- 1Q Revenue down 6% Sequentially and about Even with Year Ago
- Operating Profit Expands
- Inventories Remain at Reduced 4Q04 Level
- EPS of $0.24
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Financials in MS Excel Format (48KB)
DALLAS (April 18, 2005) – Texas Instruments Incorporated (TI) (NYSE:
TXN) today reported revenue for the first quarter of 2005 of $2972 million,
about even with the year-ago period. Sequentially, revenue decreased 6
percent as gains in the company’s Sensors & Controls and Educational
& Productivity Solutions (E&PS) businesses were more than offset
by an expected decline in Semiconductor.
Sequentially, TI’s gross and operating profit margins increased
despite the decline in revenue. TI’s gross profit margin expanded
2.6 percentage points to 44.9 percent of revenue, and TI’s operating
margin increased 1.3 percentage points to 16.7 percent of revenue.
TI inventories declined slightly from the fourth quarter, a period
in which they were significantly reduced by $100 million. Having adjusted
inventories to desired levels during the fourth quarter, TI increased
production in its Semiconductor factories in the first quarter to realign
factory output with its shipments.
Earnings per share (EPS) were $0.24 in the first quarter.
“TI started 2005 with stronger profit performance despite a slower
semiconductor market environment. Higher utilization of the company’s
owned factories as well as lower manufacturing and operating expenses
were largely responsible for improved profitability in a quarter where
revenue declined sequentially,” said Rich Templeton, president and
chief executive officer.
“The market environment is improving. We believe the inventory
correction in TI’s standard semiconductor products at distributors
that began in the third quarter of 2004 is complete, as demonstrated
by sequential growth in revenue and orders for these products. We expect
that the inventory correction associated with our DLP™ products
used in high-definition televisions and projectors will continue into
the second quarter, although the rate of reductions should subside,”
he said.
“While the overall environment for cell phones will likely support
a lower growth rate than last year, we continue to have high expectations
for our wireless operations in 2005. In the first quarter, TI’s
wireless revenue grew 15 percent from a year ago and declined 14 percent
sequentially following a strong fourth quarter. Recent market reports
have confirmed that TI is the world’s top provider of semiconductors
used in the wireless market, and we expect to gain additional share
this year in the fast-growing market for 3G UMTS modems based on the
strength of our digital signal processors,” he said.
“TI aggressively repurchased its common stock during the quarter,
and we are now more than halfway through the $3 billion of repurchase
plans announced in September and January. We remain committed to returning
value to our shareholders,” he said.
Gross Profit
In the first quarter, TI’s gross profit of $1336 million, or 44.9
percent of revenue, was about even sequentially. Compared with a year
ago, gross profit increased $14 million primarily due to higher gross
profit in E&PS and a gain on the sale of assets associated with
the company’s commodity liquid crystal display (LCD) driver product
line.
Operating Expenses
Research and development (R&D) expense of $495 million, or 16.6
percent of revenue, increased $8 million sequentially due to higher
Semiconductor product development expenses and was about even with a
year ago.
Selling, general and administrative (SG&A) expense of $344 million,
or 11.6 percent of revenue, decreased $19 million sequentially and $10
million from a year ago due to the combination of a gain recognized
on the disposition of a sales facility and lower expenses.
Operating Profit
Operating profit of $497 million, or 16.7 percent of revenue, increased
$13 million sequentially and $23 million from a year ago due to the
combination of lower SG&A expenses and higher gross profit.
Other Income (Expense) Net (OI&E)
OI&E of $48 million decreased $38 million sequentially primarily
due to the impact in the previous quarter of a partial settlement of
matters related to grants from the Italian government regarding TI’s
former memory business operations and the resolution of an open sales-tax
item associated with the company’s previously divested defense
electronics business. OI&E decreased $2 million from a year ago.
Net Income
Net income was $411 million, or $0.24 per share.
The effective tax rate for the first quarter was 24 percent, as expected,
compared with the previous quarter’s 14 percent tax rate that
included a cumulative catch-up reduction in tax expense. The effective
tax rate in the year-ago quarter was 29 percent.
Orders
TI orders of $3028 million increased $84 million sequentially primarily
due to seasonally higher demand for E&PS graphing calculators as
well as higher demand for Sensors & Controls products. Compared
with a year ago, TI orders decreased $203 million due to lower demand
for Semiconductor products.
