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TI Reports 4Q05 and 2005 Financial Results

4Q05 EPS Is $0.40, Including $0.03 of Stock-Based Compensation Expense

4Q05 Semiconductor Operating Margin Sets New Record

TI Achieves Record Revenue and Operating Margin for 2005

TI Board Authorizes Additional $5 Billion Stock Repurchase

Jan 23, 2006

 Non-GAAP Financial Measures Reconciliation

DALLAS (Jan. 23, 2006) – Texas Instruments Incorporated (TI) (NYSE: TXN) today reported revenue for the fourth quarter of 2005 of $3.59 billion, up 14 percent from the year-ago quarter as growth in the Semiconductor segment accelerated. Fourth-quarter revenue was even with the third quarter of 2005 as growth in semiconductors was offset by the expected seasonal decline of graphing calculator sales in the Educational & Productivity Solutions segment. For the year, TI revenue reached a record $13.39 billion, an increase of 6 percent. TI also set a new high for operating margin of 20.8 percent.

The company’s Semiconductor segment reported growth of 3 percent sequentially for revenue of $3.23 billion, a new quarterly record, and expanded its operating margin to a second consecutive quarterly high. Semiconductor revenue grew 15 percent from the year-ago quarter due to demand for TI’s digital signal processors (DSPs) and analog chips used in high-growth communications and entertainment electronics.

Earnings per share were $0.40 in the fourth quarter and were $1.39 for the year. Earnings per share include stock-based compensation expense of $0.03 in the fourth quarter and $0.07 for the year. The company began expensing stock options in the third quarter of 2005 and, therefore, equivalent stock-based compensation expense was not reflected in prior periods. Separately, the company announced that its Board of Directors has authorized a $5 billion stock repurchase. This authorization is in addition to previously announced stock repurchase authorizations.

“2005 was TI’s 75th year in operation, and as we crossed that milestone we delivered record annual results for revenue, operating profit, operating margin and operating cash flow,” said Rich Templeton, TI president and chief executive officer. “We also gained market share in our core semiconductor technologies of DSP and analog for the fourth consecutive year.

“Highlights for 2005 include a reinforced leadership position in semiconductors for wireless cell phones. We solidly achieved our goal to exceed $1 billion of semiconductor revenue in the newest cell-phone generation, known as 3G, by doubling our shipments of OMAP™ application processors and almost tripling our shipments of baseband modems. Other highlights include initial shipments of a new family of DSPs for digital video known as DaVinci™, our agreement to acquire radio frequency expert Chipcon for high-performance analog, customer sampling of our multi-mode UMTS chipset for wireless cell phones, and strong consumer acceptance of our DLP® technology in 1080p high-definition televisions.

“TI enters 2006 in excellent health. Customer and channel inventories appear lean, and demand is solid. Overall, the combination of our customers, products and manufacturing abilities will enable us to keep evolving TI into a company that produces superior revenue and earnings growth on a sustained basis.”

Gross Profit
In the fourth quarter, TI’s gross profit was $1.73 billion, or 48.3 percent of revenue. Gross profit declined $37 million from the third quarter due to a seasonal decline in the Educational & Productivity Solutions segment, which more than offset gross profit increases in the Semiconductor and Sensors & Controls segments. Gross profit increased $400 million from the year-ago quarter, primarily due to higher gross margin in Semiconductor.

For the year, gross profit of $6.36 billion, or 47.5 percent of revenue, increased 13 percent, primarily due to higher gross margin in the company’s Semiconductor segment.

Stock-based compensation expense included in cost of revenue was $17 million in the fourth quarter and $33 million for the year 2005.

Operating Expenses
In the fourth quarter, research and development (R&D) expense of $500 million, or 13.9 percent of revenue, decreased $27 million sequentially, primarily due to seasonally lower pay and benefits as employees observed holidays and took vacation time. R&D increased $13 million from the year-ago quarter. For the year, R&D expense of $2.02 billion, or 15.0 percent of revenue, increased $37 million. Stock-based compensation expense included in R&D was $27 million in the fourth quarter and $53 million in 2005.

