Analyst Conference Summary

Texas Instruments

conference date: July 23, 2007 @ 2:30 PM Pacific Time
for quarter ending: June 30, 2007 (2nd quarter)

Forward-looking statements

Overview: Sequential revenue growth shows renewed strength.

Basic data:

Revenues from continuing operations were $3.42 billion, up 7% sequentially but down 7% from year-earlier. Hit middle of guidance range.

Net income from continuing operations was $614 million.

Earnings per share (EPS) were $0.42, up 20% sequentially from $0.37 but down 11% from year-earlier. Neglecting year-earlier special items, earnings were flat.


For Q3 2007 revenues expected between $3.49 and $3.79 billion. EPS $0.46 to $0.52. Does not include expected gain on sale of a division.

Conference Highlights:

"We see potential to expand our margins, and we recently raised our profitability goals to 55% gross margin and 30% operating margin."

All results are for continuing operations.

Gross profit was $1.78 billion, or gross margin of 52.1%. Operating profit was $809 million, or 23.6% of revenue.

R&D expense was $551 million. SG&A was $424 million. Capital spending was $174 million. Depreciation $256 million. Operating expense grew slower than revenues.

Other income was $56 million.

Orders were $3.45 billion, up 8% sequentially. Demand for calculators increased sequentially and year-over-year, even though some apparently is shifting to Q3.

Cash flow from operations was $898 million. It increased due to lessened working capital requirements. Total cash and equivalents ended at $3.58 billion, up $245 million sequentially. $742 million was used to repurchase 21 million shares of stock. $115 million went to dividends. $43 million of debt was retired.

Accounts receivable increased $141 million to $1.9 billion; inventory increased $15 million to $1.42 billion.

By segment Semiconductor revenue was $3.26 billion and Education Technology contributed $167 million. Demand was higher for DSP and analog, especially high-performance applications. Analog product revenue was $1.27 billion. DSP $1.24 billion. LoCosto single chip cell phone platform was chosen by Lenovo for new family of phones.

Confident of TI position in cell phone market. Announced Ericson deal for 3G today. But hand sets won't be available until 2nd half of 2008. Plans for analog to continue to grow as part of the mix.


Inventories in channel, customer demand? Inventories are in pretty good shape. Lead times are stable. Sell into channel was less than sell out.

Wireless visibility? 3G maintained double digit sequential growth, stronger than we expected. At low end had mixed results. Once customer refused low-end opportunities because of pricing.

One months worth of DSL division for sale revenue is included in EPS guidance, but no gain on sale.

Analog color? Best growth in high-performance analog (HPA). DSL and wireless LAN were not as strong.

Inventory positioning? Trying to have at finished good level for good lead times. So on average inventories will be higher in future than in past.

Ericson has diversified supplier base in last year, but now we have re-engaged them.

Profitability of wireless market? It always has been competitive. Diversity used to be across functions, but now integrated into a single chip. Don't believe supplier diversification will affect margins.

Catalog analog business? Did not slow during quarter. Did not do as well as high-performanc analog. Infrastructure and DSP video were a bit weaker than expected.

How are you figuring book-to-bill versus guiding up? Trend of book to bill is up, sales are growing faster than revenues. EDI customer visibility is good, so we have a high degree of confidence in our guidance. Appears we are coming out of the correction cycle. DLP was up over 20% sequentially as excess projector inventory was cleared out.

HPA margins? Just depends on what opportunities we are addressing and allocation of resources. But has steadily improved for a number of years and is only in the low end of our target range.

Depreciation going forward? Expect about $1 billion of depreciation in 2007, and are running to that.

Excess digital capacity? Actually, digital is mostly outsourced. We have a lot of analog capacity, which is one reason we can still increase margins.

Cash usage in 2nd half? Used $742 million for chair repurchase in quarter, also doubled dividend. Share count stabilized because of employee exercises. $3.8 billion of authorization to buy more shares.

Could we already be heading toward another down cycle? No signs of that. All signs are to increasing demand and lean inventories.

DSL division being sold? $250 million annual revenue.

LoCosta? Have engagements with 15 customers at this point, over 50 models will be on the market in 2008.

Mototola troubles? Would not read to much into it. We do compete at low end with them.

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Copyright 2007 William P. Meyers