See accompanying notes.
The consolidated financial statements include the accounts of all subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in the notes, except share and per-share amounts, are stated in millions of U.S. dollars unless otherwise indicated.
The amounts above include the impact of recognizing compensation expense related to RSUs, nonqualifiedrestricted stock units (RSUs), non-qualified stock options and stock options offered under the employee stock purchase plan. Stock-based compensation expense has not been allocated to the variousbetween segments, but is reflected in Corporate.
We accrue for known product-related claims if a loss is probable and can be reasonably estimated. During the periods presented, there have been no material accruals or payments regarding product warranty or product liability, and historically we have experienced a low rate of payments on product claims. Consistent with general industry practice, we enter into formal contracts with certain customers in which the parties define warranty remedies. Typically, under these agreements, our warranty for semiconductor products covers three years,years; an obligation to repair, replace or refund,refund; and a maximum payment obligation tied to the price paid for our products. In some cases, product claims may be disproportionate to the price of our products.
We are subject to various other legal and administrative proceedings. Although it is not possible to predict the outcome of these matters, we believe that the results of these proceedings will not have a material adverse effect upon our financial condition, results of operations or liquidity.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following should be read in conjunction with the Financial Statements and the related Notes that appear elsewhere in this document. All dollar amounts in the tables in this discussion are stated in millions of U.S. dollars, except per-share amounts. All amounts in this discussion reference continuing operations unless otherwise noted.
Overview
At Texas Instruments, makes, marketswe design, make and sellssell high-technology components; more than 50,000 customers all over the world buy our products. We have two business segments: Semiconductor and Education Technology. Semiconductor is by far the larger of these segments. It accountedsegments, accounting for 96 percent of our revenue in 2006,2007. This segment sells integrated circuits, or semiconductors, to electronics designers and historically it averagesmanufacturers, many of whom innovate rapidly and bring new products to market multiple times a higher growth rate thanyear. Our Education Technology althoughsegment accounts for the remaining 4 percent of our revenue and sells calculators and related technologies to consumers and educators.
The details relevant to each segment are discussed below.
Semiconductor
Our Semiconductor segment invents and produces a variety of semiconductors, commonly called “chips.” These semiconductors are used to accomplish many different things, such as processing data, canceling noise, converting signals, improving resolution and distributing power. We are among the world’s largest semiconductor market is characterizedcompanies as measured by revenue, having been ranked in the top five for the past decade. Our Semiconductor segment can be affected by cyclical upturns and downturns characteristic of our markets, which sometimes cause wide swings in growth rates from year to year. We were the world’s third-largest semiconductor company in 2006 as measured by revenue, accordingPrices and manufacturing costs of Semiconductor products tend to iSuppli Corporation, an industry analyst.decline over time.
InProducts
Over the past decade, we have focused most of the resources of our Semiconductor segment we focus primarily on technologies that make it possible for a variety of consumer and industrial electronic equipment to process both analog and digital signals in real time. These technologies are known astwo areas – analog semiconductors and digital signal processors (DSPs). In 2007, about 80 percent of the segment’s revenue came from sales of these two broad types of semiconductors. In general, analog semiconductors and DSPs convert and process signals very quickly, enabling people to talk on a cell phone, hold a real-time videoconference over the Internet, or DSPs, and together they accountovercome deafness with a digital hearing aid, for about three-fourths of our Semiconductor revenue. Almostexample. Our portfolio includes products that are central to almost all of today’s electronic equipment requires some form of analog or digital signal processing.equipment.
Analog semiconductors process “real world” inputs,are responsible for changing real-world signals – such as sound, temperature, pressure and visualor images – by conditioning them, amplifying them and often converting them intoto a stream of digital signals. Theydata so the signals can be processed by DSPs. Analog semiconductors also assist in the management ofmanage power distribution and consumption, aspects critical to today’s portable electronic devices. Generally,consumption. Analog semiconductors can have long life cycles that reach into decades. We introduce hundreds of new types of analog products require less capital-intensive factories to manufacture than digital products.semiconductors every year.
Our analog semiconductors consist ofcan be put into two primary categories: custom products and standard products.products; most of our standard products are high-performance analog. Custom products are designed for specific applications for specific customers. Standard products include application-specific standard products (designed for a specific application and usableare used by multiple customers)customers, though some are used only in specific applications and high-performance standard catalog products (usablesome are used in multiple applications by multiple customers). Standard products are characterized by differentiated features and specifications, as well as relatively high gross margins. Standard analog products tend to have long life spans. Manymany different applications. Almost all of our custom and standard products are proprietary in nature, which makes them difficult to copy or imitate. Both also typically deliver good gross margins, with margin on standard products being somewhat higher. While our analog portfolio is primarily comprised of custom and difficult for competitors to imitate. Analogstandard products, we also includemanufacture and sell another category of analog semiconductors known as commodity products, whichproducts. These are sold in high volume and intoto a broad range of applications,customers for use in many different applications. Commodity products, unlike custom and standard products, are easily imitated, which means differentiation is generally are differentiatedachieved by price and availability.
The size of the total market for analog semiconductors was about $36 billion in 2007, and we supplied an estimated 13 percent of this market. Our share of this market has increased over the past five years as we have expanded our portfolio with higher performance products and grown the size and reach of our sales force. We arebelieve that with continued improvements and focus, we can keep increasing our share of the world’s largest supplier ofmarket for analog semiconductors.
DSPs are semiconductors that perform mathematical computations almost instantaneously with a high level of precision. They use complex algorithms and compression techniques to alterprocess and improve a data stream. These productsstream of digital data. DSPs are ideal for applications that require precise, real-time processing, of real-world signals that have been converted intosuch as cell phone conversations or receiving digital form. Their power efficiency is important for battery-powered devices.radio transmissions. The processing speed
and power efficiency of a DSP are important characteristics that often indicate the advanced technical nature of the device. Our DSP portfolio includes DSPs that are among the world’s fastest and most power-efficient.
