TI reports financial results for 1Q08
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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 21, 2008) – Financial results from Texas Instruments Incorporated (TI) (NYSE: TXN) for the first quarter reflect the company’s strengthening position in the market for analog semiconductors.
TI revenue was up 3 percent from the year-ago quarter, led by 20 percent growth in high-performance analog semiconductors. TI’s operating profit grew 19 percent. “Analog is making us stronger and will be a great growth opportunity for a very long time. Analog goes into almost every piece of electronic equipment that is made, and at TI we have the technology and the manufacturing power to serve much more of this market than we are addressing today. There also are clear benefits to our operating profit, which has grown faster than revenue, and to our cash flow, which we can return to shareholders or reinvest in growth," said Rich Templeton, TI’s chairman, president and CEO.
Compared with the fourth quarter, TI revenue declined 8 percent primarily due to weaker sales into cell phones, especially high-end cell phones. “Given uncertainty in the near-term economy, we have become more conservative with our outlook for the second quarter. More strategically, we believe our long-term opportunity is excellent. We’re continuing to do the things needed to be the better choice for our customers, such as adding sales and applications engineers, investing in new products, and increasing assembly/test capability,” Templeton said.
“In addition to traditional markets in communications and entertainment, analog semiconductors and digital signal processors are at the heart of solving some of the world’s most challenging problems in healthcare, energy and security. We’ve achieved early positions in each of these, all of which are just beginning to leverage semiconductor technology,” Templeton said.
TI financial results
Revenue was $3.27 billion, up $81 million, or 3 percent, from a year ago. Compared with the prior quarter, revenue decreased $284 million, or 8 percent.
Gross profit was $1.76 billion, or 53.7 percent of revenue. This was up $119 million from a year ago. Gross profit declined $170 million from the prior quarter.
Operating expenses were $514 million for research and development (R&D) and $435 million for selling, general and administrative (SG&A). R&D expense decreased $38 million from a year ago as the company continues to benefit from its collaborative work with foundries on advanced digital process technologies. R&D expense was about the same as the prior quarter. SG&A expense increased $30 million from the year-ago quarter primarily due to higher investments in field sales and customer support, especially for emerging regions. SG&A expense increased $13 million from the prior quarter.
Operating profit was $807 million, or 24.7 percent of revenue. This was an increase of $127 million from the year-ago quarter. Operating profit decreased $189 million from the prior quarter.
Other income was $33 million. This was down $6 million from the year-ago quarter and down $13 million from the prior quarter due to lower interest income.
Income from continuing operations was $662 million, including a discrete tax benefit of $81 million associated with the company’s decision to indefinitely reinvest the accumulated earnings of a non-U.S. subsidiary. Income from continuing operations increased $146 million from the year-ago quarter and declined $91 million from the prior quarter.
Earnings per share (EPS) were $0.49 and included a discrete tax benefit of $0.06. EPS increased $0.14 from the year-ago quarter and decreased $0.05 from the prior quarter.
Orders were $3.32 billion. This was an increase of $111 million from the year-ago quarter and a decline of $164 million from the prior quarter.
Cash flow from operations was $641 million, an increase of $87 million from a year ago and a decrease of $781 million from the prior quarter.
Accounts receivable were $1.67 billion at the end of the quarter. This was a decrease of $87 million from the year-ago quarter and a decrease of $73 million from the prior quarter. Days sales outstanding were 46 at the end of the quarter compared with 50 a year ago and 44 at the end of the prior quarter.
Inventory was $1.58 billion at the end of the quarter. This was $169 million higher than the year-ago quarter and $160 million higher than the prior quarter. Days of inventory at the end of the first quarter were 94, up 12 days from a year ago and up 16 days from the prior quarter.
Capital spending totaled $219 million. Depreciation was $241 million.
- Total cash (cash and cash equivalents plus short-term investments) was $1.88 billion at the end of the quarter. This was $1.46 billion lower than a year ago and $1.05 billion lower than the prior quarter. The company reduced its holdings of auction-rate securities, which are based on pools of student loans that are guaranteed by the U.S. Department of Education, by $473 million from the end of the prior quarter. As of the end of the first quarter, TI reclassified its remaining auction-rate securities, which have a fair value of $551 million, from short-term investments to long-term investments due to reduced liquidity for these securities. The company used $874 million in the quarter to repurchase 28.6 million shares of its common stock and paid dividends of $133 million.
For the second quarter of 2008, TI currently expects its financial results to fall within the following ranges:
Total TI revenue:
$3.24 - 3.50 billion
$3.08 - 3.32 billion
Education Technology revenue:
$160 - 180 million
$0.42 – 0.48
The company will update its second-quarter outlook on June 9, 2008.
For the full year 2008, TI continues to expect the following:
Annual effective tax rate:
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, 2008 2007 2007 Net revenue $3,272 $3,556 $3,191 Cost of revenue 1,516 1,630 1,554 Gross profit 1,756 1,926 1,637 Research and development (R&D) 514 508 552 Selling, general and administrative (SG&A) 435 422 405 Total operating costs and expenses 2,465 2,560 2,511 Profit from operations 807 996 680 Other income (expense) net 33 46 39 Income from continuing operations before income taxes 840 1,042 719 Provision for income taxes 178 289 203 Income from continuing operations 662 753 516 Income from discontinued operations, net of taxes -- 3 -- Net income $ 662 $ 756 $ 516 Basic earnings per common share: Income from continuing operations $ .50 $ .55 $ .36 Net income $ .50 $ .55 $ .36 Diluted earnings per common share: Income from continuing operations $ .49 $ .54 $ .35 Net income $ .49 $ .54 $ .35 Average shares outstanding (millions): Basic 1,327 1,372 1,442 Diluted 1,347 1,399 1,470 Cash dividends declared per share of common stock $ .10 $ .10 $ .04 Percentage of revenue: Gross profit 53.7% 54.2% 51.3% R&D 15.7% 14.3% 17.3% SG&A 13.3% 11.9% 12.7% Operating profit 24.7% 28.0% 21.3% TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets (Millions of dollars, except share amounts) Mar. 31, Dec. 31, Mar. 31, 2008 2007 2007 Assets Current assets: Cash and cash equivalents $ 1,450 $ 1,328 $ 965 Short-term investments 426 1,596 2,371 Accounts receivable, net of allowances of ($25), ($26) and ($25) 1,669 1,742 1,756 Raw materials 111 105 114 Work in process 943 876 879 Finished goods 524 437 416 Inventories 1,578 1,418 1,409 Deferred income taxes 659 654 1,071 Prepaid expenses and other current assets 193 180 261 Total current assets 5,975 6,918 7,833 Property, plant and equipment at cost 7,493 7,568 7,715 Less accumulated depreciation (3,908) (3,959) (3,835) Property, plant and equipment, net 3,585 3,609 3,880 Long-term investments 791 267 250 Goodwill 838 838 792 Acquisition-related intangibles 105 115 131 Deferred income taxes 618 510 436 Capitalized software licenses, net 225 227 280 Overfunded retirement plans 122 105 54 Other assets 79 78 94 Total assets $ 12,338 $ 12,667 $ 13,750 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ -- $ -- $ 43 Accounts payable 680 657 550 Accrued expenses and other liabilities 871 1,117 877 Income taxes payable 218 53 286 Accrued profit sharing and retirement 79 198 51 Total current liabilities 1,848 2,025 1,807 Underfunded retirement plans 191 184 197 Deferred income taxes 60 49 10 Deferred credits and other liabilities 382 434 453 Total liabilities 2,481 2,692 2,467 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, 2008 -- 1,739,660,927; Dec. 31, 2007 -- 1,739,632,601; March 31, 2007 -- 1,739,211,844 1,740 1,740 1,739 Paid-in capital 926 931 822 Retained earnings 20,318 19,788 18,017 Less treasury common stock at cost: Shares: March 31, 2008 -- 416,925,336; Dec. 31, 2007 -- 396,421,798; March 31, 2007 -- 305,502,566 (12,776) (12,160) (8,940) Accumulated other comprehensive loss, net of taxes (351) (324) (355) Total stockholders' equity 9,857 9,975 11,283 Total liabilities and stockholders' equity $ 12,338 $ 12,667 $ 13,750 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows (Millions of dollars) For Three Months Ended Mar. 31, Dec. 31, Mar. 31, 2008 2007 2007 Cash flows from operating activities: Net income $ 662 $ 756 $ 516 Adjustments to reconcile net income to cash provided by operating activities of continuing operations: (Income) from discontinued operations -- (3) -- Depreciation 241 253 252 Stock-based compensation 54 67 78 Amortization of acquisition-related intangibles 10 10 14 Losses on sales of assets 6 -- -- Deferred income taxes (74) 4 (3) Increase (decrease) from changes in: Accounts receivable 89 284 17 Inventories (160) 32 28 Prepaid expenses and other current assets (46) 26 (79) Accounts payable and accrued expenses (179) (20) (167) Income taxes payable 165 (47) 33 Accrued profit sharing and retirement (122) 52 (111) Excess tax benefit from share-based payments (13) (10) (34) Change in funded status of retirement plans and accrued retirement (4) (3) 1 Other 12 21 9 Net cash provided by operating activities of continuing operations 641 1,422 554 Cash flows from investing activities: Additions to property, plant and equipment (219) (181) (179) Purchases of cash investments (362) (794) (846) Sales and maturities of cash investments 958 2,067 1,011 Purchases of long-term investments (2) (4) (5) Sales of long-term investments 16 2 2 Acquisitions, net of cash acquired -- (56) (27) Net cash provided by (used in) investing activities of continuing operations 391 1,034 (44) Cash flows from financing activities: Dividends paid (133) (138) (58) Sales and other common stock transactions 76 67 154 Excess tax benefit from share-based payments 13 10 34 Stock repurchases (874) (1,877) (857) Net cash used in financing activities of continuing operations (918) (1,938) (727) Effect of exchange rate changes on cash 8 3 (1) Net increase (decrease) in cash and cash equivalents 122 521 (218) Cash and cash equivalents, beginning of period 1,328 807 1,183 Cash and cash equivalents, end of period $ 1,450 $ 1,328 $ 965
Certain amounts in prior periods' financial statements have been reclassified to conform to the current presentation.
