs fill, and the market has already paid 40 times earnings for that outcome.

Moat trajectory: Holding steady

The four advantages are intact and none of them is improving or deteriorating. What has moved is the return they produce, which fell by two-thirds while the cost advantage was being built and is now recovering as the fabs fill. The moat did not change; the capital behind it did.

The number that tests this moat
Moat Explorer calc
Return on invested capital
18.6% in 2025, against a ~9% hurdle

Down from 49.8% in 2021 and 17.6% at the 2024 trough. Nothing about the moat weakened; roughly $24bn of capital expenditure landed on the balance sheet over the decade to 2025 while the analog cycle took revenue from $20.03bn to $15.64bn. Still comfortably above the hurdle at the bottom of a capital cycle, which is the wide-moat evidence. Watch it in 2028: anything below the mid-twenties three years after the capex cliff would say the capacity was too large.

How it's calculated: NOPAT / average operating invested capital, computed from SEC EDGAR XBRL by tools_roic_edgar.py; invested capital = assets − current liabilities − cash. The ~9% hurdle is an assumed cost of capital.
Source: Computed from SEC EDGAR filings ↗
Aspects of the moat
DIG DEEPER 01
The 300-Millimetre Cost Advantage
Six years and $24 billion to make each chip 40% cheaper — a permanent advantage bought with a temporary collapse in returns.
DIG DEEPER 02
Eighty Thousand Products
Eighty thousand parts is not a product line; it is a library, and the defence is that no single volume justifies building a second one.
DIG DEEPER 03
Selling Direct
TI spent a decade taking its business away from its own distributors, and now sells more than 80% of it directly.
DIG DEEPER 04
Free Cash Flow Per Share
The objective is stated in the first paragraph of the annual report, and it has gone the wrong way for four years.
References
  1. ReportedIn combination, it says, these are difficult to replicate.
    Texas Instruments Incorporated, Form 10-K for the year ended 31 December 2025 (SEC, CIK 97476) — Item 1, Business. TI's two reportable segments are Analog and Embedded Processing, with remaining activities in Other; operations began in 1930 and it has design, manufacturing or sales operations in more than 30 countries. The product portfolio includes more than 80,000 products. TI states four sustainable competitive advantages: a strong foundation of manufacturing and technology, a broad portfolio of analog and embedded processing products, the reach of its market channels, and the diversity and longevity of its products, markets and customer positions, which in combination it describes as difficult to replicate. An unpackaged chip built on a 300mm wafer costs about 40% less than one built on a 200mm wafer; TI continued qualifying and ramping production at its newest 300mm fabs in Richardson and Sherman, Texas, and Lehi, Utah, supporting external foundry transfers and internal transfers from its legacy 150mm facilities, and expects to maintain sufficient internal capacity to meet the majority of its production needs, offering customers geopolitically dependable capacity. TI sells to over 100,000 customers, with about half of revenue derived from customers outside its largest 50; more than 80% of revenue was direct in 2025, including TI.com. End markets as a percentage of 2025 revenue: industrial 33%, automotive 33%, personal electronics 21%, data centre 9%, communications equipment 3%, and calculators about 1%. About 60% of revenue comes from customers headquartered outside the United States; revenue from end customers headquartered in China represented about 20% of revenue in 2025, while revenue from products shipped into China represented about 50%. The analog and embedded processing markets remain highly fragmented, with significant global competition from dozens of large and small companies including emerging companies, particularly in Asia. The company's stated objective is the growth of free cash flow per share over the long term. — FY2025 · publ. 2026-02-06 · source ↗
  2. ReportedThe manufacturing advantage is arithmetic: an unpackaged chip built on a 300mm wafer costs about 40% less than the same chip on a 200mm wafer, and TI has spent six years and roughly $24 billion converting its capacity to 300mm at Richardson and Sherman in Texas and Lehi in Utah.
    Texas Instruments Incorporated, Form 10-K FY2025 — Management's Discussion and Analysis, cash flow statement and the free-cash-flow reconciliation. Cash flow from operations $7,153M (2024 $6,318M), 40.5% of revenue; capital expenditures $4,550M (2024 $4,820M); proceeds from CHIPS Act incentives $335M; free cash flow $2,938M (2024 $1,498M), 16.6% of revenue. In 2025 TI invested $3.94bn in R&D and SG&A, invested $4.55bn in capital expenditures and returned $6.48bn to shareholders. Dividends paid were $4,999M against $4,795M in 2024 and $4,557M in 2023, reflecting an increased dividend rate; $1,477M was used to repurchase 8.5 million shares against $929M for 4.7 million shares in 2024. Net proceeds of $1,199M were received from the issuance of fixed-rate long-term debt and $750M of maturing debt retired. Over the ten-year period from 2016 to 2025 TI allocated $109 billion, of which about $24 billion went to capital expenditures, and states it is near completion of its six-year elevated capital expenditure cycle. The dividend was raised 4% to $1.42 per share per quarter, marking 22 consecutive years of increases, since extended to 23. The One Big Beautiful Bill Act, enacted 4 July 2025, provided for expensing of US research and eligible capital expenditure and increased the CHIPS Act investment tax credit; TI expects the effective tax rate and tax-related cash payments to be lower than under prior law from 2026. — FY2025 · publ. 2026-02-06 · source ↗