Our portfolio of DSPs includes three categories of products: custom products, application-specific products and standard products. Custom products are designed for specific, individual customers with very high volumes in established markets. Application-specific products are designed for use by multiple customers in established and emerging markets such as wireless basestations, medical equipment and security systems.markets. Standard DSP products are sold into a broad range of applications and often seed the next generationgenerations of innovation in signal-processing innovation. equipment.
We are the world’s largest supplier of DSPs with an estimated 65 percent share of the market in 2007. Most of this revenue comes from custom DSPs.
A digital television broadcast provides an example of how analog semiconductors and DSPs work together in enabling modern electronic equipment. As a camera focuses on an event, its sensors and microphones send real-world signals to analog semiconductors, which condition and amplify the signals and convert the signals into digital data. A DSP then compresses and enhances the data for transmission as a television broadcast. Next, a television receives the broadcasted signal and its chips reverse the process, outputting the resulting sound and picture. Our portfolio of semiconductor products includes analog and DSP chips that are able to accomplish all of the processing steps described in real time.
Inventory
We expectstrive to carry levels of inventory that let us meet our customers’ needs as well as fill orders when demand is unexpectedly strong. Having products when and where the customer needs them is an important element in gaining market share.
Our inventory practices vary by type of product. For standard products, where the risk of obsolescence is low, we generally carry higher levels of inventory. These products usually have many customers and long life cycles and are often ordered in small quantities. Standard product inventory is sometimes held in unfinished form, giving us greater flexibility to meet final package and test configurations. Examples of these products are high-performance analog, standard DSP and standard microcontrollers. (A microcontroller is a microprocessor designed to control a very specific task for electronic equipment.) For custom high-volume products, where the risk of obsolescence is higher, we carry lower levels of inventory when possible. These products usually have a single customer, are sold in high volumes and have comparatively shorter life cycles. Life cycles of these products are often determined by end-equipment upgrade cycles and can be as short as 12 to 24 months. Examples of these products are digital baseband processors for cell phones and custom application-specific analog and digital products. In addition, our inventory levels have generally will increase from historical levels in orderincreased over time due to meet the requirementsimpact of consignment programs at our customers. For example, the analog market consistslargest customers, our distributors’ desire to carry less inventory and our increased mix of a very broad base of customers that order relatively small quantities of many different analog products. These customers typically expect very short order lead times, requiring us to maintain more on-hand inventory. Also, analog suppliers typically hold a broader range of inventory in order to serve their customers, while manufacturing in efficient quantities. Analogstandard products will be a growing portion of our inventorysuch as our analog business continues to grow and broaden its product portfolio. Additionally, our large customers are moving increasingly toward a business model that requires us to maintain inventory on a consignment basis on their behalf.high-performance analog.
Manufacturing
We own and operate semiconductor manufacturing sites in the Americas, Japan, EuropeNorth America, Asia and Asia.Europe. Our facilities require substantial investment to construct and are largely fixed-cost assets once in operation. Because we own mostmuch of our manufacturing capacity, a significant portion of our operating costs is fixed. In general, these costs do not decline with reductions in customer demand or our utilization of capacity, potentially hurting our manufacturing capacity, and can adversely affect profit margins as a result.margins. Conversely, as product demand rises and factory utilization increases, the fixed costs are spread over increased output, which should improvepotentially benefiting our profit margins.
WeThere is an inherent difference in the cost to manufacture analog semiconductors and DSPs. DSPs generally are on the leading edge of technology, and consequently, they require the most advanced and expensive manufacturing processes and equipment. Additionally, digital chips tend to evolve quickly to more advanced technology levels, requiring new production processes and new equipment every few years. As a result, maintaining an industry leadership position in digital manufacturing requires significant capital spending, along with investment in research and development, in order to develop new production processes and manufacturing capabilities. To reduce the dollars we must spend to produce digital chips, we manufacture some of our analog products in our own factories. To supplement our manufacturing capacity, especially for digital products, we outsource a portion of our product manufacturing toat foundries that are owned and operated by outside suppliers (foundries and assembly/test subcontractors), which reduces both the amount of capital expenditures and subsequent depreciation required to meet customer demands and fluctuations in profit margins. Outside foundries providedparties. Foundries manufactured about 50 percent of our total wafers for advanced digital productschips in 2006. (A wafer is a thin slice of silicon on which an array of semiconductor devices has been fabricated.)2007.
The semiconductor market is characterized by constantIn contrast to our DSPs, our analog semiconductors typically require a lower level of investment in manufacturing processes and typically incremental innovation in product designequipment. While analog chips benefit from unique, proprietary manufacturing processes, these processes can be applied using older, less expensive equipment. In addition, these processes and equipment remain usable for much longer than digital manufacturing technologies. We make significant investments inprocesses and equipment. Consequently, the level of capital and manufacturing research and development (R&D). Typically, products resulting fromspending needed to support analog manufacturing is considerably less than is needed for an equivalent level of digital manufacturing. We manufacture a significant majority of our R&D investmentsanalog chips in our own factories.
In addition to using foundries to produce advanced digital chips, we determined in 2007 to work with foundries to develop the wafer fabrication manufacturing process technologies used in the current periodproduction of digital chips. Such technologies historically were developed by us and a handful of other large semiconductor companies. But as foundries have become more sophisticated, they now can, and do, not contribute materiallydevelop the same technologies, on the same schedule, with the same capabilities and quality. As a result, it is now more efficient and cost-effective for us to revenue in that period, but should benefit us in future years. In general,work collaboratively with foundries to develop new semiconductor products are shipped in limited quantities initially and will then ramp into higher volumes over time. Prices and manufacturing costs tend to decline over time.
We strive to keep improving performance. One example of that effort is by changing how we develop advanced digital manufacturing process technology. Insteadtechnologies and avoid duplication of separately creatingresearch and investment. We substantially completed this shift in 2007. As we have decreased our own process technology,spending on digital manufacturing research and development, we work collaboratively with our foundry suppliers to specify and drive the next generations of digital process technology, and will continue making productshave increased spending on these processes in our world-class factories. We expect that our 32-nanometer manufacturing process will be the first process technology developed entirely through this new collaboration. This is a natural extension of our existing relationships with foundries that will increase our R&D efficiency and our capital efficiency while maintaining our responsiveness to customers. Also, in 2007 we will stop production at an older digital factory and move its manufacturing equipment into several of our analog factoriesmanufacturing, where we remain able to support greater analog output.differentiate our products through process technologies.
