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TI Reports 2Q04 Financial Results

Jul 19, 2004

  • TI Revenue Increases 10% Sequentially, 39% from Year Ago
  • Record Revenue in Wireless, High-Performance Analog and DLP™ Products
  • EPS of $0.25
  • 3Q04 EPS Expected in Range of $0.26 to $0.29

 Download Financials in MS Excel Format (48KB)

DALLAS (July 20, 2004) – Texas Instruments Incorporated (TI) (NYSE: TXN) today reported second-quarter 2004 revenue of $3241 million, an increase of 10 percent sequentially and 39 percent from the year-ago quarter primarily due to strength in TI’s Semiconductor business. Earnings per share (EPS) were $0.25.

Semiconductor revenue increased 8 percent sequentially and 44 percent from the year-ago quarter primarily due to strong demand for digital signal processors (DSPs) and analog products used in a broad range of electronic equipment. Record revenue was achieved in several Semiconductor operations, including wireless, which grew 15 percent sequentially; high-performance analog, which grew 13 percent sequentially; and Digital Light Processing™ (DLP), which grew 10 percent sequentially.

“Revenue growth was excellent,” said Rich Templeton, TI president and chief executive officer. “We believe our Semiconductor business has gained market share in both the first and second quarters of 2004, building on TI’s annual market share gains achieved in 2002 and 2003. This reflects the strength we’ve built in our advanced technology and the relationships we’re developing with customers.

“In particular, this was an important quarter for our wireless operations, with growth across a broad base of customers and a broad mix of our products,” Templeton said. “Digital baseband modems for W-CDMA 3G cell phones have emerged as a significant growth contributor, accounting for about one-fourth of sequential wireless revenue growth in the second quarter. In addition, the latest research from market analyst IDC shows that our OMAP™ processors garnered two-thirds of the rapidly growing market for wireless application processors in 2003. The company’s strength in modems and application processors has given us the early lead in the W-CDMA cell phone market. Underscoring the importance of this technology combination, TI and 3G service leader NTT DoCoMo announced plans to integrate next-generation OMAP 2 application processors with digital baseband modems to support the UMTS standard, which is based on W-CDMA and is expected to be the prevalent worldwide standard for 3G wireless phones,” Templeton said.

“2004 is on course to be a very strong year. TI’s Semiconductor revenue in the second quarter was higher than it has ever been, and the company’s operating profit is approaching an all-time record. With stable depreciation and a lower expected profit-sharing accrual next year, TI is well positioned to continue to deliver higher levels of profitability as revenue expands,” Templeton said.

Details of Financial Results

Revenue


In the second quarter, TI revenue of $3241 million increased $305 million sequentially and $902 million from the year-ago quarter.

Gross Profit

Gross profit of $1481 million increased 12 percent sequentially and 69 percent from the year-ago quarter. Gross profit margin was 45.7 percent of revenue, up 0.7 percentage points sequentially and 8.2 percentage points from the year-ago quarter. Gross profit and gross profit margin benefited primarily from higher revenue.

Operating Expenses

Research and development (R&D) expense was $514 million, or 15.8 percent of revenue, compared with $494 million, or 16.8 percent of revenue in the prior quarter. R&D expense was $424 million, or 18.1 percent of revenue, in the year-ago quarter. The higher R&D expense is a result of increased product development activity in Semiconductor, especially for wireless products, as well as a higher profit-sharing accrual.

Selling, general and administrative (SG&A) expense was $375 million, or 11.6 percent of revenue, compared with $354 million, or 12.0 percent of revenue, in the prior quarter. The increase was primarily due to a higher profit-sharing accrual as well as seasonally higher marketing expense in the company’s Education Technology (E&PS) business. In the year-ago quarter, SG&A expense was $328 million, or 14.0 percent of revenue, with the increase primarily due to the profit-sharing accrual.

Operating Profit

Operating profit of $592 million, or 18.3 percent of revenue, increased $118 million sequentially and $467 million compared with the year-ago quarter primarily due to higher gross profit that more than offset higher operating expenses.