In the fourth quarter, selling, general and administrative (SG&A) expense of $424 million, or 11.8 percent of revenue, decreased $5 million sequentially as seasonally lower pay and benefits offset higher semiconductor marketing expenses. SG&A increased $61 million from a year ago. For the year, SG&A expense of $1.56 billion, or 11.6 percent of revenue, increased 8 percent. Stock-based compensation expense included in SG&A was $42 million in the fourth quarter and $92 million in 2005.

Operating Profit
In the fourth quarter, operating profit of $810 million, or 22.6 percent of revenue, was about even sequentially as the seasonal decline in the Education Technology segment offset strong contribution from the Semiconductor segment. Operating profit increased $326 million from the year-ago quarter due to higher operating margin in Semiconductor. Semiconductor operating margin was 28.1 percent of revenue, an increase of 11.0 percentage points from the year-ago quarter.

For the year, operating profit of $2.79 billion, or 20.8 percent of revenue, increased 26 percent due to higher operating margin in Semiconductor. Semiconductor operating margin of 23.9 percent of revenue increased 5.2 percentage points from the prior year.

Total stock-based compensation expense of $86 million in the fourth quarter and $178 million in 2005 was included in corporate activities.

Other Income (Expense) Net (OI&E)
OI&E of $51 million increased $2 million sequentially, and decreased $35 million from a year ago primarily due to favorable resolution of an open sales-tax item in the year-ago quarter.

For the year, OI&E of $206 million decreased by $29 million primarily due to lower income from settlements with the Italian government related to the company’s former memory-chip operations.

Net Income
In the fourth quarter, net income was $655 million or $0.40 per share, including $0.03 of stock-based compensation expense. For the year, net income was $2.32 billion, or $1.39 per share, including $0.07 of stock-based compensation expense. The overall tax rate, which includes discrete tax items, was 24 percent for the fourth quarter and 22 percent for the year.

Orders
TI orders of $3.77 billion increased $27 million sequentially and $823 million from the year-ago quarter due to higher demand for Semiconductor products. For the year, TI orders of $13.92 billion increased 12 percent as demand grew for the company’s Semiconductor products.

Cash
Cash flow from operations of $908 million decreased $606 million sequentially and $389 million from the year-ago quarter. For the year, cash flow from operations increased 20 percent to $3.77 billion.

At the end of the fourth quarter, total cash (cash and cash equivalents plus short-term investments) was $5.34 billion, up $84 million from the end of the previous quarter and down $1.02 billion from the end of the year-ago period. During the quarter, the company repurchased $870 million of TI common stock and paid $48 million in dividends. During 2005, the company repurchased $4.15 billion of TI common stock, reducing average diluted shares outstanding by almost 100 million shares, and paid $173 million in dividends. In 2004, the company repurchased $753 million of TI common stock, and paid $154 million in dividends.

In 2005, to avail the company of tax savings provided for under the American Jobs Creation Act, TI repatriated $1.3 billion of previously undistributed earnings of non-U.S. subsidiaries. During the fourth quarter, TI’s Japan subsidiary borrowed $275 million in order to facilitate this process.

Capital Spending and Depreciation
Capital expenditures of $346 million decreased $104 million sequentially and increased $135 million from the year-ago quarter. For the year, capital expenditures of $1.33 billion increased by $32 million. TI’s capital expenditures in the fourth quarter and the year were primarily for assembly and test equipment, advanced wafer fabrication equipment and construction of the company’s new 300-millimeter manufacturing facility in Richardson, Texas.

Depreciation of $344 million increased $5 million sequentially and decreased $46 million from a year ago. For the year, depreciation was $1.38 billion, a decrease of $104 million.