  3. ReportedThe manufacturing advantage is arithmetic: an unpackaged chip built on a 300mm wafer costs about 40% less than the same chip on a 200mm wafer, and TI has spent six years and roughly $24 billion converting its capacity to 300mm at Richardson and Sherman in Texas and Lehi in Utah.
    Texas Instruments Incorporated, Form 10-K FY2025 — Management's Discussion and Analysis, cash flow statement and the free-cash-flow reconciliation. Cash flow from operations $7,153M (2024 $6,318M), 40.5% of revenue; capital expenditures $4,550M (2024 $4,820M); proceeds from CHIPS Act incentives $335M; free cash flow $2,938M (2024 $1,498M), 16.6% of revenue. In 2025 TI invested $3.94bn in R&D and SG&A, invested $4.55bn in capital expenditures and returned $6.48bn to shareholders. Dividends paid were $4,999M against $4,795M in 2024 and $4,557M in 2023, reflecting an increased dividend rate; $1,477M was used to repurchase 8.5 million shares against $929M for 4.7 million shares in 2024. Net proceeds of $1,199M were received from the issuance of fixed-rate long-term debt and $750M of maturing debt retired. Over the ten-year period from 2016 to 2025 TI allocated $109 billion, of which about $24 billion went to capital expenditures, and states it is near completion of its six-year elevated capital expenditure cycle. The dividend was raised 4% to $1.42 per share per quarter, marking 22 consecutive years of increases, since extended to 23. The One Big Beautiful Bill Act, enacted 4 July 2025, provided for expensing of US research and eligible capital expenditure and increased the CHIPS Act investment tax credit; TI expects the effective tax rate and tax-related cash payments to be lower than under prior law from 2026. — FY2025 · publ. 2026-02-06 · source ↗
  4. ReportedThe portfolio is more than 80,000 products — a catalogue no customer needs all of and no rival can assemble quickly, because each part earns too little to justify building alone.
    Texas Instruments Incorporated, Form 10-K for the year ended 31 December 2025 (SEC, CIK 97476) — Item 1, Business. TI's two reportable segments are Analog and Embedded Processing, with remaining activities in Other; operations began in 1930 and it has design, manufacturing or sales operations in more than 30 countries. The product portfolio includes more than 80,000 products. TI states four sustainable competitive advantages: a strong foundation of manufacturing and technology, a broad portfolio of analog and embedded processing products, the reach of its market channels, and the diversity and longevity of its products, markets and customer positions, which in combination it describes as difficult to replicate. An unpackaged chip built on a 300mm wafer costs about 40% less than one built on a 200mm wafer; TI continued qualifying and ramping production at its newest 300mm fabs in Richardson and Sherman, Texas, and Lehi, Utah, supporting external foundry transfers and internal transfers from its legacy 150mm facilities, and expects to maintain sufficient internal capacity to meet the majority of its production needs, offering customers geopolitically dependable capacity. TI sells to over 100,000 customers, with about half of revenue derived from customers outside its largest 50; more than 80% of revenue was direct in 2025, including TI.com. End markets as a percentage of 2025 revenue: industrial 33%, automotive 33%, personal electronics 21%, data centre 9%, communications equipment 3%, and calculators about 1%. About 60% of revenue comes from customers headquartered outside the United States; revenue from end customers headquartered in China represented about 20% of revenue in 2025, while revenue from products shipped into China represented about 50%. The analog and embedded processing markets remain highly fragmented, with significant global competition from dozens of large and small companies including emerging companies, particularly in Asia. The company's stated objective is the growth of free cash flow per share over the long term. — FY2025 · publ. 2026-02-06 · source ↗
  5. Moat Explorer calcReturn on invested capital fell from 49.8% in 2021 to 17.6% in 2024, recovering to 18.6% in 2025 — still comfortably above a cost of capital nearer 9%, and less than half what it was.
    Return on invested capital for Texas Instruments computed from SEC EDGAR XBRL filings — NOPAT divided by average operating invested capital, where NOPAT is operating income after the effective tax rate and invested capital is total assets less current liabilities less cash. The series for 2015 to 2025 is 23.4%, 27.6%, 29.6%, 43.2%, 39.0%, 40.1%, 49.8%, 45.8%, 27.2%, 17.6% and 18.6%. The decline from the 2021 peak coincides with roughly $24 billion of capital expenditure over the decade to 2025 and a fall in revenue from $20,028M in 2022 to $15,641M in 2024. — 2015-2025 · publ. 2026-02-06 · source ↗
  6. ReportedThat is a timing problem rather than a moat problem, and it has lasted long enough to bring an activist onto the register.
    Coverage of Elliott Investment Management's stake in Texas Instruments, May 2024. Elliott took a stake of more than $2.5 billion and sent a 13-page letter to the board proposing a dynamic capacity-management strategy that would allow TI to achieve free cash flow of as much as $9 a share by 2026. Elliott's letter focused on the 2022 capital expenditure plan, which called for capital spending to ramp to as much as $5 billion a year from 2023 to 2026 — as much as 23% of revenues, against roughly 5% over the preceding decade — and argued that a reversal in demand since the plan was set would leave capacity levels around 50% above consensus revenue expectations in 2026 and 2030. By Elliott's analysis, free cash flow per share fell from $6.40 in 2022 to $1.47 in 2023. Texas Instruments' chief executive subsequently signalled alignment with the proposals rather than contesting them, and suggested the company could reach $12 per share in 2026. — 2024 · publ. 2024-05-28 · source ↗
Sources
Generated September 23, 2026