TXN

Texas Instruments Incorporated (TXN)

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Texas Instruments Inc. (TXN)

June 10, 2013 5:00 pm ET

Executives

Ron Slaymaker

David Pahl

Analysts

Glen Yeung - Citigroup Inc, Research Division

John W. Pitzer - Crédit Suisse AG, Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

David M. Wong - Wells Fargo Securities, LLC, Research Division

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Timothy M. Arcuri - Cowen and Company, LLC, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Doug Freedman - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good day, and welcome to the Texas Instruments' Second Quarter 2013 Mid-Quarter Update Conference Call. Today's conference is being recorded. At this time, I'll turn the conference call over to your host, Ron Slaymaker. Please go ahead, sir.

Ron Slaymaker

Good afternoon, and thank you for joining TI's mid-quarter financial update for the second quarter of 2013. Dave Pahl, from our Investor Relations team, is also joining me today.

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, we will not provide detailed information on revenue trends by segments 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 our expected ranges for TI's revenue and earnings around the middle of our previous ranges. We now expect TI revenue between $2.99 billion and $3.11 billion. We expect earnings per share between $0.39 and $0.43.

Operator, you can now open the lines for questions. [Operator Instructions] Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Glen Yeung with Citi.

Glen Yeung - Citigroup Inc, Research Division

Obviously, you're guiding in line on revenues, again [ph] but I'm wondering if within the mix of your business, there was any deviations from what you thought might occur over the course of the quarter, either product mix or geographic mix?

Ron Slaymaker

I can give you some review of that, Glen. As you noted, I think the quarter is generally tracking consistent with our expectations. Along those lines, strength has broadened across both customers and markets during the quarter as we had expected when we gave our April guidance. The strength in the industrial market that we saw in the first quarter has continued into the second quarter. And just as a reminder, the industrial market, it's important to us today, but we expect it will be even more important to our future as we really focus more and more of our investments in that space. We serve that market mostly through catalog product lines, such as Silicon Valley Analog, our high-performance analog product line, as well as some of the product lines in Embedded Processing, such as microcontrollers. Automotive also continues to grow, such as we saw in the first quarter. We serve the automotive market through a range of products, including both catalog and application-specific analog products, OMAP applications, processors and also DLP products.

In the communications market, we're seeing some growth in communications infrastructure this quarter on a sequential basis, as well as some growth in handsets. And the handset has really been through a range of catalog products such as audio amplifiers that we sell into that space. Revenue from our legacy wireless product lines will decline sequentially as we continue to wind them down and as we had expected and communicated.

PCs and notebooks are weak this quarter, as we had expected. And then finally, I would note that consumer is mixed with areas like gaming consoles, weak -- specifically, gaming consoles, weak, and other areas in consumer mostly tracking sideways this quarter. Do you have a follow-on, Glen?

Glen Yeung - Citigroup Inc, Research Division

Yes, Ron. As I hear you say things like industrial is going to become a greater proportion of your business and as you think forward as TI is obviously still in the sort of the mix of some degree of transition, can you describe what your model is going to look like 2 or 3 years from now? I know it's rare to get a long sort of question on this kind of call, but just -- do you feel like you have room for your model to improve from where it stands today? Do you think it's sort of an upwards-facing trajectory?

Ron Slaymaker

Glen, I'm not going to break from the model that we've communicated previously, which is our expectation that we certainly have the capacity and the expectation to generate 20% to 25% of free cash flow from our revenue. That being said, clearly, with the capacity position we have, which is very strong, and an improving product mix, and if you look at, for example, gross margin and the income statement side of things, just -- a simple thing I'd point out is last year, depreciation was 7.5% of revenue, and capital spending is -- was actually below 4% of revenue, and we expect that it'll hold at that level until we're able to cross $18 billion of revenue. So I think, clearly, you would expect that financially, we have room for improvement and a pretty good runway ahead of us there. Okay, Glen. I appreciate your questions.

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