Beginning in the first quarter of 2006, TI will change its method of depreciation from an accelerated to a straight-line method on its existing and future property, plant and equipment assets. This change is the result of a study that was conducted regarding the usage pattern of TI’s long-lived depreciable assets. The study indicated a trend toward more consistent utilization of assets as TI has focused its product portfolio on differentiated products and supplemented its internal semiconductor manufacturing with supply from foundries.

Accounts Receivable and Inventories

Accounts receivable of $1.81 billion at the end of the fourth quarter decreased $103 million sequentially due to seasonally lower receivables in the company’s Education Technology segment. Accounts receivable increased $116 million from the year-ago quarter due to higher revenue. Days sales outstanding were 45 at the end of the fourth quarter compared with 48 at the end of the previous quarter and 48 at the end of the year-ago quarter.

Inventory of $1.27 billion at the end of the fourth quarter increased $115 million sequentially as the company built inventory from the lower-than-desired levels of the third quarter. For the year, inventory increased by $17 million compared with the end of 2004. The increases for both the quarter and the year were primarily in work-in-process, with fourth-quarter finished goods still remaining below desired levels. Days of inventory at the end of the fourth quarter were 62 compared with 57 at the end of the previous quarter and 62 at the end of the year-ago quarter.

Outlook
TI intends to provide a mid-quarter update to its financial outlook on March 6, 2006, by issuing a press release and holding a conference call. Both will be available on the company’s web site.

The previously announced divestiture of the Sensors & Controls operations is expected to close in the first half of 2006. The financial results of this business will be accounted for as a discontinued operation beginning with the first quarter of 2006.

For the first quarter of 2006, TI expects revenue from continuing operations to be in the following ranges:

  • Total TI, $3.11 billion to $3.38 billion;
  • Semiconductor, $3.05 billion to $3.30 billion; and
  • Educational & Productivity Solutions, $60 million to $80 million.
TI expects earnings per share from continuing operations to be in the range of $0.29 to $0.33. This estimate includes about $0.04, or about $90 million, for stock-based compensation expense. Earnings per share in the first quarter will be negatively impacted by about $0.03 due to a higher expected tax rate when compared with the fourth quarter of 2005. Earnings per share from discontinued operations are expected to be about $0.03.

In 2006 for continuing operations, the estimated annual effective tax rate is about 30 percent, which is based on current tax law and does not assume reinstatement of the federal research tax credit, which expired at the end of 2005.

Also in 2006 for continuing operations, TI expects R&D expense of about $2.2 billion and capital expenditures of about $1.3 billion. Depreciation is expected to be about $1.03 billion and reflects the company’s change to a straight-line calculation. Depreciation under the company’s prior accelerated method would have been about $1.21 billion.
               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                      Consolidated Statements of Income
                   (In millions, except per-share amounts)

                               For Three Months Ended      For Years Ended
                          Dec. 31  Sept. 30   Dec. 31    Dec. 31   Dec. 31
                             2005      2005      2004       2005      2004

    Net revenue            $ 3591     $ 3590    $ 3153    $ 13392  $ 12580
    Cost of revenue (COR)    1857       1819      1819       7029     6954

    Gross profit             1734       1771      1334       6363     5626
      Gross profit % of
       revenue               48.3%      49.3%     42.3%      47.5%    44.7%

    Research and development
     (R&D)                    500        527       487       2015     1978
      R&D % of revenue       13.9%      14.7%     15.5%      15.0%    15.7%
    Selling, general and
     administrative (SG&A)    424        429       363       1557     1441
      SG&A % of revenue      11.8%      12.0%     11.5%      11.6%    11.5%

        Total operating
         expenses             924        956       850       3572     3419

    Profit from operations    810        815       484       2791     2207
      Operating profit % of
       revenue               22.6%      22.7%     15.4%      20.8%    17.5%
    Other income (expense)
     net                       51         49        86        206      235
    Interest on loans           2          2         2          9       21

    Income before income
     taxes                    859        862       568       2988     2421
    Provision for income
     taxes                    204        231        78        664      560