Second-quarter results include a higher profit-sharing accrual, which contains a cumulative catch-up, compared with the first quarter, reflecting an upward adjustment in the company’s expectations for its 2004 performance. There was no profit-sharing accrual in the year-ago quarter. Profit sharing is allocated across cost of revenue, SG&A and R&D. Profit sharing is expected to decline in 2005 compared with 2004 and will reflect a new TI employee profit-sharing plan.

Other Income (Expense) Net (OI&E) and Interest Expense

OI&E of $38 million decreased $12 million from the prior quarter and increased $2 million compared with the year-ago quarter.

Interest expense of $8 million was even sequentially and declined $2 million from the year-ago quarter.

Net Income

Net income was $441 million, or $0.25 per share, an increase of $74 million sequentially and $320 million from the year-ago quarter due to higher operating profit.

Orders

TI orders of $3253 million increased 1 percent sequentially. Compared with the year-ago quarter, orders increased 41 percent due to strength in Semiconductor. Semiconductor orders were $2762 million, down 2 percent sequentially. Compared with the year-ago quarter, Semiconductor orders increased 45 percent due to broad-based demand for the company’s products.

Cash

At the end of the second quarter, total cash (cash and cash equivalents plus short-term investments and long-term cash investments) was $5534 million.

Cash flow from operations was $506 million, up $113 million sequentially and $128 million compared with the year-ago quarter.

Capital Expenditures and Depreciation

Capital expenditures of $356 million decreased $45 million sequentially and increased $194 million from the year-ago quarter. TI’s capital expenditures in the second quarter were used primarily to increase capacity for assembly and test operations, and for 90-nanometer wafer fabrication.

Depreciation of $363 million increased $15 million sequentially and $7 million from the year-ago quarter.

Accounts Receivable and Inventory

Accounts receivable of $1930 million increased $252 million sequentially due to higher revenue and seasonally higher E&PS receivables. Accounts receivable increased $490 million from the end of the year-ago quarter due to higher revenue. Days sales outstanding were 54 at the end of the second quarter, compared with 51 at the end of the prior quarter and 55 at the end of the year-ago quarter.

Inventory of $1285 million at the end of the second quarter increased $137 million sequentially and $285 million from the year-ago quarter as the company continued to build inventory to targeted levels, especially in standard products, to support customer plans for the second half of the year and to ensure the company’s ability to respond to upside potential. Days of inventory at the end of the second quarter were 66, compared with 64 days at the end of the prior quarter and 62 days at the end of the year-ago quarter.

Debt

At the end of the second quarter, TI’s debt-to-total-capital ratio was 0.06, unchanged from the end of the prior quarter. In the third quarter, TI’s $400 million 7 percent notes will mature and will be paid using available cash.

Outlook

TI intends to provide a mid-quarter update to its financial outlook on September 8 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 2004, TI expects revenue to be in the following ranges:

  • Total TI, $3200 million to $3440 million;
  • Semiconductor, $2780 million to $2980 million;
  • Sensors & Controls, $255 million to $275 million; and
  • E&PS, $170 million to $190 million.

TI expects earnings per share to be in the range of $0.26 to $0.29.

For 2004, TI continues to expect: R&D to be about $2.1 billion; capital expenditures to be about $1.3 billion; and depreciation to be about $1.5 billion.

The effective tax rate for the year is expected to be about 29 percent, unchanged from the prior estimate.

               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
                                         2004            2004          2003

    Net revenue                       $  3241         $  2936       $  2339
    Operating costs and expenses:
     Cost of revenue                     1760            1614          1462
      Gross profit                       1481            1322           877
       Gross profit % of revenue         45.7%           45.0%         37.5%
     Research and development (R&D)       514             494           424
       R&D % of revenue                  15.8%           16.8%         18.1%
     Selling, general and
      administrative (SG&A)               375             354           328
       SG&A % of revenue                 11.6%           12.0%         14.0%

        Total                            2649            2462          2214

    Profit from operations                592             474           125
       Operating income % of revenue     18.3%           16.2%          5.3%
    Other income (expense) net             38              50            36
    Interest on loans                       8               8            10

    Income before income taxes            622             516           151
    Provision for income taxes            181             149            30

