10-KPeriod: FY2016

TEXAS INSTRUMENTS INC Annual Report, Year Ended Dec 31, 2016

Filed February 23, 2017For Securities:TXN

Summary

Texas Instruments Inc. (TXN) reported strong performance in its 2016 fiscal year, driven by its core Analog and Embedded Processing segments, which accounted for 86% of its revenue. The company generated $13.37 billion in revenue and demonstrated robust profitability with a gross margin of 61.6%. A key focus for TI is its business model centered on differentiated analog and embedded processing semiconductors, supported by a strong manufacturing base and broad market channels. This strategy aims to deliver stable, profitable growth and strong free cash flow generation. TI's financial health appears solid, with significant free cash flow and a commitment to returning value to shareholders through dividends and stock repurchases. The company returned $3.78 billion to investors in 2016. While facing a competitive and cyclical semiconductor market, TI's diversified product portfolio and market reach position it well for continued long-term growth and shareholder value creation. The company also highlighted its strategic investments in R&D, particularly in its core segments, to maintain its competitive edge.

Financial Highlights

54 data points
Beta

Revenue

$13.37B

61.8% Gross Margin

Net Income

$3.60B

26.9% Net Margin

EPS (Diluted)

$3.48

Total Assets

$16.43B

Cash & Equivalents

$1.15B

Free Cash Flow

$4.08B

Financial Statements
Beta
Revenue$13.37B
Cost of Revenue$5.11B
Gross Profit$8.26B
R&D Expenses$1.36B
SG&A Expenses$1.74B
Operating Income$4.86B
Net Income$3.60B
EPS (Basic)$3.54
EPS (Diluted)$3.48
Shares Outstanding (Basic)1.00B
Shares Outstanding (Diluted)1.02B

Key Highlights

  • 1Revenue for 2016 reached $13.37 billion, a 3% increase from 2015, driven by growth in Analog and Embedded Processing segments.
  • 2Gross profit margin improved to 61.6% in 2016 from 58.2% in 2015, indicating enhanced profitability.
  • 3Free cash flow generation remained strong, reaching $4.08 billion in 2016, representing 30.5% of revenue, and demonstrating the company's efficient operations and capital management.
  • 4Texas Instruments returned $3.78 billion to shareholders in 2016 through dividends ($1.65 billion) and stock repurchases ($2.13 billion), underscoring a commitment to shareholder value.
  • 5The company continued to invest heavily in Research and Development (R&D), with R&D expenses increasing to $1.37 billion in 2016, reflecting a strategic focus on innovation.
  • 6The Analog segment, the largest contributor to revenue (64%), saw revenue growth of 2% and operating profit growth of 11% in 2016, highlighting its strength and market leadership.
  • 7The Embedded Processing segment showed robust growth, with revenue up 8% and operating profit up 34% in 2016, indicating increasing demand and market penetration.

Frequently Asked Questions

Texas Instruments operates through two main reportable segments: Analog and Embedded Processing, with remaining activities categorized under 'Other'. In 2016, the Analog segment generated $8.54 billion in revenue and saw an 11% increase in operating profit. The Embedded Processing segment generated $3.02 billion in revenue and experienced a significant 34% increase in operating profit. Together, these two segments constituted 86% of the company's total revenue.

Texas Instruments demonstrated strong financial discipline in 2016. Cash flow from operations was $4.61 billion, leading to free cash flow of $4.08 billion, or 30.5% of revenue. The company prioritized returning capital to shareholders, distributing $3.78 billion through $1.65 billion in dividends and $2.13 billion in stock repurchases.

Texas Instruments identified several key risks. These include intense competition in the semiconductor market, rapid technological changes requiring continuous innovation, fluctuations in customer demand and the cyclical nature of the semiconductor industry, global economic and political conditions affecting international operations, supply chain disruptions, and the potential for breaches or disruptions to its information technology systems. The company also noted risks associated with legal and regulatory compliance, product liability claims, and tax-related matters.

Texas Instruments is strategically focusing its resources on its Analog and Embedded Processing segments, which are characterized by long product life cycles and stable demand. The company invests heavily in R&D, exceeding $1 billion annually, to develop new products. Its manufacturing strategy involves owning significant capacity, acquiring facilities ahead of demand to reduce costs, and leveraging mature manufacturing processes that are less capital-intensive. This approach aims to enhance profitability and maximize long-term free cash flow generation.