Texas Instruments Incorporated (TXN)

Q2 2010 Earnings Call

July 19, 2010 05:30 pm ET

Executives

Kevin March - Senior Vice President and Chief Financial Officer

Ron Slaymaker - Vice President and Head of Investor Relations

Analysts

Chris Caso - Susquehanna Group

Uche Orji - UBS

Tristan Gerra - Robert Baird

Srini Pajjuri - CLSA

Jim Covello - Goldman Sachs

Ross Seymore - Deutsche Bank

Craig Ellis - Caris & Company

Sumit Dhanda - Bank of America Merrill Lynch

Glen Yeung - Citi

Kyle [ph] - FBR Capital Markets

Shawn Webster - Macquarie Research Equities

Christopher Danely - JP Morgan

Doug Freedman - Gleacher & Company

Steven J. Smigie - Raymond James

Tim Luke - Barclays Capital

Ramesh Misra - Brigantine Advisors

Presentation

Operator

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

Ron Slaymaker

Good afternoon. Thank you for joining our second 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 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 earnings release published today as well as TI’s most recent SEC filings for a more complete description. Our mid-quarter update to our outlook is scheduled this quarter for September 9 th. We expect to narrow or adjust the revenue and earnings guidance ranges as appropriate with this update.

In today’s call, we’ll provide an update on our strategic progress, discussing how the quarter’s results align with our longer term objectives. Our core businesses are the Analog, Embedded Processing and the smartphone focused applications processors and connectivity products and our wireless segment collectively made up 67% of our revenue in the second quarter. They grew 11% over the first quarter and 53% from a year ago. They are also the areas where we’re focused our R&D investments with 88% of our total second quarter R&D spend focused in these areas. These are the growth engines for the future.

Part of the attraction of our Analog and Embedded Processing businesses is the breadth of their position across the electronics industry. With these products, we have the potential to sell into literally every electronic product that is produced. This includes computing applications such as fast growing tablet computers and at the other end of the market spectrum, includes industrial applications such as smart meters.

As we’ve seen over the past year, these end markets often move at different speeds. The recovery that began in the first half of last year initially began with the high volume computing and communications market with the industrial markets not beginning their recovery until late in the year.

Although some of the high volume markets are now normalizing into their more typical seasonal growth patterns, the industrial market has continued its recovery. For TI this is evidenced in the strength of our various catalog product lines such as catalog micro-controllers and digital signal processors in our Embedded Processing segment as well as high performance Analog and power management products in our analog segment.

These catalog products are typically sold through distribution often in low volumes to a large number of customers across the world. Our revenue in the US and Europe regions are both weighted toward industrial applications and both areas performed well in the quarter.

These catalog product lines will particularly benefit over time from the size of TI’s field sales and applications force and the breadth of our product portfolio as we have a stronger capability to call on more customers and sell more products to those customers.

The notable area of weakness in the second quarter was in wireless where we experienced an unexpected slowdown late in the quarter. We believe this weakness was a customer specific issue and not a broader reflection on the market. I’ll discuss that more in a few minutes.

Overall, TI revenue in the quarter was up 9% sequentially and up 42% compared with a year ago. Analog revenue grew 11% sequentially and was up 56% from the year ago quarter. All three of our major Analog product areas were solid contributors to this growth in both comparisons although sequential growth was most significant in high performance Analog due to its strong position in the industrial market.

Over the past five quarters, HVAL revenue has continued to pace well with our other Analog areas and was up more than 50% from the year ago quarter. This provides additional confirmation that HVAL has turned the corner and should be a strong contributor to our growth in the years ahead.

Embedded Processing revenue grew 17% sequentially and was up 47% from a year ago. Catalog micro-controllers and digital signal processors were the areas of strongest growth in both comparisons. The relatively large size of the micro-controller market, combined with the potential for TI to gain significant share represents our most significant Embedded Processing opportunity. Micro-controllers led our embedded processing growth in both the sequential and year on year comparison as our investments in this area are producing results.

Wireless revenue was up 1% sequentially and up 18% compared with a year ago. Revenue of $311 million from applications processors and connectivity products for smartphones was up 6% sequentially and 52% from a year ago. These products are redefining our wireless segment and are delivering strong growth. Baseband revenue, which as expected, continued to decline, was $416 million, down 2% sequentially and about even with a year ago. Basebands are now 12% of total TI revenue compared with 17% in the year ago quarter.

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