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TI Reports 2Q03 Financial Results

Jul 21, 2003

  • TI Revenue Increases 7% Sequentially, 8% from Year Ago
  • EPS of $0.07
  • Semiconductor Revenue Increases 3% Sequentially, 9% from Year Ago

 Download Financials in MS Excel Format (52KB)

Note: All results are reported in accordance with U.S. GAAP.

DALLAS (July 21, 2003) -- Texas Instruments Incorporated (NYSE: TXN) today reported that second-quarter revenue of $2339 million increased 7 percent sequentially due to seasonal growth in Education Technology (E&PS) as well as growth in Semiconductor. Revenue grew 8 percent compared with the year-ago quarter due to growth in Semiconductor.

Semiconductor revenue increased 3 percent sequentially as growth from a broad range of semiconductor products offset a sequential decline in wireless. Compared with the year-ago quarter, Semiconductor revenue increased 9 percent due to growth in demand across most product lines.

Revenue from the wireless market was down 5 percent sequentially and was up 16 percent from the year-ago quarter. Despite the sequential decline, wireless revenue was higher than the company expected in its June 10 financial update due to strong customer demand during the last few days of the quarter. Broadband revenue grew 44 percent on a sequential basis and 84 percent compared with the year-ago quarter. Analog revenue grew 5 percent sequentially and 4 percent compared with the year-ago quarter. DSP revenue was about even sequentially and grew 21 percent compared with the year-ago quarter.

Sensors & Controls revenue increased 3 percent sequentially and 4 percent compared with the year-ago quarter. In a seasonally strong quarter, E&PS revenue increased 104 percent sequentially and 4 percent compared with the year-ago period.

In the second quarter, the company incurred $49 million in restructuring charges. Of that total, $43 million is included in cost of revenue, and $6 million is in selling, general and administrative (SG&A) expense. TI expects an additional $100 million in restructuring charges by the end of 2004. These charges are related to job reductions and will be distributed over the quarters in which jobs are eliminated. When completed, the restructuring actions are expected to result in about $105 million of annual savings, of which $65 million will be in Semiconductor and $40 million will be in Sensors & Controls.

Gross profit of $877 million increased 2 percent sequentially and 3 percent compared with the year-ago quarter. Gross profit margin was 37.5 percent of revenue, a decrease of 1.8 percentage points sequentially and 2.1 percentage points compared with the year-ago quarter primarily due to restructuring charges.

Research and development (R&D) expense of $424 million was up 4 percent sequentially and 5 percent compared with the year-ago quarter due to increased product development activity within Semiconductor, especially for wireless products.

SG&A expense of $328 million increased 9 percent sequentially and 10 percent compared with the year-ago period primarily due to higher G&A expenses, including lease termination and restructuring expenses. Seasonally higher E&PS marketing expenses also contributed to the sequential growth in SG&A.

Operating profit of $125 million, or 5.3 percent of revenue, decreased $28 million sequentially and $30 million compared with the year-ago quarter due to restructuring charges.

Other income (expense) net (OI&E) of $36 million includes interest income, investment gains (losses) and other items. OI&E increased sequentially and compared with the year-ago quarter due to lower net investment losses as well as a $10 million charge in the first quarter associated with the redemption of convertible notes originally issued by Burr-Brown Corporation, which was acquired by TI. Interest expense of $10 million declined on a sequential basis and compared with the year-ago quarter due to the company's lower debt level.

Net income in the quarter was $121 million, or $0.07 per share. The effective tax rate for the quarter was 20 percent, lower than previously expected due to a revision in the company's expected tax rate for the year and the resulting cumulative catch-up tax benefit of $3 million.

TI orders of $2311 million and Semiconductor orders of $1901 million in the second quarter were about even sequentially and compared with the year-ago period. The Semiconductor book-to-bill ratio was 0.99 for the second quarter, compared with 1.03 in the prior quarter.

"TI's revenue growth in the second quarter demonstrates the benefit of diversity in our products and markets as sequential growth across almost all of our major product lines more than offset a decline in wireless. We believe TI continues to gain share in critical markets, including broadband communications, digital signal processing and analog," said Tom Engibous, TI chairman, president and CEO.

"Important product milestones were reached during the quarter, including demonstration of the world's first 1-gigahertz DSP and the first product made using our new high-performance analog manufacturing process that provides best-in-class performance and integration benefits for precision data converters and amplifiers," Engibous said. "We also announced our entry into the CDMA wireless market with standard chipsets that we'll be sampling this quarter. Toward the end of the quarter, we announced selection of the site for our next 300-millimeter wafer fab, further establishing TI's position as one of the world's very few semiconductor companies with the manufacturing technology and financial strength to compete successfully over the long term."

