10 June 2024

Just Add Hedge Funds

And you get pressure to never spend money on capital, even in the most tech heavy of industries.

Case in point, Texas Instruments, who is being pressured by hedge fund Elliott Management to eschew building new chip production plants and instead pay out dividends to ……… Wait for it ……… Hedge fund Elliott Management.

You heard that right, given that there are now some pretty significant subsidies for building out chip production under the CHIPS act that they would be walking away from.

The hedge fund doesn't care, they want their money now:

Notorious tech investment firm Elliott Management has penned a letter to Texas Instruments urging the company to change course on its aggressive plan to boost manufacturing capacity.

The $65 billion hedge fund, which has amassed a $2.5 billion stake in Texas Instruments, says in its letter [PDF] that the chipmaker is investing way too much into its 2022 plan to almost triple production capacity by 2030. Elliott Management's core reasoning is that TI is projected to overshoot demand by a significant margin in the coming years: 54 percent in 2026 and 50 percent in 2030, when the plan will be complete.

The expansion has already cost Texas Instruments billions. Its capital expenditure for most of the past 14 years has been a billion dollars or less, representing a single digit percentage of revenue. In 2021 and 2022, capex rose to 13 and 14 percent of revenue respectively, but that's nothing compared to the 29 percent seen in 2023. In 2024, capex is expected to rise further to 32 percent of revenue.


Get out your hankies, because Elliott says the consequences for shareholders have been notable. Free cash flow per share, something that Texas Instruments has historically prided itself on, has decreased by more than 75 percent since 2022. By contrast, free cash flow per share grew at an annual rate of 17 percent from 2006 to 2019, Elliot complains.

Consequently, Texas Instruments has underperformed its competitors in the past few years, the missive continues. Texas Instruments' stock price has risen about 89 percent compared to five years ago, while both Microchip and Analog Devices have both gained about 140 percent in value. This isn't entirely due to the fab expansion plan, Elliott claims, but is still an important factor.


Elliott's recommendation is far less radical than what it has pushed through with other tech companies as of late. Last year, it penned a letter to cell tower firm Crown Castle that called for a brand new slate of executives. It also successfully lobbied for Western Digital to cut itself in two different companies, which is set to happen later this year.

A spokesperson at Texas Instruments sent The Reg a statement: "We received the letter yesterday and are reviewing it. As always, our focus is on continuing to make decisions that are in the best interest of TI and all of our shareholders."

Do you know what you call 1000 hedge fund employees at the bottom of the ocean?

A good start.


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