- TI Revenue Down 8% Sequentially and 4% from Year Ago
- EPS of $0.35
- Revenue Growth Expected to Resume in 2Q07
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Financials in MS Excel Format (57KB)
Except as noted, financial results are for continuing operations.
The sale of TI’s former Sensors & Controls business was completed
on April 27, 2006, and that business is reported as a discontinued operation.
DALLAS (April 23, 2007) – Texas Instruments Incorporated (TI)
(NYSE: TXN) today reported revenue of $3.19 billion for the first quarter
of 2007. Revenue declined 8 percent compared with the prior quarter
and 4 percent compared with the year-ago quarter. Revenue was impacted
by an inventory correction in the semiconductor market.
Earnings per share (EPS) from continuing operations were $0.35, a decline
of $0.10 from the prior quarter. The fourth quarter of 2006 included
a benefit of $0.05 from the reinstatement of the federal research tax
credit and a benefit of $0.01 from catch-up payments associated with
new patent license agreements.
“We believe the inventory correction that began in the second
half of last year largely ended in the first quarter,” said Rich
Templeton, TI president and CEO. “Orders are beginning to rebound,
and we expect sequential growth to resume in the second quarter.
“TI’s performance in the first quarter was confirmation
of fundamental and sustainable long-term changes we have made in the
company. Even with an 8 percent decline in sequential revenue, gross
margin remained above 50 percent and operating margin remained above
20 percent. TI performed considerably better than in prior troughs because
of a more resilient manufacturing strategy and a stronger portfolio
of analog products.
“Analog will continue to play an increasing role in our company.
Even though we are the world’s leading supplier, our share is low
in this large but fragmented market. The opportunity for share gains combined
with the attractive financial characteristics of the analog market is
appealing. This represents a unique opportunity, especially alongside
our strong position in DSP, which provides early entry into important
new markets. We continue to keep customers at the core of our strategy,
recognizing that we are successful only to the extent we help make them
successful,” Templeton said.
Gross Profit
Gross profit was $1.64 billion, or 51.3 percent of revenue. This was down
$111 million from the prior quarter and down $35 million from the year-ago
quarter due to lower revenue.
Operating Expenses
Research and development (R&D) expense was $552 million. Despite seasonally
higher pay and benefits, this was about even with the prior quarter due
to cost-saving actions. R&D expense increased $19 million from the
year-ago quarter due to higher product development costs in the company’s
Semiconductor segment.
Selling, general and administrative (SG&A) expense was $405 million.
This was a decrease of 5 percent from the prior quarter due to lower marketing
expense, including seasonally lower advertising. SG&A expense declined
$16 million from the year-ago quarter due to cost-saving actions.
Operating Profit
Operating profit was $680 million, or 21.3 percent of revenue. This was
a decrease of $87 million from the prior quarter and $38 million from
the year-ago quarter primarily due to lower gross profit in the company’s
Semiconductor segment. Included in Corporate were stock-based compensation
expense of $78 million, or 2.4 percent of revenue, and restructuring expense
of $14 million, including $9 million in cost of revenue and $5 million
in R&D.
Other Income (Expense) Net (OI&E)
OI&E was $40 million. This was a decrease of $30 million from the
prior quarter, which included a favorable settlement of all remaining
matters related to grants from the Italian government regarding TI’s
former memory operations. OI&E declined $12 million from the year-ago
quarter.
Net Income
Net income was $516 million, or $0.35 per share.
Orders
TI orders were $3.20 billion. This was an increase of $128 million from
the prior quarter due to higher demand for products in both of the company’s
segments – Semiconductor and Education Technology. Orders declined
$399 million from the year-ago quarter due to lower demand in both segments.
Cash
Cash flow from operations was $554 million. This was a decrease of $292
million from the prior quarter due to increased cash needed to meet working
capital requirements, such as payment of profit sharing and bonus related
to 2006 performance, as well as lower net income. Total cash (cash and
cash equivalents plus short-term investments) was $3.34 billion at the
end of the first quarter. This was a decrease of $381 million from the
end of the prior quarter and a decrease of $328 million from the year-ago
quarter. In the first quarter, the company used $857 million to repurchase
28 million shares of common stock and paid $58 million in dividends.
Capital Spending and Depreciation
Capital expenditures were $179 million. This was a decrease of $35 million
from the prior quarter and a decrease of $229 million from the year-ago
quarter due to lower expenditures for semiconductor manufacturing equipment.
