10-QPeriod: Q2 FY2006

TEXAS INSTRUMENTS INC Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 2, 2006For Securities:TXN

Summary

Texas Instruments (TXN) reported strong second-quarter 2006 results, driven by significant growth in its Semiconductor segment. Net revenue increased by 24% year-over-year to $3.70 billion, with earnings per share from continuing operations rising to $0.47. The company benefited from a robust demand for its analog and DSP products, particularly in wireless applications, and a $70 million royalty settlement. A substantial one-time gain of $1.65 billion (net of tax) was recognized from the sale of its Sensors & Controls segment, significantly boosting net income to $2.39 billion for the quarter. The company also highlighted strategic progress, including the acquisition of Chipcon Group ASA to enhance its wireless solutions. Despite facing a competitive and cyclical industry, Texas Instruments demonstrated solid financial health with increased revenue, improved gross margins, and a healthy cash position. The company reiterated its commitment to shareholder returns through stock repurchases and dividends, while maintaining its focus on R&D and innovation in its core semiconductor business.

Key Highlights

  • 1Revenue from continuing operations grew 24% year-over-year to $3.70 billion in Q2 2006.
  • 2Net income for the quarter was significantly boosted to $2.39 billion due to a $1.65 billion gain from the sale of the Sensors & Controls segment.
  • 3Earnings per share (EPS) from continuing operations were $0.47, a 34% increase compared to the prior year.
  • 4The Semiconductor segment showed strong performance, with revenue up 26% year-over-year, driven by analog and DSP products.
  • 5The company acquired Chipcon Group ASA in January 2006 for $183 million to strengthen its wireless semiconductor offerings.
  • 6Total cash (cash and short-term investments) increased to $5.67 billion, bolstered by the proceeds from the Sensors & Controls sale.
  • 7Texas Instruments continued its share repurchase program, buying back approximately 33.7 million shares during the quarter for $1.05 billion.

Frequently Asked Questions

The primary driver of revenue growth was the strong performance of the Semiconductor segment, which saw a 26% year-over-year increase. This growth was fueled by higher demand for the company's analog and Digital Signal Processor (DSP) products, particularly in the wireless and high-performance analog markets. Additionally, a $70 million royalty settlement contributed to the revenue increase.

The sale of the Sensors & Controls segment, completed on April 27, 2006, resulted in a significant one-time gain of $1.65 billion (net of taxes). This gain substantially boosted the net income for the second quarter of 2006 to $2.39 billion. The results of the sold segment are now reported as discontinued operations.

The company's outlook for the third quarter of 2006 indicated a backlog of orders and anticipated seasonal growth. Management stated they would closely monitor global economies and inventory levels in various market channels.

Texas Instruments adopted the fair value recognition provisions of SFAS No. 123(R) effective July 1, 2005. This means that starting from the third quarter of 2005, the company began expensing stock options. The reported EPS for the second quarter of 2006 includes an expense of $0.03 per share related to stock-based compensation, whereas the year-ago quarter did not reflect this expense for stock options, impacting comparability.