TI reports profits increase but reduces workforce
Texas Instruments (TI) has reported recorded record revenues and increased profits but express fears of weaker demand leading to a reduction of 500 staff by closing an older fab in their home Dallas base with a suggestion that development will move to Asia to be closer to foundry partners.
TI reported fourth-quarter 2006 revenue of $3.46 billion. Revenue declined 8 percent compared with the third quarter due to a broad-based decline in company semiconductor product revenue of 5 percent and a seasonal decline in graphing calculator sales. Compared with the same quarter a year ago, revenue grew 4 percent due to higher demand for the company's semiconductor and calculator products. For the year, TI revenue grew 16 percent to a record $14.25 billion. Growth was driven primarily by strong demand for the company's analog products, especially high-performance analog, and DSP products.
In the fourth quarter, earnings per share (EPS) from continuing operations were $0.45. This included a $0.05 EPS benefit from the reinstatement of the federal research tax credit, which was signed into law in December 2006 and was retroactive to the beginning of the year. Also, in the quarter TI signed new patent license agreements to replace agreements that had previously expired. These included catch-up payments resulting in a $0.01 EPS benefit to cover the period between expiration of the prior agreements and signing of the new agreements. EPS included $0.03 of expense for stock-based compensation.
"TI delivered important financial achievements in 2006," said Rich Templeton, TI president and CEO. "Specifically, our semiconductor revenue grew more than one and a half times faster than the market, our earnings per share increased almost twice as fast as our revenue, and our return on invested capital expanded to 21.5 percent. Most important to these results was our high-performance analog product line, which grew revenue 33 percent and continued to raise the bar on gross margin for the entire company.
"As expected, demand in the fourth quarter of the year was unseasonably weak, and we limited production to reduce our inventories. Even with these pressures, our profitability remained relatively stable, reflecting the benefits of our hybrid manufacturing strategy whereby we outsource to foundries a large part of our most costly production. Challenges continue in the first quarter as we operate in an environment where customers want lower levels of inventory and where growth in the wireless market is skewed to low-priced, basic-featured cell phones instead of higher-priced, full-featured phones.
"Entering 2007, we challenge ourselves to keep improving performance. One way we'll do this is by changing the way we develop advanced digital process technology. Instead of separately creating our own core technology, we will work collaboratively with our foundry partners to specify and drive the next generations of digital process technology, and we will continue making products on these technologies in our world-class factories. This is a natural extension of our existing relationships with foundries that will increase our R&D efficiency and our capital efficiency while maintaining our responsiveness to customers. Additionally, we will stop production at an older digital factory and move its manufacturing equipment into several of our analog factories to support greater analog output."
The older digital factory mentioned is the K fab in Dallas. Despite fears from some quarters, a TI spokesperson stated that this does not herald a manufacturing or development exodus from the USA to Asia but a realignment of TI's future plans. These changes will be made throughout 2007, and when complete are expected to reduce annualized costs by about $200 million. About 500 jobs are expected to be reduced by year end. In total, the company will take restructuring charges of approximately $55 million, about evenly distributed across the four quarters of 2007.
