Texas Instruments Incorporated (TXN)

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Texas Instruments Inc. (TXN)

September 08, 2011 5:00 pm ET


Ron Slaymaker - IR


James Covello - Goldman Sachs Group Inc.

Uche Orji - UBS Investment Bank

Tore Svanberg - Stifel, Nicolaus & Co., Inc.

Christopher Muse - Barclays Capital

Christopher Danely - JP Morgan Chase & Co

Ross Seymore - Deutsche Bank AG

Srini Pajjuri - Credit Agricole Securities (USA) Inc.

Vivek Arya - BofA Merrill Lynch

Romit Shah - Nomura Securities Co. Ltd.

Mark Lipacis - Jefferies & Company, Inc.

John Pitzer - Crédit Suisse AG



Good day, and welcome to the Texas Instruments Third Quarter 2011 Mid-Quarter Update Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Ron Slaymaker. Please go ahead, sir.

Ron Slaymaker

Good afternoon. Thank you for joining TI's mid-quarter financial update for the third quarter of 2011. In a moment, I will provide a short summary of TI's current expectations for the quarter, updating the revenue and EPS estimate ranges for the company. In general, I will not provide detailed information on revenue trends by segment or end markets and I will not address details of profit margins. In our earnings release at the end of the quarter, we will provide this information.

As usual with our mid-quarter update, we will not be taking follow-up calls this evening. Considering the limited information available at this point in the quarter and in consideration of everyone's time, we will limit this call to 30 minutes. For any of you who missed the release, you can find it on our website at ti.com/ir. This call is broadcast live over the web and can be accessed through TI's website. A replay will be available through the web.

This call will include forward-looking statements that involve risks and uncertainties that could cause TI's results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the news release published today as well as TI's most recent SEC filings for a more complete description.

We have narrowed and lowered our expected ranges for TI's revenue and earnings from our previous ranges. We now expect TI revenue between $3.23 billion and $3.37 billion. We expect earnings per share between $0.56 and $0.60. The reductions are due to broadly lower demands across a wide range of products, markets and customers.

Operator, you can now open the lines for questions. In order to provide as many of you as possible the opportunity to ask a question, please limit yourself to a single question. I will provide you the opportunity to ask a follow-up question. Operator?

Question-and-Answer Session


[Operator Instructions] And we'll take our first question from John Pitzer with Credit Suisse.

John Pitzer - Crédit Suisse AG

I know you mentioned in the preamble you weren't going to talk about operating margins or profitably, but I'm just kind of curious, the EPS line is holding up much better than the revenue on the new guidance. I'm kind of curious if you could walk me kind of through the puts and takes of what's driving that. How quickly are you guys able to react on OpEx relative to the current environment versus what might be going on in the mix of revenue?

Ron Slaymaker

Okay, John, there's really 2 reasons behind why you didn't see a more, call it, proportionate drop between EPS and revenue. The first is that we are reducing variable expenses really on multiple fronts just in light of the weaker environment that we're currently in. So for example, our compensation includes variable components such as bonus and profit sharing that we've now revised downward. The second consideration is that with our lower profit outlook we've revised our annual effective tax rate estimate down to about 25% from our prior estimate of 27%. And as you're aware since we have been accruing both of those items at higher rates during the first half of the year, we will also then have a catch-up in the accounting, a catch-up benefit in the third quarter. So that really explains the difference between what you might have expected for EPS to go to versus what we're projecting here. Do you have a follow-on, John?

John Pitzer - Crédit Suisse AG

Yes. Ron, you talked a little about the variable cost that you can go after, just on the fixed cost side, anything happening to CapEx and/or headcount?

Ron Slaymaker

No. In terms of CapEx, no change to our guidance on that. And in terms of headcount, I would -- I'll actually change that somewhat to hiring. I mean we're actually still hiring for strategic programs. Hiring has become much more selective, you might say, in this environment. And we're certainly keeping our resources focused on what we believe are the best opportunities that we're addressing, but the hiring has become more selective. But outside of that, no real headcount swings other than what might come about from attrition. We'll move to the next caller, please?


And we'll go next to, Tore Svanberg with Stifel Nicolaus.

Tore Svanberg - Stifel, Nicolaus & Co., Inc.

Ron, could you talk a little bit about the distribution channel, what you're seeing there, especially as far as inventory level and lead times. I'm just trying to understand how they are sort of reacting to this lower demand environment?

Ron Slaymaker

Okay. I guess what I would say is that we expect resales from our distribution channel to decline at about the same rate as our overall revenue. So therefore, kind of mid-single-digit declines on sales out of the channel. We expect really little change in distribution inventory levels on an absolute basis. Although with the declining resales, they could be up somewhat on a days basis. Do you have a follow-on, Tore?

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