    Net income             $  655     $  631    $  490    $  2324  $  1861

    Basic earnings per
     common share          $  .41     $  .39    $  .28    $  1.42  $  1.08

    Diluted earnings per
     common share          $  .40     $  .38    $  .28    $  1.39  $  1.05

    Average shares
     outstanding, basic      1606       1624      1725       1640     1730

    Average shares
     outstanding, diluted    1643       1663      1759       1671     1768

    Cash dividends declared
     per share of common
     stock                 $ .030     $ .025    $ .025    $  .105  $  .089

    Stock-based compensation expense included in items above:

    COR                        17         16       ---         33      ---
      % of revenue            0.5%       0.5%      ---        0.2%     ---
    R&D                        27         26       ---         53      ---
      % of revenue            0.8%       0.7%      ---        0.4%     ---
    SG&A                       42         40         4         92       18
      % of revenue            1.2%       1.1%      0.1%       0.7%     0.1%

    Profit from operations     86         82         4        178       18
      % of revenue            2.4%       2.3%      0.1%       1.3%     0.1%



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

                                            Dec. 31    Sept. 30    Dec. 31
                                               2005        2005       2004
    Assets

      Cash and cash equivalents              $ 1219      $ 1946     $ 2668
      Short-term investments                   4116        3305       3690
      Accounts receivable, net of allowances
       for customer adjustments and doubtful
       accounts of $39 million at
       December 31, 2005, $48 million at
       September 30, 2005, $41 million at
       December 31, 2004                       1812        1915       1696

      Raw materials                             122         114        117
      Work in process                           827         719        756
      Finished goods                            324         325        383

      Inventories                              1273        1158       1256

      Deferred income taxes                     619         581        554
      Prepaid expenses and other current
       assets                                   146         177        272

      Total current assets                     9185        9082      10136

      Property, plant and equipment at cost    8921        9189       9573
      Less accumulated depreciation           (5022)      (5324)     (5655)

      Property, plant and equipment, net       3899        3865       3918

      Equity and debt investments               236         234        264
      Goodwill                                  713         708        701
      Acquisition-related intangibles            64          76        111
      Deferred income taxes                     393         413        449
      Capitalized software licenses, net        245         262        307
      Prepaid retirement costs                  210         224        277
      Other assets                              118         120        136

      Total assets                           $15063      $14984     $16299


    Liabilities and Stockholders' Equity

      Loans payable and current portion
       long-term debt                        $  301      $  303     $   11
      Accounts payable                          750         796        552
      Accrued expenses and other liabilities    998         962        892
      Income taxes payable                      163          82        203
      Accrued profit sharing and retirement     134         103        267

      Total current liabilities                2346        2246       1925

      Long-term debt                            360          55        368
      Accrued retirement costs                  136         510        589
      Deferred income taxes                      23          33         40
      Deferred credits and other liabilities    261         267        314

      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: December 31, 2005 --
       1,738,780,512; September 30, 2005 --
       1,738,650,318; December 31, 2004 --
       1,738,156,615                           1739        1739       1738
      Paid-in capital                           742         674        750
      Retained earnings                       13394       12787      11242
      Less treasury common stock at cost:
        Shares: December 31, 2005 --
        142,190,707; September 30, 2005 --
        120,597,527; December 31, 2004 --
        20,041,497                            (3856)      (3152)      (480)
      Accumulated other comprehensive income
       (loss):
      Minimum pension liability                 (65)       (158)      (168)
      Unrealized holding gains (losses) on
       investments                              (16)        (15)       (15)
      Deferred compensation                      (1)         (2)        (4)

      Total stockholders' equity              11937       11873      13063

      Total liabilities and stockholders'
       equity                                $15063      $14984     $16299