Segment Net Revenue (Millions of dollars) For Three Months Ended Mar. 31, Dec. 31, Mar. 31, 2008 2007 2007 Semiconductor $3,191 $3,475 $3,115 Education Technology 81 81 76 Total net revenue $3,272 $3,556 $3,191 Segment Profit (Loss) (Millions of dollars) For Three Months Ended Mar. 31, Dec. 31, Mar. 31, 2008 2007 2007 Semiconductor $ 927 $1,117 $ 831 Education Technology 18 19 16 Corporate* (138) (140) (167) Profit from operations $ 807 $ 996 $ 680 *Corporate includes stock-based compensation expense.
- Revenue was $3.19 billion. This was 2 percent higher than a year
ago primarily due to higher sales of analog products, especially high-performance
analog products. Revenue declined 8 percent from the prior quarter primarily
due to lower demand for digital signal processing products sold into
cell phone applications.
- Analog product revenue was $1.32 billion. This was up 6 percent compared with a year ago due to stronger demand for high-performance analog products. Revenue was down 4 percent from the prior quarter primarily due to weaker demand for application-specific analog products sold into hard-disk drive and cell phone applications. Revenue from high-performance analog products increased 20 percent from a year ago and was about even with the prior quarter.
- Digital signal processing product revenue was $1.12 billion. This was a decrease of 3 percent from a year ago and a decrease of 18 percent from the prior quarter. Both declines were due to lower sales into cell phone applications.
- TI’s remaining semiconductor revenue was $754 million. This was up 6 percent from a year ago and was up 2 percent from the prior quarter.
- Gross profit was $1.73 billion, or 54.3 percent of revenue. This was up $102 million, or 6 percent, from the year-ago quarter primarily due to higher revenue from more-profitable analog products, and to a lesser extent, from microcontrollers. Gross profit was down $165 million, or 9 percent, from the prior quarter due to lower revenue.
- Operating profit for the first quarter was $927 million, or 29.0 percent of revenue. This was an increase of $96 million from the year-ago quarter and a decrease of $190 million from the prior quarter.
- Orders in the first quarter were $3.17 billion. This was up 3 percent from the year-ago quarter and down 7 percent from the prior quarter.
- TI introduced a family of analog front-end chips that enable superior image quality and reduced power consumption in medical ultrasound diagnostic equipment.
- TI delivered the industry’s first closed-loop, digital-input Class-D audio amplifier that improves sound quality and lowers audio subsystem costs in high-definition TVs and media docking stations.
- TI demonstrated a prototype cell phone based on the Android open source platform and built using TI’s OMAP™ applications processor and connectivity solutions.
Education Technology segment
- Revenue was $81 million. This was an increase of $5 million, or 7 percent, from the year-ago quarter due to higher sales of graphing calculators. Revenue was even with the prior quarter.
- Gross profit was $49 million, or 60.5 percent of revenue. This was an increase of $4 million from the year-ago quarter and was a decrease of $1 million from the prior quarter.
- Operating profit was $18 million, or 21.9 percent of revenue. This was an increase of $2 million from the year-ago quarter and a decrease of $1 million from the prior quarter.
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“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 herein that describe TI’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 TI 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 our forecasts;
- The financial impact of inadequate or excess TI inventory that results from demand that differs from projections;
- TI's ability to access its bank accounts and lines of credit or otherwise access the capital markets;
- Product liability or warranty claims, claims based on epidemic or delivery failure 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 Risk Factors discussion in Item 1A of our most recent Form 10-K. The forward-looking statements included in this release are made only as of the date of this release and TI undertakes no obligation to update the forward-looking statements to reflect subsequent events or circumstances.
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