Cash
At the end of the first quarter, total cash (cash and cash equivalents
plus short-term investments and long-term cash investments) was $5140
million, a decrease of $1218 million from the end of the previous quarter
and a decrease of $353 million from the end of the year-ago period.
During the quarter, the company used $1493 million in cash to repurchase
58 million shares of TI common stock.
Cash flow from operations in the first quarter of $523 million decreased
$782 million sequentially primarily due to a significant reduction in
accounts receivable in the fourth quarter that was not repeated in the
first quarter and payment of employee profit sharing in the first quarter
for 2004 performance.
Capital Spending and Depreciation
Capital expenditures in the first quarter of $277 million increased
by $66 million sequentially and decreased by $124 million from a year
ago. TI’s capital expenditures in the first quarter were primarily
for equipment used for 65- and 90-nanometer wafer fabrication, and assembly
and test operations.
Depreciation in the first quarter of $347 million decreased $43 million
sequentially and $1 million from a year ago.
Accounts Receivable and Inventories
Accounts receivable at the end of the first quarter of $1696 million
were the same as at the end of the previous quarter. Accounts receivable
increased $18 million from the end of the year-ago quarter due to higher
sales. Days sales outstanding were 51 at the end of the first quarter
compared with 48 at the end of the previous quarter and 51 at the end
of the year-ago quarter.
Inventories of $1245 million at the end of the first quarter declined
$11 million from the end of the previous quarter. Compared with the
end of the year-ago quarter, inventories increased $97 million due to
inventories the company built in the first three quarters of 2004 to
increase its ability to quickly deliver products to customers. Days
of inventory at the end of the first quarter were 69, up from 62 days
at the end of the previous quarter and 64 days at the end of the year-ago
period.
Outlook
TI intends to provide a mid-quarter update to its financial outlook
on June 7, 2005, by issuing a press release and holding a conference
call. Both will be available on the company’s web site.
For the second quarter of 2005, TI expects revenue to be in the following
ranges:
-
Total TI, $3000 million to $3240 million;
-
Semiconductor, $2550 million to $2750 million;
-
Sensors & Controls, $290 million to $310 million; and
-
E&PS, $160 million to $180 million.
TI expects EPS to be in the range of $0.25 to $0.29.
This outlook comprehends the sale of the company’s commodity
LCD driver product line, which was completed effective March 18, 2005.
Revenue from this product line was about $200 million in 2004 and was
$39 million for the abbreviated period during the first quarter of 2005
in which it was owned by TI.
For 2005, TI continues to expect: R&D to be about $2.1 billion,
capital expenditures to be about $1.3 billion and depreciation to be
about $1.4 billion. The effective tax rate for the year is expected
to be about 24 percent, unchanged from the prior estimate. This tax
rate does not include any impact related to the expensing of stock options
under the Financial Accounting Standards Board’s Statement 123(R),
which the company expects to implement beginning in the third quarter
of 2005. In addition, this outlook does not reflect the impact of any
potential repatriation of cash under the American Jobs Creation Act.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(In millions, except per-share amounts)
For Three Months Ended
Mar. 31 Dec. 31 Mar. 31
2005 2004 2004
Net revenue $2972 $3153 $2936
Operating costs and expenses:
Cost of revenue 1636 1819 1614
Gross profit 1336 1334 1322
Gross profit % of revenue 44.9% 42.3% 45.0%
Research and development (R&D) 495 487 494
R&D % of revenue 16.6% 15.5% 16.8%
Selling, general and
administrative (SG&A) 344 363 354
SG&A % of revenue 11.6% 11.5% 12.0%
Total 2475 2669 2462
Profit from operations 497 484 474
Operating profit % of revenue 16.7% 15.4% 16.2%
Other income (expense) net 48 86 50
Interest on loans 2 2 8
Income before income taxes 543 568 516
Provision for income taxes 132 78 149
Net income $ 411 $ 490 $ 367
Basic earnings per common share $ .24 $ .28 $ .21