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

                                   For Three Months Ended   For Years Ended
                                Dec. 31 Sept. 30  Dec. 31   Dec. 31 Dec. 31
                                   2005     2005     2004      2005    2004
    Cash flows from
     operating activities:
      Net income                 $  655   $  631   $  490    $ 2324  $ 1861
      Adjustments to
       reconcile net income
       to net cash provided by
       operating activities:
        Depreciation                344      339      390      1375    1479
        Stock-based
         compensation                86       82        4       178      18
        Amortization of
         capitalized software*       33       32       30       127     119
        Amortization of
         acquisition-related
         costs                       13       13       16        56      70
        (Gains)/losses
         on investments*             (7)     ---        2        (2)      1
        (Gains)/losses
         on sales of assets         ---      ---      ---       (26)    ---
        Deferred income taxes       (93)     110      (41)     (194)     68
      (Increase) decrease
       from changes in:
        Accounts receivable          99      (12)     280      (139)   (238)
        Inventories                (115)      44      100       (25)   (272)
        Prepaid expenses and
         other current assets        34       58      230       117     148
        Accounts payable and
         accrued expenses           (18)     248     (116)      264     (71)
        Income taxes payable        107     (154)      63        35      59
        Accrued profit sharing
         and retirement              18       32       44      (145)    235
        Noncurrent accrued
         retirement costs          (185)       8     (168)     (166)   (248)
      Other*                        (63)      83      (27)       (7)    (83)

    Net cash provided by
     operating activities           908     1514     1297      3772    3146

    Cash flows from investing
     activities:
      Additions to property,
       plant and equipment         (346)    (450)    (211)    (1330)  (1298)
      Sales of assets               ---      ---      ---        47     ---
      Purchases of cash
       investments                (2690)   (2095)    (652)    (5851)  (3674)
      Sales and maturities
       of cash investments         1887     1147      894      5430    3809
      Purchases of equity
       investments                   (4)      (5)      (6)      (17)    (22)
      Sales of equity and
       debt investments              14       39        1        53      32
      Acquisition of
       businesses, net of
       cash acquired                 (1)     ---      ---       (19)     (8)

    Net cash provided by
     (used in) investing
     activities                   (1140)   (1364)      26     (1687)  (1161)

    Cash flows from financing
     activities:
      Proceeds from loans
       payable and long-term
       debt                         275      ---      ---       275     ---
      Payments on loans
       payable and long-term
       debt                          (1)     ---      ---       (11)   (435)
      Dividends paid on
       common stock                 (48)     (41)     (44)     (173)   (154)
      Sales and other common
       stock transactions           128      160       75       461     192
      Excess tax benefit from
       stock-option exercises        17       42      ---        59     ---
      Stock repurchases            (870)    (496)    (370)    (4151)   (753)

    Net cash used in
     financing activities          (499)    (335)    (339)    (3540)  (1150)
    Effect of exchange rate
     changes on cash                  4       (2)      10         6      15

    Net increase (decrease)
     in cash and cash
     equivalents                   (727)    (187)     994     (1449)    850
    Cash and cash equivalents,
     beginning of period           1946     2133     1674      2668    1818

    Cash and cash equivalents,
     end of period               $ 1219   $ 1946   $ 2668    $ 1219  $ 2668

     *  Certain reclassifications have been made as noted above to the 
        unaudited statement of cash flows in our January 23, 2006, press
        release on 4Q05 and 2005 financial results.  These reclassifications
        were made to reflect the current presentation. In addition,
        (gains)/losses on investments was conformed to the audited financial
        statements for the year ended December 31, 2005.
		

                         Business Segment Net Revenue
                           (In millions of dollars)

                              For Three Months Ended      For Years Ended
                          Dec. 31   Sept. 30   Dec. 31    Dec. 31  Dec. 31
                             2005       2005      2004       2005     2004

    Semiconductor
      Trade                $ 3225     $ 3134    $ 2797     $11718   $10938
      Intersegment              1          1         1          4        3

                             3226       3135      2798      11722    10941

    Sensors & Controls
      Trade                   300        278       276       1167     1124
      Intersegment              2          2         1          5        3

                              302        280       277       1172     1127

    Educational &
     Productivity Solutions
      Trade                    67        177        80        506      518

