Press release

TI reports financial results for 3Q08

   Download Financials in MS Excel Format (49KB)
   Conference call on TI web site at 4:30 p.m. Central time today

DALLAS (Oct. 20, 2008) – Texas Instruments Incorporated (TI) (NYSE: TXN) today announced third-quarter revenue of $3.39 billion, net income of $563 million and earnings per share of $0.43. 

“We entered the third quarter with a cautious view of the economy and its impact on our markets.  Revenue was weak, as expected, because consumers and corporations reduced their spending in this uncertain economy,” said Rich Templeton, TI chairman, president and chief executive officer.

“Even so, the soundness of our strategic direction was underscored by results from our core businesses.  Revenue for our Analog business was steady and revenue for our Embedded Processing business grew 9 percent compared with a year ago.  Although not immune to near-term economic pressures, these are two of the best long-term opportunities in our industry.  We are a leader in each and expect to strengthen our position even in this period of economic weakness. 

“Our outlook for the fourth quarter is for revenue to decline substantially based on weak order trends over the past few months.  In anticipation of declining demand, we reduced our own inventory aggressively in the third quarter, which brought factory utilization down and put additional pressure on our profitability.  We also worked closely with our distributors to reduce the inventory in our channels.  We will accelerate our inventory reduction in the fourth quarter.  We also will continue to reduce expenses and capital spending.  At the same time, we will continue to invest in opportunities to strengthen our positions in Analog and Embedded Processing.”

TI also announced today it is taking actions that will reduce expenses by about one-third, or more than $200 million annualized, in its Wireless business, especially in its cellular baseband operation.  The company is also actively pursuing the sale of the merchant portion of this operation and is in discussions with potential buyers.  In the custom portion of this operation, TI will continue to support select programs. 

TI will focus its remaining Wireless investments in OMAP™ applications processors, which are at the heart of many of today’s most exciting smartphone products. 

“Smartphones are growing rapidly and our handset customers are differentiating their product lines through applications and user interfaces.  We anticipated this opportunity and have been investing in it for more than a decade.  As a result, our OMAP applications processors lead the market, and we will concentrate on extending this lead,” Templeton said. 
 
Reductions in cellular baseband operations will begin immediately and are expected to be complete by June 2009.  The full annualized savings of more than $200 million will be achieved once these reductions are complete.  The company expects to take restructuring charges of approximately $110 million across the next three quarters. 
 

Financial summary

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.



























   
  3Q08
  3Q07
  vs. 3Q07
  2Q08
  vs. 2Q08
Revenue:
  $
3387
  $
3663
 
-8%
  $
3351
 
1%
Operating profit:
  $
746
  $
1013
 
-26%
  $
833
 
-10%
Income:
  $
563
  $
758
 
-26%
  $
588
 
-4%
Earnings per share:
  $
0.43
  $
0.52
 
-17%
  $
0.44
 
-2%
Cash flow from operations:
  $
1052
  $
1531
 
-31%
  $
520
 
102%

 

Revenue

TI’s revenue declined 8 percent compared with the third quarter of last year as growth in Embedded Processing was more than offset by declines in Wireless and Other revenue.  Revenue was about even with the prior quarter. 



























 
3Q08
3Q07
  vs. 3Q07
2Q08
  vs. 2Q08 Note
Analog:
  $
1289
  $
1308
 
-1%
  $
1287
 
0%
  (1)
Embedded Processing:
  $
427
  $
390
 
9%
  $
439
 
-3%
  (2)
Wireless:
  $
915
  $
1094
 
-16%
  $
902
 
1%
  (3)
Other:
  $
756
  $
871
 
-13%
  $
723
 
5%
  (4) (5)

Revenue by product category for historical periods reflects minor reclassifications to previously reported amounts.

