Press Release: TI Reports 2Q07 Financial Results

TI Reports 2Q07 Financial Results

* TI Revenue Up 7% Sequentially
* EPS of $0.42, Up 20% Sequentially
* Record Gross Margin as Company Progresses Toward Higher Profitability Goals

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, July 23 -– Texas Instruments Incorporated (TI) today reported revenue of $3.42 billion for the second quarter of 2007. Revenue increased 7 percent compared with the prior quarter as demand for the company’s semiconductor products began to rebound following an inventory correction in the semiconductor market. Growth also benefited from a seasonal increase in demand for the company’s graphing calculator products. Revenue decreased 7 percent compared with the year-ago quarter due to lower demand across a broad base of products.

Earnings per share (EPS) were $0.42. This was a $0.07, or 20 percent, increase from the prior quarter and a $0.05 decrease from the year-ago quarter. In the year-ago quarter, financial results included EPS benefits of $0.03 from a sales tax refund and $0.02 associated with a favorable royalty settlement. The royalty settlement also contributed $70 million to revenue in the year-ago quarter.

“Our attention to customers and growing focus on analog continue to help us deliver stronger financial results,” said Rich Templeton, president and chief executive officer. “Moreover, we see even greater opportunities ahead as the market regains momentum. With TI’s broad product portfolio, spanning both analog and digital signal processing technologies, we are in a unique position to support customers working on hundreds of electronics applications across the globe. We also see potential to expand our margins, and we recently raised our profitability goals to 55 percent gross margin and 30 percent operating margin. We expect to meet these goals within the next few years.”

Gross Profit

Gross profit was $1.78 billion, a record 52.1 percent of revenue. This was up $147 million from the prior quarter due to higher revenue. It was down $123 million from the year-ago quarter primarily due to the combination of the royalty settlement and sales tax refund in the year-ago quarter, as well as lower revenue.

Operating Expenses

Research and development (R&D) expense was $551 million. This was about even with the prior quarter. R&D expense increased $15 million from the year-ago quarter due to the favorable impact of the sales tax refund a year ago.

Selling, general and administrative (SG&A) expense was $424 million. This was an increase of $19 million from the prior quarter primarily due to higher compensation-related expenses, as well as seasonally higher marketing expenses for graphing calculators. SG&A expense was about even with the year-ago quarter.

Operating Profit

Operating profit was $809 million, or 23.6 percent of revenue. This was an increase of $129 million from the prior quarter due to higher gross profit. It was a decrease of $144 million from the year-ago quarter primarily due to the combination of the royalty settlement and sales tax refund in the year-ago quarter.

Other Income (Expense) Net (OI&E)

OI&E was $56 million. This was an increase of $16 million from the prior quarter primarily due to the impairment of an investment in the prior quarter. OI&E declined $32 million from a year ago primarily due to a benefit associated with the sales tax refund in the year-ago quarter, as well as lower interest income.

Income

Income from continuing operations was $614 million, or $0.42 per share.

Orders

TI orders were $3.45 billion. This was an increase of $247 million, or 8 percent, from the prior quarter due to higher demand for semiconductor products and seasonally stronger demand for calculators. Orders declined $455 million from the year-ago quarter due to lower demand for semiconductor products that more than offset a $50 million increase in demand for calculators.

Cash

Cash flow from operations was $898 million. This was an increase of $344 million from the prior quarter primarily due to a reduced need for cash to meet working capital requirements, such as the payment of annual profit sharing and bonus that was made in the prior quarter. Higher net income also contributed to the increase in cash flow from operations. Total cash (cash and cash equivalents plus short-term investments) was $3.58 billion at the end of the second quarter. This was an increase of $245 million from the end of the prior quarter and a decrease of $2.09 billion from the year-ago quarter, which included $2.98 billion from the sale of the company’s former Sensors & Controls business in that quarter. In the second quarter of 2007, the company used $742 million to repurchase 21 million shares of common stock, paid $115 million in dividends to shareholders and retired $43 million of debt on its maturity date. Since the end of the year-ago quarter, the company has used $4.42 billion to repurchase 143 million shares of common stock and paid $278 million in dividends.

Capital Spending and Depreciation

Capital expenditures were $174 million. This was a decrease of $5 million from the prior quarter and a decrease of $200 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 manufacture of semiconductors, especially assembly and test equipment.

Depreciation was $256 million. This was an increase of $4 million from the prior quarter and a decrease of $11 million from the year-ago quarter.

Accounts Receivable and Inventories

Accounts receivable were $1.90 billion at the end of the second quarter. This was an increase of $141 million from the prior quarter due to higher revenue and a decrease of $32 million from the year-ago quarter due to lower revenue. Days sales outstanding were 50 at the end of the second quarter compared with 50 at the end of the prior quarter and 47 at the end of the year-ago quarter.

