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Texas Instruments Annual Report, Year Ended Dec 31, 1997

Filing Date
Filed February 23, 1998
Period End
December 31, 1997
Security
TXN
In the record · 2016–202610-K1110-Q338-K110

TXN filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 110 current reports (8-K) between 2016 and 2026.

  1. FY2018 annual report10-K · Feb ’19Feb ’19
  2. Leadership change8-K · Dec ’21Dec ’21
  3. Leadership change8-K · Oct ’25Oct ’25

01—Abstract

Summary

Summary of the 10-K filed February 23, 1998. Cited figures are marked; the original filing is the authoritative source.

Texas Instruments' 1997 10-K shows a company in transition.

Reported net income more than tripled... no wait, net income rose to $1,805 milliona from $63 million in 1996, but this figure is inflated by a one-time $1,473 million after-tax gain on the sale of its Defense Systems and Electronics (DSE) business to Raytheon for $2.95 billion. Income from continuing operations was only $302 million, or $0.76 diluted EPS, after a $461 million charge for acquired in-process R&D (mainly the Amati Communications acquisition) and $532 million of net special charges. Excluding special items, management cites diluted EPS of $2.03 from continuing operations versus $0.74 in 1996.

Revenue fell 2% to $9.75 billionb, but excluding businesses sold, revenue grew 10% and orders rose 19%, driven by digital signal processors (DSPs) and mixed-signal/analog products. Semiconductors, 83% of revenue, is the core story. Segment operating margin recovered to 16.7% from 10.6% as non-memory products (DSPs, analog, microcontrollers) grew, while DRAM prices kept falling and memory revenue dropped about $400 million.

The balance sheet strengthened markedly: cash plus short-term investments reached $3.02 billionc, debt-to-capital fell to 0.19 from 0.33, and total stockholders' equity rose to $5.9 billion. Management guided to 1998 semiconductor market growth of about 10%, with DSP and mixed-signal growth near 30%, but warned of near-term pressure from DRAM volatility and Asian economic weakness. Its planned joint venture exit with Hitachi and a Q1 1998 special charge are notable forward-looking items.

For investors, the headline net income figure overstates the underlying earnings power of the business. The key questions are whether DSP growth can offset memory weakness, whether 1998 capital spending (constrained to $1.4 billion) and R&D (raised to $1.3 billiond) will pressure margins, and how the Kilby patent litigation and joint venture restructuring play out.

02—Key points

Key Highlights

  1. Reported 1997 net income of $1,805M (vs. $63M in 1996), driven by a $1,473M after-tax gain on the sale of the Defense Systems and Electronics business to Raytheon.
  2. Continuing-operations diluted EPS was $0.76, but management cites $2.03 excluding special items, versus $0.74 in 1996.
  3. Net revenues fell 2% to $9,750M; excluding divested businesses, revenues rose 10% and orders rose 19%.
  4. Semiconductor operating margin improved to 16.7% from 10.6%, led by DSP and mixed-signal/analog growth (DSP orders up over 40%) despite a roughly $400M decline in memory revenue.
  5. Balance sheet strengthened: cash and short-term investments of $3,020M, long-term debt reduced to $1,353M, and debt-to-capital ratio of 0.19 (from 0.33).
  6. Significant charges: $461M acquired in-process R&D from Amati Communications, $42M materials & controls restructuring, and a planned Q1 1998 special charge tied to exiting a DRAM joint venture with Hitachi.
  7. 1998 outlook: semiconductor market growth of about 10%, DSP and mixed-signal growth of about 30%, R&D rising to $1.3B, and capital expenditures constrained to $1.4B.

03—Questions

Frequently Asked Questions

  1. Why did net income jump so sharply in 1997?

    Net income of $1,805M includes a $1,473M after-tax gain on selling the Defense Systems and Electronics business to Raytheon for $2.95B in cash. Income from continuing operations was only $302M, so the sale accounts for most of the increase and is non-recurring.

  2. What are the company's underlying earnings excluding one-time items?

    Management reports diluted EPS from continuing operations of $2.03 excluding special items, compared with $0.74 in 1996. Special items totaled $1.27 per share in 1997, including the $461M Amati in-process R&D charge, a $56M mobile computing charge, and a $44M Thailand joint venture termination, partly offset by a $66M gain on software and other divestitures.

  3. How dependent is TI on memory chips, and what is the risk?

    Semiconductors made up 83% of revenue. Memory, mostly DRAMs, is now under 20% of semiconductor sales in Q4 1997 and is hurt by sharp DRAM price declines, with memory revenue down about $400M in 1997. Non-memory products such as DSPs and mixed-signal devices are the growth engine, and the company is exposed to continued DRAM volatility through its joint ventures and purchase commitments, which cost $977M in 1997.

  4. What does the Kilby patent litigation mean for investors?

    TI's Kilby patent suit against Fujitsu was lost at the Tokyo High Court in September 1997, and the Japan Patent Office invalidated the patent in November 1997. TI is appealing both rulings. The Kilby patent expires in 2001, and management does not expect either appeal to be material.

  5. What should investors watch in 1998?

    Watch the Q1 1998 special charge from exiting the Hitachi DRAM joint venture, the first-quarter pressure on revenue and margins from DRAM volatility and Asian economic weakness, the rise in depreciation to about $1.3B, the higher R&D budget of $1.3B, and whether DSP and mixed-signal growth of about 30% holds.

04—Continue

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