Texas Instruments (TXN) posted strong Q1 2025 results, with revenue rising 11% year-over-year to $4.07 billion, driven by healthy demand across key markets and a notable contribution from its Analog business. Sequentially, revenue ticked up 2% from Q4 2024, signaling stable momentum despite mixed regional trends.

Net income reached $1.18 billion, marking a 7% YoY increase, while diluted EPS came in at $1.28, also up 7% YoY. Gross margin held steady at 56.8%, slightly below the 57.2% posted a year earlier, reflecting rising operating costs. Operating profit totaled $1.32 billion, translating to 32.5% of revenue, a modest contraction from 35.1% in Q1 2024 due to higher R&D and SG&A spending.

The standout performer was the Analog segment, which delivered $3.21 billion in revenue, up 13% YoY, with operating profit surging 20% to $1.21 billion. Gains were fueled by strong demand in power products and margin expansion to 37.6%. In contrast, Embedded Processing saw revenue dip 1% YoY to $647 million, with operating profit falling 62% to $40 million, impacted by higher costs and underutilization at the Lehi fab. The Other segment posted a 23% revenue increase to $212 million, but its operating profit dropped 55% due to the absence of a prior-year asset sale gain.

Geographically, growth was led by the U.S. (up 18% YoY to $1.52 billion) and China (up 33% YoY to $826 million), while revenue in Europe, Middle East, and Africa declined 2%, and Japan fell 17%.

On the cash flow front, cash from operations totaled $849 million, down from $1.02 billion a year ago, reflecting higher working capital needs. Capital expenditures remained high at $1.12 billion, leading to a modestly negative free cash flow of $14 million for the quarter. However, trailing 12-month free cash flow rose 82% YoY to $1.7 billion. Texas Instruments received $260 million in CHIPS Act incentives, helping offset its heavy CapEx commitments.

The company maintained a solid balance sheet, ending the quarter with $5.01 billion in total cash, though down from $7.59 billion at the end of 2024. Inventory levels increased slightly to $4.69 billion (240 days of inventory) as the company positions for future demand.

TI returned significant capital to shareholders, distributing $1.24 billion in dividends and $653 million in share repurchases during Q1. Over the trailing 12 months, shareholder returns totaled $6.43 billion, supported by $6.15 billion in operating cash flow.

Looking ahead, management expects Q2 2025 revenue between $4.17 billion and $4.53 billion, with EPS guidance of $1.21 to $1.47. CEO Haviv Ilan reaffirmed the company's commitment to long-term free cash flow growth, citing strategic investments in 300mm manufacturing, product innovation, and capacity expansion, bolstered by ongoing benefits from the CHIPS Act and investment tax credits.

While margin pressures persist in Embedded Processing, management remains optimistic about future recovery as fab utilization improves. Inventory levels, though elevated, are viewed as a strategic buffer to support customer needs. Overall, Texas Instruments continues to demonstrate resilience through operational discipline and a strong capital return philosophy.