Total cash (cash and cash equivalents plus short-term investments and long-term cash investments) of $4183 million increased by $38 million compared with the end of the prior quarter and increased by $709 million from the end of the year-ago quarter. Cash flow from operations increased to $378 million compared with $196 million in the prior quarter due to working capital, and decreased slightly compared with $387 million in the year-ago quarter. Capital expenditures were $162 million in the second quarter, up from $132 million in the first quarter and down from $177 million in the year-ago quarter.

Accounts receivable increased sequentially by $75 million due to seasonally higher sales of E&PS products. Accounts receivable were about even with the year-ago quarter. Days sales outstanding were 55 days at the end of the second quarter compared with 56 days in the prior quarter and 60 days in the year-ago quarter.

Inventory increased by $118 million sequentially primarily to support reduced product lead times. In addition, delays by certain wireless customers of product shipments from second quarter into third quarter and a normal seasonal increase in E&PS contributed to higher inventory. Compared with the year-ago quarter, inventory increased $180 million primarily due to the higher revenue level and to support reduced product leadtimes. Days of inventory increased to 62 days at the end of the second quarter compared with 60 days at the end of the prior quarter and 56 days at the end of the year-ago quarter.

Outlook

TI intends to provide a mid-quarter update to its financial outlook on September 9 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 2003, TI expects total revenue to be in the range of $2290 million to $2490 million. Inside that total, Semiconductor revenue is expected to be in the range of $1890 million to $2050 million; Sensors & Controls revenue is expected to be in the range of $230 million to $250 million; and E&PS revenue is expected to be in the range of $170 million to $190 million.

TI expects earnings per share to be in the range of $0.19 to $0.23, including a $0.13 per share contribution from the company's previously announced sale of 24.7 million shares of Micron Technology, Inc. common stock. Restructuring charges in the third quarter are expected to be about $45 million.

For 2003, TI continues to expect: R&D to be about $1.7 billion; capital expenditures to be about $800 million; and depreciation to be about $1.4 billion. The effective tax rate for the year is expected to be about 22 percent, exclusive of the tax impact of the Micron stock transaction, compared with the company's previous estimate of 24 percent.
               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                     Consolidated Statement of Operations
              (In millions of dollars, except per-share amounts)

                                             For Three Months Ended
                                    June 30         Mar. 31       June 30
                                       2003            2003          2002

    Net revenue                      $ 2339          $ 2192        $ 2162
    Operating costs and expenses:
      Cost of revenue                  1462            1330          1306
        Gross profit                    877             862           856
         Gross profit % of revenue     37.5%           39.3%         39.6%
      Research and development (R&D)    424             408           404
         R&D % of revenue              18.1%           18.6%         18.7%
      Selling, general and
       administrative (SG&A)            328             301           297
         SG&A % of revenue             14.0%           13.7%         13.7%

            Total                      2214            2039          2007

    Profit from operations              125             153           155
      Operating income % of revenue     5.3%            7.0%          7.2%
    Other income (expense) net           36              14           (24)
    Interest on loans                    10              13            14

    Income before income taxes          151             154           117
    Provision for income taxes           30              37            22

    Net income*                      $  121          $  117        $   95

    Diluted earnings per common
     share**                         $  .07          $  .07        $  .05

    Basic earnings per common share  $  .07          $  .07        $  .05

    Cash dividends declared per
     share of common stock           $ .021          $ .021        $ .021

*Income for the second quarter of 2003 includes, in millions of dollars, a charge of $49, of which $26 is for the initial phase of restructuring associated with moving certain production lines in the Sensors & Controls business from Attleboro to other TI sites and $23 is for the initial phase of restructuring to achieve manufacturing efficiencies in the Semiconductor business. The $49 restructuring charge is primarily for severance cost. Of the $49, $43 is included in cost of revenue and $6 is in selling, general and administrative expense. Income for the first quarter of 2003 includes, in millions of dollars, a charge of $10 in other income (expense) net from the redemption of $250 million in convertible notes. Income for the second quarter of 2002 includes, in millions of dollars, net gains of $16, of which $20 is the reversal of a warranty reserve taken against the gain on the sale of the software business unit in 1997 because the warranty period had expired. Of the $16 net gains, $20 is included in other income, $5 is in selling, general and administrative expense, $2 is a reduction in cost of revenue and $1 is in research and development expense.

Income includes, in millions of dollars, acquisition-related amortization of $25, $28 and $29 for the second and first quarters of 2003 and the second quarter of 2002.