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 was about even with a year ago as growth in high-performance analog was offset by declines in high-volume analog & logic.  Both areas were about even with the prior quarter.
    (2)  Embedded Processing revenue grew from a year ago due to higher demand for communications infrastructure products as well as catalog products that more than offset a decline in automotive products.  The sequential decline was due to lower demand for catalog and automotive products that more than offset growth in communications infrastructure products.
    (3)  Wireless revenue declined from a year ago due to lower baseband revenue.  Wireless revenue was about even with the prior quarter.
    (4)  Other revenue decreased from a year ago primarily due to declines in RISC microprocessors, royalties and calculators.  This comparison was also impacted by the sale of a DSL product line, which had revenue of about $40 million in the year-ago quarter.   Compared with the prior quarter, Other revenue grew due to growth in DLP and ASIC products that more than offset a decline in royalties.
    (5)  Other revenue includes Education Technology segment revenue of $182 million compared with $202 million in the year-ago quarter and $176 million in the prior quarter.  Essentially all of this revenue is from sales of calculators


Additional financial information

  • Income includes a $34 million discrete tax benefit primarily due to adjustments identified through the completion of prior years’ tax returns.   It also includes $44 million of charges associated with impairments of long-lived assets and site consolidations.
  • Orders were $3.23 billion, down 9 percent from a year ago and down 7 percent from the prior quarter.


  • Inventory was reduced by $76 million in the quarter although it remains above the company’s desired levels. 
  • The company used $429 million in the quarter to repurchase 17.1 million shares of its common stock and paid dividends of $131 million.

Outlook

For the fourth quarter of 2008, TI expects:



  • Revenue:  $2.83 – 3.07 billion
  • Earnings per share (EPS):  $0.30 – 0.36

Semiconductor revenue is expected to decline in the range of 10 percent from the third quarter and Education Technology is expected to decline seasonally.



This EPS estimate includes a $0.05 benefit from the reinstatement of the federal research tax credit, which was signed into law in October 2008 and was retroactive to the beginning of the year.  The estimate also includes charges of about $0.01 per share associated with the company’s restructuring actions in its Wireless business. 

TI will update its fourth-quarter outlook on December 8, 2008.

For the full year of 2008, TI expects approximately the following:

  • R&D expense:  $2.0 billion


  • Capital expenditures:  $0.8 billion, compared with $0.9 billion in the prior estimate
  • Depreciation:  $1.0 billion
  • Annual effective tax rate:  28%*


 
*  Includes the full-year impact of the reinstatement of the federal research tax credit, which reduces the annual effective tax rate by about 2 percentage points.

               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                      Consolidated Statements of Income
          (Millions of dollars, except share and per-share amounts)

                                                    For Three Months Ended
                                               Sept. 30,  Sept. 30,   June 30,
                                                  2008       2007       2008

    Revenue                                     $ 3,387    $ 3,663    $ 3,351
    Cost of revenue                               1,744      1,679      1,602
    Gross profit                                  1,643      1,984      1,749
    Research and development (R&D)                  507        542        488
    Selling, general and administrative (SG&A)      390        429        428
    Operating profit                                746      1,013        833
    Other income (expense) net                       10         53         17
    Income from continuing operations before
     income taxes                                   756      1,066        850
    Provision for income taxes                      193        308        262
    Income from continuing operations               563        758        588
    Income from discontinued operations,
     net of taxes                                    --         18         --
    Net income                                  $   563    $   776    $   588

    Basic earnings per common share:
      Income from continuing operations         $   .43    $   .54    $   .45
      Net income                                $   .43    $   .55    $   .45

    Diluted earnings per common share:
      Income from continuing operations         $   .43    $   .52    $   .44
      Net income                                $   .43    $   .54    $   .44

    Average shares outstanding (millions):
      Basic                                       1,304      1,417      1,320
      Diluted                                     1,318      1,448      1,341

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

    Percentage of revenue:
    Gross profit                                   48.5%      54.2%      52.2%
    R&D                                            15.0%      14.8%      14.6%
    SG&A                                           11.5%      11.7%      12.8%
    Operating profit                               22.0%      27.6%      24.9%



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

                                                Sept. 30,  Sept. 30,  June 30,
                                                   2008       2007      2008
    Assets
    Current assets:
      Cash and cash equivalents                 $  1,715   $    807  $  1,317
      Short-term investments                         278      2,862       331
      Accounts receivable, net of allowances
       of ($28), ($30) and ($24)                   1,774      2,023     1,811
      Raw materials                                  103        102       111
      Work in process                                982        934       997
      Finished goods                                 490        414       543
      Inventories                                  1,575      1,450     1,651
      Deferred income taxes                          679        702       641
      Prepaid expenses and other current assets      191        209       259
      Total current assets                         6,212      8,053     6,010
    Property, plant and equipment at cost          7,499      7,597     7,603
      Less accumulated depreciation               (3,982)    (3,916)   (3,999)
      Property, plant and equipment, net           3,517      3,681     3,604
    Long-term investments                            717        265       766
    Goodwill                                         840        796       840
    Acquisition-related intangibles                   99        108       108
    Deferred income taxes                            688        425       626
    Capitalized software licenses, net               202        242       220
    Overfunded retirement plans                      137         77       128
    Other assets                                      54         77        80
    Total assets                                $ 12,466   $ 13,724  $ 12,382

