Texas Instruments (TXN) Q4 2010 Earnings Call January 24, 2011 5:30 pm ET Executives Kevin March - Chief Financial Officer, Chief Accounting Officer and Senior Vice President Ron Slaymaker - IR Analysts Shawn Webster - Macquarie Research James Covello - Goldman Sachs Group Inc. Uche Orji - UBS Investment Bank Glen Yeung - Citigroup Inc Stacy Rasgon - Bernstein Research Tore Svanberg - Stifel, Nicolaus & Co., Inc. Jonathan Smigie - Raymond James & Associates Christopher Danely - JP Morgan Chase & Co Ross Seymore - Deutsche Bank AG John Pitzer - Crédit Suisse AG Timothy Luke - Barclays Capital Presentation Operator
In today's call, we'll describe our views on the demand environment, where we are in the correction and our near-term outlook. We'll also talk about the financial impact of the three new factories that we have now brought online and the opportunities for growth that these factories provide. Finally, we'll provide a retrospective view of the year and our expectations for the years ahead.I'll start with the demand environment. As a reminder, from the second quarter of 2009 through the third quarter of 2010, the SC industry had six quarters of strong growth. Our own revenue in the third quarter of 2010 was up 79% from the first quarter 2009 trough. In the summer of 2010, the industry began to slow and then declined in the fourth quarter. During our October and December calls, we said that we believe the slowdown would be both short and shallow. We were in an environment where lead times were shortening and inventories were being quickly reduced. At this point, we believe the correction is mostly complete. TI's lead times have now completed an orderly reduction and are back to normal as we had projected in our last call. During the fourth quarter, we were able to replenish our inventory levels, which will help us keep lead times normal during 2011. Regarding customer and channel inventory, while there are some customer-specific examples where inventories are higher than they desire, we see some of the important end markets like PCs and LCD TVs having largely completed their inventory corrections. In the PC market, TI revenue from battery management products bottomed early in the fourth quarter and grew through the remainder of the quarter. In the LCD TV market, our customers tell us that their excess inventory was significantly cleared in the fourth quarter and to expect higher demand in the current quarter. As a result, even though new orders for the quarter were down again from the third quarter, after a very weak month of October, net orders were appreciably higher during the month of November and December.
Let me translate all of this to our outlook. Historically, the first quarter for TI would be down about 5% compared with the fourth quarter. The middle of our current first quarter guidance range is a little better than seasonal. In addition, our backlog coverage as we enter the current first quarter was higher than recent years of history for our first quarter. To summarize the demand environment, we believe the slowdown that started in the summer of 2010 is mostly complete.Turning to our fourth quarter results, revenue in the fourth quarter was slightly better than the middle of our range of expectations. Revenue declined 6% sequentially and was up 17% from a year ago. Analog revenues declined 4% sequentially and grew 20% from a year ago. The sequential decline was primarily due to Power Management products given their higher exposure to the PC market. High Volume Analog and Logic products and High-Performance Analog products declined to a lesser extent. The 20% increase in Analog revenue from a year ago was mostly due to strength in High-Performance Analog products, although HVAL and Power Management both had double-digit growth. In Embedded Processing, revenue declined 7% sequentially and grew 31% from a year ago. The sequential decline was due to lower catalog product revenue, with revenue from products sold into communications infrastructure and automotive applications about even. The 31% increase from a year ago was primarily due to catalog products. Communications infrastructure revenue also grew, and in fact, its growth rate exceeded 30%. Growth from products sold into automotive applications was lower, although still double digits. Total wireless revenue was about even sequentially and from a year ago. Baseband revenue was $435 million in the quarter, down slightly from $438 million in the prior quarter and down from $465 million a year ago. Sequential growth in the OMAP applications processor revenue was offset by lower connectivity revenue and a slightly lower Baseband revenue. From a year ago, higher connectivity and applications processor revenue was offset by the lower Baseband revenue. In our Other segment, revenue declined 14% sequentially and grew 23% from a year ago. Most of the sequential decline was the result of the seasonal decline in calculators. DLP revenues declined by about the same amount as revenue from our transitional supply agreements increased. Read the rest of this transcript for free on seekingalpha.com