Conference Call on TI Web Site at 4:30 p.m. Central Time Today http://www.ti.com
Operating profit of $669 million, an all-time high, reflected stronger gross profit as well as tight control of operating expenses. TI's gross profit margin expanded 2.1 percentage points sequentially to 47.0 percent of revenue, and TI's operating margin increased 3.9 percentage points to 20.6 percent of revenue.
Earnings per share (EPS) in the second quarter were $0.38, which includes a net benefit of $0.06 from tax-related items.
Separately, the company announced plans to increase its dividend by 20 percent to an annual dividend payment of $0.12 per share effective with the October 2005 dividend declaration. Also, the Board of Directors has authorized a $2 billion stock repurchase, which is in addition to previously announced stock repurchase authorizations.
"Our strong growth underscores the importance of DSP and analog to a wide range of electronics equipment," said Rich Templeton, TI president and chief executive officer. "We believe that revenue from our broad portfolio of advanced DSP and analog products outpaced the results of our competitors.
"Good products, good execution and good cost control led to record operating profit," he said. "Our operations continued to produce significant cash, and we were well-positioned to repurchase the company's stock in the second quarter. We repurchased an additional 52 million shares in the quarter, or a total of 110 million shares since the beginning of the year.
"We're also encouraged that the inventory correction that affected our DLP(TM) product revenue in the first half of the year is now complete. DLP revenue grew 10 percent sequentially, and we expect it will contribute to growth again in the third quarter," he said. "High-performance analog turned in another strong quarter with 13 percent sequential growth. DSP revenue grew 8 percent sequentially driven by strong growth in wireless applications. Total revenue from the wireless market increased 8 percent as a result of our leading position in the fast-growing 3G market. With Semiconductor orders up 15 percent sequentially in the second quarter and the book-to-bill ratio at 1.07, we believe the company will deliver solid growth again in the third quarter."
In the second quarter, TI's gross profit of $1521 million, or 47.0 percent of revenue, increased $185 million sequentially due to higher gross profit from Semiconductor and E&PS. Compared with a year ago, gross profit increased $40 million for the same reason.
Research and development (R&D) expense of $493 million, or 15.2 percent of revenue, decreased $2 million sequentially. R&D expense declined $21 million from a year ago due to a lower accrual for profit sharing.
Selling, general and administrative (SG&A) expense of $359 million, or 11.1 percent of revenue, increased $15 million sequentially primarily due to a gain on the disposition of a sales facility in the first quarter as well as seasonally higher marketing expenses in E&PS. SG&A decreased $16 million from a year ago primarily due to a lower profit-sharing accrual.
Operating profit of $669 million, or 20.6 percent of revenue, increased $172 million sequentially due to higher gross profit, and increased $77 million from a year ago due to higher gross profit as well as lower operating expenses.
Other Income (Expense) Net (OI&E)
OI&E of $56 million increased $8 million sequentially primarily due to adjustments to previously accrued interest expense related to favorable developments on several outstanding tax matters, partially offset by reduced interest income on lower cash balances. OI&E increased $18 million from a year ago primarily due to these adjustments.
Net income was $628 million, or $0.38 per share.
The net tax benefit recognized during the second quarter includes the previously mentioned favorable developments on outstanding tax matters, partially offset by the tax expense associated with the planned repatriation of foreign earnings under the American Jobs Creation Act. The company intends to invest these repatriated earnings in accordance with the provisions of the Act. Including these items, the overall tax rate for the second quarter was about 13 percent. The ongoing effective annual tax rate, excluding these items, was about 24 percent.
TI orders of $3389 million increased $361 million sequentially and $136 million from a year ago due to higher demand for Semiconductor products.
Cash flow from operations of $827 million increased $304 million sequentially primarily due to payment of employee profit sharing in the first quarter for 2004 performance and higher net income, partially offset by a seasonal increase in accounts receivable. Cash flow from operations increased $321 million from a year ago due to higher net income and lower inventories.
At the end of the second quarter, total cash (cash and cash equivalents plus short-term investments and long-term cash investments) was $4478 million, down $662 million from the end of the previous quarter and $1056 million from the end of the year-ago period. During the quarter, the company used $1292 million in cash to repurchase 52 million shares of TI common stock.
Capital Spending and Depreciation
Capital expenditures of $257 million decreased $20 million sequentially and $99 million from a year ago. TI's capital expenditures in the second quarter were primarily for construction of TI's new 300-millimeter manufacturing facility in Texas, as well as semiconductor assembly-and-test equipment and advanced wafer-fabrication equipment.
Depreciation of $345 million decreased $2 million sequentially and $18 million from a year ago.
Accounts Receivable and Inventories
Accounts receivable of $1902 million at the end of the second quarter increased $206 million sequentially due to seasonally higher E&PS receivables and higher revenue. Accounts receivable decreased $28 million from the end of the year-ago quarter. Days sales outstanding were 53 at the end of the second quarter compared with 51 at the end of the previous quarter and 54 at the end of the year-ago quarter.
Inventories of $1202 million at the end of the second quarter decreased $43 million from the end of the previous quarter due to strong shipments, and decreased $83 million from the end of the year-ago quarter due to lower factory loadings. Days of inventory at the end of the second quarter were 63 compared with 69 at the end of the previous quarter and 66 at the end of the year-ago quarter.
TI intends to provide a mid-quarter update to its financial outlook on Sept. 8, 2005, by issuing a press release and holding a conference call. Both will be available on the company's web site.
For the third quarter of 2005, TI expects revenue to be in the following ranges:
* Total TI, $3290 million to $3560 million; * Semiconductor, $2835 million to $3065 million; * Sensors & Controls, $275 million to $295 million; and * E&PS, $180 million to $200 million.
TI expects EPS to be in the range of $0.31 to $0.35. This estimate includes the expensing of employee stock options, which TI will initiate in the third quarter as previously announced. This expense is expected to be about $80 million in the third quarter, or $0.03 per share.