TI Reports 1Q07 Financial Results

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, April 23 /PRNewswire-FirstCall/ -- Texas Instruments Incorporated (NYSE: TXN) (TI) today reported revenue of $3.19 billion for the first quarter of 2007. Revenue declined 8 percent compared with the prior quarter and 4 percent compared with the year-ago quarter. Revenue was impacted by an inventory correction in the semiconductor market.

Earnings per share (EPS) from continuing operations were $0.35, a decline of $0.10 from the prior quarter. The fourth quarter of 2006 included a benefit of $0.05 from the reinstatement of the federal research tax credit and a benefit of $0.01 from catch-up payments associated with new patent license agreements.

"We believe the inventory correction that began in the second half of last year largely ended in the first quarter," said Rich Templeton, TI president and CEO. "Orders are beginning to rebound, and we expect sequential growth to resume in the second quarter.

"TI's performance in the first quarter was confirmation of fundamental and sustainable long-term changes we have made in the company. Even with an 8 percent decline in sequential revenue, gross margin remained above 50 percent and operating margin remained above 20 percent. TI performed considerably better than in prior troughs because of a more resilient manufacturing strategy and a stronger portfolio of analog products.

"Analog will continue to play an increasing role in our company. Even though we are the world's leading supplier, our share is low in this large but fragmented market. The opportunity for share gains combined with the attractive financial characteristics of the analog market is appealing. This represents a unique opportunity, especially alongside our strong position in DSP, which provides early entry into important new markets. We continue to keep customers at the core of our strategy, recognizing that we are successful only to the extent we help make them successful," Templeton said.

Gross Profit

Gross profit was $1.64 billion, or 51.3 percent of revenue. This was down $111 million from the prior quarter and down $35 million from the year-ago quarter due to lower revenue.

Operating Expenses

Research and development (R&D) expense was $552 million. Despite seasonally higher pay and benefits, this was about even with the prior quarter due to cost-saving actions. R&D expense increased $19 million from the year- ago quarter due to higher product development costs in the company's Semiconductor segment.

Selling, general and administrative (SG&A) expense was $405 million. This was a decrease of 5 percent from the prior quarter due to lower marketing expense, including seasonally lower advertising. SG&A expense declined $16 million from the year-ago quarter due to cost-saving actions.

Operating Profit

Operating profit was $680 million, or 21.3 percent of revenue. This was a decrease of $87 million from the prior quarter and $38 million from the year- ago quarter primarily due to lower gross profit in the company's Semiconductor segment. Included in Corporate were stock-based compensation expense of $78 million, or 2.4 percent of revenue, and restructuring expense of $14 million, including $9 million in cost of revenue and $5 million in R&D.

Other Income (Expense) Net (OI&E)

OI&E was $40 million. This was a decrease of $30 million from the prior quarter, which included a favorable settlement of all remaining matters related to grants from the Italian government regarding TI's former memory operations. OI&E declined $12 million from the year-ago quarter.

    Net Income
    Net income was $516 million, or $0.35 per share.

Orders

TI orders were $3.20 billion. This was an increase of $128 million from the prior quarter due to higher demand for products in both of the company's segments -- Semiconductor and Education Technology. Orders declined $399 million from the year-ago quarter due to lower demand in both segments.

Cash

Cash flow from operations was $554 million. This was a decrease of $292 million from the prior quarter due to increased cash needed to meet working capital requirements, such as payment of profit sharing and bonus related to 2006 performance, as well as lower net income. Total cash (cash and cash equivalents plus short-term investments) was $3.34 billion at the end of the first quarter. This was a decrease of $381 million from the end of the prior quarter and a decrease of $328 million from the year-ago quarter. In the first quarter, the company used $857 million to repurchase 28 million shares of common stock and paid $58 million in dividends.

Capital Spending and Depreciation

Capital expenditures were $179 million. This was a decrease of $35 million from the prior quarter and a decrease of $229 million from the year- ago quarter due to lower expenditures for semiconductor manufacturing equipment. TI's capital expenditures in the quarter were primarily for equipment used in the assembly and test of semiconductors, and wafer fabrication equipment used to manufacture analog semiconductors.

Depreciation was $252 million. This was about even with the prior quarter and a decrease of $18 million from the year-ago quarter.

Accounts Receivable and Inventories

Accounts receivable were $1.76 billion at the end of the first quarter. This was about even with the prior quarter, and a decrease of $42 million from the year-ago quarter primarily due to lower revenue. Days sales outstanding were 50 at the end of the first quarter compared with 46 at the end of the prior quarter and 49 at the end of the year-ago quarter.

