Press release

TI reports financial results for 2Q08

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   Conference Call on TI Web Site at 4:30 p.m. Central Time Today



Beginning with this earnings release, TI will describe revenue in four product categories: Analog, Embedded Processing, Wireless and Other. For a complete description of these changes, please reference the materials from the company’s conference call and webcast, held on July 1, 2008, available at www.ti.com/ir.

DALLAS (July 21, 2008) – Texas Instruments (TI) (NYSE: TXN) today announced second-quarter revenue of $3.35 billion, net income of $588 million and earnings per share of $0.44.

“Our core areas of Analog and Embedded Processing delivered solid revenue growth,” said Rich Templeton, TI’s chairman, president and CEO. “Each grew sequentially and increased 10 percent from a year ago. These technologies are critical to thousands of different types of electronic equipment, making them some of the most attractive markets in the semiconductor industry. We believe our portfolio combined with our passion to help customers solve critical problems will drive good long-term growth.”



In total, TI’s revenue in the second quarter was in the lower half of the company’s range of expectations, as were earnings per share. Demand slowed unexpectedly in June primarily because distributors reduced inventory levels and did not replenish them late in the quarter. Additionally, Wireless revenue declined in the quarter, continuing its first-quarter weakness.

“We believe this slower demand was due to a mix of reasons, including a weaker economic environment and greater confidence in TI’s ability to deliver products within short lead times,” Templeton said. “Our orders were up in the quarter and backlog grew, but we are cautious given the demand environment we just experienced. If demand strengthens as quickly as it slowed, we are well-positioned to meet it.”

Amounts are in millions of dollars, except per-share amounts. 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.





























   
  2Q08
  2Q07
  vs. 2Q07
  1Q08
  vs. 1Q08
Revenue:
  $
3351
  $
3424
 
-2%
  $
3272
 
2%
Operating profit:
  $
833
  $
809
 
3%
  $
807
 
3%
Income:
  $
588
  $
614
 
-4%
  $
662
 
-11%
Earnings per share:
  $
0.44
  $
0.42
 
5%
  $
0.49
 
-10%
Cash flow from operations:
  $
520
  $
898
 
-42%
  $
641
 
-19%

Revenue

TI’s revenue declined 2 percent compared with the second quarter of last year as growth in Analog and Embedded Processing was not sufficient to offset declines in Wireless and Other revenue. Revenue grew 2 percent compared with the prior quarter as growth in Analog, Embedded Processing and Other more than offset the decline in Wireless.



























 
2Q08
2Q07
  vs. 2Q07
1Q08
  vs. 1Q08 Note
Analog:
  $
1292
  $
1170
 
10%
  $
1265
 
2%
  (1)
Embedded Processing:
  $
436
  $
397
 
10%
  $
418
 
4%
  (2)
Wireless:
  $
903
  $
1024
 
-12%
  $
922
 
-2%
  (3)
Other:
  $
720
  $
833
 
-14%
  $
667
 
8%
  (4) (5)


The product categories include:

  • Analog: high-performance analog, high-volume analog & logic
  • Embedded Processing: catalog, communications infrastructure and automotive DSPs and microcontrollers


  • Wireless: basebands, OMAP™ applications processors, connectivity products for handsets
  • Other: DLP® products, calculators, RISC microprocessors, ASIC products, royalties






(1) Analog revenue growth in both comparisons was due to stronger demand for high-performance analog products.
(2) Embedded Processing revenue growth in both comparisons was primarily due to stronger demand for catalog products, as well as communications infrastructure products.
(3) Wireless revenue declines in both comparisons were due to lower sales of baseband products.
(4) Other revenue decreased from a year ago due to declines across a number of product lines, especially the impact from the sale of a DSL product line in the third quarter of 2007 and lower demand for RISC microprocessors. Compared with the first quarter of 2008, Other revenue grew due to seasonal demand for calculators that more than offset lower revenue for RISC microprocessors.
(5) The Other category includes revenue from the Education Technology segment of $176 million compared with $167 million in the year-ago quarter and $81 million in the prior quarter. Essentially all of this revenue is from sales of calculators.

