01—Abstract
Summary
Summary of the 10-K filed February 23, 2010. Cited figures are marked; the original filing is the authoritative source.
Texas Instruments' 2009 10-K shows a company that absorbed a steep cyclical downturn while protecting profitability and positioning for recovery.
Revenue fell 17% to $10.43 billiona from $12.50 billion, gross margin compressed to 47.9% from 50.0%, and operating margin held at a respectable 19.1%. Net income declined to $1.47 billion (diluted EPS $1.15, versus $1.44 in 2008). The decline was driven by Wireless baseband weakness (Wireless revenue down 24%) and high-volume analog & logic softness, partly offset by cost discipline: R&D fell 24% to $1.48 billion and SG&A fell 18%, supported by roughly 3,900 job eliminations completed in 2009.
Management also reported that revenue growth resumed sequentially in Q2 2009 and year-over-year in Q4, with record operating margin in the fourth quarter. The filing signals a strategic pivot toward Analog and Embedded Processing as the company's primary growth engines. TI is exiting standard baseband and custom baseband investment, with baseband revenue ($1.73 billionb in 2009) expected to largely cease by the end of 2012.
It is also discontinuing advanced logic manufacturing R&D in favor of foundry partners, while investing in a 300-mm analog wafer factory in Richardson, Texas, and a new assembly/test site in the Philippines, both purchased in a weak market. Balance sheet strength is evident: $2.92 billionc in cash and short-term investments, no debt, $2.6 billion of remaining buyback authorization, and $2.64 billion in operating cash flow.
Investors should note the concentration risk: Nokia accounted for about 21% of 2009 revenue, and about 90% of revenue came from outside the U.S. For 2010, management guided R&D to about $1.5 billiond and expects an effective tax rate of about 31%, up from 27% in 2009, as the federal R&D tax credit expired at year-end 2009 and is not assumed reinstated. Shareholder returns were maintained with dividends of $0.45 per share in 2009 (up from $0.41), alongside $954 million of share repurchases.
02—Key points
Key Highlights
- Revenue declined 17% to $10.43B in 2009, but operating profit was $1.99B (19.1% margin) and net income was $1.47B (diluted EPS $1.15)
- Analog (about 41% of revenue, $4.27B) is the largest segment and the company's stated primary growth engine; TI estimates a 13% share of a $32B analog market, the leading position
- Wireless revenue fell 24% to $2.56B as baseband wound down; baseband revenue of $1.73B is expected to cease by end of 2012, shifting focus to OMAP applications processors and connectivity products
- Strong liquidity: $2.92B in cash and short-term investments, no debt, $1B multi-year revolver, and $2.64B in operating cash flow
- Customer concentration: Nokia was about 21% of 2009 revenue; about 90% of revenue came from outside the U.S.
- Backlog rose to $1.79B at year-end 2009 from $0.86B a year earlier, signaling demand recovery; R&D fell 24% to $1.48B and SG&A fell 18% after ~3,900 job cuts
- 2010 guidance: R&D of about $1.5B and an effective tax rate of about 31% (up from 27%), assuming the federal R&D tax credit is not reinstated
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Texas Instruments kept $0.14.
- Revenue$10.43B100.0%
- Cost of revenue−$5.43B52.1%
- Gross profit$5.00B47.9%
- Operating costs−$3.01B28.8%
- Operating income$1.99B19.1%
- Interest, other & tax−$521.0M5.0%
- Net income$1.47B14.1%
Where FY2009 revenue went
$10.43B- Cost of revenue: $5.43B, 52% of revenue
- R&D: $1.48B, 14% of revenue
- Net income: $1.47B, 14% of revenue
- SG&A: $1.32B, 13% of revenue
- Other operating costs: $212.0M, 2.0% of revenue
- Interest, other & tax: $521.0M, 5.0% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 23, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $10.43B$12.50B | −16.6% |
| Cost of Revenue | $5.43B$6.26B | −13.2% |
| Gross Profit | $5.00B$6.25B | −20.0% |
| R&D Expenses | $1.48B$1.94B | −23.9% |
| SG&A Expenses | $1.32B$1.61B | −18.2% |
| Operating Income | $1.99B$2.44B | −18.3% |
| Net Income | $1.47B$1.92B | −23.4% |
| EPS (Basic) | $1.16$1.46 | −20.5% |
| EPS (Diluted) | $1.15$1.44 | −20.1% |
| Shares Outstanding (Basic) | 1.26B1.31B | −3.7% |
| Shares Outstanding (Diluted) | 1.27B1.32B | −3.9% |
05—Questions
Frequently Asked Questions
How did Texas Instruments perform financially in 2009 compared with 2008?
Revenue fell 17% to $10.43 billion from $12.50 billion, and gross margin dropped to 47.9% from 50.0%. Operating profit declined 18% to $1.99 billion, and net income fell to $1.47 billion from $1.92 billion. Diluted EPS was $1.15, compared with $1.44 in 2008. Lower revenue and reduced factory utilization drove the decline, partly offset by lower R&D, SG&A and restructuring costs.
Why is TI reducing its exposure to baseband chips?
Management described the baseband market as having shrinking competitive barriers and slowing growth. TI discontinued standard baseband development and essentially all custom baseband investment, redirecting resources to OMAP applications processors and connectivity products, which it expects to grow faster. Baseband revenue was $1.73 billion in 2009, and substantially all of it is expected to cease by the end of 2012.
What are the main risks investors should watch?
Key risks include cyclicality in the semiconductor market, a large fixed-cost manufacturing base that can compress margins when utilization falls, and customer concentration, with Nokia at about 21% of revenue. Other risks include exposure to international operations (about 90% of revenue from outside the U.S.), dependence on a limited number of foundry and subcontract partners, the expiration of the federal R&D tax credit that raises the expected 2010 tax rate, and ongoing auction-rate securities exposure ($458 million classified as Level 3).
Is TI's balance sheet and capital position sound?
Yes. TI ended 2009 with $2.92 billion in cash and short-term investments, no outstanding debt, and an undrawn $1 billion multi-year credit facility plus a $175 million Japan facility. Working capital was $4.53 billion and stockholders' equity was $9.72 billion. TI repurchased $954 million of stock and paid $567 million in dividends in 2009, with $2.6 billion of buyback authorization remaining. Management believes resources are sufficient for at least the next 12 months.
What is TI's growth strategy going forward?
TI is concentrating investment on Analog and Embedded Processing, which it expects to be its primary growth engines. Investments include the first 300-millimeter analog wafer factory in Richardson, Texas, a new assembly/test facility in the Philippines, and acquisitions such as CICLON (power management) and Luminary Micro (microcontrollers). TI is also shifting advanced logic manufacturing to foundry partners and reducing spending on baseband products, aiming to focus R&D on higher-growth areas.
06—Continue