Texas Instruments (NASDAQ:TXN) continued its steady momentum today with another solid quarterly financial report. The company came through its third quarter  with $3.5 billion in revenue and earnings of $0.76 per share.

Both top- and bottom-line results bested Wall Street's forecasts  of $3.46 billion and $0.71 in EPS, respectively. Looking forward, TI's guidance now calls for revenue to range from $3.13 billion to $3.39 billion, with EPS ranging from $0.64 to $0.74. TI's top-line guidance narrowly bests Wall Street's expectations  for $3.25 billion in revenue for the fourth quarter, but its EPS range easily surpassed the Street's EPS consensus of $0.63. The combination of beating third-quarter expectations and raising fourth-quarter expectations has pushed TI's shares roughly 3% higher in after-hours trading.

But how good was TI's report, all things considered? Let's dig into the details to figure out if this progress is built on sustainable business growth, or if it's the result of some financial sleight of hand.

TI's quarterly revenue was up 7.9% year-over-year, but on a longer timeline it remains at roughly the same level it's been at for years -- this quarter's top line is just 1% higher than TI's revenue for the third quarter of 2011:

Txnrevenueq
Source: Texas Instruments financial statements.

As you can see, TI's revenue has been somewhat erratic over the past few years. On the plus side, things seem to be picking up, as this is now the company's fourth consecutive quarter of top-line growth, which is the first time that's happened in this decade. This has been driven by the company's analog processing segment in recent quarters, as analog processing has been TI's fastest-growing segment for three of the past four quarters, helping to make up the slack for a catch-all "other" segment that's fallen hard since TI decided to end its foray into wireless processors:

Txnsegmentrevenueq
Source: Texas Instruments financial statements.

Analog processing has made up more than 60% of TI's revenue for each of the past four quarters, which is an impressive feat considering the fact that it accounted for roughly 45% all revenue three years ago. TI's embedded-processing segment, in which most of TI's Internet of Things initiatives are likely to be focused, has also picked up some of the slack left behind by the company's exit from wireless, but it's yet to get the real juice from this explosive opportunity -- embedded processing revenue is up by 32% from the third quarter of 2011 to the current quarter, compared to 38% growth in analog processing.

However, investors should also be aware of two potentially worrisome trends: TI's R&D spending continues to fall, and it remains committed to delivering as much of its free cash flow to shareholders as possible, to the point where it's actually been returning more to shareholders than it's earned in free cash flow. Let's take a look at the R&D issue first:

Txnrndvnetmarginq
Source: Texas Instruments financial statements.

As you can see, TI's bottom line is looking stronger than ever, but may be spending less on R&D than ever to get there. A low level of R&D spending can be dangerous in the highly competitive chip-making industry, and as I've highlighted before, TI is already spending less on R&D than virtually any of its competitors. A reduced commitment to developing new and better chips might give TI a financial edge today while risking its lead in analog chips and elsewhere tomorrow. TI's management doesn't seem to think this is a problem, because with few quarterly exceptions, the company continues to plow more money back to shareholders than it's actually retaining in the form of free cash flow:

Txnfcfreturnsq
Source: Texas Instruments financial statements.

Every investor appreciates a solid stream of dividends, and share buybacks -- the lion's share of TI's cash-return strategy over the past few years -- can also help push up share prices. But when these strategies wind up costing a company more than it makes, it can be problematic, particularly when that company may be risking its edge by diminishing its R&D. Investors will no doubt enjoy today's beat and the upgrade to next quarter's guidance, but it's important to keep these issues in mind going forward, particularly if the semiconductor industry is about to enter a period of weakness, as some industry insiders have recently cautioned.

Alex Planes holds no financial position in any company mentioned here. Follow him on Twitter @TMFBiggles for more insight into investing, markets, economic history, and cutting-edge technology.

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