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© Texas Instruments Components | October 25, 2011

TI with 3Q revenue of USD 3.47<em>bn</em>

Texas Instruments Incorporated (TI) announced third-quarter revenue of USD 3.47 billion, net income of USD 601 million and earnings per share of 51 cents. EPS includes 9 cents in charges associated with the company's acquisition of National Semiconductor.
"The highlight of the third quarter was the completion of the purchase of National Semiconductor. We welcome the people of National to TI, and together we're already taking our combined portfolio of almost 45,000 Analog products to customers all over the world," said Rich Templeton, chairman, president and chief executive officer.

"Our revenue for the third quarter was higher than we expected though, overall, the quarter was below the seasonal average. We expect the same in the fourth quarter as economic uncertainty continues to weigh on demand in almost every major market segment in which we operate. We are well prepared to continue to gain share in our core businesses, no matter the economic conditions."

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. Silicon Valley Analog revenue for that limited time was $18 million and operating profit was $2 million.

Acquisition-related charges of $154 million are included in the Other segment's results. As required by the acquisition method of accounting for business combinations, these charges include $7 million in cost of revenue attributable to the fair value write-up of acquired inventory that was sold after the date of acquisition. The remainder, $147 million, includes restructuring costs, transaction costs, retention bonuses and amortization of intangibles. In addition, there was a $10 million discrete tax charge.

TI's third-quarter 2011 gross profit and operating profit were negatively impacted by costs associated with lower levels of factory utilization in the quarter as the company lowered production in response to weaker demand, as well as charges for inventory obsolescence on certain custom programs. These were partially offset by a net benefit resulting from proceeds from ongoing insurance claims associated with the March earthquake in Japan.

Operating profit declined from a year ago primarily due to lower gross profit, as well as acquisition costs. Compared with the prior quarter, operating profit was lower due to acquisition costs, which were partially offset by lower operating expenses.

3Q11 segment results

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

- Compared with the year-ago quarter, revenue declined due to High Performance Analog.
- Compared with the prior quarter, revenue declined due to High Performance Analog and Power Management.
- Operating profit decreased from the year-ago and prior quarters 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 the year-ago and prior quarters, the decline in revenue was primarily due to catalog products.
Revenue from products sold into communications infrastructure applications also declined from the prior quarter.
- Operating profit declined from the year-ago and prior quarters due to lower gross profit.

"The highlight of the third quarter was the completion of the purchase of National Semiconductor. We welcome the people of National to TI, and together we're already taking our combined portfolio of almost 45,000 Analog products to customers all over the world", said Rich Templeton, chairman, president and chief executive officer.
Wireless: (includes connectivity products, OMAP applications processors and baseband products)

- Compared with the year-ago quarter, revenue declined due to baseband products.
- Compared with the prior quarter, revenue increased due to baseband products, as well as OMAP applications processors, while revenue from connectivity products was down.
- Operating profit decreased from the year-ago and prior quarters 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 the year-ago quarter, the decline in revenue was due to the sale of a cable modem product line in the fourth quarter of 2010, as well as declines across most product areas.
- Compared with the prior quarter, the increase in revenue was primarily from DLP products as well as from earthquake-related insurance proceeds.
- Operating profit decreased from the year-ago and prior quarters due to higher acquisition-related costs. Also, the quarter included a net benefit from earthquake-related insurance proceeds compared with net costs in the prior quarter.

3Q11 additional financial information

Orders were $3.07 billion, down 10 percent from the year-ago quarter and down 15 percent from the prior quarter.

Inventory was $1.97 billion at the end of the quarter, up $541 million from a year ago and up $203 million from the prior quarter. The increase from a year ago was due to the company rebuilding inventory to support higher customer service levels with shorter lead times, as well as $215 million of inventory associated with the acquisition of National Semiconductor. The increase from the prior quarter was due to the acquisition. Inventory acquired from National Semiconductor is valued at fair value, in accordance with the acquisition method of accounting for business combinations.

Capital expenditures were $193 million in the quarter compared with $396 million a year ago and $276 million in the prior quarter. Capital expenditures in the quarter were primarily for assembly/test and wafer manufacturing equipment.

The company ended the quarter with $2.62 billion in cash. During the quarter, the company issued $1.2 billion in commercial paper, which remains outstanding.

The company used $450 million in the quarter to repurchase 14.1 million shares of its common stock and paid dividends of $148 million.

Outlook

For the fourth quarter of 2011, TI expects:

- Revenue: $3.26 – 3.54 billion
- Earnings per share: $0.28 – 0.36

EPS will be negatively impacted by about 15 cents from acquisition-related costs in the fourth quarter. These will include about $160 million of acquisition costs and, additionally, about $100 million included in cost of revenue.

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

- R&D expense: $1.7 billion
- Capital expenditures: $0.9 billion
- Depreciation: $0.9 billion
- Annual effective tax rate: 25%

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