    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                          $    601   $    644  $    677
      Accrued expenses and other liabilities         976      1,092       955
      Income taxes payable                            35        152        26
      Accrued profit sharing and retirement          126        143       102
      Total current liabilities                    1,738      2,031     1,760
    Underfunded retirement plans                     186         95       187
    Deferred income taxes                             52         27        57
    Deferred credits and other liabilities           396        434       394
    Total liabilities                              2,372      2,587     2,398

    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:  Sept. 30, 2008 --
         1,739,717,573; Sept. 30, 2007 --
         1,739,579,782; June 30, 2008 --
         1,739,712,567                             1,740      1,740     1,740
      Paid-in capital                                973        853       940
      Retained earnings                           21,204     19,172    20,773
      Less treasury common stock at cost:
        Shares:  Sept. 30, 2008 -- 443,292,628;
         Sept. 30, 2007 -- 341,373,012;
         June 30, 2008 -- 428,835,142            (13,481)   (10,344)  (13,138)
      Accumulated other comprehensive loss,
       net of taxes                                 (342)      (284)     (331)
      Total stockholders' equity                  10,094     11,137     9,984
    Total liabilities and stockholders' equity  $ 12,466   $ 13,724  $ 12,382



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

                                                    For Three Months Ended
                                                Sept. 30,  Sept. 30,  June 30,
                                                   2008       2007      2008

    Cash flows from operating activities:
      Net income                                $   563    $   776   $   588
      Adjustments to net income:
        Income from discontinued operations          --        (18)       --
        Depreciation                                252        262       245
        Stock-based compensation                     53         66        54
        Amortization of acquisition-related
         intangibles                                  9         10        10
        Gain on sale of assets                       --        (39)       --
        Deferred income taxes                       (78)        36        (7)
      Increase (decrease) from changes in:
        Accounts receivable                          36       (117)     (149)
        Inventories                                  76        (34)      (73)
        Prepaid expenses and other current
         assets                                      50         24       (29)
        Accounts payable and accrued expenses       (24)       154        32
        Income taxes payable                         41        394      (181)
        Accrued profit sharing and retirement        25         45        23
      Other                                          49        (28)        7
    Net cash provided by operating activities
     of continuing operations                     1,052      1,531       520

    Cash flows from investing activities:
      Additions to property, plant and equipment   (197)      (152)     (271)
      Proceeds from sales of assets                  --         61        --
      Purchases of short-term investments            --     (1,916)       --
      Sales and maturities of short-term
       investments                                   49      1,374       111
      Purchases of long-term investments             (3)       (15)       (3)
      Sales of long-term investments                 32          4        --
      Acquisitions, net of cash acquired             --         (4)      (19)
    Net cash used in investing activities of
     continuing operations                         (119)      (648)     (182)

    Cash flows from financing activities:
      Dividends paid                               (131)      (114)     (132)
      Sales and other common stock transactions      30        166        89
      Excess tax benefit from share-based
       payments                                       1         16         3
      Stock repurchases                            (429)    (1,409)     (433)
    Net cash used in financing activities of
     continuing operations                         (529)    (1,341)     (473)

    Effect of exchange rate changes on cash          (6)        (1)        2
    Net increase (decrease) in cash and cash
     equivalents                                    398       (459)     (133)
    Cash and cash equivalents, beginning of
     period                                       1,317      1,266     1,450
    Cash and cash equivalents, end of period    $ 1,715    $   807   $ 1,317
				

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 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 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 text under the heading “Risk Factors” in Part II, Item 1A of the Company’s Form 10-Q for the second quarter of 2008, which was filed on July 31, 2008.  The forward-looking statements included in this release are made only as of the date of this release, and the Company 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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