Inventory was $1.41 billion at the end of the first quarter. This was a decrease of $28 million from the prior quarter as the company reduced inventory, especially DSP products used in wireless applications, in response to lower demand. This was partially offset by planned replenishment of long- lived, high-performance analog product inventory. Compared with a year ago, inventory increased $163 million primarily due to replenishment of high- performance analog product inventory from less-than-desirable levels a year ago. Days of inventory at the end of the first quarter were 82 compared with 75 at the end of the prior quarter and 67 a year ago, as inventory decreased at a slower rate than cost of revenue.

Outlook

TI intends to provide a mid-quarter update to its financial outlook on June 11, 2007, by issuing a press release and holding a conference call. Both will be available on the company's web site.

For the second quarter of 2007, TI expects revenue to be in the following ranges:

     * Total TI, $3.32 billion to $3.60 billion;
     * Semiconductor, $3.14 billion to $3.40 billion; and
     * Education Technology, $180 million to $200 million.
    TI expects earnings per share to be in the range of $0.39 to $0.45.

In 2007, TI still expects: an annual effective tax rate of about 28 percent, capital expenditures of about $0.9 billion and depreciation of about $1.0 billion. TI now expects R&D expense of about $2.2 billion, down from the prior expectation of about $2.3 billion.



               TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
                      Consolidated Statements of Income
          (Millions of dollars, except share and per-share  amounts)

                                                                                          For  Three  Months  Ended
                                                                            Mar.  31,                Dec.  31,            Mar.  31,
                                                                                2007                        2006                    2006

        Net  revenue                                              $  3,191                  $  3,463              $  3,334
        Cost  of  revenue  (COR)                              1,554                      1,715                  1,662
        Gross  profit                                                1,637                      1,748                  1,672
        Research  and  development  (R&D)                552                          556                      533
        Selling,  general  and
          administrative  (SG&A)                                405                          425                      421
            Total  operating  costs  and
              expenses                                                  2,511                      2,696                  2,616
        Profit  from  operations                                680                          767                      718
        Other  income  (expense)  net                          40                            70                        52
        Interest  expense  on  loans                              1                              1                          3
        Income  from  continuing
          operations  before  income  taxes              719                          836                      767
        Provision  for  income  taxes                        203                          165                      225
        Income  from  continuing  operations          516                          671                      542
        Income  (loss)  from  discontinued
          operations,  net  of  income  taxes              --                            (3)                      43
        Net  income                                                $      516                  $      668              $      585

        Basic  earnings  per  common  share:
            Income  from  continuing
              operations                                          $      .36                  $      .46              $      .34
            Net  income                                            $      .36                  $      .45              $      .37

        Diluted  earnings  per  common  share:
            Income  from  continuing
              operations                                          $      .35                  $      .45              $      .33
            Net  income                                            $      .35                  $      .45              $      .36

        Average  shares  outstanding
          (millions):
            Basic                                                          1,442                      1,469                  1,585
            Diluted                                                      1,470                      1,499                  1,618

        Cash  dividends  declared  per
          share  of  common  stock                        $      .04                  $      .04              $      .03

        Percentage  of  revenue:

        Gross  profit                                                  51.3%                      50.5%                  50.1%
        R&D                                                                    17.3%                      16.0%                  16.0%
        SG&A                                                                  12.7%                      12.3%                  12.6%
        Operating  profit                                          21.3%                      22.1%                  21.5%



                              TEXAS  INSTRUMENTS  INCORPORATED  AND  SUBSIDIARIES
                                                  Consolidated  Balance  Sheets
                                  (Millions  of  dollars,  except  share  amounts)

                                                                            Mar.  31,                Dec.  31,            Mar.  31,
                                                                                2007                        2006                    2006
        Assets
        Current  assets:
            Cash  and  cash  equivalents              $      965                  $  1,183              $      722
            Short-term  investments                        2,371                      2,534                  2,942
            Accounts  receivable,  net  of
              allowances  of  ($25),  ($26)
              and  ($32)                                                1,756                      1,774                  1,798
            Raw  materials                                              114                          105                        91
            Work  in  process                                          879                          930                      819
            Finished  goods                                            416                          402                      336
            Inventories                                              1,409                      1,437                  1,246
            Deferred  income  taxes                          1,071                          741                      626
            Prepaid  expenses  and  other
              current  assets                                          257                          181                      248
            Assets  of  discontinued
              operations                                                      4                              4                      495
            Total  current  assets                            7,833                      7,854                  8,077
        Property,  plant  and  equipment
          at  cost                                                        7,715                      7,751                  8,442
            Less  accumulated  depreciation        (3,835)                  (3,801)              (4,574)
            Property,  plant  and  equipment,
              net                                                            3,880                      3,950                  3,868
        Equity  and  other  long-term
          investments                                                    250                          287                      240
        Goodwill                                                            792                          792                      793
        Acquisition-related  intangibles              131                          118                      131
        Deferred  income  taxes                                  436                          601                      390
        Capitalized  software  licenses,  net        280                          188                      222
        Overfunded  retirement  plans                        54                            58                        --
        Prepaid  retirement  costs                              --                            --                      205
        Other  assets                                                      94                            82                      112
        Total  assets                                            $13,750                  $13,930              $14,038