These changes are being made throughout 2007 and, when complete, are expected to reduce costs by about $200 million annually. As a result of these changes, about 500 jobs are expected to be reduced by year end. In total, we expect to incur restructuring charges of approximately $55 million. These restructuring charges were $15 million in the third quarter and $46 million year-to-date (see Note 7 to the Financial Statements for additional information).Education Technology
Our Education Technology segment is athe world’s leading supplier of handheld graphing handheld calculators. It also provides our customers withdesigns business and scientific calculators, andas well as a wide range of advanced classroom tools and professional development that enableshelp students and teachers to explore math and science interactively. Our products are marketed primarilyto consumers through retailers and to schools through instructional dealers. The Education Technology experiencessegment has an annual pattern of revenue that is tied to the back-to-school season. As a result, revenue is at its strongest resultshighest in the second and third quarters in preparation for the back-to-school season.quarters. This business segment represented 4 percent of our revenue in 2006.2007. Prices of Education Technology products tend to be stable.
Tax Implications
We operate in a number of tax jurisdictions and are subject to several types of taxes including those based on income, capital, property and payroll, and sales and other transactional taxes. The timing of the final determination of our tax liabilities varies among thesethe various jurisdictions and their taxing authorities. As a result, during any particular reporting period, we might reflect (in either income before income taxes, the provision for income taxes, or both)in our financial statements one or more tax refunds or assessments, or changes to tax liabilities, involving one or more taxing authorities (see Notes 1authorities.
First-Quarter 2008 Results
Our financial results for the first quarter reflect our strengthening position in the market for analog semiconductors.
Our revenue was up 3 percent from the year-ago quarter, due to 20 percent growth in shipments resulting from increased demand for our high-performance analog semiconductors. Our operating profit grew 19 percent. Analog is making us stronger and 8 to the Financial Statementswill be a significant growth opportunity for a discussionvery long time. Analog goes into almost every piece of electronic equipment that is made, and we have the technology and the manufacturing power to serve much more of this market than we are addressing today. Analog also has clear benefits for our operating profit, which has grown faster than revenue, and for our cash flow, which we can return to shareholders or reinvest in growth.
Compared with the fourth quarter, our revenue declined 8 percent primarily due to lower shipments resulting from decreased demand for our products used in cell phones, especially high-end, or 3G, cell phones.
We believe our long-term opportunity is excellent. We continue to do the things needed to be the better choice for our customers, such as adding sales and applications engineers, investing in new products, and increasing assembly/test capability.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Statements of Income – Selected Items
(In millions, except per-share amounts)
| | | | |
| | | | | | | | | | |
| Net revenue | | $ | 3,272 | | | $ | 3,556 | | | $ | 3,191 | |
| Cost of revenue (COR) | | | | | | | | | | | | |
| Gross profit | | | 1,756 | | | | 1,926 | | | | 1,637 | |
| Research and development (R&D) | | | 514 | | | | 508 | | | | 552 | |
| Selling, general and administrative (SG&A) | | | | | | | | | | | | |
Total operating costs and expenses | | | | | | | | | | | | |
| Profit from operations | | | 807 | | | | 996 | | | | 680 | |
| Other income (expense) net | | | | | | | | | | | | |
| Income from continuing operations before income taxes | | | 840 | | | | 1,042 | | | | 719 | |
| Provision for income taxes | | | | | | | | | | | | |
| Income from continuing operations | | | 662 | | | | 753 | | | | 516 | |
| Income from discontinued operations, net of taxes | | | | | | | | | | | | |
| Net income | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Basic earnings per common share: | | | | | | | | | | | | |
Income from continuing operations | | $ | | | | $ | | | | $ | | |
Net income | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Diluted earnings per common share: | | | | | | | | | | | | |
Income from continuing operations | | $ | | | | $ | | | | $ | | |
Net income | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Average shares outstanding (millions): | | | | | | | | | | | | |
Basic | | | | | | | | | | | | |
Diluted | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Cash dividends declared per share of common stock | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Percentage of revenue: | | | | | | | | | | | | |
| Gross profit | | | 53.7 | % | | | 54.2 | % | | | 51.3 | % |
| R&D | | | 15.7 | % | | | 14.3 | % | | | 17.3 | % |
| SG&A | | | 13.3 | % | | | 11.9 | % | | | 12.7 | % |
| Operating profit | | | 24.7 | % | | | 28.0 | % | | | 21.3 | % |
Details of Financial Results
Revenue was $3.27 billion, up $81 million, or 3 percent, from the year-ago quarter. Compared with the prior quarter, revenue decreased $284 million, or 8 percent.
Gross profit for the first quarter of 2008 was $1.76 billion, or 53.7 percent of revenue. Our profitability has been improving due to a richer mix of more profitable products. Gross profit increased $119 million from the year-ago quarter and declined $170 million from the prior quarter.
Operating expenses for the first quarter of 2008 were $514 million for R&D and $435 million for SG&A. R&D expense decreased $38 million from a year ago as we continue to benefit from our collaborative work with foundries on advanced digital process technologies. R&D expense increased $6 million from the prior quarter due to seasonally higher pay and benefits, partially offset by lower product development costs. SG&A expense increased $30 million from the year-ago quarter primarily due to higher investments in field sales and customer support, especially for emerging regions of the effects of adopting Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”).world.
SG&A expense increased $13 million from the prior quarter due to seasonally higher pay and benefits, partially offset by lower advertising expense.
In January 2006, we entered into a definitive agreementOperating profit for the first quarter was $807 million, or 24.7 percent of revenue. This was an increase of $127 million from the year-ago quarter due to sell substantially allhigher gross profit. Operating profit decreased $189 million from the prior quarter due to lower gross profit.
