Texas Instruments (
, or TI) reported fourth quarter earnings that were down both
sequentially and year over year, but ahead of the Zacks Consensus
Estimate by 4 cents or 12.4%.
Shares remained depressed however, as guidance disappointed.
Management mentioned continued caution at distributors and OEMs,
which confirmed the PC market weakness described by
Advanced Micro Devices
TI reported revenue of $2.98 billion, which was down 12.1%
sequentially and 12.9% year over year (slightly better than the
mid-point of the recently narrowed guidance range of $2.89
billion to $3.01 billion).
With lead times remaining very low (they dropped to 6 weeks
going into the second half of the year), there is reduced
visibility into the next quarter.
Inventories at both distributors and OEMs remain extremely
lean, with uncertainties in demand and TI's capacity to ship
products sooner likely to keep them that way.
business fell 9.4% sequentially and 1.5% year over year. The
sequential decline was attributable to broad-based weakness
across the HVAL, HPA, SVA and power management product lines. The
decline from the year-ago quarter was because of weakness in SVA
and HPA, as offset by an increase in the power management product
line and flattish performance in HVAL.
The weakness in HPA is not surprising, since the business is
closely linked to the computing and consumer markets that are
currently in the doldrums. SVA has more of an industrials focus,
so was impacted by seasonality and overall market weakness.
Communications infrastructure products were the primary reason
for the 6.1% year-over-year increase in
revenue. However, demand for demand for catalog products - mainly
Digital Signal Processors (DSPs) and microcontrollers (MCUs) -
and products sold into the automotive segment also grew. All
product lines contributed to the 9.8% sequential decline.
TI's focus in the
segment is on the proprietary OMAP and connectivity products.
Segment revenue in the last quarter was down 2.5% sequentially
and 56.1% year over year. Baseband products accounted for most of
the decline from the year-ago quarter, although it was the only
positive in the sequential comparison. OMAP products were
consistent with the Sep quarter although down from last year.
Connectivity was down from both the previous and year-ago
The Other segment was down 25.4% sequentially and 6.6% year
over year. The decline from last year was on account of
expiration of transitional supply agreements associated with
acquired factories, as well as lower DLP shipments. ASIC and
royalties increased and calculators were flat.
Negative seasonality for calculators was the main reason for
the sequential decline, although weakness in DLP and ASICs also
contributed. One-time insurance proceeds related to Japan that
were received in the previous quarter were also a negative for
the sequential comparison.
Net product orders were $2.72 billion in the last quarter,
down 15.0% sequentially and 5.3% year over year. We estimate that
backlog growth declined double-digits on a sequential basis, with
turns sales dropping by around 11%. These metrics go to show a
slowing business at TI.
TI's gross margin of 48.5% was down 105 bps sequentially and
up 324 bps from the year-ago quarter. The gross margin was the
net result of weak revenue and low utilization rates. As the mix
of of higher-margin analog products increase and lower-margin
wireless products (baseband) are eliminated, the gross margin
should move closer to the long-term target of 55%.
Operating expenses of $855 million were lower than the
previous quarter's $916 million. The operating margin was 19.8%,
down 273 bps sequentially, while increasing 138 bps from the
year-ago quarter. Both R&D and SG&A increased from the
previous and year-ago quarters, although the increases in
SG&A were more significant.
The Analog, Embedded Processing, Wireless and Other segments
generated operating margins of 25.1% (up 15 bps sequentially),
3.4% (down 870 bps), -124.9% (down 10,861 bps) and 19.1% (down
3,362 bps), respectively.
The pro forma net income was $417 million, or a 14.0% net
income margin compared to $713 million, or 21.0% in the previous
quarter and $524 million, or 15.3% in the year-ago quarter. The
fully diluted pro forma earnings per share were 37 cents compared
to 62 cents in the previous quarter and 45 cents in the Dec
quarter of last year. The pro forma calculations for the last
quarter exclude the impact of restructuring and
acquisition-related charges on a tax-adjusted basis as well as
On a fully diluted GAAP basis, the company recorded a net
profit of $264 million, or 23 cents a share compared to a net
profit of $784 million, or 68 cents per share in the previous
quarter and a net profit of $298 million (26 cents per share) in
the comparable prior-year quarter.
Inventories dropped 4.9% to $1.76 billion, which resulted in
inventory turns of 3.5X, down from 3.7X in the previous quarter.
Days sales outstanding (DSOs) went down from 44 to around 38. TI
generated $1.09 billion in cash from operations, spending $96
million on capex, $600 million on share repurchases and $235
million on cash dividends. At quarter-end, TI had $4.2 billion in
long-term debt and $1.5 billion in short-term debt.
TI provided guidance for the fourth quarter and provided some
limited estimates for fiscal year 2012.
Accordingly, TI expects first quarter revenue to come in
between $2.69 billion and $2.91 billion (down 6.0% sequentially
at the mid-point), which is slightly below the consensus estimate
of $2.89 billion. Around 75% of the sequential decline is
attributable to the business that TI is exiting.
The EPS for the quarter is expected to be 24 to 32 cents
(after adjusting for acquisition and restructuring charges of
around 6 cents, well below the Zacks Consensus Estimate of 35
For 2012, TI expects R&D expenses of1.6 billion, capex of
0.5 billion, depreciation of $0.9 billion and an annual effective
tax rate of 22%.
Texas Instruments is prudently investing its R&D dollars
into several high-margin, high-growth areas of the analog,
embedded processing and wireless markets, which has led to
important design wins. The addition of National Semiconductor
strengthened its product lineup and brought on board additional
Therefore, the company is much better positioned today to deal
with any spike in demand. The elimination of the low-margin
baseband business will be an additional positive for its margins
We therefore remain optimistic about TI's compelling product
line, the increased differentiation in its business and
lower-cost 300mm capacity that should in combination drive
earnings in the longer term.
However, the softening demand in the near term is reason for
concern, since TI is now saddled with a lot of capacity for which
it is taking underutilization charges.
Another point to keep in mind is National's huge debt balance,
which has negatively impacted the balance sheet.
TI shares carry a Zacks Rank #3 (Hold), similar to analog peer
Linear Technology Corp
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