Additional financial information

  • Operating profit increased 3 percent from both the year-ago and prior quarters due to lower operating expenses.



  • Income declined 4 percent from the year-ago quarter due to lower interest income. Income declined 11 percent from the prior quarter due to a higher tax provision. The prior quarter included $81 million of discrete tax benefits.

  • Orders were $3.46 billion, about even with the year-ago quarter and up 4 percent from the prior quarter.

  • Inventory increased in the quarter to above the company’s desired levels. This was primarily due to higher manufacturing costs and lower-than-expected revenue in the quarter. Additionally, the company built calculator inventory to support the upcoming back-to-school season.



  • The company used $433 million in the quarter to repurchase 14.1 million shares of its common stock and paid dividends of $132 million.

Outlook

For the third quarter of 2008, TI expects:



  • Revenue: $3.26 – 3.54 billion
  • Earnings per share: $0.41 – 0.47

TI will update its third-quarter outlook on September 9, 2008.

For the full year of 2008, TI continues to expect approximately the following:



  • R&D expense: $2.0 billion
  • Capital expenditures: $0.9 billion
  • Depreciation: $1.0 billion
  • Annual effective tax rate: 31%
      
               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                      Consolidated Statements of Income
          (Millions of dollars, except share and per-share amounts)

                                                    For Three Months Ended
                                                 June 30,  June 30,  Mar. 31,
                                                   2008      2007      2008

    Revenue                                      $ 3,351   $ 3,424   $ 3,272
    Cost of revenue                                1,602     1,640     1,516
    Gross profit                                   1,749     1,784     1,756
    Research and development (R&D)                   488       551       514
    Selling, general and administrative (SG&A)       428       424       435
    Operating profit                                 833       809       807
    Other income (expense) net                        17        56        33
    Income from continuing operations before
     income taxes                                    850       865       840
    Provision for income taxes                       262       251       178
    Income from continuing operations                588       614       662
    Loss from discontinued operations,
     net of taxes                                     --        (4)       --
    Net income                                   $   588   $   610   $   662

    Basic earnings per common share:
      Income from continuing operations          $   .45   $   .43   $   .50
      Net income                                 $   .45   $   .42   $   .50

    Diluted earnings per common share:
      Income from continuing operations          $   .44   $   .42   $   .49
      Net income                                 $   .44   $   .42   $   .49

    Average shares outstanding (millions):
      Basic                                        1,320     1,437     1,327
      Diluted                                      1,341     1,469     1,347

    Cash dividends declared per share of
     common stock                                $   .10   $   .08   $   .10

    Percentage of revenue:
    Gross profit                                    52.2%     52.1%     53.7%
    R&D                                             14.6%     16.1%     15.7%
    SG&A                                            12.8%     12.4%     13.3%
    Operating profit                                24.9%     23.6%     24.7%



               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                         Consolidated Balance Sheets
                 (Millions of dollars, except share amounts)

                                                 June 30,  June 30,   Mar. 31,
                                                   2008      2007       2008
    Assets
    Current assets:
      Cash and cash equivalents                 $  1,317  $  1,266   $  1,450
      Short-term investments                         331     2,315        426
      Accounts receivable, net of allowances
       of ($24), ($27) and ($25)                   1,811     1,897      1,669
      Raw materials                                  111       106        111
      Work in process                                997       876        943
      Finished goods                                 543       442        524
      Inventories                                  1,651     1,424      1,578
      Deferred income taxes                          641     1,072        659
      Prepaid expenses and other current assets      259       246        193
      Total current assets                         6,010     8,220      5,975
    Property, plant and equipment at cost          7,603     7,657      7,493
      Less accumulated depreciation               (3,999)   (3,859)    (3,908)
      Property, plant and equipment, net           3,604     3,798      3,585
    Long-term investments                            766       254        791
    Goodwill                                         840       792        838
    Acquisition-related intangibles                  108       117        105
    Deferred income taxes                            626       405        618
    Capitalized software licenses, net               220       259        225
    Overfunded retirement plans                      128        79        122
    Other assets                                      80        96         79
    Total assets                                $ 12,382  $ 14,020   $ 12,338