Diluted earnings per common share $ .24 $ .28 $ .21
Average shares outstanding, basic 1701 1725 1733
Average shares outstanding, diluted 1735 1759 1784
Cash dividends declared per share of
common stock $.025 $.025 $.021
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions of dollars)
Mar. 31 Dec. 31 Mar. 31
2005 2004 2004
Assets
Current assets:
Cash and cash equivalents $ 1856 $ 2668 $ 1615
Short-term investments 3284 3690 2522
Accounts receivable, net of allowances
for customer adjustments and doubtful
accounts of $42 million at
March 31, 2005, $41 million at
December 31, 2004, and $44 million at
March 31, 2004 1696 1696 1678
Inventories:
Raw materials 113 117 126
Work in process 756 756 692
Finished goods 376 383 330
Inventories 1245 1256 1148
Deferred income taxes 577 554 490
Prepaid expenses and other current
assets 413 326 545
Total current assets 9071 10190 7998
Property, plant and equipment at cost 9409 9573 9738
Less accumulated depreciation (5564) (5655) (5550)
Property, plant and equipment, net 3845 3918 4188
Long-term cash investments --- --- 1356
Equity and debt investments 260 264 260
Goodwill 701 701 693
Acquisition-related intangibles 98 111 154
Deferred income taxes 457 449 524
Capitalized software licenses, net 292 307 332
Prepaid retirement costs 259 277 178
Other assets 62 82 102
Total assets $15045 $16299 $15785
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion
long-term debt $ 318 $ 11 $ 435
Accounts payable and accrued expenses 1573 1444 1553
Income taxes payable 262 203 210
Profit sharing contributions and
accrued retirement 40 267 82
Total current liabilities 2193 1925 2280
Long-term debt 55 368 394
Accrued retirement costs 564 589 620
Deferred income taxes 40 40 57
Deferred credits and other liabilities 289 314 349
Stockholders' equity:
Preferred stock, $25 par value.
Authorized -- 10,000,000 shares.
Participating cumulative preferred.
None issued. --- --- ---
Common stock, $1 par value.
Authorized -- 2,400,000,000 shares.
Shares issued; March 31, 2005 --
1,738,491,029; December 31, 2004 --
1,738,156,615; March 31, 2004 --
1,738,115,567 1738 1738 1738
Paid-in capital 679 750 859
Retained earnings 11610 11242 9865
Less treasury common stock at cost:
Shares: March 31, 2005 -- 76,326,181;
December 31, 2004 -- 20,041,497;
March 31, 2004 -- 7,012,862 (1929) (480) (200)
Accumulated other comprehensive
income (loss):
Minimum pension liability (167) (168) (162)
Unrealized holding gains (losses)
on investments (24) (15) (2)
Deferred compensation (3) (4) (13)
Total stockholders' equity 11904 13063 12085
Total liabilities and stockholders'
equity $15045 $16299 $15785
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Statements of Cash Flows
(In millions of dollars)
For Three Months Ended
Mar. 31 Dec. 31 Mar. 31
2005 2004 2004
Cash flows from operating activities:
Net income $ 411 $ 490 $ 367
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation 347 390 348
Amortization of acquisition-related
costs 15 16 19
Write-downs of equity investments 3 2 5
Gains on sales of equity and debt
investments --- --- (7)
Gains on sales of assets (25) --- ---
Deferred income taxes (37) (41) (17)
(Increase) decrease:
Accounts receivable (14) 280 (227)
Inventories 3 100 (164)
Prepaid expenses and other current
assets (90) 225 (97)
Accounts payable and accrued expenses 33 (116) 58
Income taxes payable 72 63 105
Accrued profit sharing and
retirement (226) 44 65
Noncurrent accrued retirement costs 5 (168) (64)
Other 26 20 2
Net cash provided by operating activities 523 1305 393
Cash flows from investing activities:
Additions to property, plant and
equipment (277) (211) (401)
Sales of assets 42 --- ---
Purchases of cash investments (818) (652) (989)
Sales and maturities of cash
investments 1204 894 954
Purchases of equity investments (2) (6) (2)
Sales of equity and debt investments --- 1 11
Acquisition of businesses, net of
cash acquired --- (8) ---
Net cash provided by (used in) investing
activities 149 18 (427)
Cash flows from financing activities:
Payments on loans payable --- --- (1)
Dividends paid on common stock (43) (44) (37)
Sales and other common stock
transactions 57 75 42
Common stock repurchase program (1493) (370) (172)
Net cash used in financing activities (1479) (339) (168)
Effect of exchange rate changes on cash (5) 10 (1)
Net increase (decrease) in cash and