        Liabilities  and  Stockholders'
          Equity
        Current  liabilities:
            Loans  payable  and  current
              portion  of  long-term  debt            $        43                  $        43              $        --
            Accounts  payable                                        550                          560                      720
            Accrued  expenses  and  other
              liabilities                                                877                      1,029                      895
            Income  taxes  payable                                286                          284                      280
            Accrued  profit  sharing  and
              retirement                                                    51                          162                        43
            Liabilities  of  discontinued
              operations                                                    --                            --                      157
            Total  current  liabilities                  1,807                      2,078                  2,095
        Long-term  debt                                                  --                            --                      318
        Underfunded  retirement  plans                    197                          208                        --
        Accrued  retirement  costs                              --                            --                      116
        Deferred  income  taxes                                    10                            23                        17
        Deferred  credits  and  other
          liabilities                                                    453                          261                      254
        Total  liabilities                                      2,467                      2,570                  2,800

        Stockholders'  equity:
            Preferred  stock,  $25  par  value.
              Authorized  --  10,000,000  shares.
              Participating  cumulative
              preferred.  None  issued                            --                            --                        --
            Common  stock,  $1  par  value.
              Authorized  --  2,400,000,000
              shares.  Shares  issued:
              March  31,  2007  --  1,739,211,844;
              December  31,  2006  --
              1,739,108,694;  March  31,  2006
              --  1,739,070,044                                  1,739                      1,739                  1,739
            Paid-in  capital                                          822                          885                      744
            Retained  earnings                                18,017                    17,529                13,930
            Less  treasury  common  stock  at
              cost:
                Shares:  March  31,  2007
                --  305,502,566;
                December  31,  2006  --
                289,078,450;  March  31,  2006
                --  181,032,577                                  (8,940)                  (8,430)              (5,092)

            Accumulated  other  comprehensive
              income  (loss),  net  of  tax                  (355)                      (363)                    (83)
            Total  stockholders'  equity              11,283                    11,360                11,238
        Total  liabilities  and
          stockholders'  equity                          $13,750                  $13,930              $14,038



                              TEXAS  INSTRUMENTS  INCORPORATED  AND  SUBSIDIARIES
                                        Consolidated  Statements  of  Cash  Flows
                                                        (Millions  of  dollars)

                                                                                            For  Three  Months  Ended
                                                                            Mar.  31,                Dec.  31,            Mar.  31,
                                                                                2007                        2006                    2006
        Cash  flows  from  operating
          activities:
            Net  income                                            $      516                  $      668              $      585
            Adjustments  to  reconcile
              net  income  to  cash  provided
              by  operating  activities  of
              continuing  operations:
                (Income)  loss  from
                  discontinued  operations                      --                              3                      (43)
                Depreciation                                            252                          249                      270
                Stock-based  compensation                      78                            78                        91
                Amortization  of  capitalized
                  software                                                    25                            25                        30
                Amortization  of
                  acquisition-related
                  intangibles                                              14                            13                        16
                Deferred  income  taxes                            (3)                        (77)                    (36)
            Increase  (decrease)  from
              changes  in:
                Accounts  receivable                                17                          315                    (144)
                Inventories                                                28                            54                      (57)
                Prepaid  expenses  and  other
                  current  assets                                      (79)                          (7)                  (111)
                Accounts  payable  and
                  accrued  expenses                                (167)                      (209)                  (106)
                Income  taxes  payable                              (1)                      (156)                    151
                Accrued  profit  sharing  and
                  retirement                                            (111)                          30                      (99)
            Change  in  funded  status  of
              retirement  plans  and  accrued
              retirement  costs                                          1                          (94)                      17
            Other                                                              (16)                        (46)                    (42)
        Net  cash  provided  by  operating
          activities  of  continuing
          operations                                                      554                          846                      522

        Cash  flows  from  investing
          activities:
            Additions  to  property,  plant
              and  equipment                                          (179)                      (214)                  (408)
            Proceeds  from  sales  of  assets                --                            14                          4
            Purchases  of  cash  investments            (846)                  (1,275)              (1,153)
            Sales  and  maturities  of  cash
              investments                                            1,011                      1,509                  2,341
            Purchases  of  equity  investments            (5)                          (7)                      (5)
            Sales  of  equity  and  other
              long-term  investments                                2                              2                          7
            Acquisitions,  net  of  cash
              acquired                                                      (27)                          --                    (177)
        Net  cash  provided  by  (used  in)
          investing  activities  of
          continuing  operations                                (44)                          29                      609