TI’s capital expenditures in the quarter were primarily for equipment
used in the assembly and test of semiconductors, and wafer fabrication
equipment used to manufacture analog semiconductors.
Depreciation was $252 million. This was about even with the prior quarter
and a decrease of $18 million from the year-ago quarter.
Accounts Receivable and Inventories
Accounts receivable were $1.76 billion at the end of the first quarter.
This was about even with the prior quarter, and a decrease of $42 million
from the year-ago quarter primarily due to lower revenue. Days sales outstanding
were 50 at the end of the first quarter compared with 46 at the end of
the prior quarter and 49 at the end of the year-ago quarter.
Inventory was $1.41 billion at the end of the first quarter. This was
a decrease of $28 million from the prior quarter as the company reduced
inventory, especially DSP products used in wireless applications, in response
to lower demand. This was partially offset by planned replenishment of
long-lived, high-performance analog product inventory. Compared with a
year ago, inventory increased $163 million primarily due to replenishment
of high-performance analog product inventory from less-than-desirable
levels a year ago. Days of inventory at the end of the first quarter were
82 compared with 75 at the end of the prior quarter and 67 a year ago,
as inventory decreased at a slower rate than cost of revenue.
Outlook
TI intends to provide a mid-quarter update to its financial outlook on
June 11, 2007, 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 2007, TI expects revenue to be in the following
ranges:
-
Total TI, $3.32 billion to $3.60 billion;
-
Semiconductor, $3.14 billion to $3.40 billion; and
-
Education Technology, $180 million to $200 million.
TI expects earnings per share to be in the range of $0.39 to $0.45.
In 2007, TI still expects: an annual effective tax rate of about 28 percent,
capital expenditures of about $0.9 billion and depreciation of about $1.0
billion. TI now expects R&D expense of about $2.2 billion, down from
the prior expectation of about $2.3 billion.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of dollars, except share and per-share amounts)
For Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2007 2006 2006
Net revenue $ 3,191 $ 3,463 $ 3,334
Cost of revenue (COR) 1,554 1,715 1,662
Gross profit 1,637 1,748 1,672
Research and development (R&D) 552 556 533
Selling, general and
administrative (SG&A) 405 425 421
Total operating costs and
expenses 2,511 2,696 2,616
Profit from operations 680 767 718
Other income (expense) net 40 70 52
Interest expense on loans 1 1 3
Income from continuing
operations before income taxes 719 836 767
Provision for income taxes 203 165 225
Income from continuing operations 516 671 542
Income (loss) from discontinued
operations, net of income taxes -- (3) 43
Net income $ 516 $ 668 $ 585
Basic earnings per common share:
Income from continuing
operations $ .36 $ .46 $ .34
Net income $ .36 $ .45 $ .37
Diluted earnings per common share:
Income from continuing
operations $ .35 $ .45 $ .33
Net income $ .35 $ .45 $ .36
Average shares outstanding
(millions):
Basic 1,442 1,469 1,585
Diluted 1,470 1,499 1,618
Cash dividends declared per
share of common stock $ .04 $ .04 $ .03
Percentage of revenue:
Gross profit 51.3% 50.5% 50.1%
R&D 17.3% 16.0% 16.0%
SG&A 12.7% 12.3% 12.6%
Operating profit 21.3% 22.1% 21.5%
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of dollars, except share amounts)
Mar. 31, Dec. 31, Mar. 31,
2007 2006 2006
Assets
Current assets:
Cash and cash equivalents $ 965 $ 1,183 $ 722
Short-term investments 2,371 2,534 2,942
Accounts receivable, net of
allowances of ($25), ($26)
and ($32) 1,756 1,774 1,798
Raw materials 114 105 91
Work in process 879 930 819
Finished goods 416 402 336
Inventories 1,409 1,437 1,246
Deferred income taxes 1,071 741 626
Prepaid expenses and other
current assets 257 181 248
Assets of discontinued
operations 4 4 495
Total current assets 7,833 7,854 8,077
Property, plant and equipment
at cost 7,715 7,751 8,442
Less accumulated depreciation (3,835) (3,801) (4,574)
Property, plant and equipment,
net 3,880 3,950 3,868
Equity and other long-term
investments 250 287 240
Goodwill 792 792 793
Acquisition-related intangibles 131 118 131
Deferred income taxes 436 601 390
Capitalized software licenses, net 280 188 222
Overfunded retirement plans 54 58 --
Prepaid retirement costs -- -- 205