    Intersegment
     eliminations              (4)        (2)       (2)        (8)      (6)

    Total net revenue      $ 3591     $ 3590    $ 3153     $13392   $12580



                        Business Segment Profit (Loss)
                           (In millions of dollars)

                              For Three Months Ended       For Years Ended
                          Dec. 31   Sept. 30   Dec. 31    Dec. 31  Dec. 31
                             2005       2005      2004       2005     2004

    Semiconductor          $  907     $  835    $  478     $ 2797   $ 2050
    Sensors & Controls         66         60        62        266      281
    Educational &
     Productivity Solutions    10         79        16        188      176
    Corporate *              (152)      (145)      (53)      (408)    (213)
    Charges/gains and
     acquisition-related
     amortization             (21)       (14)      (19)       (52)     (87)

    Profit from operations $  810     $  815    $  484     $ 2791   $ 2207

     *  Profit from operations includes, in millions of dollars, stock-based
        compensation expense of $86, $82 and $4 for the fourth quarter and
        third quarter of 2005 and the fourth quarter of 2004, and $178 and
        $18 for the years ended December 31, 2005 and 2004.


Semiconductor

  • Revenue of $3.23 billion in the fourth quarter increased $91 million sequentially, or 3 percent, and increased 15 percent from the year-ago quarter primarily due to demand for the company’s wireless and high-performance analog products. Revenue from wireless products grew 4 percent sequentially and 12 percent from a year ago. Revenue from high-performance analog products grew 8 percent sequentially and 41 percent from a year ago. For the year, Semiconductor revenue of $11.72 billion increased 7 percent primarily due to demand for wireless products, which grew 14 percent, as well as high-performance analog products, which grew 13 percent.
  • Gross profit in the fourth quarter was $1.63 billion, or 50.7 percent of revenue. Gross profit increased $40 million sequentially due to manufacturing cost reductions and increased $429 million from the year-ago quarter, primarily due to higher revenue, as well as manufacturing cost reductions and higher utilization of manufacturing assets. For the year, gross profit of $5.73 billion, or 48.9 percent of revenue, increased $767 million, primarily due to manufacturing cost reductions, as well as higher revenue.
  • Operating profit in the fourth quarter was $907 million, or 28.1 percent of revenue, up $72 million sequentially due to higher gross profit and lower operating expenses. Compared with the year-ago quarter, operating profit increased $429 million due to higher gross profit. For the year, operating profit was $2.80 billion, or 23.9 percent of revenue, up $747 million due to higher gross profit.
  • Analog revenue in the fourth quarter increased 2 percent sequentially and 20 percent from the year-ago quarter due to demand for high-performance analog products, as well as wireless analog products. For the year, analog revenue increased 4 percent primarily due to growth in demand for high-performance analog products, which more than offset the loss of revenue from the company’s commodity liquid crystal display (LCD) driver product line that was divested in the first quarter of 2005. In 2005, about 40 percent of total Semiconductor revenue came from analog.
  • DSP revenue in the fourth quarter increased 2 percent sequentially and 12 percent from the year-ago quarter, primarily due to higher demand from the wireless market. For the year, DSP revenue increased 15 percent primarily due to demand for wireless products. In 2005, about 40 percent of total Semiconductor revenue came from DSP.
  • TI’s remaining Semiconductor revenue in the fourth quarter grew 7 percent sequentially and 13 percent from the year-ago quarter. The sequential increase was primarily due to demand for commodity standard logic products, and the increase from a year ago primarily was due to demand for commodity standard logic products, DLP products and microcontrollers. For the year, remaining Semiconductor revenue increased 2 percent primarily due to demand for RISC microprocessors and microcontrollers that offset a decline in DLP products.
  • Semiconductor orders of $3.39 billion in the fourth quarter increased 2 percent sequentially, primarily due to demand for high-performance analog products and increased 31 percent from a year ago due to broad-based demand. For the year, orders increased 13 percent to $12.23 billion due to broad-based demand for the company’s DSP and analog products.