Other income (expense) net for the first quarter was $33 million. This was down $6 million from the year-ago quarter and down $13 million from the prior quarter due to lower interest income.
As of March 31, 2008, the former Sensors & Controls segmentestimated annual effective tax rate for 2008 is expected to an affiliate of Bain Capital, LLC for $3 billion in cashbe about 31 percent (see Note 27 to the Financial Statements for additional information). The sale was completedtax rate is based on April 27, 2006.current tax law and does not assume reinstatement of the federal research tax credit, which expired at the end of 2007.
Third-QuarterQuarterly income taxes are calculated using the estimated annual effective tax rate.
The tax provision for the first quarter was $178 million, which includes a discrete tax benefit of $81 million. The discrete tax benefit was primarily due to our decision to indefinitely reinvest the accumulated earnings of a non-U.S. subsidiary. Our tax provision in the fourth quarter of 2007 Resultsincluded a discrete tax benefit of $11 million.
Income from continuing operations was $662 million, an increase of $146 million from the year-ago quarter and a decrease of $91 million from the prior quarter.
Earnings per share (EPS) for the first quarter were $0.49 and included a discrete tax benefit of $0.06. EPS increased $0.14 from the year-ago quarter and decreased $0.05 from the prior quarter.
Orders for the first quarter were $3.32 billion. This was an increase of $111 million from the year-ago quarter and a decline of $164 million from the prior quarter.
Semiconductor
Semiconductor revenue in the first quarter of 2008 was $3.19 billion. This was 2 percent higher than the year-ago quarter primarily due to higher shipments resulting from increased demand for analog products, especially high-performance analog products. Revenue declined 8 percent from the prior quarter primarily due to lower shipments resulting from decreased demand for DSP products sold into cell phone applications.
In July 2007, we sold our digital subscriber line (DSL) customer-premises equipment product line, causing a decline in revenue of about $55 million from first quarter 2007 as compared to first quarter 2008. This sale primarily affected our application-specific analog revenue over this period, although there was also some DSP revenue impact.
Analog product revenue for the first quarter was $1.32 billion. This was up 6 percent compared with a year ago due to increased shipments resulting from stronger demand for high-performance analog products. Revenue was down 4 percent from the prior quarter primarily due to lower shipments resulting from weaker demand for application-specific analog products sold into hard-disk drive and cell phone applications. Revenue from high-performance analog products increased 20 percent from a year ago and was about even with the prior quarter.
DSP product revenue for the first quarter was $1.12 billion. This was a decrease of 3 percent from a year ago and 18 percent from the prior quarter. Revenue declined from the year-ago quarter because products for low-end cell phones represented a higher proportion of our shipments than in the earlier period. Revenue declined from the prior quarter due to lower shipments resulting from reduced demand for products sold into a broad range of cell phone applications.
Our third-quarter 2007remaining semiconductor revenue for the first quarter was $3.66 billion. Revenue increased 7$754 million, an increase of 6 percent compared withfrom a year ago and 2 percent from the prior quarterquarter. Growth in both comparisons was primarily due to increased shipments resulting from higher demand for analog semiconductor products. Increased shipments of graphing calculators resulting from back-to-school demand also contributed to sequential growth. Our revenue decreased 3 percent from a year ago when customers were building inventory.
Earnings per share (EPS) were $0.52. This was an increase of $0.10, or 24 percent, from the prior quarter and $0.07, or 16 percent, from the year-ago quarter. Results for the third quarter of 2007 included a gain of $0.02 from the sale of the company’s semiconductor product line for broadband DSL customer-premises equipment.
Strong growth in analog was at the core of our performance in the third quarter. Our investments in analog technology have led to broader and deeper engagements with customers. As a result, this part of our business, which delivers about 40 percent of our revenue, grew 10 percent sequentially. Our growth allows us to continue to increase our return to shareholders. In the third quarter, we repurchased $1.4 billion of our stock. In September, our board of directors authorized an additional $5 billion in repurchases, and we announced a 25 percent increase in our dividend.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of dollars, except share and per-share amounts)
| | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Net revenue | | $ | 3,663 | | | $ | 3,424 | | | $ | 3,761 | |
| Cost of revenue (COR) | | | | | | | | | | | | |
| Gross profit | | | 1,984 | | | | 1,784 | | | | 1,932 | |
| Research and development (R&D) | | | 542 | | | | 551 | | | | 570 | |
| Selling, general and administrative (SG&A) | | | 429 | | | | 424 | | | | 432 | |
| Total operating costs and expenses | | | | | | | | | | | | |
| Profit from operations | | | 1,013 | | | | 809 | | | | 930 | |
| Other income (expense) net | | | | | | | | | | | | |
| Income from continuing operations before income taxes | | | 1,066 | | | | 865 | | | | 984 | |
| Provision for income taxes | | | | | | | | | | | | |
| Income from continuing operations | | | 758 | | | | 614 | | | | 686 | |
| Income (loss) from discontinued operations, net of income taxes | | | 18 | | | | (4 | ) | | | 16 | |
| Net income | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Basic earnings per common share: | | | | | | | | | | | | |
| Income from continuing operations | | $ | | | | $ | | | | $ | | |
| Net income | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Diluted earnings per common share: | | | | | | | | | | | | |
| Income from continuing operations | | $ | | | | $ | | | | $ | | |
| Net income | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Average shares outstanding (millions): | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | |
| Cash dividends declared per share of common stock | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | |
| Percentage of revenue: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Gross profit | | | 54.2 | % | | | 52.1 | % | | | 51.4 | % |
| R&D | | | 14.8 | % | | | 16.1 | % | | | 15.2 | % |
| SG&A | | | 11.7 | % | | | 12.4 | % | | | 11.5 | % |
| Operating profit | | | 27.6 | % | | | 23.6 | % | | | 24.7 | % |
Details of Financial Results
Gross profit for the third quarter was $1.98 billion, or 54.2 percent of revenue. This was up $200 million from the prior quarter primarily due to higher revenue, as well as a gain of $39 million on the sale of our broadband DSL customer-premises equipment product line that ismicrocontrollers. Also included in cost of revenue. Gross profit was up $52 million from the year-ago quarter due to the combination of reduced manufacturing costs and, to a lesser extent, the gain on sale, which more than offset the impact of lower revenue.
