How did the adoption of SFAS No. 123(R) impact the company's financial results in the third quarter?

Texas Instruments adopted SFAS No. 123(R), "Share-Based Payments," effective July 1, 2005, which requires companies to expense stock options. This resulted in an additional stock-based compensation expense of $78 million in the third quarter, leading to a decrease in net income and EPS. Specifically, diluted EPS was reduced by $0.03 due to this new accounting standard. Total stock-based compensation expense for the third quarter was $82 million.

What drove the revenue growth in the third quarter?

The primary driver of revenue growth was the Semiconductor segment, which saw a 13% increase year-over-year. This growth was fueled by strong demand for DSP and analog chips used in communications and entertainment electronics, with particular strength in wireless semiconductors and high-performance analog products. DLP product revenue also showed significant sequential growth.

What is the company's outlook and strategy regarding capital allocation?

The company demonstrated a strong commitment to returning capital to shareholders. They repurchased approximately $3.28 billion of common stock in the first nine months of 2005 and authorized an additional $2 billion in stock repurchases. Furthermore, the quarterly cash dividend was increased to $0.03 per share. Texas Instruments expects to continue R&D investment and capital expenditures for facility upgrades and new semiconductor manufacturing.

How is the company managing its inventory and what is the implication for future sales?

At the end of the third quarter, semiconductor inventories were below desired levels, and days of inventory decreased to 57 from 62 at the end of 2004. Given that demand typically increases in the first two months of the fourth quarter, TI noted that they may be limited in their ability to support unforeseen increases in fourth-quarter demand due to these lower inventory levels.

TXN 10-Q Quarterly Report Q3 FY2005 — Revenue, Net Income, EPS

Summary

Texas Instruments Inc. (TXN) reported strong third-quarter 2005 results, driven by robust performance in its Semiconductor segment. Revenue reached a record $3.59 billion, a 10% increase year-over-year, with impressive growth in DSP and analog chips, particularly for the wireless and high-performance analog markets. Profitability also saw significant improvement, with operating profit reaching a record $815 million and gross margin hitting 49.3%. This performance was achieved despite the company beginning to expense stock options in accordance with new accounting standards (SFAS No. 123(R)), which added $0.03 to diluted EPS. The company also saw a notable increase in stock repurchases and an increase in its quarterly cash dividend, signaling a commitment to returning value to shareholders.

Key Highlights

1Record third-quarter revenue of $3.59 billion, up 10% year-over-year, driven by strong Semiconductor segment performance.
2Operating profit reached a record $815 million, with operating margin at 22.7%.
3Gross profit margin improved to 49.3% from 45.8% in the prior year's third quarter.
4Semiconductor segment revenue grew 13% year-over-year, with notable strength in DSP and analog chips for wireless and high-performance applications.
5The company adopted SFAS No. 123(R) for stock-based compensation, impacting EPS by $0.03, but this was offset by strong operational performance.
6Significant increase in stock repurchases, with $3.28 billion used in the first nine months of 2005, and a commitment to further buybacks.
7Quarterly cash dividend increased to $0.03 per share from $0.025 per share.

TEXAS INSTRUMENTS INC Quarterly Report for Q3 Ended Sep 30, 2005

Summary

Key Highlights

Frequently Asked Questions