Activist Elliott takes $2.5 billion stake in Texas Instruments, urges company to improve free cash flow

Elliott Management, a prominent hedge fund, has acquired a $2.5 billion stake in Texas Instruments, prompting the company to enhance its free cash flow. The fund criticized the company's strict capital expenditure plan from 2022, suggesting it has hurt shareholder returns and recommending a more dynamic capacity management strategy. Elliott's proposals aim to boost Texas Instruments' free cash flow significantly by 2026, despite the company's current underperformance compared to its peers in the semiconductor industry.

Elliott proposes that Texas Instruments introduce a "dynamic capacity-management strategy" that would allow the company to achieve free cash flow of as much as $9 a share by 2026, which is roughly 40% above the current consensus of the analysts who follow the world's largest maker of analog semiconductors4. Elliott suggests the company either communicate more forcefully why it believes such an increase in capacity is justified or move to a more dynamic approach to capex in which it builds new fabrication facilities but is more deliberate about equipping them, allowing for a more precise response to market demand.