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Components | April 19, 2011

Earthquake costs TI USD 30 million

Texas Instruments reported first-quarter revenue of USD 3.39 billion, net income of USD 666 million and earnings per share of 55 cents.
"2011 started strong, with customer demand in January and February tracking our expectations for a first quarter of above-seasonal growth. But the Japan earthquake that's taken such a heartbreaking human toll in the country also disrupted local demand starting in mid-March and impaired operations at two of our factories there. This impact and substantially weaker demand for Wireless baseband chips resulted in revenue that was below the middle of our expected range. The lower revenue combined with expenses resulting from the earthquake affected earnings per share. New orders, however, were strong through the quarter, indicative of the underlying strength in our markets", said Rich Templeton, TI chairman, president and chief executive officer.

"Recovery of our operations in Japan is progressing well. One of our factories will soon be resuming full production, and the other has restarted initial processing of wafers and is on schedule for full loadings in mid-July. Nonetheless, many of our Japanese customers remain in the early stages of reopening their own factories, and we and our customers face potential supply chain disruptions. We expect growth in the second quarter, though it will be pressured by the situation in Japan. Provided consumer and enterprise demand remain strong, we expect a good second half of the year."

1Q11 financial summary

TI's operating profit was negatively impacted by about USD 30 million for costs resulting from the earthquake. These costs were recorded in the company's Other segment. TI's earnings per share were negatively impacted by about 2 cents by these costs.

Operating profit declined from a year ago due to higher operating expenses. Compared with the prior quarter, operating profit was lower primarily due to a USD 144 million gain on the sale of a product line in the prior quarter and lower gross profit, which resulted from lower revenue.

Net income in the prior quarter also included a USD 78 million tax benefit, which was primarily associated with the reinstatement of the federal R&D tax credit that was retroactive to the beginning of 2010.

1Q11 segment results

Analog: (includes high-volume analog & logic, high-performance analog and power management products)

- Compared with a year ago, the increase in revenue was due to higher revenue from the combination of high-performance analog, power management and high-volume analog & logic products.

- Compared with the prior quarter, revenue was about even as an increase in revenue from power management products was mostly offset by a decline in revenue from high-performance analog products. High-volume analog & logic product revenue was about even.

- Operating profit increased from a year ago due to higher gross profit. Operating profit decreased from the prior quarter primarily due to lower gross profit.

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 a year ago, the increase in revenue was due to higher revenue from the combination of catalog products and products sold into communications infrastructure and automotive applications.

- Compared with the prior quarter, revenue was about even as an increase in revenue from products sold into automotive applications was offset by lower revenue from products sold into communications infrastructure and lower catalog product revenue.

- Operating profit increased from a year ago due to higher gross profit. Operating profit declined from the prior quarter primarily due to lower gross profit.

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

- Compared with a year ago, the decline in revenue was due to lower revenue from baseband products. Revenue from connectivity products increased and revenue from applications processors was about even.

- Compared with the prior quarter, revenue declined due to lower revenue from baseband products. Revenue from connectivity products increased but was offset by a decline in applications processors.

- Operating profit decreased from the year-ago quarter due to higher operating expenses and decreased from the prior quarter due to lower gross profit.

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 a year ago, the decline in revenue was primarily due to lower royalties, which were mostly offset by increased revenue from transitional supply agreements.

- Compared with the prior quarter, the decline in revenue was due to lower revenue from custom ASIC products and royalties that was partially offset by higher revenue from calculators and DLP products.

- Operating profit decreased from a year ago due to lower gross profit. Operating profit decreased from the prior quarter primarily due to a gain on sale in the prior quarter. Operating profit was negatively impacted by about USD 30 million for costs resulting from the earthquake in Japan.

1Q11 additional financial information

- Orders were USD 3.58 billion, down 2% from a year ago and up 14% from the prior quarter.

- Inventory was USD 1.68 billion at the end of the quarter, up USD 402 million from a year ago and up USD 158 million from the prior quarter. Most of the increase was due to the company building inventory to help support high customer service levels. About one-third of the sequential increase was Wireless baseband inventory that resulted from weak demand at a single customer.

- Capital expenditures were USD 194 million in the quarter compared with USD 219 million a year ago and USD 301 million in the prior quarter. Capital expenditures in the quarter were primarily for assembly/test equipment, as well as for analog wafer manufacturing equipment.

- The company used USD 771 million in the quarter to repurchase 21.9 million shares of its common stock and paid dividends of USD 153 million.

Outlook

For the second quarter of 2011, TI expects:

- Revenue: $3.41 – 3.69 billion
- Earnings per share: $0.52 – 0.60

This estimate includes a negative impact of about 5 cents for costs resulting from the earthquake and its aftermath in Japan.

For the full year of 2011, TI expects approximately the following:

- R&D expense: USD 1.7 billion
- Capital expenditures: USD 0.9 billion
- Depreciation: USD 0.9 billion
- Annual effective tax rate: 28%, down from the prior expectation of 30%

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