01—Abstract
Summary
Summary of the 10-K filed February 24, 2014. Cited figures are marked; the original filing is the authoritative source.
Texas Instruments reported 2013 revenue of $12.21 billiona, down 5% from $12.83 billion in 2012, as the decline in its exited legacy wireless products offset growth in its core businesses.
Core Analog and Embedded Processing together made up 79% of revenue. Analog revenue rose 3% to $7.19 billionb at a 25.8% operating margin, while Embedded Processing grew 9% to $2.45 billion but earned only a 7.6% operating margin. Operating profit jumped to $2.83 billion (23.2% of revenue) from $1.97 billion, helped by a $315 million gain on the transfer of wireless connectivity technology and a sharp drop in restructuring charges.
Diluted EPS rose to $1.91c from $1.51. Gross margin improved to 52.1% from 49.6%, reflecting a richer product mix and lower manufacturing costs. Cash generation stayed strong, with operating cash flow of $3.38 billion and free cash flow of $2.97 billion (24% of revenue).
TI returned more than $4 billiond to shareholders through $2.87 billion of buybacks and $1.18 billion of dividends, and the quarterly dividend was raised from $0.21 to $0.30 during 2013. The balance sheet remains solid, with $3.83 billion in cash and short-term investments against $5.1 billion of gross debt. Management is also cutting about 1,100 jobs in Embedded Processing and Japan, targeting roughly $130 million of annualized savings by the end of 2014, which signals a push to improve the weaker Embedded Processing margins.
The main risks for investors are cyclicality in the semiconductor market, heavy exposure to the mobile phone and industrial markets, and the fact that about 85% of revenue comes from outside the U.S., with China a major share. Because most of its manufacturing capacity is owned, a large share of costs is fixed, so margins are sensitive to swings in volume and utilization.
02—Key points
Key Highlights
- Revenue fell 5% to $12.21B, but gross margin rose to 52.1% from 49.6% on a better product mix and lower manufacturing costs.
- Operating profit rose 44% to $2.83B (23.2% of revenue), helped by a $315M gain on a wireless technology transfer and lower restructuring charges.
- Analog, TI's largest segment at $7.19B (about 18% of a roughly $40B market), grew 3% with a 25.8% operating margin.
- Embedded Processing grew 9% to $2.45B, but its 7.6% operating margin remains well below Analog's and is the focus of the January 2014 restructuring.
- Free cash flow was $2.97B (24% of revenue), and TI returned over $4B to shareholders through $2.87B of buybacks and $1.18B of dividends.
- Diluted EPS increased to $1.91 from $1.51, and the quarterly dividend was raised from $0.21 to $0.30 during 2013.
- About 85% of revenue comes from outside the U.S., and the company carries significant fixed manufacturing costs, which increase margin sensitivity to demand swings.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Texas Instruments kept $0.17.
- Revenue$12.21B100.0%
- Cost of revenue−$5.84B47.9%
- Gross profit$6.36B52.1%
- Operating costs−$3.53B28.9%
- Operating income$2.83B23.2%
- Interest, other & tax−$707.0M5.8%
- Net income$2.13B17.4%
Where FY2013 revenue went
$12.21B- Cost of revenue: $5.84B, 48% of revenue
- Net income: $2.13B, 17% of revenue
- SG&A: $1.86B, 15% of revenue
- R&D: $1.52B, 12% of revenue
- Other operating costs: $152.0M, 1.2% of revenue
- Interest, other & tax: $707.0M, 5.8% of revenue
Kept 17% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 24, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $12.21B$12.82B | −4.8% |
| Cost of Revenue | $5.84B$6.46B | −9.5% |
| Gross Profit | $6.36B$6.37B | −0.1% |
| R&D Expenses | $1.52B$1.88B | −18.9% |
| SG&A Expenses | $1.86B$1.80B | +3.0% |
| Operating Income | $2.83B$1.97B | +43.5% |
| Net Income | $2.13B$1.76B | +20.8% |
| EPS (Basic) | $1.94$1.53 | +26.8% |
| EPS (Diluted) | $1.91$1.51 | +26.5% |
| Shares Outstanding (Basic) | 1.10B1.13B | −3.0% |
| Shares Outstanding (Diluted) | 1.11B1.15B | −2.9% |
05—Questions
Frequently Asked Questions
Why did revenue decline in 2013 while operating profit increased sharply?
Revenue fell $620M, or 5%, mainly because TI exited legacy wireless products (baseband and OMAP) and their revenue is reported in Other. Operating profit rose to $2.83B from $1.97B for several reasons: gross margin improved to 52.1%, the wireless business had lower operating expenses, restructuring charges fell, and TI recognized a $315M gain on transferring wireless connectivity technology to a customer.
How strong are the Analog and Embedded Processing businesses?
Analog is the stronger business, with $7.19B in revenue (up 3%) and a 25.8% operating margin, and it is the market leader with about 18% share of a fragmented market. Embedded Processing grew 9% to $2.45B and holds the number two position with about 14% share, but its 7.6% operating margin is much lower. TI expects that margin to improve as growth and resource alignment progress, and the January 2014 cost actions are aimed at that.
How is TI returning capital to shareholders?
In 2013 TI repurchased $2.87B of stock (77.6 million shares) and paid $1.18B in dividends. The quarterly dividend rose from $0.21 to $0.30 during the year, equal to an annualized $1.20 per share. As of year-end $6.0B of repurchase authorization remained, with no expiration date.
What are the main risks to TI's business?
The main risks include the cyclical semiconductor market, heavy dependence on the mobile phone and industrial markets, and international exposure, since about 85% of revenue comes from outside the U.S. and China is a large share. Other risks include the high fixed costs of owned fabs, which hurt margins when utilization falls, pricing pressure from competitors (particularly emerging Asian firms), distributor concentration (about 55% of revenue), and IP and tax-related uncertainty.
06—Continue