    Net income*                       $   441         $   367       $   121

    Diluted earnings per common
     share**                          $   .25         $   .21       $   .07

    Basic earnings per common share   $   .25         $   .21       $   .07

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

*Income for the second quarter of 2004 includes, in millions of dollars, a charge of $4 for restructuring actions initiated in the second quarter of 2003, of which $1 is associated with achieving manufacturing efficiencies in the Semiconductor business and $3 is associated with moving certain production lines in the Sensors & Controls business from Attleboro to other TI sites. The $4 restructuring charge is primarily for severance and benefit costs and is included in cost of revenue. Income for the first quarter of 2004 includes, in millions of dollars, a charge of $5 for restructuring actions initiated in the second quarter of 2003, of which $2 is associated with achieving manufacturing efficiencies in the Semiconductor business and $3 is associated with moving certain production lines in the Sensors & Controls business from Attleboro to other TI sites. The $5 restructuring charge is primarily for severance and benefit costs. Of the $5, $4 is included in cost of revenue and $1 is in selling, general and administrative expense. 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 and benefit costs. Of the $49, $43 is included in cost of revenue and $6 is in selling, general and administrative expense.

Income includes, in millions of dollars, acquisition-related amortization of $19, $19 and $25 for the second quarter and first quarter of 2004 and the second quarter of 2003.

**Diluted earnings per common share are based on average common and dilutive potential common shares outstanding (in millions of shares, 1771.6, 1783.6 and 1762.6 for the second quarter and first quarter of 2004 and the second quarter of 2003).

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

                                      June 30         Mar. 31       June 30
                                         2004            2004          2003

    Assets
    Current assets:
      Cash and cash equivalents       $  1623         $  1615       $  1019
      Short-term investments             2311            2522          2075
      Accounts receivable, net of
       allowances for customer
       adjustments and doubtful
       accounts of $42 million at
       June 30, 2004, $44 million
       at March 31, 2004 and
       $63 million at June 30, 2003      1930            1678          1440
      Inventories:
       Raw materials                      135             126           113
       Work  in process                   799             692           590
       Finished goods                     351             330           297

        Inventories                      1285            1148          1000

      Deferred income taxes               467             490           586
      Prepaid expenses and other
       current assets                     491             545           327

        Total current assets             8107            7998          6447

    Property, plant and equipment
     at cost                             9831            9738          9362
      Less accumulated depreciation     (5654)          (5550)        (4986)

        Property, plant and
         equipment (net)                 4177            4188          4376

    Long-term cash investments           1600            1356          1089
    Equity investments                    254             260           924
    Goodwill                              693             693           639
    Acquisition-related intangibles       138             154           159
    Deferred income taxes                 496             524           529
    Other assets                          585             612           471

    Total assets                      $ 16050         $ 15785       $ 14634


    Liabilities and Stockholders'
     Equity
    Current liabilities:
      Loans payable and current
       portion long-term debt         $   415         $   435       $    68
      Accounts payable and accrued
       expenses                          1601            1553          1295
      Income taxes payable                 35             210           264
      Accrued retirement and profit
       sharing contributions              183              82            14

        Total current liabilities        2234            2280          1641

    Long-term debt                        375             394           809
    Accrued retirement costs              611             620           813
    Deferred income taxes                  59              57            87
    Deferred credits and other
     liabilities                          333             349           342

    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, 2004 - 1,738,123,534;
       March 31, 2004 - 1,738,115,567;
       June 30, 2003 - 1,740,470,215     1738            1738          1740
      Paid-in capital                     812             859           966
      Retained earnings                 10269            9865          8648
      Less treasury common stock at
       cost:
         Shares: June 30, 2004 -
          7,045,901; March 31, 2004 -
          7,012,862; June 30, 2003 -
          9,218,747                      (193)           (200)         (185)
      Accumulated other comprehensive
       income (loss)                     (178)           (164)         (207)
      Unearned compensation               (10)            (13)          (20)

        Total stockholders' equity      12438           12085         10942

    Total liabilities and
     stockholders' equity             $ 16050         $ 15785       $ 14634


