10-QPeriod: Q2 FY2008

TEXAS INSTRUMENTS INC Quarterly Report for Q2 Ended Jun 30, 2008

Filed July 31, 2008For Securities:TXN

Summary

Texas Instruments (TXN) reported its second-quarter 2008 results, showing a slight year-over-year revenue decline of 2% to $3.35 billion, primarily driven by a slowdown in its larger Semiconductor segment. While Analog and Embedded Processing product lines showed growth, Wireless revenue saw a notable decline. The company experienced unexpected demand softness in June, attributed to distributors reducing inventory and a weaker economic environment. Despite the revenue dip, operating profit increased year-over-year due to reduced R&D expenses, and diluted Earnings Per Share (EPS) rose to $0.44, up from $0.42 in the prior year, aided by a lower share count from ongoing stock repurchase programs. Financially, TXN maintained a strong liquidity position with $1.65 billion in total cash and short-term investments at the end of the quarter. However, inventory levels increased, and the company plans to manage this down over the remainder of the year. The company also highlighted potential challenges related to its investment in auction-rate securities, which experienced failed auctions due to market liquidity issues, although management expressed confidence in recovering principal and not impacting operational funding. Overall, the report indicates a resilient performance in a challenging economic climate, with strategic focus on core growth areas.

Financial Highlights

29 data points
Beta

Revenue

$3.35B

52.2% Gross Margin

Net Income

$588.00M

17.5% Net Margin

EPS (Diluted)

$0.44

Cash & Equivalents

$1.32B

Free Cash Flow

$681.00M

Financial Statements
Beta
Revenue$3.35B
Cost of Revenue$1.60B
Gross Profit$1.75B
R&D Expenses$488.00M
SG&A Expenses$428.00M
Operating Income$833.00M
Net Income$588.00M
EPS (Basic)$0.44
EPS (Diluted)$0.44
Shares Outstanding (Basic)1.32B
Shares Outstanding (Diluted)1.34B

Key Highlights

  • 1Revenue for Q2 2008 was $3.35 billion, a 2% decrease year-over-year, with semiconductor revenue down 3%.
  • 2Diluted EPS was $0.44, an increase from $0.42 in Q2 2007, driven by share repurchases and lower R&D expenses, despite lower net income.
  • 3Analog and Embedded Processing product lines showed robust growth (10% year-over-year), indicating strength in key strategic areas.
  • 4Wireless revenue declined 12% year-over-year, impacted by a shift to lower-priced baseband products and normal price declines.
  • 5The company experienced an unexpected slowdown in demand in June, attributed to distributors reducing inventory and a weaker economic environment.
  • 6Inventory levels increased by $233 million sequentially, reaching 93 days, which the company plans to reduce.
  • 7The company holds $568 million in auction-rate securities that experienced failed auctions, though principal recovery is expected and operational funding is not believed to be impacted.

Frequently Asked Questions

The primary reason for the revenue decline was decreased shipments resulting from lower demand for semiconductor products. This was exacerbated by an unexpected slowdown in June as distributors reduced inventory levels and did not replenish them, alongside a generally weaker economic environment.

Stock repurchases significantly contributed to the increase in EPS. Despite a decrease in net income compared to the prior year, EPS rose due to a lower number of average shares outstanding resulting from the company's ongoing stock repurchase program.

Texas Instruments holds $568 million in auction-rate securities, many of which experienced failed auctions due to market liquidity issues starting in February 2008. While principal access is limited, the company has continued to receive interest payments and expects to recover the principal through various means. Management believes these issues will not materially impact the company's ability to fund its operational needs.

The company identifies Analog and Embedded Processing as its primary growth engines. These product lines demonstrated solid revenue growth in the second quarter of 2008, with both growing sequentially and increasing 10% year-over-year.