cash equivalents (812) 994 (203)
Cash and cash equivalents at beginning
of period 2668 1674 1818
Cash and cash equivalents at
end of period $1856 $2668 $1615
Business Segment Net Revenue
(In millions of dollars)
For Three Months Ended
Mar. 31 Dec. 31 Mar. 31
2005 2004 2004
Semiconductor
Trade $2595 $2797 $2573
Intersegment 2 1 1
2597 2798 2574
Sensors & Controls
Trade 295 276 283
Intersegment 1 1 1
296 277 284
Education Technology
Trade 82 80 79
Corporate activities (3) (2) (1)
Total net revenue $2972 $3153 $2936
Business Segment Profit (Loss)
(In millions of dollars)
For Three Months Ended
Mar. 31 Dec. 31 Mar. 31
2005 2004 2004
Semiconductor $460 $478 $465
Sensors & Controls 69 62 75
Education Technology 20 16 9
Corporate activities (55) (53) (51)
Charges/gains and acquisition-related
amortization 3 (19) (24)
Profit from operations $497 $484 $474
Semiconductor
- Semiconductor revenue of $2597 million decreased $201 million sequentially
primarily due to a decline in wireless revenue as well as lower DLP
product revenue. Compared with a year ago, revenue was about even as
gains in wireless were offset by declines in most other product areas.
- Gross profit was $1189 million, or 45.8 percent of revenue. Gross
profit declined $17 million sequentially as a combination of cost reductions
and higher utilization of Semiconductor’s manufacturing assets
mostly offset the impact of lower revenue. Compared with a year ago,
gross profit was about even as cost reductions and the impact of higher
shipments offset the effect of lower factory utilization.
- Operating profit was $460 million, or 17.7 percent of revenue, down
$18 million sequentially due to lower gross profit. Compared with a
year ago, operating profit was about the same.
- Analog revenue decreased 3 percent sequentially primarily due to
lower demand from wireless customers. Compared with a year ago, analog
revenue decreased 8 percent due to broad-based declines in demand. High-performance
analog revenue increased 5 percent sequentially and declined 2 percent
from a year ago.
- DSP revenue decreased 12 percent sequentially and grew 16 percent
compared with a year ago due to demand from wireless customers.
- TI’s remaining Semiconductor revenue decreased 6 percent sequentially
due to reductions of excess inventory at TI’s DLP product customers
and their distribution channels, which more than offset growth in revenue
from commodity standard logic products, microcontrollers and RISC microprocessors.
This revenue declined 4 percent compared with a year ago due to lower
DLP product and commodity standard logic revenue, which more than offset
growth in microcontrollers and RISC microprocessors.
- Semiconductor orders of $2567 million were about even sequentially
as lower demand for wireless and DLP products offset gains in most other
areas. Compared with a year ago, orders decreased 9 percent as growth
in demand for wireless products was more than offset by declines in
most other product areas.
1Q Semiconductor Highlights
- Samsung Electronics selected TI's OMAP™ digital imaging processor
technology for four new camera phone models, including the world's first
camera phone with a hard-disk drive.
- Kodak selected TI’s digital media processing technology for
the Kodak EasyShare-One digital camera, which can store up to 1,500
pictures and offers in-camera editing, wireless e-mailing and picture
printing without using a computer.
- Siemens Communications Group chose TI's 1-GHz DSP for a new mobile
media gateway that delivers a 4x increase in channel density per card
and targets 2G, 2.5G and 3G infrastructure deployments.
- Vonage®, the leading broadband telephony provider, selected TI
as its preferred supplier for VoIP (Voice over Internet Protocol) silicon
and software.
- TI announced its new line of Fusion Digital Power™ solutions,
which combine the company’s expertise in DSP and high-performance
analog to bring digital capabilities to the traditionally analog power-management
function.
- TI began sampling the industry’s first wireless digital baseband
processor developed on the company’s advanced 65-nanometer manufacturing
process.
Sensors & Controls
- Sensors & Controls revenue was a quarterly record of $296 million,
up $19 million sequentially and $12 million from a year ago due to higher
shipments of sensor products.
