⚠ The Advantage Only Exists at High UtilisationModerate threat

Texas Instruments (TXN) — threat to the moat

Revenue fell 22% and operating profit fell 46%. A company that rented its fabs would not have done that.

A cost advantage that depends on running the factories full is a cost disadvantage when they are empty.

Operating leverage, both directionsRevenue, 2022 to 2024$20.03bn to $15.64bn (-22%)Operating profit over the same span$10.14bn to $5.47bn (-46%)Revenue, Q2 2026+23% year over yearOperating profit, Q2 2026+48%A fabless competitor's costs fall with its volumes. TI's do not.
The same asset that magnifies a recovery magnified the downturn first.

TI's 300mm structural advantage is real — about 40% lower cost per unpackaged chip than 200mm — and it is realised only through utilisation.1 Fixed costs in a wafer fab do not care how many wafers move through it, so the same asset that produces a 61.4% gross margin at high utilisation produced 57.0% at lower utilisation a year earlier, and considerably less at the 2024 trough.23

That is why the analog cycle hits TI harder than it hits a fabless peer. In a downturn a fabless company's costs fall with its volumes; TI's do not.

The 2023-24 downturn is the worked example. Revenue fell from $20.03 billion to $15.64 billion, operating profit from $10.14 billion to $5.47 billion — a 46% fall in profit on a 22% fall in revenue — and return on invested capital more than halved.4

The new capacity makes the next downturn more expensive in exactly the same way, because there is more fixed cost to absorb.

Watch gross margin through a decline, not through a recovery. The recovery number is easy.

References
  1. ReportedTI's 300mm structural advantage is real — about 40% lower cost per unpackaged chip than 200mm — and it is realised only through utilisation.
    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. ReportedTI's 300mm structural advantage is real — about 40% lower cost per unpackaged chip than 200mm — and it is realised only through utilisation. Fixed costs in a wafer fab do not care how many wafers move through it, so the same asset that produces a 61.4% gross margin at high utilisation produced 57.0% at lower utilisation a year earlier, and considerably less at the 2024 trough.
    Texas Instruments Incorporated, Form 10-Q for the quarter ended 30 June 2026 (SEC, CIK 97476). Revenue $5,463M against $4,448M a year earlier, and $10,288M for the six months against $8,517M; cost of revenue $2,111M; gross profit $3,352M against $2,575M — a 61.4% gross margin against 57.9%; research and development $535M against $527M; selling, general and administrative $490M against $485M; acquisition charges $17M; operating profit $2,310M against $1,563M. Income before income taxes $2,238M; provision for income taxes $258M; net income $1,980M against $1,295M. Basic EPS $2.16 and diluted EPS $2.14, against $1.42 and $1.41, on 920 million diluted shares. — Q2 2026 · publ. 2026-07-24 · source ↗
  3. ReportedTI's 300mm structural advantage is real — about 40% lower cost per unpackaged chip than 200mm — and it is realised only through utilisation. Fixed costs in a wafer fab do not care how many wafers move through it, so the same asset that produces a 61.4% gross margin at high utilisation produced 57.0% at lower utilisation a year earlier, and considerably less at the 2024 trough.
    Texas Instruments Incorporated, Form 10-Q for the quarter ended 30 June 2026 (SEC, CIK 97476). Revenue $5,463M against $4,448M a year earlier, and $10,288M for the six months against $8,517M; cost of revenue $2,111M; gross profit $3,352M against $2,575M — a 61.4% gross margin against 57.9%; research and development $535M against $527M; selling, general and administrative $490M against $485M; acquisition charges $17M; operating profit $2,310M against $1,563M. Income before income taxes $2,238M; provision for income taxes $258M; net income $1,980M against $1,295M. Basic EPS $2.16 and diluted EPS $2.14, against $1.42 and $1.41, on 920 million diluted shares. — Q2 2026 · publ. 2026-07-24 · source ↗
  4. Moat Explorer calcRevenue fell from $20.03 billion to $15.64 billion, operating profit from $10.14 billion to $5.47 billion — a 46% fall in profit on a 22% fall in revenue — and return on invested capital more than halved.
    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 ↗
Sources
Generated September 23, 2026