Texas Instruments Stands Tall

The chipmaker rewards investors with an earnings beat and a 20% dividend increase.
Author:
Publish date:

Updated from 4:49 p.m. EDT

Texas Instruments

(TXN) - Get Report

topped its second-quarter earnings target on in-line sales as cost controls took hold, the chipmaker announced late Monday.

The company also expanded its stock-repurchase plan by $2 billion and increased its annual dividend to 12 cents a share from 10 cents.

Shares rose 4.3% after hours to $31.92 on Island ECN after ending the regular session off 0.5% to $30.60. The late move higher lifted shares to a 17-month high, up 31% for the year.

For the quarter ended June 30, TI reported net income of $628 million, or 38 cents a share, on sales of $3.24 billion. During the same quarter last year, TI earned $441 million, or 25 cents a share, on sales of $3.24 billion.

Excluding tax-related benefits worth 6 cents a share, TI earned 32 cents a share. Analysts had expected earnings, excluding charges, of 29 cents a share on sales of $3.19 billion, on average, according to Thomson First Call.

During a midquarter update on June 7, TI predicted earnings between 27 and 30 cents a share and sales between $3.12 billion and $3.24 billion. The midquarter targets were toward the high end of original expectations.

Orders grew to $3.39 billion, up 12% sequentially and up 4.2% from the same period last year.

For the third quarter, TI expects earnings between 31 and 35 cents a share and sales between $3.29 billion and $3.56 billion. Analysts had expected earnings of 32 cents a share on sales of $3.36 billion.

Based in Dallas, the world's third-largest chipmaker manufactures a wide range of analog and digital signal processors used in cell phones, computers, cars and digital TVs. TI also makes sensors and controls and educational products, like calculators.

Overall gross margins were 47% in the second quarter vs. 44.9% in the first quarter and 45.7% in the same quarter last year. Operating profit was 20.6% vs. 16.7% in the previous quarter and 18.3% in the same quarter last year.

TI maintained its long-term targets for gross margins of 50% and operating margins of 25%. In 2004, TI logged gross margins of 44.7% and an operating profit of 17.5%.

By business unit, semiconductor sales rose 6% sequentially to $2.77 billion and operating profit improved 29% to $594 million. Gross margin rose to 47.6% of sales from 45.8% in the first quarter because of better factory utilization and cost reductions. Sales slightly exceeded the top end of TI's target range issued during the midquarter update.

Sensor and control sales growth was flat at $295 million and operating profit rose 4.3% higher to $72 million. Cost cuts helped gross margins expand to 36.6% from 35.8%. Sales fell below the revised midquarter target range of $300 million to $310 million.

Educational and productivity products sales doubled to $181 million because of seasonal demand for calculators. From the same quarter last year, sales rose 7.1%. Operating profit was $79 million, up from $20 million in the first quarter and $88 million in the same quarter last year. Gross margin was 61.2% vs. 54.2% in the previous quarter and 58.6% in the same quarter last year. Sales edged above the revised midquarter target range of $170 million to $180 million.

For the third quarter, TI said it expects semiconductor sales between $2.84 billion and $3.07 billion, sensors and controls revenue between $275 million and $295 million, and educational products sales between $180 million and $200 million.