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Texas Instruments Pushes Profitability

The chipmaker's CEO sees cost controls paying off.

Texas Instruments (TXN) - Get Report is targeting significant increases in profitability while recognizing the changing landscape in the semiconductor industry.

"The PC has now given way to communications and entertainment," said TI CEO Rich Templeton on Wednesday during an analyst meeting that will continue into the afternoon.

Templeton says the company is targeting gross margins of 50% and operating margins of 25%, but didn't provide a time frame for hitting those goals. The company has stated these profitability goals before, but the comments Wednesday suggest that TI is closing in on the targets.

In 2004, TI logged gross margins of 44.7% and an operating profit of 17.5%.

In the first quarter, which ended in March, TI posted gross margins of 44.9% and an operating margin of 16.7%.

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Templeton highlighted TI's performance in the first quarter, which is typically a weak period. He said an ongoing inventory correction also took a toll. Templeton said manufacturing strategy and expense controls "yielded the best trough margins" since he joined TI 25 years ago. "This is a sign we are on the right track," he said.

To get to higher margins, TI has made a series of moves this year, including the sale of its LCD driver operations -- a low-margin business -- in the first quarter. TI makes a wide range of analog and digital signal processors used in cell phones, computers, cars and digital TVs.

CFO Kevin March explained other recent moves made to shore up problem areas. TI has been selectively raising prices for its commodity logic and linear chips. And it has restructured its broadband operations for cost improvement and sharpened its focus on differentiated products, such as residential gateway processors.

TI also has implemented a new profit-sharing plan focused only on operating margin instead of a mix of revenue growth and operating margin.

Executives declined to comment on business results during the current quarter, but TI has scheduled a midquarter update for June 7.

TI shares were recently off 3 cents to $25.85.