R&D expense for the third quarter was $542 million. This was a decrease of $9 million from the prior quarter and $28 million from the year-ago quarter. The declines were due to progress in implementing our advanced CMOS process development strategy.
Selling, general and administrative (SG&A) expense for the third quarter was $429 million. This was about even with both the prior and year-ago quarters.
Operating profit for the third quarter was $1.01 billion, or 27.6 percent of revenue. This was an increase of $204 million from the prior quarter due to higher gross profit and an increase of $83 million from the year-ago quarter primarily due to higher gross profit and, to a lesser extent, lower R&D expense.
Other Income (Expense) Net (OI&E) for the third quarter was $53 million. This was a decrease of $3 million from the prior quarter and $1 million from the year-ago quarter.
As of September 30, 2007, the effective annual tax rate for continuing operations in 2007remaining semiconductor revenue is expected to be about 29 percent (see Note 8 to the Financial Statements for additional information), an increase from the previously expected 28 percent effective annual tax rate.
The tax provision for continuing operations for the quarter was $308 million, compared with $251 million for the prior quarter and $298 million for the year-ago quarter. The increase from the prior quarter was primarily due to an increase in income before income taxes and, to a lesser extent, the increase in the effective annual tax rate. These increases were partially offset by a $25 million benefit from the change in net discrete tax items.
Compared with the year-ago quarter, the tax provision increased by $10 million due about equally to the impact of higher income before income taxes and the higher effective annual tax rate. These increases were partially offset by a $45 million benefit from the change in net discrete tax items.
Income from continuing operations in the third quarter was $758 million, or $0.52 per share.
Income from discontinued operations in the third quarter was $18 million due to a reduction of a state tax liability associated with the sale of our former Sensors & Controls business.
Our orders in the third quarter were $3.55 billion. This was an increase of $103 million from the prior quarter as higher demand for semiconductor products more than offset a seasonal decline in orders for graphing calculator products. Orders were up $125 million from the year-ago quarter due to higher demand for semiconductor products.
Semiconductor
Revenue in the third quarter was $3.46 billion. This was an increase of 6 percent from the prior quarter primarily due to increased shipments resulting from higher demand for analog products and, to a lesser extent, DSP products used in cell phone applications. Compared with a year ago,royalty revenue decreased 3 percent as increased shipments resulting from higher demand for analog products were more than offset by the effect on revenue from normal price declines across a broad base of products.
Analog product revenue of $1.40 billion was up 10 percent from the prior quarter primarily due to increased shipments resulting from higher demand for high-performance analog products and, to a lesser extent, a broad range of other analog products, especially for storage devices and printer applications. Compared with the year-ago quarter, analog revenue increased 2 percent due to increased shipments resulting from higher demand for high-performance analog products. Revenue from high-performance analog products increased 13 percent from the prior quarter and increased 10 percent from a year ago.
DSP product revenue of $1.31 billion was up 6 percent from the prior quarter primarily due to increased shipments resulting from higher demand for products used in cell phone applications. DSP product revenue declined 4 percent from a year ago primarily due to the combination of decreased shipments due to lower demand for products used in wireless network infrastructure and, to a lesser extent, products used in certain cell phone applications.
Our remaining Semiconductor revenue of $751 million was about even with the prior quarter as increased shipments due to higher demand for microcontroller, standard logic and reduced instruction set computing (RISC) microprocessor products more than offset a decline in DLP® product revenue resulting from lower shipments due to decreased demand.
Our remaining Semiconductor revenue decreased 10 percent from the year-ago quarter primarily due to decreased shipments resulting from lower demand for, in decreasing order, DLP products, RISC microprocessor products and standard logic products. Higher royalties and revenue from increased shipments due to higher demand for microcontrollersales of reduced-instruction set microprocessors, standard logic products partially offset these decreases.and DLP® products.
On an end-equipment basis, revenue in the third quarter from products for wireless applications increased 5 percent sequentially and decreased 7 percent fromwas $1.09 billion, a year ago.
Our wireless results were mixed by customer with demand from some customers significantly stronger than from others. This was a bigger factor in our wireless revenue trends this quarter than the dynamicsdecline of any particular market segment, although shipments in the quarter were skewed toward entry products due to strength in emerging markets.
The decline in wireless revenue from a year ago mostly represented broad-based declines across handset customers with the exception of a single customer where we had solid growth. In wireless infrastructure, revenue declined about 5 percent sequentially and over 25 percent from a year ago. This primarily reflects a continued stall in 3G network deployments. Separately, as announced last December, LM Ericsson Telephone Company added another supplier of 3G basebands for handset applications. Ericsson’s addition of a second supplier will affect our wireless revenue for the next several quarters. However, in July 2007, we announced a new engagement with Ericsson to provide both baseband and applications processor products. We believe this new engagement will begin to offset the revenue loss from Ericsson in the second half of 2008.
In DLP products, third-quarter revenue decreased 2 percent sequentially due to decreased shipments resulting from lower demand for products for high-definition televisions, partially offset by increased shipments due to higher demand for products for front projectors. Revenue decreased 21 percent from the year-ago quarter primarily due to decreased shipments resulting from lower demand for products for high-definition televisions.
Semiconductor gross profit in the third quarter was $1.84 billion, or 53.2 percent of revenue. This was an increase of $132 million from the prior quarter primarily due to higher revenue. Compared with the year-ago quarter, gross profit was about even as reduced manufacturing costs offset the impact of lower revenue.
Semiconductor operating profit in the third quarter was $1.03 billion, or 29.8 percent of revenue. This was an increase of $126 million from the prior quarter due to higher gross profit. It was an increase of $23 million from the year-ago quarter due to lower R&D expense.
