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Components | January 24, 2012

TI with USD 3.42<em>bn</em> in 4Q revenue

Texas Instruments Incorporated announced fourth-quarter revenue of $3.42 billion, net income of $298 million and earnings per share of 25 cents.
"Revenue in the fourth quarter was higher than expected across all our major product lines, reinforcing our belief that we're at the bottom of this downturn. I'm pleased to say that despite the downturn and the lower factory utilization that came with it, cash flow from operations was strong and well above levels as compared with similar points in prior downturns. Our strategic focus on our core businesses and efficient investment in capacity are key to our strong generation of cash," said Rich Templeton, chairman, president and chief executive officer. "As we move into 2012, we enter the final phase of our planned exit from the baseband market, and thus further tighten our focus on Analog, Embedded Processing and Wireless."

4Q11 financial summary

TI closed its acquisition of National Semiconductor on September 23, 2011, and from that date began to consolidate the results of the acquired operations into TI's Analog segment under the name Silicon Valley Analog. Total acquisition-related charges in the fourth quarter are $256 million.

As required by the acquisition method of accounting for business combinations, these charges include $103 million in cost of revenue attributable primarily to the fair value write-up of acquired inventory. The remainder, $153 million, includes amortization of intangibles, retention bonuses and restructuring costs.

Results also include $112 million of restructuring charges associated with the planned facility closings announced today.

In addition to the impact from acquisition-related charges, TI's fourth-quarter 2011 gross profit was negatively impacted by costs associated with low levels of factory utilization in the quarter, as well as charges for Wireless baseband inventory.

Operating profit declined from a year ago primarily due to acquisition-related charges, lower gross profit and restructuring charges in the fourth quarter of 2011, as well as a gain on the sale of a product line in the year-ago quarter. Compared with the prior quarter, operating profit was lower primarily due to higher total acquisition-related charges and restructuring charges, as well as lower gross profit.

TI's annual effective tax rate declined to 24 percent from the previously estimated 25 percent. Results include a cumulative adjustment for this rate change, as well as a net discrete tax benefit of $11 million.

Analog: (includes High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog)

Compared with the year-ago quarter, revenue increased due to the inclusion of Silicon Valley Analog revenue. High Volume Analog & Logic and Power Management were about even, while revenue from High Performance Analog declined.

Compared with the prior quarter, revenue increased due to the inclusion of Silicon Valley Analog revenue for all of the fourth quarter compared with only a few days in the third quarter. Revenue from High Performance Analog, Power Management and High Volume Analog & Logic declined.

Operating profit decreased from the year-ago quarter due to higher operating expenses and was even with the prior quarter. Operating expenses were higher in both comparisons due to the inclusion of a full quarter of Silicon Valley Analog results.

Embedded Processing: (includes digital signal processor and microcontroller catalog products that are sold across a wide variety of markets as well as application-specific products that are used in communications infrastructure and automotive electronics)

Compared with the year-ago and prior quarters, the decline in revenue was primarily due to lower revenue from products sold into communications infrastructure applications, as well as lower revenue from catalog products.

Revenue from products sold into automotive applications increased from the year-ago quarter and was about even with the prior quarter.

Operating profit declined from the year-ago and prior quarters primarily due to lower gross profit.

Wireless: (includes OMAP applications processors, connectivity products and baseband products)

Compared with the year-ago quarter, revenue declined primarily due to baseband products. Revenue from connectivity products also declined to a much lesser extent. Revenue from OMAP applications processors doubled over this period.

Compared with the prior quarter, revenue increased primarily due to OMAP applications processors. Baseband and connectivity product revenue increased to a lesser extent.

Operating profit decreased from the year-ago quarter due to lower gross profit. Operating profit increased from the prior quarter due to higher gross profit. Gross profit in the quarter was negatively impacted by charges for baseband inventory.

Other: (includes DLP products, custom ASIC products, calculators and royalties as well as products sold under transitional supply agreements associated with recently acquired factories)

Compared with the year-ago quarter, revenue was down due to declines across all areas.

Compared with the prior quarter, revenue was down primarily due to the seasonal decline in calculator revenue and lower DLP revenue, as well as lower custom ASIC revenue.

Operating profit decreased from the year-ago and prior quarters primarily due to higher acquisition-related charges, a gain on the sale of a product line in the year-ago quarter and restructuring charges in the fourth quarter of 2011.

4Q11 additional financial information

Orders were $2.86 billion, down 9 percent from the year-ago quarter and down 7 percent from the prior quarter.
Inventory was $1.79 billion at the end of the quarter, up $268 million from a year ago and down $177 million from the prior quarter.

The increase from a year ago was primarily due to the company rebuilding inventory to support higher customer service levels with shorter lead times, as well as inventory associated with the acquisition of National Semiconductor.

The decrease from the prior quarter was primarily due to recognizing the fair value write-up of inventory acquired from National Semiconductor as it was sold, as well as lower production loadings and a charge for Wireless baseband inventory.

Year 2011 financial summary

TI's operating profit declined in 2011 primarily due to lower gross profit and higher total acquisition-related charges, higher operating expenses that resulted primarily from the inclusion of Silicon Valley Analog, and a gain on the sale of a product line in 2010. Gross profit was negatively impacted primarily by a combination of lower revenue, lower average levels of factory utilization, acquisition-related charges and inventory charges.

Outlook: For the first quarter of 2012

Revenue: $3.02 – 3.28 billion
Earnings per share: $0.16 – 0.24

Baseband revenue is expected to decline from $279 million in the fourth quarter to about $75 million in the first quarter, and range from $50 million to $100 million in each remaining quarter of 2012. EPS will be negatively impacted by about 9 cents from $170 million of total acquisition-related charges that will include about $150 million of acquisition charges and, additionally, about $20 million included in cost of revenue. Restructuring charges will negatively impact EPS by about 1 cent.

Outlook: For the full year of 2012

R&D expense: $2.0 billion
Capital expenditures: $0.7 billion
Depreciation: $1.0 billion
Annual effective tax rate: 28%

The tax rate estimate is based on current tax law and does not assume reinstatement of the federal R&D tax credit, which expired at the end of 2011.

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