**Diluted earnings per common share are based on average common and dilutive potential common shares outstanding (1762.6 million shares, 1753.4 million shares and 1774.4 million shares for the second and first quarters of 2003 and the second quarter of 2002).

               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                          Consolidated Balance Sheet
                           (In millions of dollars)

                                    June 30         Mar. 31       Dec. 31
                                       2003            2003          2002

    Assets
    Current assets:
      Cash and cash equivalents      $ 1019          $ 1089        $  949
      Short-term investments           2075            1847          2063
      Accounts receivable, net of
       allowances for customer
       adjustments and doubtful
       accounts of $63 million at
       June 30, 2003, $62 million
       at March 31, 2003, and
       $60 million at December 31,
       2002                            1440            1365          1217
      Inventories:
        Raw materials                   113             107           121
        Work in process                 590             546           478
        Finished goods                  297             229           191

          Inventories                  1000             882           790

      Deferred income taxes             586             560           545
      Prepaid expenses and other
       current assets                   327             379           562

        Total current assets           6447            6122          6126

    Property, plant and equipment
     at cost                           9362            9438          9516
      Less accumulated depreciation   (4986)          (4862)        (4722)

        Property, plant and
         equipment (net)               4376            4576          4794

    Long-term cash investments         1089            1209          1130
    Equity investments                  924             717           808
    Goodwill                            639             638           638
    Acquisition-related intangibles     159             171           185
    Deferred income taxes               529             622           618
    Other assets                        471             340           380

    Total assets                     $14634          $14395        $14679

    Liabilities and Stockholders'
     Equity
    Current liabilities:
      Loans payable and current
       portion long-term debt        $   68          $  168        $  422
      Accounts payable and accrued
       expenses                        1295            1170          1204
      Income taxes payable              264             329           293
      Accrued retirement and profit
       sharing contributions             14              11            15

        Total current liabilities      1641            1678          1934

    Long-term debt                      809             832           833
    Accrued retirement costs            813             783           777
    Deferred income taxes                87              98           129
    Deferred credits and other
     liabilities                        342             275           272

    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, 2003
         - 1,740,470,215; March 31,
         2003 - 1,740,467,816;
         December 31, 2002 -
         1,740,364,197                 1740            1740          1740
      Paid-in capital                   966            1011          1042
      Retained earnings                8648            8564          8484
      Less treasury common stock
       at cost:
        Shares: June 30, 2003 -
         9,218,747; March 31, 2003 -
         11,185,274; December 31,
         2002 - 9,775,781              (185)           (228)         (229)
      Accumulated other comprehensive
       income (loss)                   (207)           (328)         (262)
      Deferred compensation             (20)            (30)          (41)

        Total stockholders' equity    10942           10729         10734

    Total liabilities and
     stockholders' equity            $14634          $14395        $14679


	 
               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                           Statement of Cash Flows
                           (In millions of dollars)

                                           For Three Months Ended
                                    June 30         Mar. 31       June 30
                                       2003            2003          2002

    Cash flows from operating
     activities:
      Net income                     $  121          $  117        $   95
      Depreciation                      356             346           390
      Amortization of acquisition-
       related costs                     25              28            29
      Write-downs of equity
       investments                       11              12            96
      Deferred income taxes              (7)            (13)           (9)
      (Increase) decrease in working
       capital (excluding cash and
       cash equivalents, short-term
       investments, deferred income
       taxes, and loans payable and
       current portion long-term
       debt):
        Accounts receivable             (50)           (160)         (264)
        Inventories                    (118)            (92)          (52)
        Prepaid expenses and other
         current assets                  50             (70)           67
        Accounts payable and
         accrued expenses               112             (35)           51
        Income taxes payable            (64)             38           (73)
        Accrued retirement and profit
         sharing contributions            4              (9)          114
      Increase (decrease) in
       noncurrent accrued
       retirement costs                  (1)              4          (103)
      Other                             (61)             30            46

    Net cash provided by operating
     activities                         378             196           387

    Cash flows from investing
     activities:
      Additions to property, plant
       and equipment                   (162)           (132)         (177)
      Purchases of short-term
       investments                     (192)           (493)         (391)
      Sales and maturities of
       short-term investments           673            1131           910
      Purchases of long-term cash
       investments                     (883)           (560)         (394)
      Sales of long-term cash
       investments                      287              67            25
      Purchases of equity investments    (1)            (10)           (8)
      Sales of equity investments        14             ---           ---
      Acquisition of businesses,
       net of cash acquired             ---             ---           (69)

    Net cash provided by (used in)
     investing activities              (264)              3          (104)

