01—Abstract
Summary
Summary of the 10-K filed February 22, 2018. Cited figures are marked; the original filing is the authoritative source.
Texas Instruments Inc. (TXN) reported strong performance for the fiscal year ended December 30, 2017, driven by its core Analog and Embedded Processing segments.
The company generated $14.96 billiona in revenue, a 12% increase year-over-year, primarily due to robust demand in the industrial and automotive markets. Profitability was strong, with a gross margin of 64.3% and operating profit of $6.08 billion. Free cash flow reached $4.67 billion, underscoring the effectiveness of TI's business model focused on long-term growth, profitability, and shareholder returns.
The company's strategic emphasis on Analog and Embedded Processing products, particularly for industrial and automotive applications, continues to be a key driver of its success. These markets offer long product life cycles, diversity, and less capital-intensive manufacturing, contributing to stable profitability and strong cash generation. TI's commitment to reinvesting in the business and returning free cash flow to shareholders through dividends and stock repurchases remains a central tenet of its capital management strategy.
02—Key points
Key Highlights
- Revenue increased by 12% to $14.96 billion in 2017, driven by strong performance in Analog and Embedded Processing segments, especially in industrial and automotive markets.
- Gross profit margin improved to 64.3% in 2017 from 61.8% in 2016, reflecting efficient manufacturing and a favorable product mix.
- Operating profit grew significantly by 25% to $6.08 billion, indicating strong operational leverage and cost management.
- Free cash flow generation was robust, reaching $4.67 billion (31.2% of revenue), demonstrating the company's strong cash-generating capabilities.
- The company returned $4.66 billion to shareholders in 2017 through dividends ($2.10 billion) and stock repurchases ($2.56 billion), aligning with its capital return strategy.
- Research and Development (R&D) investment increased by 11% to $1.51 billion, signaling continued commitment to product innovation and differentiation.
- The company anticipates a lower annual operating tax rate starting in 2019 due to the U.S. Tax Cuts and Jobs Act, moving from approximately 31% in 2017 to about 18%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Texas Instruments kept $0.25.
- Revenue$14.96B100.0%
- Cost of revenue−$5.35B35.7%
- Gross profit$9.61B64.3%
- Operating costs−$3.53B23.6%
- Operating income$6.08B40.7%
- Interest, other & tax−$2.40B16.0%
- Net income$3.68B24.6%
Where FY2017 revenue went
$14.96B- Cost of revenue: $5.35B, 36% of revenue
- Net income: $3.68B, 25% of revenue
- Interest, other & tax: $2.40B, 16% of revenue
- R&D: $1.51B, 10% of revenue
- SG&A: $1.69B, 11% of revenue
- Other operating costs: $329.0M, 2.2% of revenue
Kept 25% as net incomeOther operating costs $329.0M · 2.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 22, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $14.96B$13.37B | +11.9% |
| Cost of Revenue | $5.35B$5.11B | +4.6% |
| Gross Profit | $9.61B$8.26B | +16.4% |
| R&D Expenses | $1.51B$1.36B | +11.2% |
| SG&A Expenses | $1.69B$1.74B | −2.8% |
| Operating Income | $6.08B$4.86B | +25.3% |
| Net Income | $3.68B$3.60B | +2.4% |
| EPS (Basic) | $3.68$3.54 | +4.0% |
| EPS (Diluted) | $3.61$3.48 | +3.7% |
| Shares Outstanding (Basic) | 991.00M1.00B | −1.2% |
| Shares Outstanding (Diluted) | 1.01B1.02B | −0.9% |
05—Questions
Frequently Asked Questions
What were the main drivers of Texas Instruments' revenue growth in 2017?
Revenue growth in 2017 was primarily driven by increased demand in the Analog and Embedded Processing segments, with a particular focus on products for the industrial and automotive markets. These sectors have long-term growth opportunities and benefit from TI's broad portfolio and manufacturing capabilities.
How is Texas Instruments managing its manufacturing and inventory?
TI emphasizes in-house manufacturing for greater control and invests in advanced 300-millimeter wafer technology for cost advantages. The company also strategically acquires manufacturing assets ahead of demand. To manage inventory and improve responsiveness, TI utilizes consignment inventory programs with customers and distributors, providing better demand insights and smoothing factory loadings.
What is Texas Instruments' strategy for returning capital to shareholders?
Texas Instruments' capital management strategy is centered on returning all of its free cash flow to shareholders. This is achieved through a combination of sustained dividend payments, which are considered sustainable given their payout ratio of free cash flow, and significant stock repurchase programs. The company views growing free cash flow on a per-share basis as key to maximizing long-term shareholder value.
How will the U.S. Tax Cuts and Jobs Act impact Texas Instruments?
The U.S. Tax Cuts and Jobs Act, enacted in late 2017, is expected to significantly reduce TI's annual operating tax rate. The rate is projected to decrease from approximately 31% in 2017 to around 18% by 2019. This reduction is attributed to the lower U.S. corporate tax rate and the strategic placement of manufacturing, R&D, and intellectual property within the U.S. The company also recorded a provisional tax expense related to the repatriation of indefinitely reinvested non-U.S. earnings.
06—Continue