Texas Instruments Resizing to Reality

NEW YORK (TheStreet) -- Texas Instruments' (TXN) decision to cut 1,100 jobs was born out of the company's need to shift resources to faster growing areas, according to CFO Kevin March.

The chipmaker beat Wall Street's revenue forecast in its fourth-quarter results, released after market close on Tuesday, but announced large job cuts in its Japanese operations and its Embedded Processing business.

Texas Instruments has shifted its focus away from legacy wireless offerings, towards more lucrative analog and embedded processing products in recent years, so the workforce reduction was somewhat surprising.

March, however, said that parts of the embedded processing market are simply growing much faster than others. "Some of the technologies that we sell into are beginning to mature so the amount of investment that we have been spending on those during the growth years is no longer necessary," he told TheStreet during a phone interview. "What is growing very strongly for us is automotive use of processors, industrial market use of processors - what is flattening out or maturing is processors going into macro base stations for cell phones."

Overall, Texas Instruments' embedded processing business is performing well, according to the CFO. "If you take a look at embedded processing, it has actually been growing very strongly," he said noting that the embedded processing revenue grew 11% year over year during fourth-quarter. "There are many parts of embedded processing growing very energetically - we're continuing to invest quite energetically in those markets."

In addition to cars and industrial devices, Texas Instruments' embedded processing technologies can be found in DVD players, X-ray systems and MRI machines. The company's analog chips are sold into a broad range of products such as laptops, netbooks, servers and video surveillance equipment.

March explained the Japanese job cuts are the result of manufacturing changes in the country. "Many of our large Japanese customers who traditionally may have manufactured in Japan, over the years, have begun to either outsource or build plants elsewhere in Asia," he said. "So our need to have the kind of support infrastructure, for example, in Japan, with those customers, is diminishing."

"We're simply resizing to that reality," he added. "You support customers by being where they are, not where they were."

March expects that the cuts to Texas Instruments' workforce of more than 32,000 employees will run through the middle of next year.

The chip specialist reported sales of $3.03 billion on Tuesday, just above analysts' forecast of $2.99 billion. Texas Instruments earned 46 cents a share, in line with Wall Street's estimates. The company's numbers, however, include a restructuring charge of $49 million, which reduced earnings by 3 cents a share.

The company's free cash flow for the full year of 2013 was $3 billion, or 24% of revenue. Texas Instruments had set a target of 20% to 25% for free cash flow.

Evercore analyst Patrick Wang highlighted Texas Instruments' strong cash returns as a positive for investors. "We believe shares remain a core tech holding given the investor-friendly transformation over the last few years and resultant cash flow generation," he wrote, in a note released on Wednesday. "With over $1bn FCF [Free Cash Flow] in 4Q, mgmt returned 136% of FCF during 2013."

Texas Instruments returned just over $4 billion to shareholders in the form of dividends and share repurchases during fiscal 2013.

With regard to the broader global economy, March said he's seeing some positive trends. "On a macro level, if we take a look at the U.S. economy, I think there's increasing confidence that the U.S. economy is going to do some reasonable growth," he said. "It certainly feels like Europe has finally stopped shrinking and, in fact, might even be trying to do a little bit of growth."

"In Japan, we're certainly seeing some interesting signs of growth showing up there - China seems to have stabilized with a growth rate of seven, seven-and-a-half percent," he added, saying that the world's four largest economies are heading in the right direction . "It has got to make you feel a lot better about going into 2014 than any of the last four or five years."

Texas Instruments' shares gained 1.97% to $44.72 during Thursday trading.

--Written by James Rogers in New York.

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