    Cash flows from financing
     activities:
      Payments on loans payable         ---              (5)          ---
      Payments on long-term debt       (129)           (256)          (19)
      Dividends paid on common stock    (37)            (37)          (37)
      Sales and other common stock
       transactions                      47              16            68
      Common stock repurchase
       program                          (61)            (48)         (126)
      Decrease in current assets for
       restricted cash                  ---             261           ---

    Net cash used in financing
     activities                        (180)            (69)         (114)
    Effect of exchange rate
     changes on cash                     (4)             10             5

    Net increase (decrease) in cash
     and cash equivalents               (70)            140           174
    Cash and cash equivalents at
     beginning of period               1089             949           313

    Cash and cash equivalents at
     end of period                   $ 1019          $ 1089        $  487


	 
                         Business Segment Net Revenue
                           (In millions of dollars)

                                            For Three Months Ended
                                    June 30         Mar. 31       June 30
                                       2003            2003          2002

    Semiconductor
      Trade                          $ 1922          $ 1863        $ 1761
      Intersegment                        5               4             3

                                       1927            1867          1764

    Sensors & Controls
      Trade                             260             252           250
      Intersegment                        1               1             2

                                        261             253           252

    Educational & Productivity
     Solutions
      Trade                             156              77           150

    Corporate activities                 (5)             (5)           (4)

    Total net revenue                $ 2339          $ 2192        $ 2162

	
	
                           Business Segment Profit
                           (In millions of dollars)

                                            For Three Months Ended
                                    June 30         Mar. 31       June 30
                                       2003            2003          2002

    Semiconductor                    $  126          $  147        $  132
    Sensors & Controls                   68              61            56
    Educational & Productivity
     Solutions                           58              15            49
    Corporate activities                (53)            (42)          (49)
    Charges/gains and acquisition-
     related amortization, net of
     applicable profit sharing          (74)            (38)          (13)
    Interest on loans/other income
     (expense) net, excluding a
     second-quarter 2002 gain of
     $20 and a first-quarter 2003
     charge of $10 included above
     in Charges/gains and
     acquisition-related amortization    26              11           (58)

    Income before income taxes       $  151          $  154        $  117
	
	

Semiconductor

  • Semiconductor revenue in the second quarter was $1927 million, up 3 percent sequentially as strength across a broad range of product areas offset a decline in wireless. Revenue was up 9 percent from the year-ago quarter due to strength across most product areas.
  • Gross profit for the second quarter was $743 million compared with $748 million in the prior period. Second-quarter gross profit was up from $703 million in the year-ago quarter due to higher revenue.
  • Gross profit margin of 38.6 percent in the quarter declined 1.4 percentage points sequentially. Much of the second quarter's revenue growth came from newer products that are still ramping to mature manufacturing yields, and from commodity products that are affected by cyclical price pressure. Gross profit margin declined 1.2 percentage points compared with the year-ago quarter primarily due to lower royalties. Royalties declined from the year-ago quarter due to a $30 million catch-up royalty in the second quarter of 2002 from a new semiconductor cross-license agreement.
  • Semiconductor operating profit for the second quarter declined to $126 million, or 6.5 percent of revenue, compared with $147 million in the prior quarter and $132 million in the year-ago quarter due to higher operating expenses.
  • Analog revenue increased 5 percent sequentially primarily due to higher shipments of display drivers, broadband products and high- performance analog products. Analog revenue increased 4 percent from the year-ago quarter primarily due to growth in high-performance analog standard product shipments as well as strength in storage, display drivers and broadband. In the first half of 2003, about 40 percent of total Semiconductor revenue came from Analog.
  • DSP revenue was about even sequentially as growth in shipments for the digital consumer and broadband markets offset lower wireless revenue. DSP revenue grew 21 percent from the year-ago quarter due to higher shipments into the wireless, broadband and digital consumer markets. In the first half of 2003, about 30 percent of total Semiconductor revenue came from DSP.
  • TI's remaining Semiconductor revenue increased 4 percent sequentially primarily due to higher shipments of standard logic products as well as growth in RISC microprocessors. Revenue from Digital Light Processing™ (DLP™) products, microcontrollers and royalties declined on a sequential basis due to lower shipments. Compared with the year-ago quarter, revenue increased 4 percent due to higher shipments of DLP products, RISC microprocessors and standard logic, while revenue from royalties and microcontrollers declined.
  • TI's Semiconductor revenue in key markets was as follows:
    • Wireless revenue decreased 5 percent compared with the first quarter. In the second quarter, TI's wireless customers experienced a slowdown in demand for handsets and excess inventory, particularly in Asia. Compared with the year-ago period, TI's wireless revenue increased 16 percent primarily due to higher shipments of 2.5G products and OMAP™ applications processors. In the first half of 2003, about 30 percent of total Semiconductor revenue came from wireless.
    • Revenue from TI's catalog products, composed of high-performance analog and catalog DSP, was up 6 percent sequentially and 14 percent from the year-ago quarter due to higher shipments. In the first half of 2003, about 15 percent of total Semiconductor revenue came from catalog products.
    • Broadband communications revenue, which includes DSL and cable modems, voice over packet (VoP) and wireless local area networks (WLANs), increased 44 percent sequentially and 84 percent from the year-ago quarter due to higher shipments. In the first half of 2003, about 5 percent of total Semiconductor revenue came from broadband communications.
  • Semiconductor orders were $1901 million, about even sequentially and compared with the year-ago quarter.

