· TI Revenue Grows to $3.76 Billion · $0.45 EPS from Continuing Operations · High-Performance Analog Revenue Up 37% from a Year Ago · Strong Profitability at 51.4% Gross Margin, 24.7% Operating Margin Except as noted, financial results are for continuing operations. The sale of TI's former Sensors & Controls business was completed on April 27, 2006, and that business is reported as a discontinued operation. DALLAS (October 23, 2006) - Texas Instruments Incorporated (TI) (NYSE: TXN) today reported third-quarter 2006 revenue of $3.76 billion. Revenue grew 2 percent compared with the second quarter, which included a $70 million royalty settlement, and increased 13 percent from the same quarter a year ago. The increases were primarily due to continued strong demand for the company's high-performance analog and DSP products. Earnings per share (EPS) from continuing operations were $0.45. Second-quarter EPS of $0.47 included a benefit of $0.03 from a sales tax refund and a benefit of $0.02 from a royalty settlement. EPS grew 25 percent from $0.36 in the year-ago quarter. EPS in each of these periods included an expense of $0.03 for stock-based compensation. “The third quarter was one of the best in TI's history,” said Rich Templeton, TI president and chief executive officer. “Our revenue once again set an all-time record as our share continued to climb in our core markets. Our strong gross and operating margins reflected the value of our product portfolio, rich in analog and DSP products.“At the same time, orders declined, leading us to expect that fourth-quarter Semiconductor growth will be below the seasonal average. A couple of factors are influencing this. First, we believe customers have broadly replenished their own inventory and are confident in operating with lower backlog now that chip supply has improved. The second factor is wireless, where we expect that unit mix will be more weighted toward low-priced cell phones and inventory correction will continue in Japan. Even with a less-than-seasonal fourth quarter, we expect the growth rate of our Semiconductor business to be in the upper teens for the year,” Templeton said.“In the near term, we are managing inventory and tightening expenses. We have a responsive manufacturing model and we believe distributor inventory levels remain lean, both of which should serve us well. We are competing from a position of strength with leading products and with customers who are gaining share.”Gross Profit TI's gross profit was $1.93 billion, or 51.4 percent of revenue. This was an increase of $25 million from the prior quarter and an increase of $242 million from the year-ago quarter. The increases were due to higher revenue in the company's Semiconductor segment. Operating Expenses Research and development (R&D) expense was $570 million, or 15.2 percent of revenue. R&D expense was $34 million higher than the prior quarter primarily because the second quarter included a sales tax refund. R&D expense increased $49 million from the year-ago quarter due to higher investment in new semiconductor technology, particularly for wireless applications. Selling, general and administrative (SG&A) expense was $432 million, or 11.5 percent of revenue. SG&A expense increased $14 million from the prior quarter. This expense was $24 million higher than a year ago primarily because of increased consumer advertising of DLP® technology for high-definition televisions.Operating Profit Operating profit was $930 million, or 24.7 percent of revenue. This was a decrease of $23 million from the prior quarter, which included a $117 million operating profit benefit associated with a royalty settlement and a sales tax refund. Operating profit increased $169 million from the year-ago quarter due to higher gross profit in the Semiconductor segment. Total stock-based compensation expense of $79 million, or 2.1 percent of revenue, was included in Corporate in the third quarter. This was about the same as in the comparison periods.Other Income (Expense) Net (OI&E) OI&E of $55 million decreased $33 million from the prior quarter, which included a $20 million benefit from a sales tax refund. OI&E increased $6 million from the year-ago quarter. Net IncomeIncome from continuing operations was $686 million, or $0.45 per share. Net income of $702 million includes income from continuing and discontinued operations. In the prior quarter, net income included $1.65 billion from discontinued operations, almost all of which was a gain on the sale of the company's former Sensors & Controls business. OrdersTI orders were $3.43 billion. This was a decrease of $478 million from the prior quarter and a decrease of $41 million from the year-ago quarter. The decreases were due to lower orders in the company's Semiconductor segment. CashCash flow from operations was $419 million. This was a decline of $248 million from the prior quarter. At the end of the third quarter, total cash (cash and cash equivalents plus short-term investments) was $4.18 billion, down $1.49 billion from the end of the prior quarter. During the third quarter, the company used $1.69 billion to repurchase 56 million shares and paid $46 million in dividends. During the past four quarters, the company used $5.04 billion to repurchase 163 million shares, reducing shares outstanding by more than 8 percent.Capital Spending and DepreciationCapital expenditures were $276 million. This was a decrease of $98 million from the prior quarter and a decrease of $164 million from the year-ago quarter. TI's capital expenditures in the third quarter were primarily for equipment used in the assembly and test of semiconductors. Depreciation was $266 million, about the same as the prior quarter. Depreciation decreased $66 million from the year-ago quarter. Accounts Receivable and InventoriesAccounts receivable were $2.09 billion. This was an increase of $160 million from the prior quarter primarily due to higher revenue in the month of September versus the month of June. Accounts receivable increased $333 million from the year-ago quarter primarily due to higher revenue. Days sales outstanding were 50 at the end of the third quarter compared with 47 at the end of the prior and the year-ago quarters.Inventory of $1.49 billion at the end of the third quarter was above desired levels. This was an increase of $156 million from the prior quarter as the company built inventory to support expected product shipments, especially for cell phones. To a lesser degree, the company also began to rebuild needed work-in-process inventory that previously had been depleted for catalog product lines such as high-performance analog. Compared with the year-ago quarter, when inventory was below desired levels, inventory increased $417 million. Days of inventory at the end of the third quarter were 73 compared with 67 at the end of the prior quarter and 59 at the end of the year-ago quarter. Outlook TI intends to provide a mid-quarter update to its financial outlook on December 11, 2006, by issuing a press release and holding a conference call. Both will be available on the company's web site.For the fourth quarter of 2006, TI expects revenue from continuing operations to be in the following ranges:· Total TI, $3.46 billion to $3.75 billion; · Semiconductor, $3.39 billion to $3.66 billion; and · Educational & Productivity Solutions, $70 million to $90 million. TI expects earnings per share from continuing operations to be in the range of $0.40 to $0.46. In 2006 for continuing operations, TI expects: the annual effective tax rate to be about 29 percent compared with its prior expectation of about 30 percent; expense for R&D to be about $2.2 billion; capital expenditures to be about $1.3 billion; and depreciation to be about $1.05 billion....http://www.sec.gov/Archives/edgar/data/97476/000009747606000235/exhibit.htmConsensus estimates were for an eps of 45 cents on revenues of $3.8B. Current consensus estimates for Q4 are for an eps of 45 cents on revenues of $3.81B.http://finance.yahoo.com/q/ae?s=TXN
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