Other assets 94 82 112
Total assets $13,750 $13,930 $14,038
Liabilities and Stockholders'
Equity
Current liabilities:
Loans payable and current
portion of long-term debt $ 43 $ 43 $ --
Accounts payable 550 560 720
Accrued expenses and other
liabilities 877 1,029 895
Income taxes payable 286 284 280
Accrued profit sharing and
retirement 51 162 43
Liabilities of discontinued
operations -- -- 157
Total current liabilities 1,807 2,078 2,095
Long-term debt -- -- 318
Underfunded retirement plans 197 208 --
Accrued retirement costs -- -- 116
Deferred income taxes 10 23 17
Deferred credits and other
liabilities 453 261 254
Total liabilities 2,467 2,570 2,800
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, 2007 -- 1,739,211,844;
December 31, 2006 --
1,739,108,694; March 31, 2006
-- 1,739,070,044 1,739 1,739 1,739
Paid-in capital 822 885 744
Retained earnings 18,017 17,529 13,930
Less treasury common stock at
cost:
Shares: March 31, 2007
-- 305,502,566;
December 31, 2006 --
289,078,450; March 31, 2006
-- 181,032,577 (8,940) (8,430) (5,092)
Accumulated other comprehensive
income (loss), net of tax (355) (363) (83)
Total stockholders' equity 11,283 11,360 11,238
Total liabilities and
stockholders' equity $13,750 $13,930 $14,038
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Millions of dollars)
For Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2007 2006 2006
Cash flows from operating
activities:
Net income $ 516 $ 668 $ 585
Adjustments to reconcile
net income to cash provided
by operating activities of
continuing operations:
(Income) loss from
discontinued operations -- 3 (43)
Depreciation 252 249 270
Stock-based compensation 78 78 91
Amortization of capitalized
software 25 25 30
Amortization of
acquisition-related
intangibles 14 13 16
Deferred income taxes (3) (77) (36)
Increase (decrease) from
changes in:
Accounts receivable 17 315 (144)
Inventories 28 54 (57)
Prepaid expenses and other
current assets (79) (7) (111)
Accounts payable and
accrued expenses (167) (209) (106)
Income taxes payable (1) (156) 151
Accrued profit sharing and
retirement (111) 30 (99)
Change in funded status of
retirement plans and accrued
retirement costs 1 (94) 17
Other (16) (46) (42)
Net cash provided by operating
activities of continuing
operations 554 846 522
Cash flows from investing
activities:
Additions to property, plant
and equipment (179) (214) (408)
Proceeds from sales of assets -- 14 4
Purchases of cash investments (846) (1,275) (1,153)
Sales and maturities of cash
investments 1,011 1,509 2,341
Purchases of equity investments (5) (7) (5)
Sales of equity and other
long-term investments 2 2 7
Acquisitions, net of cash
acquired (27) -- (177)
Net cash provided by (used in)
investing activities of
continuing operations (44) 29 609
Cash flows from financing
activities:
Payments on loans and
long-term debt -- -- (311)
Dividends paid on common stock (58) (59) (48)
Sales and other common stock
transactions 154 51 142
Excess tax benefit from stock
option exercises 34 15 7
Stock repurchases (857) (1,130) (1,440)
Net cash used in financing
activities of continuing
operations (727) (1,123) (1,650)
Cash flows from discontinued
operations:
Operating activities -- -- 35
Investing activities -- -- (10)
Net cash provided by discontinued
operations -- -- 25
Effect of exchange rate changes
on cash (1) 1 2
Net decrease in cash and cash
equivalents (218) (247) (492)
Cash and cash equivalents,
beginning of period 1,183 1,430 1,214
Cash and cash equivalents,
end of period $ 965 $ 1,183 $ 722
Segment Net Revenue
(Millions of dollars)
For Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2007 2006 2006
Semiconductor $ 3,115 $ 3,385 $ 3,260
Education Technology 76 78 74
Total net revenue $ 3,191 $ 3,463 $ 3,334
Segment Profit (Loss)
(Millions of dollars)
For Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2007 2006 2006
Semiconductor $ 831 $ 908 $ 883
Education Technology 16 19 13
Corporate* (167) (160) (178)
Profit from operations $ 680 $ 767 $ 718
* Corporate includes the following stock-based compensation expense:
COR $ 15 $ 15 $ 18
R&D 23 24 28
SG&A 40 39 45
Profit from operations $ 78 $ 78 $ 91
Semiconductor
- Revenue in the first quarter was $3.12 billion. This was a decrease
of 8 percent from the prior quarter due to a broad-based decline in
demand. Compared with a year ago, revenue decreased 4 percent primarily
due to lower demand for DSP products that more than offset higher demand
for analog products.