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

                                              For Three Months Ended
                                      June 30         Mar. 31       June 30
                                         2004            2004          2003

    Cash flows from operating
     activities:
      Net income                       $  441          $  367        $  121
      Depreciation                        363             348           356
      Amortization of acquisition-
       related costs                       19              19            25
      Write-downs of equity
       investments                          1               5            11
      Gains on sale of equity
       investments                         (4)             (7)           (6)
      Deferred income taxes                62               6            (7)
      (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              (254)           (227)          (50)
        Inventories                      (137)           (164)         (118)
        Prepaid expenses and other
         current assets                    56             (97)           50
        Accounts payable and accrued
         expenses                          40              58           112
        Income taxes payable             (174)             82           (64)
        Accrued retirement and profit
         sharing contributions            100              65             4
      Decrease in noncurrent accrued
       retirement costs                    (5)            (64)           (1)
      Other                                (2)              2           (55)

    Net cash provided by operating
     activities                           506             393           378

    Cash flows from investing
     activities:
      Additions to property, plant
       and equipment                     (356)           (401)         (162)
      Purchases of short-term
       investments                       (689)           (496)         (192)
      Sales and maturities of
       short-term investments            1027             910           673
      Purchases of long-term cash
       investments                       (433)           (493)         (883)
      Sales of long-term cash
       investments                         51              44           287
      Purchases of equity investments     (12)             (2)           (1)
      Sales of equity investments          19              11            14

    Net cash used in investing
     activities                          (393)           (427)         (264)

    Cash flows from financing
     activities:
      Payments on loans payable           ---              (1)          ---
      Payments on long-term debt          (28)            ---          (129)
      Dividends paid on common stock      (37)            (37)          (37)
      Sales and other common stock
       transactions                        69              42            47
      Common stock repurchase program    (113)           (172)          (61)

    Net cash used in financing
     activities                          (109)           (168)         (180)
    Effect of exchange rate changes
     on cash                                4              (1)           (4)

    Net increase (decrease) in cash
     and cash equivalents                   8            (203)          (70)
    Cash and cash equivalents at
     beginning of period                 1615            1818          1089

    Cash and cash equivalents at
     end of period                    $  1623         $  1615       $  1019


                         Business Segment Net Revenue
                           (In millions of dollars)

                                              For Three Months Ended
                                      June 30         Mar. 31       June 30
                                         2004            2004          2003

    Semiconductor
      Trade                            $ 2783          $ 2573        $ 1922
      Intersegment                          1               1             5

                                         2784            2574          1927

    Sensors & Controls
      Trade                               289             283           260
      Intersegment                          1               1             1

                                          290             284           261

    Educational & Productivity
     Solutions
      Trade                               169              79           156

    Corporate activities                   (2)             (1)           (5)

    Total net revenue                  $ 3241          $ 2936        $ 2339


                           Business Segment Profit
                           (In millions of dollars)

                                              For Three Months Ended
                                      June 30         Mar. 31       June 30
                                         2004            2004          2003

    Semiconductor                      $  526          $  465        $  126
    Sensors & Controls                     77              75            68
    Educational & Productivity
     Solutions                             68               9            58
    Corporate activities                  (56)            (51)          (53)
    Charges/gains and acquisition-
     related amortization                 (23)            (24)          (74)
    Interest on loans/other income
     (expense) net                         30              42            26