Semiconductor orders were $3.44 billion. This was an increase of 6 percent from the prior quarter and 4 percent from the year-ago quarter primarily due to lower revenue from digital baseband and chipset products. Revenue from baseband and chipset products declined despite an increase in shipments because products for low-end cell phones represented a higher
proportion of shipments than in the earlier period. Compared with prior quarter, revenue declined 18 percent due to lower shipments resulting from decreased demand. Most of the decline in demand was due to an unexpected in-quarter decrease in demand for analog and DSP products. Our Semiconductor book-to-bill ratio was 0.99 inhigh-end, or 3G, products, although the quarter.previously discussed supplier transition under way at Ericsson Mobile Platforms contributed to a lesser extent.
Education Technology
Education Technology revenue inGross profit for the thirdfirst quarter was $202 million.$1.73 billion, or 54.3 percent of revenue. This was an increase of $35up $102 million, or 6 percent, from the year-ago quarter primarily due to higher revenue from more-profitable analog products, and to a lesser extent, from microcontrollers. Gross profit was down $165 million, or 9 percent, from the prior quarter due to increased shipments as retailers purchased calculatorslower revenue.
Operating profit for the back-to-school season. It was an increase of $20 million from the year-ago quarter as some major retailers shifted calculator purchases from the second into the third quarter in order to be closer to the start of the school year.
Education Technology gross profit in the thirdfirst quarter was $136$927 million, or a record 67.129.0 percent of revenue. This was up $27 million from the prior quarter and $20an increase of $96 million from the year-ago quarter due to higher revenue.
Education Technology operatinggross profit. Operating profit in the third quarter was $99decreased $190 million or a record 49.1 percent of revenue. This was an increase of $25 million compared withfrom the prior quarter and $16 million compared with the year-ago quarter due to higher gross profit.
First Nine Months of 2007 Results
For the first nine months of 2007, we report the following:
Revenue of $10.28 billion decreased $513 million or about 5 percent from the year-ago period primarily due to normal price declines across a broad base of products. Revenue in the year-ago period also included a second-quarter $70 million royalty settlement.
Gross profit for the first nine months of 2007 was $5.41 billion compared with $5.51 billion in the year-ago period due to lower revenue in Semiconductor. Gross profit for 2007 included the $39 million gain on sale, while 2006 included a $91 million favorable impact from the combination of the royalty settlement and a sales tax refund in the year-ago period. Gross profit margin was 52.6 percent of revenue compared with 51.1 percent in the year-ago period, primarily due to lower manufacturing costs.
R&D expense for the first nine months of 2007 of $1.65 billion was about even compared with the year-ago period. R&D expense as a percent of revenue was 16.0 percent, compared with 15.2 percent in the year-ago period.
SG&A expense for the first nine months of 2007 was $1.26 billion, about even with $1.27 billion in the year-ago period. SG&A expense as a percent of revenue was 12.2 percent compared with 11.8 percent in the year-ago period.
Operating profit for the first nine months of 2007 was $2.50 billion, or 24.3 percent of revenue, compared with $2.60 billion, or 24.1 percent of revenue, in the year-ago period. The decrease was due to lower gross profit.
OI&E for the first nine months of 2007 was $149 million. Other income decreased $39 million from the first nine months of 2006, due to the combination of lower interest income on investments and, to a lesser extent, a sales tax refund received in the 2006 period. Additionally, with the retirement of our remaining debt in April of 2007, interest expense in the first nine months of 2007 was $1 million compared with $6 million in the year-ago period.
The tax provision for continuing operations for the first nine months of 2007 was $762 million, compared with $821 million in the same period of 2006. The decrease in the tax provision from the year ago period was primarily due to lower income before income taxes and a $28 million benefit from the change in net discrete tax items. This was partially offset by an increase due to the higher effective annual tax rate.
Income from continuing operations for the first nine months of 2007 was $1.89 billion compared with $1.97 billion for 2006. Earnings per share from continuing operations were $1.29 per share compared with $1.24 per share in the year-ago period. As a result of our share repurchases, average diluted shares outstanding decreased by 118 million shares from the prior period, increasing earnings per share by $0.10.
Income from discontinued operations for the first nine months of 2007 was $14 million compared with $1.71 billion in the year-ago period, which included the $1.67 billion gain from the sale of our former Sensors & Controls business in the second quarter.
Net income for the first nine months of 2007 was $1.90 billion compared with $3.67 billion in the year-ago period.
Orders of $10.21 billion were down 7 percent from the year-ago period, reflecting lower demand for Semiconductor products.
Semiconductor
Semiconductor revenue in the first nine months of 2007 was $9.83 billion, compared with $10.35 billion for the year-ago period, primarily due to normal price declines across a broad base of products other than high performance analog and, to a lesser extent, the $70 million royalty settlement in the year-ago period.
Semiconductor gross profit for the first nine months of 2007 was $5.18 billion, or 52.7 percent of revenue, compared with $5.32 billion, or 51.4 percent of revenue, in the year-ago period. The decrease was primarily due to lower revenue and, to a lesser extent, the combination of the royalty settlement and sales tax refund in the year-ago period.
Semiconductor operating profit for the first nine months of 2007 was $2.77 billion, or 28.1 percent of revenue, down from $2.92 billion, or 28.3 percent of revenue, in the year-ago period primarily due to lower gross profit.
Semiconductor orders forin the first nine months of 2007quarter were $9.76 billion compared with $10.49 billion for$3.17 billion. This was up 3 percent from the year-ago period, reflectingquarter due to higher demand for analog products and was down 7 percent from the prior quarter primarily due to lower demand across a broad range offor DSP products other than high performance analog.
Education Technologyused in cell phones.
Education Technology
Education technology revenue was $446 million for the first nine monthsquarter of 2007, about2008 was $81 million. This was an increase of $5 million, or 7 percent, from the year-ago quarter due to higher sales of graphing calculators. Revenue was even with the year-ago period.prior quarter.