- Gross profit was $106 million, or 35.8 percent of revenue, up $7 million
sequentially primarily due to higher revenue. Compared with a year ago,
gross profit decreased $4 million due to price reductions, primarily
for automotive sensor products.
- Operating profit was $69 million, or 23.2 percent of revenue, up
$7 million sequentially and down $6 million from a year ago primarily
due to gross profit.
Educational & Productivity Solutions (E&PS)
- E&PS revenue was $82 million, up $2 million from the prior quarter
and $3 million from a year ago.
- Gross profit was $44 million, or 54.2 percent of revenue, up $2 million
sequentially due to higher revenue, and $7 million from a year ago due
to lower manufacturing costs.
- Operating profit was $20 million, or 24.1 percent of revenue, up
$4 million sequentially due to the combination of higher gross profit
and lower SG&A expenses. Compared with a year ago, operating profit
increased $11 million primarily due to higher gross profit.
###
“Safe Harbor” Statement under the Private Securities Litigation
Reform Act of 1995: This release includes forward-looking statements intended
to qualify for the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
generally can be identified by phrases such as TI or its management “believes,”
“expects,” “anticipates,” “foresees,”
“forecasts,” “estimates” or other words or phrases
of similar import. Similarly, statements in this release that describe
the company’s business strategy, outlook, objectives, plans, intentions
or goals also are forward-looking statements. All such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those in forward-looking statements.
We urge you to carefully consider the following important factors that
could cause actual results to differ materially from the expectations
of the Company or its management:
- Market demand for semiconductors, particularly for analog chips and
digital signal processors in key markets such as telecommunications
and computers;
- TI’s ability to maintain or improve profit margins, including
its ability to utilize its manufacturing facilities at sufficient levels
to cover its fixed operating costs, in an intensely competitive and
cyclical industry;
- TI’s ability to develop, manufacture and market innovative products
in a rapidly changing technological environment;
- TI’s ability to compete in products and prices in an intensely
competitive industry;
- TI’s ability to maintain and enforce a strong intellectual property
portfolio and obtain needed licenses from third parties;
- Consolidation of TI’s patent licensees and market conditions
reducing royalty payments to TI;
- Economic, social and political conditions in the countries in which
TI, its customers or its suppliers operate, including security risks,
health conditions, possible disruptions in transportation networks and
fluctuations in foreign currency exchange rates;
- Natural events such as severe weather and earthquakes in the locations
in which TI, its customers or suppliers operate;
- Availability and cost of raw materials and critical manufacturing
equipment;
- Changes in the tax rate applicable to TI as the result of changes
in tax law, the jurisdictions in which profits are determined to be
earned and taxed, the outcome of tax audits and the ability to realize
deferred tax assets;
- Changes in the accounting treatment of stock options and other share-based
compensation;
- Losses or curtailments of purchases from key customers and the timing
and amount of distributor and other customer inventory adjustments;
- Customer demand that differs from company forecasts;
- The financial impact of inadequate or excess TI inventories to meet
demand that differs from projections;
- Product liability or warranty claims, or recalls by TI customers for
a product containing a TI part;
- TI’s ability to recruit and retain skilled personnel; and
- Timely implementation of new manufacturing technologies, installation
of manufacturing equipment and the ability to obtain needed third-party
foundry and assembly/test subcontract services.
For a more detailed discussion of these factors, see the text under the
heading “Cautionary Statements Regarding Future Results of Operations”
in Item 1 of the Company’s most recent Form 10-K. The forward-looking
statements included in this release are made only as of the date of publication,
and the Company undertakes no obligation to update the forward-looking
statements to reflect subsequent events or circumstances.
Texas Instruments Incorporated provides innovative DSP and analog technologies
to meet our customers’ real world signal processing requirements.
In addition to Semiconductor, the company’s businesses include Sensors
& Controls and Education Technology. TI is headquartered in Dallas,
Texas, and has manufacturing, design or sales operations in more than
25 countries.
Texas Instruments is traded on the New York Stock Exchange under the
symbol TXN. More information is located on the World Wide Web at www.ti.com.
TI Trademarks:
OMAP
DLP
Fusion Digital Power
Other trademarks are the property of their respective owners.
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