Inventory was $1.42 billion at the end of the second quarter. This was an increase of $15 million from the prior quarter as the company built inventory of graphing calculators in preparation for the back-to-school sales season. Compared with a year ago, inventory increased $89 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 second quarter were 78 compared with 82 at the end of the prior quarter and 67 a year ago.

Outlook

TI intends to provide a mid-quarter update to its financial outlook on September 11, 2007, by issuing a press release and holding a conference call. Both will be available on the company’s web site.

For the third quarter of 2007, TI expects revenue to be in the following ranges:

* Total TI, $3.49 billion to $3.79 billion;
* Semiconductor, $3.29 billion to $3.57 billion; and
* Education Technology, $200 million to $220 million.

TI expects earnings per share to be in the range of $0.46 to $0.52.

This estimate assumes that the sale of the company’s broadband DSL customer-premises equipment semiconductor product line will close at the end of July. The EPS estimate does not include the expected gain on the sale.

In 2007, TI still expects: an annual effective tax rate of about 28 percent, R&D expense of about $2.2 billion, capital expenditures of about $0.9 billion and depreciation of about $1.0 billion.

Semiconductor

* Revenue in the second quarter was $3.26 billion. This was an increase of 5 percent from the prior quarter due to higher demand for DSP, DLP® and analog products. Compared with a year ago, revenue decreased 7 percent as higher demand for high-performance analog products was more than offset by declines across a broad base of other products.
o Analog product revenue of $1.27 billion was up 2 percent from the prior quarter due to increased demand for high-performance analog products. Compared with the year-ago quarter, analog revenue decreased 3 percent as a decline in analog revenue for cell phone applications more than offset gains in high-performance analog revenue. Revenue from high-performance analog products increased 6 percent from the prior quarter and increased 11 percent from a year ago.
o DSP product revenue of $1.24 billion was up 7 percent from the prior quarter due to higher demand for products used in cell phone applications. DSP product revenue declined 5 percent from a year ago due to lower demand for a broad range of products.
o TI’s remaining Semiconductor revenue of $746 million was 5 percent higher than the prior quarter primarily due to growth in DLP products and, to a lesser extent, standard logic products. Microcontrollers and RISC microprocessors were about even with the prior quarter while royalties declined. TI’s remaining Semiconductor revenue decreased 17 percent from the year-ago quarter primarily due to a decline in RISC microprocessor revenue and the royalty settlement in the year-ago quarter. To a lesser extent, DLP products and standard logic products revenue also declined while microcontrollers were about even with the year-ago quarter.
* Gross profit was $1.71 billion, or 52.5 percent of revenue. This was an increase of $82 million from the prior quarter due to higher revenue. Gross profit declined $105 million from the year-ago quarter due to the combination of the royalty settlement and sales tax refund in the year-ago quarter, as well as lower revenue.
* Operating profit was $905 million, or 27.8 percent of revenue. This was an increase of $74 million from the prior quarter due to higher gross profit. It was a decline of $127 million from the year-ago quarter primarily due to the combination of the royalty settlement and the sales tax refund in the year-ago quarter.
* Semiconductor orders were $3.25 billion. This was an increase of 6 percent from the prior quarter due to higher demand across a broad range of analog and DSP products. Orders declined 13 percent from the year-ago quarter due to broadly lower demand.

Semiconductor Highlights

* TI delivered the industry’s highest performance family of two- and four-channel analog-to-digital data converters. The chips combine low power, high performance and speed in a space-saving package and are tailored for advanced communications, medical, video, imaging and instrumentation applications.
* TI introduced the industry’s first location-detection system-on-chip solution for low-power ZigBee® wireless sensor networking applications such as asset and equipment tracking, inventory control, patient monitoring, and security and commissioning networks.
* Lenovo Mobile, China’s leading handset manufacturer, selected TI’s “LoCosto” single-chip platform for a new family of low-cost, multimedia-rich cell phones.

Education Technology

* Revenue in the second quarter was $167 million. This was an increase of $91 million from the prior quarter as retailers purchased calculators in preparation for the back-to-school season. This was a decrease of $25 million from the year-ago quarter, as some major retailers delayed stocking calculator inventory until the third quarter, closer to the start of the school year.
* Gross profit was $109 million, or a record 65.1 percent of revenue. This was up $64 million from the prior quarter due to higher revenue. Gross profit decreased $10 million from the year-ago quarter due to lower revenue.
* Operating profit was $74 million, or 44.1 percent of revenue. This was an increase of $58 million compared with the prior quarter due to higher gross profit. It was a decrease of $10 million from the year-ago quarter due to lower gross profit.