Education Technology grossGross profit for the first nine months of 2007quarter was $289$49 million, or 65.060.5 percent of revenue, compared with $276revenue. This was an increase of $4 million, or 61.710 percent, of revenue infrom the year-ago period,quarter due to manufacturing cost reductions.higher revenue. Gross profit declined $1 million from the prior quarter.
Education Technology operatingOperating profit for the first nine months of 2007quarter was $188$18 million, or 42.321.9 percent of revenue, compared with $181revenue. This was an increase of $2 million or 40.5 percent of revenue infrom the year-ago period, primarilyquarter due to higher gross profit partially offset by higher SG&A expense.and a decrease of $1 million from the prior quarter due to lower gross profit.
Financial Condition
TotalAt the end of the first quarter of 2008, total cash (cash and cash equivalents plus short-term investments) decreased $48was $1.88 billion. This was $1.05 billion lower than the end of 2007. As of the end of the first quarter we reclassified our remaining auction-rate securities, which have a fair value of $551 million, from year-end 2006short-term investments to $3.67long-term investments due to reduced liquidity for these securities (see Notes 4 and 5 to the Financial Statements). Accounts receivable were $1.67 billion at the end of the third quarter. Total cash includes $926This was a decrease of $73 million from the end of asset-backed fixed income securities, divided about equally between mortgage-backed securities secured by non-subprime-mortgage pools and non-mortgage-related asset-backed commercial paper. These asset-backed fixed income securities continue to be rated either AAA, A-1 or P-1. To date, we have collected all principal and interest payable on these securities and expect to continue to do so as they mature.2007. Days sales outstanding were 46 at the end of the quarter compared with 44 at the end of 2007.
Accounts receivable were $2.02Inventory was $1.58 billion at the end of the third quarter. This was an increase of $249$160 million from year-end 2006 due to changes in revenue. Days sales outstanding were 50 athigher than the end of the third quarter, compared with 46 at the end of 2006.
Inventory was $1.45 billion at the end of the third quarter. This was an increase of $13 million from year-end 2006.2007. Days of inventory at the end of the thirdfirst quarter were 78, compared with 7594, up 16 days from the prior quarter. About one-third of the increase in inventory was the result of unexpected decreases in demand from our wireless customers in the quarter. Another third of the increase is tied to our changing perspective for demand in the second quarter. When we started manufacturing those products we had higher expectations for second quarter demand than our more conservative current view. In response, we began to lower production levels in early March to reduce our inventory at a measured pace over the endnext few quarters. The final third of 2006.the increased inventory was the result of a planned build, especially in high-performance analog. It was our objective to increase this inventory level to enable us to better service our customers and we plan to maintain this higher level.
Capital expenditures forspending in the first nine months of 2007 were $505quarter totaled $219 million. This was a decreasean increase of $553$40 million from the year-ago perioda year ago due to lowerhigher expenditures for semiconductor manufacturing equipment.
assembly/test equipment and facilities. Depreciation for the first nine months of 2007 was $770 million. This was a decrease of $33 million from the year-ago period.
Even with declining revenue in the first ninethree months of 2007, depreciation2008 was only 7.5 percent of revenue and capital expenditures were 4.9 percent of revenue, reflecting the increasing focus of our capital expenditures on analog products and our strategy of outsourcing about half of our advanced digital production.$241 million, down $11 million from a year ago.
Liquidity and Capital Resources
Cash flow from operations for the first nine monthsquarter of 20072008 was $2.98 billion compared with $1.61 billion for$641 million, an increase of $87 million from the year-ago period. The increase was primarilyquarter, due to reduced working capital requirements, particularly for income taxes, inventory and accounts receivable. In 2007, we received an income tax refundthe increase in the third quarter from settlement of prior year tax matters while in 2006 we paid income taxes related to the sale of the former Sensors & Controls business.net income.
NetFor the first quarter of 2008, net cash used inprovided from investing activities was $819$391 million, for the first nine months of 2007 compared with net cash provided by investing activitiesused of $3.06 billion for the same period$44 million a year ago. This difference reflectsDuring the impactquarter, we reduced our holdings of the $2.99 billion inshort-term investments to supplement cash proceeds we receivedflow from the saleoperations for share repurchases. We used $874 million of the former Sensors & Controls businesscash in the first nine monthsquarter to repurchase 28.6 million shares of 2006,our common stock and paid dividends of $133 million. In the same quarter last year we used $857 million of cash to repurchase
28 million shares of common stock and paid $58 million in dividends. Dividends were higher due to the increase in the quarterly dividend rate in the second and fourth quarters of 2007. The amount of dividend payments was partially offset by the lower levels of capital expenditures and cash used for acquisitions in 2007.
For the first nine months of 2007, net cash used in financing activities was $2.54 billion compared with $4.45 billion in the year-ago period. We used $3.01 billion of cash to repurchase 90 million shares of common stock in the first nine months of 2007 compared with $4.17 billion used to repurchase 135 million shares of common stock in the year-ago period. The $287 million in dividends paid on our common stock in the first nine months of 2007, compared with $141 million in the year-ago period, reflected increases in our regular quarterly cash dividend rate on common stock since the year-ago period. The impact of this higher dividend rate was partially offset by a lower number of shares outstanding. In April 2007, we retired $43 millionoutstanding as a result of outstanding 8.75% notes upon maturity, as compared with $586 million of debt retired in the year ago period. The exercise of employee stock options for shares of TI stock is also reflected in cash from financing activities. For the first nine months of 2007 such exercises provided $694 million compared to $361 million for the same period a year ago.share repurchases.
In 2007,2008, we continue to expect R&D expense of about $2.2 billion and depreciation of about $1.0 billion. We now expectexpect: an annual effective tax rate of about 2931 percent, compared with the prior expectationR&D expense of 28 percent, and$2.0 billion, capital expenditures of about $0.7$0.9 billion compared with the prior expectationand depreciation of $0.9$1.0 billion.
We believe we have the necessary financial resources to fund our working capital needs, capital expenditures, authorized stock repurchases, dividend payments and other business requirements for at least the next 12 months.