    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                          $    677  $    622   $    680
      Accrued expenses and other liabilities         955     1,048        871
      Income taxes payable                            26       187        218
      Accrued profit sharing and retirement          102        98         79
      Total current liabilities                    1,760     1,955      1,848
    Underfunded retirement plans                     187       115        191
    Deferred income taxes                             57        20         60
    Deferred credits and other liabilities           394       436        382
    Total liabilities                              2,398     2,526      2,481

    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:  June 30, 2008 --
       1,739,712,567; June 30, 2007 --
       1,739,467,307; March 31, 2008 --
       1,739,660,927                               1,740     1,739      1,740
      Paid-in capital                                940       761        926
      Retained earnings                           20,773    18,511     20,318
      Less treasury common stock at cost:
       Shares:  June 30, 2008 -- 428,835,142;
       June 30, 2007 -- 310,382,046;
       March 31, 2008 -- 416,925,336             (13,138)   (9,233)   (12,776)
      Accumulated other comprehensive loss,
       net of taxes                                 (331)     (284)      (351)
      Total stockholders' equity                   9,984    11,494      9,857
    Total liabilities and stockholders' equity  $ 12,382  $ 14,020   $ 12,338



               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                    Consolidated Statements of Cash Flows
                            (Millions of dollars)

                                                    For Three Months Ended
                                                  June 30,  June 30,  Mar. 31,
                                                    2008      2007      2008
    Cash flows from operating activities:
      Net income                                 $   588   $   610   $   662
      Adjustments to reconcile net income to
       cash provided by operating activities
       of continuing operations:
        Loss from discontinued operations             --         4        --
        Depreciation                                 245       256       241
        Stock-based compensation                      54        69        54
        Amortization of acquisition-related
         intangibles                                  10        14        10
        Losses on sales of assets                     --        --         6
        Deferred income taxes                         (7)       (3)      (74)
      Increase (decrease) from changes in:
        Accounts receivable                         (149)     (144)       89
        Inventories                                  (73)      (15)     (160)
        Prepaid expenses and other current assets    (29)       42       (46)
        Accounts payable and accrued expenses         32       110      (179)
        Income taxes payable                        (181)      (76)      165
        Accrued profit sharing and retirement         23        47      (122)
      Other                                            7       (16)       (5)
    Net cash provided by operating activities of
     continuing operations                           520       898       641

    Cash flows from investing activities:
      Additions to property, plant and equipment    (271)     (174)     (219)
      Purchases of short-term investments             --    (1,479)     (362)
      Sales and maturities of short-term
       investments                                   111     1,529       958
      Purchases of long-term investments              (3)       (6)       (2)
      Sales of long-term investments                  --         3        16
      Acquisitions, net of cash acquired             (19)       --        --
    Net cash (used in) provided by investing
     activities of continuing operations            (182)     (127)      391

    Cash flows from financing activities:
      Payments on loans and long-term debt            --       (43)       --
      Dividends paid                                (132)     (115)     (133)
      Sales and other common stock transactions       89       374        76
      Excess tax benefit from share-based payments     3        56        13
      Stock repurchases                             (433)     (742)     (874)
    Net cash used in financing activities of
     continuing operations                          (473)     (470)     (918)

    Effect of exchange rate changes on cash            2        --         8
    Net (decrease) increase in cash and cash
     equivalents                                    (133)      301       122
    Cash and cash equivalents, beginning of
     period                                        1,450       965     1,328
    Cash and cash equivalents, end of period     $ 1,317   $ 1,266   $ 1,450

Certain amounts in prior periods' financial statements have been reclassified to conform to the current presentation.

# # #

Safe Harbor Statement
“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 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.

About Texas Instruments
Texas Instruments (NYSE: TXN) helps customers solve problems and develop new electronics that make the world smarter, healthier, safer, greener and more fun. A global semiconductor company, TI innovates through manufacturing, design and sales operations in more than 25 countries. For more information, go to www.ti.com.

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