Texas Instruments Inc. Q1 2010 Earnings Call Transcript

Texas Instruments Inc. Q1 2010 Earnings Call Transcript
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Texas Instruments Incorporated (TXN)

Q1 2010 Earnings Call Transcript

April 26, 2010 5:30 pm ET

Executives

Ron Slaymaker – VP and Head of IR

Kevin March – SVP and CFO

Analysts

Christopher Danely – JP Morgan

Tristan Gerra – Robert Baird

Uche Orji – UBS

Shawn Webster – Macquarie

Tore Svanberg – Thomas Weisel Partners

Adam Benjamin – Jefferies

Jim Covello – Goldman Sachs

Srini Pajjuri – CLSA

Sumit Dhanda – Banc of America Securities/Merrill Lynch

Steve Smigie – Raymond James

Ross Seymore – Deutsche Bank

Glen Yeung – Citi

John Pitzer – Credit Suisse

Doug Freedman – Broadpoint

Stacy Rasgon – Sanford Bernstein

Tim Luke – Barclays

Presentation

Operator

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Good day and welcome to Texas Instruments first quarter 2010 earnings call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ron Slaymaker. Please go ahead, sir.

Ron Slaymaker

Thanks, Vivian. Good afternoon and thank you for joining our first quarter 2010 earnings conference call. As usual, Kevin March, TI’s CFO, is with me today. For any of you who missed the release, you can find it on our website at ti.com/ir. This call is being 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 risk factors 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 earnings release published today as well as TI’s most recent SEC filings for a complete description. Our mid-quarter update to our outlook is scheduled this quarter for June 8th. We expect to narrow or adjust the revenue and earnings guidance ranges as appropriate with this update.

In today’s call, we will address TI’s plan for growth, we will talk about our progress to transform TI to a company-focused on Analog and Embedded Processing, how it’s driving our growth today, and our plans to support growth in the future. We’ll address near-term trends and inventories and lead-time, as well as our strategy for capacity to make sure we are positioned to grow in the years ahead.

Revenue in the first quarter slightly exceeded the high end of our range of expectations. Earnings landed at the top end of our expectations. Demand was strong and broad across end markets and regions, while supply chains across the electronics industry continue to be constrained, and inventories appear to remain lean.

Revenue in the quarter was up 7% sequentially and 54% compared with a year ago. Analog, Embedded Processing, and our core Wireless products, excluding baseband, were TI’s growth drivers in first quarter ’10 and we are investing to accelerate their growth from here. They received about 90% of our R&D investments in the first quarter. These businesses comprised 66% of our first quarter revenue, up from 61% a year ago and 58% in the first quarter of 2008.

Analog revenue grew 8% sequentially and was up 70% from the year-ago quarter. Once again, all three of our major analog product areas were strong contributors to this growth with each expanding about equally from its fourth quarter level. For HVAL, this was the fourth consecutive quarter of solid sequential growth further evidencing the turnaround in this business that we told you to expect and that is now being achieved.

A more important metric could be that our Analog revenue is up 8% compared with the third quarter of 2008, a quarter before the industry entered the downturn. While not all of our peers have reported, I believe this growth will compare favorably when results are in. The importance of this metric is that it captures performance a very longer period of time and indicates who is growing stronger out of the downturn.

We are working to extend our lead with investments we’ve made in product technology, sales support, and manufacturing capacity. Just last week, we bought another 100 tools for 300 millimeter analog production, taking off phase two of RFAB. Embedded Processing revenue grew 7% sequentially and was up 39% from a year ago. As a reminder, the year-ago quarter benefitted from growth in our communications infrastructure business, as China deployed 3G infrastructure.

The strongest areas of growth this quarter in both comparisons were in our catalog products that are used in a wide range of applications. Catalog microcontroller products were especially strong in the year-ago comparison. Similar to Analog, Embedded Processing revenue was up 3% from the third quarter of 2008, which should compare favorably to competitors.

Wireless revenue declined 5% sequentially and was up 27% from a year ago. Baseband revenue of $424 million fell 9% sequentially and was up 6% from a year ago, reflecting a stronger mix of 3G products. Basebands are now down to 13% of TI revenue compared with 15% in the fourth quarter and 19% in the year-ago quarter. Revenue of $293 million collectively from applications processors and connectivity products was even with the fourth quarter and was up 80% from a year ago. This was up 12% compared to the third quarter of 2008, another indication of our strong performance in the smartphone market.

I should note that we have moved our low-power wireless product from our Analog segment to our Wireless segment. We made this move because the wireless organization is better suited to support the significant growth opportunity. This low-power wireless product line is based on products that were included in or subsequently developed from our 2006 acquisition of Chipcon. Revenue from these products was $68 million in 2009. We have a chart on our website that shows our Analog and Wireless segments historically adjusted for this change.

Other revenue grew by 19% sequentially. Royalties increased, and we had a strong sequential growth in custom ASIC products as well as growth in DLP products and calculators. From a year ago, Other revenue grew 68%, mostly due to strong growth in DLP products where revenue more than doubled as well as strengthened loyalties, custom ASIC products and calculators.

From a geographical perspective, almost all of the sequential revenue growth came from the US, Asia-Pacific, and Japan regions.

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