- Analog product revenue of $1.25 billion was down 5 percent from
the prior quarter due to a broad-based decline in demand. Compared
with the year-ago quarter, analog revenue increased 2 percent as
a decline in analog revenue for wireless applications was more than
offset by broad-based increases in other analog products, especially
high-performance analog. Revenue from high-performance analog products
declined 5 percent from the prior quarter and increased 8 percent
from a year ago.
- DSP product revenue of $1.16 billion was down 5 percent from the
prior quarter and down 10 percent from a year ago due to lower demand
for a broad range of products.
- TI’s remaining Semiconductor product revenue of $713 million
was 17 percent lower than the prior quarter due to declines in DLP®
products, royalties, microprocessors and standard logic that offset
growth in microcontrollers. Royalties declined because new patent
license agreements that were signed in the prior quarter included
non-recurring catch-up payments. TI’s remaining Semiconductor
revenue decreased 5 percent from the year-ago quarter as declines
in microprocessors, DLP products and standard logic more than offset
growth in royalties and microcontrollers.
- Gross profit was $1.63 billion, or 52.3 percent of revenue. This
was a decrease of $103 million from the prior quarter and a decrease
of $30 million from the year-ago quarter due to lower revenue.
- Operating profit was $831 million, or 26.7 percent of revenue. This
was a decline of $77 million from the prior quarter and a decline of
$52 million from the year-ago quarter primarily due to lower gross profit.
- Semiconductor orders were $3.08 billion. This was an increase of 3
percent from the prior quarter due to higher demand for DSP products
and a decrease of 10 percent from the year-ago quarter due to broadly
lower demand.
Semiconductor Highlights
- TI introduced a new high-performance analog product that will enable
a range of portable electronic products to draw power from new energy
sources, such as solar and micro-fuel cells. The DC/DC boost converter
can operate at the industry's lowest input voltage of less than 0.3
volt with high efficiency.
- TI demonstrated a prototype DLP pico-projector small enough to integrate
into mobile devices, such as cell phones and digital cameras. This innovation
will give manufacturers a new and enhanced display option for their
devices.
- TI launched its “LoCosto ULC” single-chip platform for
the ultra low-cost cell phone market. This platform enables cell phone
manufacturers to include more features in their products, including
an enhanced color display, FM stereo, MP3 ring tones and playback, and
camera functionality. The new platform will include the industry’s
first single-chip GSM/GPRS cell phone products to be manufactured using
65-nanometer process technology and is expected to sample in the second
quarter of 2007.
- TI extended its OMAP™ 3 platform with products that allow cell
phone manufacturers to scale their product offerings to address a range
of performance levels and price points. The products bring “life-like”
3D graphics to the handset and create a mobile gaming experience comparable
to today’s handheld gaming devices. In addition, the products
are the industry’s first application processors to play 720p high-definition
video on cell phones.
Education Technology
- Revenue was $76 million. This was a decrease of $2 million from the
prior quarter and an increase of $2 million from the year-ago quarter.
- Gross profit was $45 million, or 59.0 percent of revenue. Gross profit
was even with the prior quarter and increased $4 million from the year-ago
quarter primarily due to a combination of higher revenue and product
cost reductions.
- Operating profit was $16 million, or 20.6 percent of revenue. This
was a decrease of $3 million compared with the prior quarter due to
higher SG&A expense. It was an increase of $3 million from the year-ago
quarter 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 communications, entertainment
electronics and computing;
- 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;
- Expiration of license agreements between TI and its 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 its suppliers operate;
- Availability and cost of raw materials, utilities, manufacturing equipment,
third-party manufacturing services and manufacturing technology;
- 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;
- 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 “Risk Factors” in Item 1A 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 includes the Education Technology
business. 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:
DLP
OMAP
Other trademarks are the property of their respective owners.
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