TI Reports Financial Results for 4Q11 and 2011

January 23, 2012 by Jeff Shepard

Texas Instruments Inc. (TI) announced fourth-quarter revenue of $3.42 billion, net income of $298 million and earnings per share of 25 cents. EPS includes 16 cents in charges associated with the company’s acquisition of National Semiconductor and 7 cents in charges associated with the closure of two older manufacturing facilities.

"Revenue in the fourth quarter was higher than expected across all our major product lines, reinforcing our belief that we’re at the bottom of this downturn. I’m pleased to say that despite the downturn and the lower factory utilization that came with it, cash flow from operations was strong and well above levels as compared with similar points in prior downturns. Our strategic focus on our core businesses and efficient investment in capacity are key to our strong generation of cash," said Rich Templeton, chairman, president and chief executive officer. "As we move into 2012, we enter the final phase of our planned exit from the baseband market, and thus further tighten our focus on Analog, Embedded Processing and Wireless."

In addition to financial results, TI also announced plans to close two older semiconductor manufacturing facilities in Hiji, Japan, and Houston, Texas, over the course of the next 18 months. Production from these sites will be moved to other more advanced TI facilities. Combined, these factories supported about 4 percent of TI’s revenue in 2011, and each employs about 500 people. The total charge for these closures is estimated at about $215 million, of which $112 million was incurred in the fourth quarter and the remainder will occur over the next seven quarters. Annual savings will be about $100 million once the transition is complete. "These sites have made strong, high-quality contributions over the 30-plus years each has operated," said Templeton. "They demonstrate the tremendous cash flow potential associated with analog products, where factory lives are literally measured in decades. However, we’re now at the point where each of these sites requires significant upgrades, and it makes financial sense to shift production to larger, more advanced facilities."

TI closed its acquisition of National Semiconductor on September 23, 2011, and from that date began to consolidate the results of the acquired operations into TI’s Analog segment under the name Silicon Valley Analog. Total acquisition-related charges in the fourth quarter are $256 million. As required by the acquisition method of accounting for business combinations, these charges include $103 million in cost of revenue attributable primarily to the fair value write-up of acquired inventory. The remainder, $153 million, includes amortization of intangibles, retention bonuses and restructuring costs.

Results also include $112 million of restructuring charges associated with the planned facility closings announced. In addition to the impact from acquisition-related charges, TI’s fourth-quarter 2011 gross profit was negatively impacted by costs associated with low levels of factory utilization in the quarter, as well as charges for Wireless baseband inventory.

Operating profit declined from a year ago primarily due to acquisition-related charges, lower gross profit and restructuring charges in the fourth quarter of 2011, as well as a gain on the sale of a product line in the year-ago quarter. Compared with the prior quarter, operating profit was lower primarily due to higher total acquisition-related charges and restructuring charges, as well as lower gross profit.

TI’s annual effective tax rate declined to 24 percent from the previously estimated 25 percent. Results include a cumulative adjustment for this rate change, as well as a net discrete tax benefit of $11 million.