    Income before income taxes         $  622          $  516        $  151


Semiconductor

  • In the second quarter, revenue of $2784 million increased 8 percent sequentially and 44 percent from the year-ago quarter due to strong demand across a broad range of Semiconductor products. In particular, the company generated strong growth from DSPs and analog products used in cell phones and wireless infrastructure, from high-performance analog products and from DLP products.
  • Gross profit was $1285 million, or 46.2 percent of revenue, an increase of $97 million from the prior quarter and $542 million from the year-ago quarter due to higher revenue.
  • Operating profit was $526 million, or 18.9 percent of revenue, up $61 million sequentially and $400 million from the year-ago quarter due to higher gross profit that more than offset higher operating expenses.
  • Analog revenue increased 7 percent sequentially primarily due to higher demand for high-performance analog products, and increased 44 percent from the year-ago quarter primarily due to higher demand for high-performance and wireless analog products. Revenue from TI’s high-performance analog products increased 13 percent sequentially and 64 percent from the year-ago quarter due to higher demand. In the first half of 2004, approximately 40 percent of TI’s Semiconductor revenue came from analog.
  • DSP revenue increased 13 percent sequentially and 53 percent from the year-ago quarter primarily due to demand in the wireless market. In the first half of 2004, approximately 35 percent of TI’s Semiconductor revenue came from DSP.
  • TI’s remaining Semiconductor revenue increased 4 percent sequentially and 34 percent compared with the year-ago quarter due to higher demand across a broad range of products.
  • Results for TI Semiconductor products sold into key end equipments were as follows:
    • Wireless revenue increased 15 percent sequentially and 64 percent from the year-ago quarter due to broad-based demand across a range of customers for the company’s DSP-based digital baseband products, analog power management chips and OMAP application processors. In the first half of 2004, about 35 percent of TI’s Semiconductor revenue came from wireless.
    • Broadband communications revenue, which includes DSL and cable modems, voice over Internet protocol (VoIP) and wireless LAN (WLAN), was about even sequentially as higher demand for the company’s VoIP products offset a decline in demand for WLAN products. Compared with the year-ago quarter, broadband revenue increased 44 percent due to higher demand across all product areas, especially VoIP and DSL. In the first half of 2004, approximately 5 percent of TI’s Semiconductor revenue came from broadband.
  • Semiconductor orders of $2762 million declined 2 percent sequentially. Compared with the year-ago quarter, Semiconductor orders were up 45 percent due to broad-based demand for the company’s products.

Semiconductor Highlights

  • TI announced that NTT DoCoMo’s new FOMA™ “900i Series” 3G (third-generation) cell phones feature OMAP application processors, including phones manufactured by NEC, Panasonic Mobile Communications and Sharp. The devices are the first 3G phones equipped with a Macromedia® Flash™ browser and deliver over 16 days of static standby time, 1½ hours of high-quality video, large QVGA color displays, advanced digital cameras with digital zoom, auto focus and other advanced features.
  • TI unveiled its Uni-DSL (UDSL) technology, which will allow operators to add competitive video services using their current infrastructure. In addition, operators will be able to combine UDSL with limited fiber deployments to deliver high-definition television (HDTV) plus voice and data throughout the home using UDSL’s ultra-high speed rates of up to 200Mbps aggregate throughput per line.
  • TI introduced a mixed signal video decoder optimized for use in the United States, Japan and China. The new product converts multiple video standards into digital component video for DVD recordable (DVD-R) applications and television display applications.

Sensors & Controls

  • Sensors & Controls revenue was a record $290 million, up 2 percent sequentially and 11 percent from the year-ago quarter due to higher demand across a broad range of product lines, particularly for the automotive market.
  • Gross profit was $112 million, or 38.5 percent of revenue, an increase of $2 million from the prior quarter primarily due to higher revenue, and up $14 million compared with the year-ago quarter primarily due to a combination of higher revenue and manufacturing cost reductions.
  • Operating profit was a record $77 million, or 26.6 percent of revenue, an increase of $2 million sequentially and $9 million from the year-ago quarter due to higher gross profit.

Educational & Productivity Solutions (E&PS)

  • E&PS revenue was $169 million, up $90 million sequentially due to retail stocking in preparation for the upcoming back-to-school season, and up $13 million from the year-ago quarter primarily due to higher demand for the company’s new graphing calculator products.
  • Gross profit was $99 million, or 58.3 percent of revenue, up $62 million sequentially and $10 million from the year-ago quarter due to higher revenue.
  • Operating profit was $68 million, or 40.2 percent of revenue, up $59 million from the prior quarter and $10 million from the year-ago quarter due to higher gross profit.

###

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This webcast 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 webcast 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 analog chips and digital signal processors 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;
  • 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;
  • 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, 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 “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 webcast 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:
OMAP
Digital Light Processing
DLP

Other trademarks are the property of their respective owners.