10-QPeriod: Q1 FY2007

TEXAS INSTRUMENTS INC Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 3, 2007For Securities:TXN

Summary

Texas Instruments (TXN) reported first-quarter 2007 results showing a sequential revenue decline of 8% and a year-over-year decline of 4%, primarily driven by inventory adjustments within the semiconductor market impacting demand. Despite the revenue dip, the company maintained strong profitability metrics, with gross margins above 50% and operating margins above 20%, attributed to a resilient manufacturing strategy and a strong analog product portfolio. The company is strategically shifting its digital manufacturing process technology development towards greater collaboration with foundry partners to enhance R&D and capital efficiency. This, coupled with a planned move of manufacturing equipment to support greater analog output, is expected to yield significant annual cost reductions. Texas Instruments continues to strengthen its position in analog semiconductors, the largest segment of its business, and remains a leader in DSPs, setting the stage for future growth and market share gains.

Key Highlights

  • 1Net revenue for the first quarter of 2007 was $3.19 billion, a decrease of 4% year-over-year.
  • 2Income from continuing operations was $516 million, or $0.35 per diluted share, down from $542 million ($0.33 per diluted share) in the prior year quarter.
  • 3The company experienced a broad-based decline in demand in the semiconductor market, leading to lower shipments.
  • 4Analog product revenue increased 2% year-over-year to $1.25 billion, demonstrating strength in this key segment.
  • 5DSP product revenue declined 10% year-over-year to $1.16 billion.
  • 6Texas Instruments announced a new strategy to collaborate with foundry partners on digital manufacturing process technology, aiming to improve R&D and capital efficiency.
  • 7The company plans to close an older digital factory and reallocate its equipment to support greater analog output, expecting significant cost savings.

Frequently Asked Questions

The primary driver of the revenue decline was a broad-based decrease in demand within the semiconductor market, leading customers to reduce their inventory levels, which in turn lowered demand for Texas Instruments' products.

The Semiconductor segment experienced an 8% sequential decline and a 4% year-over-year decline in revenue. While DSP product revenue saw a significant year-over-year drop, analog product revenue showed year-over-year growth of 2%, highlighting the segment's mixed performance but continued strength in analog.

Texas Instruments is shifting its approach to digital manufacturing process technology by collaborating more closely with foundry partners. Additionally, they are consolidating production by closing an older digital factory and redeploying its equipment to increase analog output in other facilities. These initiatives are aimed at improving R&D and capital efficiency and are expected to reduce annualized costs.

Management believes the inventory correction that began in the latter half of 2006 largely concluded in the first quarter of 2007. They anticipate that sequential growth will resume in the second quarter.