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2009 Annual Meeting of Stockholders
Remarks by
Rich Templeton
Chairman, President and CEO
Texas Instruments Incorporated
While the votes are being tabulated, I will talk about the company's directions and the opportunities that we see in front of us.
I'd like to focus strategic comments today really in three areas.
- I'd like to speak a little bit about progress in 2008 towards our strategic objectives and the results that we achieved.
- I'd like to spend a couple of minutes about the economy that we face, its impact that it's having on TI and what we're doing about it.
- And then I'd like to take just a couple of minutes to wrap up to give our shareholders and our employees a sense of the values and behaviors that we have and the trust that we have in the way the company is being led and the decisions are being made.
Now I have a feeling 10 years from now, when anybody in this audience thinks about the year 2008, it is probably going to be remembered as the year that the economy took a very steep and very sudden downturn.
I think for those that have worked inside of TI and are very close to things during 2008, you will in fact recognize it as a year that we accelerated our progress toward a company based on Analog and Embedded Processing.
We were not insulated from the slowdown of the economy. We saw our calendar year '08 revenue drop by 10 percent. We saw earnings per share drop by 20 percent. We are very focused in terms of where we are driving the company. Very specifically, we are prioritizing our resources to focus in the markets of Analog and Embedded Processing. These markets have great growth opportunity and also tremendous financial capability. Both markets are large – $36 billion and $16 billion, respectively. They both have proven histories in terms of growth and the ability to generate very strong profitability and cash flow.
It is also important that we are starting with strong positions inside of both of these markets, but equally important we have ample opportunity to grow as we go forward. Maybe most importantly is if you look around the world at every company that designs an electronic-based product, we have an opportunity with Analog and Embedded Processing to sell them something, to work closely with them, and to help solve some of their most important problems.
During 2008, we also significantly increased the focus in our fastest growing markets and our opportunities. From a geographic perspective we continued to invest significantly in markets from China, to India, to Eastern Europe, and in Southeast Asia. In 2008, we added 10 new offices into these geographies. We also increased our investments in new markets where Analog and Embedded Processing chips hold the greatest promise to revolutionize truly important industries such as healthcare, or improving energy efficiency, or actually making the world safer for us everywhere. Products like portable ultrasounds; products like smart utility metering going into smart grid; products like a capsule-sized camera that can be swallowed for medical diagnostics; or today you are starting to see lane-changing warning systems to alert the driver that they are changing lanes and could have a safety issue.
To support these opportunities and foster new businesses, we also opened Kilby Labs in commemoration of Jack Kilby's invention of the integrated circuit here at TI in September of 1958. Kilby Labs will be a place where researchers can dream big, experiment quickly and determine the viability of their idea. We have five teams in place today over in Kilby Labs.
Perhaps no decision in 2008 was more important and may be in some ways more visible than the changes that we made in our Wireless business. Wireless has been a significant driver of our success for the past 15 years, but we recognize it as a changing market.
The world today has now got over 4 billion subscribers using cell phones. Think of that number – almost two-thirds of the planet are now using cell phones. Literally, everyone that needs a phone, we're getting very close to them having a phone. So in 2008, we made the decision to accelerate the reduction of resource from modem chips that are becoming commoditized as that market slows and increasing our focus on a type of chip called an application processor. It is targeted at the fastest growing segment inside of the cell phone industry known as smartphones. We have a leading position in that business today with a family that we call OMAP™. And we recently introduced the fourth generation of that family – we're very creative – OMAP4 – at the Barcelona show in February.
I've been at TI for almost 30 years now, and one thing that I've learned during that time is it is hard, but it is enormously rewarding, to change positions and to have the courage to move into markets that present better opportunity. In fact, I suspect it is difficult to find anybody today that would view our decision over 10 years ago to get out of the Memory business and to focus on DSP and Analog, as anything but a tremendous choice. However, if you go back to that time when that decision was made that transition isn't easy and in fact, the view was not always unanimous.
When we look at Analog and Embedded Processing, we are looking at the best opportunities in the semiconductor industry. And we are fully focused on the strategy and the execution side of becoming even stronger inside of those markets. It will not be an easy transition, but 2008 was a pivotal year as we accelerated our move in that direction. And it will be rewarding.
Now as we were busy during 2008 making these changes that I just referred to, we encountered what I believe that history books will show as one of the most significant economic downturn that now dominates our headlines and dominates news shows throughout the globe, and has since last fall.
I do not believe with all the great economists in this world that we have any that can tell us specifically how deep this will go, nor how long this will last. Nor do I believe they can tell us how many false starts we may encounter as we're in this current environment.
One of the great things we have here at TI is we have experience in dealing with downturns. And while we can snicker a little bit about that, that experience is serving us well.