Long-term Contractual Obligations
As a result of the adoption of FIN 48, we recorded an initial liability for uncertain tax positions as of January 1, 2007. We are not updating the disclosures in our long-term contractual obligations table presented in our 2006 Form 10-K for this liability because of the difficulty in making reasonably reliable estimates of the timing of cash settlements with the respective taxing authorities (see Notes 1 and 8 to the Financial Statements for additional discussion).
Changes in Accounting Standards
See Note 1 to the Financial Statements for detailed information regarding the status of new accounting standards that are not yet effective for us.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Information concerning market risk is contained on page 55pages 58-59 of Exhibit 13 to our Form 10-K for the year ended December 31, 2006,2007, and is incorporated by reference to such exhibit.
ITEM 4. Controls and Procedures.
An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. In addition, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table contains information regarding the Registrant’s purchaseour purchases of itsour common stock during the quarter.
ISSUER PURCHASES OF EQUITY SECURITIES
| | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) | |
| January 1 through January 31, 2008 | | | 21,995,000 | | | $ | 30.17 | | | | 21,995,000 | | | $ | 4,910 million | |
| February 1 through February 29, 2008 | | | 3,638,400 | | | $ | 30.24 | | | | 3,638,400 | | | $ | 4,800 million | |
March 1 through March 31, 2008 | | | | | | | | | | | | | | $ | | |
| Total | | | 25,633,400 | | | $ | 30.18 | | | | 25,633,400 | (2) | | $ | 4,800 million | (2) |
Period | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |
| July 1 through July 31, 2007 | | | 6,020,100 | | | $ | 37.15 | | | | 6,020,100 | | | $ | 3,578,275,612 | |
| August 1 through August 31, 2007 | | | 19,815,500 | | | $ | 33.77 | | | | 19,815,500 | | | $ | 2,909,119,157 | |
| September 1 through September 30, 2007 | | | 11,631,100 | | | $ | 35.49 | | | | 11,631,100 | | | $ | 7,496,336,630 | |
| Total | | | 37,466,700 | | | $ | 34.85 | | | | 37,466,700 | (2)(3) | | $ | 7,496,336,630 | (3) |
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| (1) | All purchases during the quarter were made through open market purchases under one of the authorizationfollowing two authorizations from our Board of DirectorsDirectors: (a) authorization to purchase up to $5 billion of additional shares of TI common stock announced(announced on September 21, 2006. An additional2006) and (b) authorization from our Board of Directors to purchase up to $5 billion of additional shares of TI common stock was announced(announced on September 21, 2007.2007). No expiration date has been specified for either of these authorizations. |
| (2) | All purchases were made through open-market purchases except for 20,000 shares that were acquired in August through a privately negotiated forward purchase contract with a non-affiliated financial institution. The forward purchase contract was designed to minimize the adverse impact on our earnings from the effect of stock market value fluctuations on the portion of our deferred compensation obligations denominated in TI stock. |
(3) | Includes the purchase of 1,500,000 shares for which trades were settled in the first three business days of October 2007 for $55 million. The table does not include the purchase of 4,200,0003,000,000 shares pursuant to orders placed in the secondfourth quarter of 2007, for which trades were settled in the first three business days of the thirdfirst quarter for $159$101 million. The purchase of these shares was reflected in this item inPart II, Item 5 of our report on Form 10-Q10-K for the quarteryear ended June 30,December 31, 2007. |
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Designation of Exhibits in This Report | |
| 31.1 | Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(e) or Rule 15d-15(e). |
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| 31.2 | Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-15(e) or Rule 15d-15(e). |
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| 32.1 | Certification by Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350. |
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| 32.2 | Certification by Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350. |
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
This report includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as TI or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. Similarly, statements herein that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements.
We urge you to carefully consider the following important factors that could cause actual results to differ materially from the expectations of TI or its management:
| · | Market demand for semiconductors, particularly for analog chips and digital signal processors in key markets such as communications, entertainment electronics and computing; |
| · | TI’s ability to maintain or improve profit margins, including its ability to utilize its manufacturing facilities at sufficient levels to cover its fixed operating costs, in an intensely competitive and cyclical industry; |
| · | TI’s ability to develop, manufacture and market innovative products in a rapidly changing technological environment; |
| · | TI’s ability to compete in products and prices in an intensely competitive industry; |
| · | TI’s ability to maintain and enforce a strong intellectual property portfolio and obtain needed licenses from third parties; |
| · | Expiration of license agreements between TI and its patent licensees, and market conditions reducing royalty payments to TI; |
| · | Economic, social and political conditions in the countries in which TI, its customers or its suppliers operate, including security risks, health conditions, possible disruptions in transportation networks and fluctuations in foreign currency exchange rates; |
| · | Natural events such as severe weather and earthquakes in the locations in which TI, its customers or its suppliers operate; |
| · | Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and manufacturing technology; |
| · | Changes in the tax rate applicable to TI as the result of changes in tax law, the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets; |
| · | Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer inventory adjustments; |
| · | Customer demand that differs from our forecasts; |
| · | The financial impact of inadequate or excess TI inventories to meetinventory that results from demand that differs from projections; |
| · | TI's ability to access its bank accounts and lines of credit or otherwise access the capital markets; |
| · | Product liability or warranty claims, claims based on epidemic or delivery failure or recalls by TI customers for a product containing a TI part; |
| · | TI’s ability to recruit and retain skilled personnel; and |
| · | Timely implementation of new manufacturing technologies, installation of manufacturing equipment and the ability to obtain needed third-party foundry and assembly/test subcontract services. |
For a more detailed discussion of these factors, see the Risk Factors discussion in Item 1A of our most recent Form 10-K. The forward-looking statements included in this quarterly report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | TEXAS INSTRUMENTS INCORPORATED |
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BY: /s/ Kevin P. March | |
| | By: | | /s/ Kevin P. March |
| | | | | Kevin P. March |
| | | | Senior Vice President and |
| | | | and Chief Financial Officer |
Date: November 1, 2007April 30, 2008