2Q Highlights

  • TI selected Richardson, Texas, as the site for its next 300-millimeter wafer fab. Groundbreaking is expected by the end of 2005.
  • TI demonstrated the world's first DSP to reach the 1-gigahertz speed threshold, just weeks after introducing the world's fastest commercially available DSP at 720 megahertz.
  • TI announced its entry into the standard CDMA wireless chipset market with technology developed jointly with STMicroelectronics and Nokia. cdma2000 1X chipsets are expected to begin sampling in the third quarter, and 1xEV-DV chipsets are expected to sample in 2004.
  • Motorola, Inc. said it will use TI's OMAP application processors and 802.11 wireless networking solutions in its new Wi-Fi/cellular dual system phone.
  • TI introduced the industry's first ADSL modem on a chip, a single-chip solution that increases TI's system content while reducing overall system cost.
  • Concurrent with the IEEE Standards Board's approval of the 802.11g standard, TI announced that it was shipping 802.11g and multi-mode 802.11 a/b/g solutions to customers worldwide.

Sensors & Controls

  • Sensors & Controls revenue was $261 million in the second quarter, up 3 percent sequentially and 4 percent compared with the year-ago quarter due about equally to higher shipments of sensor products and higher shipments of control products.
  • Gross profit was $98 million, or 37.6 percent of revenue, up from $90 million in the prior quarter and $84 million in the year-ago quarter. About $4 million of gross profit in the second quarter was due to a settlement of litigation. The gain in gross profit from the year-ago quarter was primarily due to manufacturing cost reductions.
  • Operating profit was $68 million, or 26.0 percent of revenue, up from $61 million in the prior quarter and $56 million in the year-ago quarter due to higher gross profit.

Education Technology (E&PS)

  • E&PS revenue was $156 million in the second quarter, up 104 percent sequentially due to the start of retail stocking of calculators ahead of the back-to-school season. Compared with the year-ago period, revenue was up 4 percent due to higher sales to U.S. retailers.
  • Gross profit was $89 million, or 57.0 percent of revenue, up 135 percent sequentially due to higher revenue and up 12 percent from the year-ago quarter primarily due to a combination of higher revenue and product cost reductions.
  • Operating profit was $58 million, or 37.1 percent of revenue, up from $15 million in the previous quarter and $49 million in the year-ago quarter due to higher gross profit.

Additional Financial Information

  • Depreciation was $356 million in the second quarter, compared with $346 million in the prior quarter and $390 million in the year-ago quarter.
  • At the end of the second quarter, the debt-to-total-capital ratio was 0.07, down from 0.09 at the end of the prior quarter.


# # #

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This report 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, such statements in this report 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 digital signal processors and analog chips in key markets, such as telecommunications and computers;
  • 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;
  • Consolidation of TI's patent licensees and market conditions reducing royalty payments to TI;
  • Timely completion and successful integration of announced acquisitions;
  • Economic, social and political conditions in the countries in which TI, its customers or its suppliers operate, including security risks, possible disruptions in transportation networks and fluctuations in foreign currency exchange rates;
  • Losses or curtailments of purchases from key customers or the timing of customer inventory adjustments;
  • Availability of raw materials and critical manufacturing equipment;
  • TI's ability to recruit and retain skilled personnel;
  • Fluctuations in the market value of TI's investments and in interest rates; and
  • Timely implementation of new manufacturing technologies and installation of manufacturing equipment.

For a more detailed discussion of these factors, see the text under the heading "Cautionary Statements Regarding Future Results of Operations" in Item 1 of the company's most recent Form 10-K. The forward-looking statements included in this report 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's businesses include Sensors & Controls and Education Technology. 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:
     Digital Light Processing
     DLP
     OMAP
     Other trademarks are the property of their respective owners.