We saw this coming on. We chose to act early. We chose to act aggressively. Because we have learned from dealing with downturns in the past, that the sooner you can get everybody back focused on customers, and focused on the market, and focused on execution, you end up winning. Downturns are a tremendous time to gain ground in the industry, and we are busy doing that right now. It is also a time that you can accelerate change – so the vision of moving more aggressively towards Analog and Embedding Processing is something that we will use this downturn to accelerate the movement of our resources to where our growth will be.
In January, we announced restructuring actions that when combined with the Wireless change that we announced in October, will reduce our costs by about $700 million per year when fully in effect. These actions, which unfortunately involved layoffs, are difficult because in the end they end up impacting very real people and very real communities. They are not just co-workers but they turn out to be friends as well.
I compliment our team for how they've handled things over the last three or four months. We've handled the transitions and the changes thoughtfully and professionally, and it's never easy. However, our objective in making these changes was not just to lower costs. Our objective, in fact, was to put more resource into the areas that will grow. So it means more resource into Analog and Embedding Processing, it means more resource into these key geographies that I spoke of that will have the best growth over the next 20 years. And even inside our sales network to be moving our resources to customers that have the greatest promise to grow.
The severity of the downturn of 2009 – late 2008 – will prevent us from growing revenue in 2009. That much is clear when you look at the slope and the absolute dollars. But what's important to understand about a downturn is they happen to every competitor and every company in the marketplace. They didn't single TI out. As a result our focus can be, and is, to gain share and to be leaving 2009 with momentum on our side and having better promises as we go into '10 and beyond.
Now lastly, I want to talk about things I think that many of us have read in the news, and seen in newspapers, and the headlines are nothing short of dramatic – that's probably the best way to put it – ranging from bank and auto company bailouts, to CEO compensation, to excessive debt and risk, to stock option exchanges and even some of the very emotional rage that we've seen surrounding bonus payouts most recently. I think these issues bring people – everyone – to question the fundamental core values of the business leaders in the world today.
What I want to do in these brief few minutes is to simply assure our employees, our stockholders and those who live in the communities in which we operate, that you can be confident in the core values and beliefs by which this company is run. A very simple, but very broad statement. These values, these behaviors, are a fundamental part of Texas Instruments in the good times and in the bad times. We believe that they are part of delivering shareholder performance, not in lieu of.
This statement is not a slogan, but very real examples of how we do things and decide on a daily basis. When our market share is down, as it was in 2008, we're going to say it clearly, as we did. And compensation will be down, and most significantly cash compensation will be down. And the CEO will be at the top of the list in terms of the decline because pay has to be connected to performance.
When much of our employee equity compensation is "under water" due to the significant reductions in the stock market today, we believe in treating equity equally. That means that our employees, including executives, get the same deal that our investors get – no mulligans, there's no stock option exchanges. It's all treated equally.
When economies turn down, we will act responsibility for both the short-term and long-term benefit of shareholders. We saw that downturn in January, and when it requires layoffs, we will handle them thoughtfully and professionally when it comes to both severance and transition. And we will be transparent with the outside world in dealing with it.
When companies found it fashionable to over-leverage on debt, you will find TI debt free today. We make strategic choices that generate cash. And we prioritize the use of your cash, first for growth and then for thoughtful use of that excess cash by both dividends and stock buybacks.
When we say that improving the education system in the United States is important, when we say that we value and we invest to make our communities stronger, yes, it applies in the good times, but it is going to matter more in the bad times. And we're in those.
You will see TI involvement in areas like the United Way or the work that we do through the TI Foundation aimed at our communities with a commitment to build their communities stronger at all times.
When we say that innovation is at the heart of what we do, because we are a lot of engineers at heart, it doesn't mean just spending and investing on innovation in the good times. So you saw Kilby Labs opened up in the midst of the worst downturn in the economy - because innovation doesn't operate on the economic cycle timelines.
And finally, when people look into Board rooms to see the tone set at the top, I believe if you look inside and see the TI Board in action, you will see a group very capable, very thoughtful, very independent when it comes to their dealings with management. Unafraid to ask the tough questions. In control of the agenda and working on behalf of shareholders to generate the long-term results that shareholders desire.
As Chairman of the TI Board, I encourage it. As CEO, I am accountable to the Board and I am motivated to perform for them.
In closing, I can also report that you have got a great team of people inside TI working to execute on the strategy of growing our Analog and Embedded Processing position. We're focused on customers, we're focused on driving growth, and we're focused on producing long-term shareholder returns.
And I want to thank TIers throughout the world for everything they've done throughout 2008, and for everything they've done throughout a very tough first-quarter 2009. It's an impressive group and I am truly honored to be part of that team.
I want to thank everyone else joining us today here in the cafeteria and those joining on the webcast, for taking your time and supporting us. And I want to thank our shareholders for supporting us and investing with trust in us.
We'll now open the floor for questions.
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