Analyst Conference Summary

Texas Instruments

conference date: April 23, 2007 @ 2:30 PM PT
for quarter ending: March 31, 2001 (1st quarter)

Forward-looking statements

Overview: Really bad quarter, but thinks Q2 will be better.

Basic data:

Revenues were $3.2 billion, down 8% sequentially and 4% from year-earlier.

Net income was $516 million. That is down 23% from $$671 million in Q4 2006 and down 5% from $542 million in Q1 2006.

Earnings from continuing operations were $0.35 per share, down 22% sequentially from $0.45.

Cash and equivalents ended at $3.34 billion. $554 cash flow from operations.


For Q2 2007 revenues will be $3.32 to $3.60 billion. EPS $0.39 to $0.45.

Effective tax rate in 2007 about 28%. Capital expenditures for the year $0.9 billion, depreciation about $1.0 billion, R&D expense $2.2 billion.

Conference Highlights:

Did better than the last cyclical trough. Believes now coming out of trough.

Inventory correction ended in Q1; orders are rebounding in Q2.

Will seek more of analog market. Is already leading global supplier, but has small percentage of the market (13%).

R&D expense was $552 million. SG&A expense was $405 million. Capital expenditures were $179 million. Depreciation was $252 million.

Accounts receivable was flat at $1.76 billion. Inventory was $1.41 billion, a reduction of $28 million from the prior quarter.

Stock repurchases were $857 million for 28 million shares. Paid $58 million in dividends.

Semiconductor revenues were $3.12 billion, down 8% sequentially. Analog down 5%, DSP down 5%, remainder 17% down. Education technology was $76 million. Education technology to increase to $180 million in Q2 as calculators are restocked for back-to-school sales.

New products were introduced in the quarter, notably a single-chip platform for the ultra-low cost cell phone market.

DSP did grow in automotive navigation and industrial control segments. Wireless applications declined 7% sequentially and 9% from year-earlier. 3G revenue was about even, while low and mid-range revenue declined. DLP market was down 30% sequentially and 15% from year-ago.

Had a big design win at Motorola for 3G.

Gross margin was 51.3%, up .8% sequentially.

$78 million in stock option compensation expense.

Book to bill was .99.

Doubled dividend last week.


Order trend color? No particular end market is showing strength. Recover to be broad based.

LoCosto? Expects no major impact on near term outlook. Had great ramp in Q4 2006 and did well in Q1.

How much of a bounce is this? Daily sales trend turned corner in March, up 20% over February. To date in April sales are good. One quarter of revenue is on consignment. We get production planning information, but no order until customer needs product.

Expects to continue to gain share in analog market. Has gained quite a bit of share in the past 5 years.

Motorola was already a client for low end phones. Now TI chips are going into mid-range and 3G phones. But development will take a while; probably won't see 3G product until 2008. But TI will not be the only supplier for Motorola. TI also has its single-chip platform in production at Nokia.

Typical historical sequential growth for Q2 is 3 to 4%; they are guiding to less than that.

Japanese 3G handset makers have moved away from targetting international market and prefer Japanese ASIC makers as suppliers.

3G growth source? Custom solutions for our larger customers.

Inventory guidance? Strategy is consistent with anticipated demand.

Operating expense going forward? Closing an 8" fab and outsourcing silicon process development. R&D reduction of $100 million for 2007 from prior guidance.

Market analysts believe 3G market to grow between 70 and 80% in units 2007 over 2006.

Is it possible 2007 may resemble 2006 with rising lead times leading to overordering and then inventory correction? Took care of bottlenecks in capacity, so should be able to meet customer needs.

Gross margin potential? Does believe can increase gross margins over time, largely because analog margins tend to be better than other segments and plan to grow analog.

How are you going to drive your analog growth? Organic growth, but could use acquisitions in special situations.

Manufacturing strategy is to keep TI factories at full output, with outsourcing to satisfy rest of market.

Has used $10.7 billion cash over the past 10 or so quarters to buy back 17% of shares. Will continue measured approach.

Long term cap ex plan? Mid to upper single digit range (cap ex as % of revenue).

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers