2004 Annual Report

Tom and Rich
Tom Engibous (left), Chairman of the Board, and
Rich Templeton, President and Chief Executive Officer.
To Our Shareholders

In 2004, Texas Instruments outperformed the semiconductor market with excellent revenue growth. We also significantly improved profitability and enhanced TI’s cash position, even as we spent almost $1 billion for common stock repurchases and dividends paid to shareholders.

We are pleased but not surprised with these results. Communications and entertainment are the new driving forces in technology. People increasingly demand flexibility in how they communicate, use the Internet, take pictures, watch movies and listen to music.

These demands are fully aligned with TI’s core skills. We’ve been investing in digital signal processors (DSP) and analog for many years, and we have augmented these revenue generators with a promising new growth engine in Digital Light Processing
(DLP™) technology. We believe the recent past is just a hint of TI’s full potential.

In December of 2004, we began sampling TI’s single-chip cell-phone product. This chip will help accelerate wireless penetration into new growth markets by enabling low-cost cell phones in places such as China, India and Latin America. Hundreds of millions of people could experience telecommunications for the first time because of this single-chip breakthrough.

For third-generation (3G) cell phones, modem DSPs and OMAP
application processors from TI lead the world in performance and sales volume. Customers are sampling our new OMAP 2 processors to create cell phones with multi-megapixel cameras, digital video recorders, CD-quality audio, three-dimensional gaming and more.

Our DLP technology has become one of the world’s most popular choices for digital imaging in projectors and high-definition televisions. DLP products deliver excellent detail, clarity and reliability at an affordable price. The long-term potential is significant given the early stage of digital TV deployment and DLP technology’s compelling benefits.

For TI’s high-performance analog products, it’s a profitable paradox that the more the world shifts to digital, the more our customers need analog functionality for critical tasks such as data conversion, amplification and power management. In 2004, roughly half of TI’s high-performance analog revenue came from products introduced in the last few years. TI clearly is delivering what customers demand in this promising market.

Of course, there are challenges. 2004 presented a real-world test of TI’s manufacturing strategy, which combines internal and foundry capacity. Early in the year, this strategy helped TI meet surging demand while maintaining disciplined capital spending. Then, when semiconductor inventories built up in the second half of the year, we were able to make quick adjustments that reduced inventory even as we maintained high utilization levels in our most advanced manufacturing facilities.

TI celebrates its 75th anniversary in 2005. We look back with pride on the first commercial production of silicon transistors, the first integrated circuit and many other innovations that helped shape the electronics industry. We look forward with great optimism because our latest innovations are enabling and accelerating the penetration of digital technology into daily life. We are convinced that the best is yet to come.

Thomas J. Engibous Richard K. Templeton
Thomas J. Engibous
Chairman of the Board
Richard K. Templeton
President and
Chief Executive Officer

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