Latest Semiconductor Highlights

  • In the fourth quarter, TI began sampling a multi-mode UMTS chipset developed with NTT DoCoMo based on TI's high-performance OMAP™ 2 architecture to serve the worldwide 3G cell-phone market.
  • The first DaVinci DSP-based solutions became available in the fourth quarter, enabling digital video innovation, saving development time and lowering overall system costs.
  • A 14-bit, 190MSPS (mega samples per second) analog-to-digital converter began sampling in the fourth quarter. With best-in-class dynamic performance and low total power dissipation, it is ideal for wireless communications, video and imaging, test and measurement, and instrumentation applications.
  • Initial Hollywood™ chips, which enable broadcast TV on cell phones, started being delivered to customers this quarter. Initial cell phones that use this 90-nanometer technology are expected to be on the market in late 2006.
  • TI qualified its advanced 65-nanometer process technology in the fourth quarter and moved to volume manufacturing, providing more processing performance for advanced applications in a smaller space without increasing power consumption.
  • TI introduced a new DLP HDTV solution that supports light-emitting diode (LED) light sources. Samsung is expected to ship HDTVs based on the technology in 2006.
  • Landmark Theatres has chosen DLP Cinema® technology as a preferred digital projection technology for its theater chain.
  • TCL Communication Technology has selected TI’s 2.5G wireless platform, including its DRP™-based, single-chip cell-phone technology, for low-cost handsets.
  • TI is expanding its high-performance analog portfolio with the announced acquisition of Chipcon, a leading supplier of low-power, radio-frequency transceiver technology.

Sensors & Controls

  • Revenue in the fourth quarter was $302 million, up $22 million sequentially primarily due to higher shipments of sensor products, and up $25 million from the year-ago quarter due to demand for sensors. For the year, revenue was $1.17 billion, up 4 percent due to higher demand for sensor products.
  • Gross profit in the fourth quarter was $98 million, or 32.3 percent of revenue, up $5 million sequentially due to higher revenue, and about even with the year-ago quarter. For the year, gross profit was $404 million, or 34.5 percent of revenue, a decrease of $19 million from the prior year primarily due to start-up costs.
  • Operating profit in the fourth quarter was $66 million, or 21.7 percent of revenue, up $6 million sequentially due to higher gross profit and up $4 million from the year-ago quarter due to lower operating expenses. For the year, operating profit was $266 million, or 22.7 percent of revenue, a decrease of $15 million from the prior year due to lower gross profit.

Educational & Productivity Solutions

  • Revenue in the fourth quarter was $67 million, down $110 million sequentially due to the seasonal decline for graphing calculators, and down $13 million from the year-ago quarter primarily due to tighter inventory management at retail customers. For the year, revenue was $506 million, down 2 percent primarily due to tighter inventory management at retail customers.
  • Gross profit in the fourth quarter was $35 million, or 52.4 percent of revenue, down $75 million sequentially and $7 million from the year-ago quarter due to lower revenue. For the year, gross profit of $300 million, or a record 59.2 percent of revenue, increased $8 million, primarily due to lower manufacturing costs.
  • Operating profit in the quarter was $10 million, or 15.1 percent of revenue, a decrease of $69 million, and down $6 million from the year-ago quarter due to lower gross profit. For the year, operating profit was a record $188 million, or 37.2 percent of revenue, an increase of $12 million due to higher gross profit.

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“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 the Company or its management:

  • Market demand for semiconductors, particularly for analog chips and digital signal processors 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;
  • 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;
  • Natural events such as severe weather and earthquakes in the locations in which TI, its customers or suppliers operate;
  • Availability and cost of raw materials, utilities and critical manufacturing equipment;
  • 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 company forecasts;
  • The financial impact of inadequate or excess TI inventories to meet demand that differs from projections;
  • Product liability or warranty claims, 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 “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 release 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
DaVinci
DLP
Hollywood
DLP Cinema
DRP

Other trademarks are the property of their respective owners.