TI Reports 3Q07 Financial Results

* TI Revenue Up 7% Sequentially, Down 3% from Year Ago
* EPS of $0.52
* Record Gross and Operating Margins Supported by Strong Analog Revenue Growth

Except as noted, financial results are for continuing operations. The sale of TI’s former Sensors & Controls business was completed on April 27, 2006, and that business is reported as a discontinued operation.

Texas Instruments Incorporated (TI) (NYSE: TXN) today reported third-quarter 2007 revenue of $3.66 billion. Revenue increased 7 percent compared with the prior quarter primarily due to increased demand for analog semiconductor products. Back-to-school demand for graphing calculators also contributed to sequential growth. TI revenue decreased 3 percent from a year ago when customers were building inventory.

Earnings per share (EPS) were $0.52. This was an increase of $0.10, or 24 percent, from the prior quarter and $0.07, or 16 percent, from the year-ago quarter. The third quarter’s financial results included a gain of $0.02 from the sale of the company’s semiconductor product line for broadband DSL customer-premises equipment. The gain on sale was included in the company’s most recent business outlook issued September 11, 2007.

“Strong growth in analog was at the core of our performance in the third quarter. Our investments in analog technology have led to broader and deeper engagements with customers. As a result, this part of our business, which delivers about 40 percent of our revenue, grew 10 percent sequentially,” said Rich Templeton, TI’s president and chief executive officer. “Our growth allows us to continue to increase our return to shareholders. In the third quarter, we repurchased $1.4 billion of our stock. In September, our Board authorized an additional $5 billion in repurchases, and we announced a 25 percent increase in the dividend.”

Gross Profit
Gross profit was $1.98 billion, or 54.2 percent of revenue. This was up $200 million from the prior quarter primarily due to higher revenue, as well as a gain of $39 million on the sale of TI’s DSL product line that is included in cost of revenue. Gross profit was up $52 million from the year-ago quarter as a combination of reduced manufacturing costs and the gain on sale more than offset the impact of lower revenue.

Operating Expenses
Research and development (R&D) expense was $542 million. This was a decrease of $9 million from the prior quarter and $28 million from the year-ago quarter. The declines were due to progress in implementing the company’s advanced CMOS process development strategy.

Selling, general and administrative (SG&A) expense was $429 million. This was about even with both the prior and year-ago quarters.

Operating Profit
Operating profit was $1.01 billion, or 27.6 percent of revenue. This was an increase of $204 million from the prior quarter due to higher gross profit, and an increase of $83 million from the year-ago quarter due to higher gross profit and lower R&D expense.

Other Income (Expense) Net (OI&E)
OI&E was $53 million. This was a decrease of $3 million from the prior quarter and $1 million from the year-ago quarter.

Income
Income from continuing operations was $758 million, or $0.52 per share. Income from discontinued operations was $18 million due to a reduction of a state tax liability associated with the sale of TI’s former Sensors & Controls business.

Orders
TI orders were $3.55 billion. This was an increase of $103 million from the prior quarter as higher demand for semiconductor products more than offset a seasonal decline in orders for graphing calculator products. Orders were up $125 million from the year-ago quarter due to higher demand for semiconductor products.

Cash
Cash flow from operations was $1.53 billion. This was an increase of $633 million from the prior quarter primarily due to the receipt of a tax refund and higher net income. Total cash (cash and cash equivalents plus short-term investments) was $3.67 billion at the end of the third quarter. This was an increase of $88 million from the end of the prior quarter and a decrease of $515 million from the year-ago quarter. In the third quarter of 2007, the company used $1.41 billion to repurchase 40 million shares of common stock and paid $114 million in dividends to shareholders. Since the end of the year-ago quarter, the company has used $4.14 billion to repurchase 127 million shares of common stock and paid $346 million in dividends.

Capital Spending and Depreciation
Capital expenditures were $152 million. This was a decrease of $22 million from the prior quarter and $124 million from the year-ago quarter due to lower expenditures for semiconductor manufacturing equipment. TI’s capital expenditures in the quarter were primarily for semiconductor assembly and test equipment.

Depreciation was $262 million. This was an increase of $6 million from the prior quarter and a decrease of $4 million from the year-ago quarter.

Accounts Receivable and Inventories
Accounts receivable were $2.02 billion at the end of the third quarter. This was an increase of $126 million from the prior quarter and a decrease of $66 million from the year-ago quarter due to changes in revenue. Days sales outstanding were 50 at the end of the third quarter, unchanged from the end of the prior quarter and the year-ago quarter.

Inventory was $1.45 billion at the end of the third quarter. This was an increase of $26 million from the prior quarter. Compared with a year ago, inventory decreased $41 million. Days of inventory at the end of the third quarter were 78, unchanged from the end of the prior quarter and up from 73 a year ago.

Outlook
TI intends to provide a mid-quarter update to its financial outlook on December 10, 2007, by issuing a press release and holding a conference call. Both will be available on the company’s web site.

For the fourth quarter of 2007, TI expects revenue to be in the following ranges:

*
Total TI, $3.40 billion to $3.68 billion;
*
Semiconductor, $3.33 billion to $3.59 billion; and
*
Education Technology, $70 million to $90 million.


TI expects earnings per share to be in the range of $0.48 to $0.54.

In 2007, TI continues to expect R&D expense of about $2.2 billion and depreciation of about $1.0 billion. TI now expects an annual effective tax rate of about 29 percent compared with the prior expectation of 28 percent, and capital expenditures of about $0.7 billion compared with the prior expectation of $0.9 billion.