        Cash  flows  from  financing
          activities:
            Payments  on  loans  and
              long-term  debt                                            --                            --                    (311)
            Dividends  paid  on  common  stock            (58)                        (59)                    (48)
            Sales  and  other  common  stock
              transactions                                              154                            51                      142
            Excess  tax  benefit  from  stock
              option  exercises                                        34                            15                          7
            Stock  repurchases                                    (857)                  (1,130)              (1,440)
        Net  cash  used  in  financing
          activities  of  continuing
          operations                                                    (727)                  (1,123)              (1,650)

        Cash  flows  from  discontinued
          operations:
            Operating  activities                                  --                            --                        35
            Investing  activities                                  --                            --                      (10)
        Net  cash  provided  by  discontinued
          operations                                                        --                            --                        25

        Effect  of  exchange  rate  changes
          on  cash                                                              (1)                            1                          2
        Net  decrease  in  cash  and  cash
          equivalents                                                  (218)                      (247)                  (492)
        Cash  and  cash  equivalents,
          beginning  of  period                                1,183                      1,430                  1,214
        Cash  and  cash  equivalents,
          end  of  period                                        $      965              $      1,183              $      722



                                                          Segment  Net  Revenue
                                                        (Millions  of  dollars)

                                                                                              For  Three  Months  Ended
                                                                            Mar.  31,                Dec.  31,            Mar.  31,
                                                                                2007                        2006                    2006

        Semiconductor                                          $  3,115                  $  3,385              $  3,260
        Education  Technology                                      76                            78                        74

        Total  net  revenue                                  $  3,191                  $  3,463              $  3,334



                                                        Segment  Profit  (Loss)
                                                        (Millions  of  dollars)


                                                                                            For  Three  Months  Ended
                                                                            Mar.  31,                Dec.  31,            Mar.  31,
                                                                                2007                        2006                    2006

        Semiconductor                                          $      831                  $      908              $      883
        Education  Technology                                      16                            19                        13
        Corporate*                                                      (167)                      (160)                  (178)

        Profit  from  operations                        $      680                  $      767              $      718


        *  Corporate  includes  the  following  stock-based  compensation  expense:

        COR                                                              $        15                  $        15              $        18
        R&D                                                                        23                            24                        28
        SG&A                                                                      40                            39                        45
        Profit  from  operations                        $        78                  $        78              $        91



        Semiconductor

          *  Revenue  in  the  first  quarter  was  $3.12  billion.    This  was  a  decrease  of
              8  percent  from  the  prior  quarter  due  to  a  broad-based  decline  in
              demand.    Compared  with  a  year  ago,  revenue  decreased  4  percent
              primarily  due  to  lower  demand  for  DSP  products  that  more  than  offset
              higher  demand  for  analog  products.
              --  Analog  product  revenue  of  $1.25  billion  was  down  5  percent  from  the
                    prior  quarter  due  to  a  broad-based  decline  in  demand.    Compared  with
                    the  year-ago  quarter,  analog  revenue  increased  2  percent  as  a
                    decline  in  analog  revenue  for  wireless  applications  was  more  than
                    offset  by  broad-based  increases  in  other  analog  products,  especially
                    high-performance  analog.    Revenue  from  high-performance  analog
                    products  declined  5  percent  from  the  prior  quarter  and  increased  8
                    percent  from  a  year  ago.
              --  DSP  product  revenue  of  $1.16  billion  was  down  5  percent  from  the
                    prior  quarter  and  down  10  percent  from  a  year  ago  due  to  lower
                    demand  for  a  broad  range  of  products.
              --  TI's  remaining  Semiconductor  product  revenue  of  $713  million  was  17
                    percent  lower  than  the  prior  quarter  due  to  declines  in  DLP(R)
                    products,  royalties,  microprocessors  and  standard  logic  that  offset
                    growth  in  microcontrollers.    Royalties  declined  because  new  patent
                    license  agreements  that  were  signed  in  the  prior  quarter  included
                    non-recurring  catch-up  payments.    TI's  remaining  Semiconductor
                    revenue  decreased  5  percent  from  the  year-ago  quarter  as  declines  in
                    microprocessors,  DLP  products  and  standard  logic  more  than  offset
                    growth  in  royalties  and  microcontrollers.
          *  Gross  profit  was  $1.63  billion,  or  52.3  percent  of  revenue.    This  was  a
              decrease  of  $103  million  from  the  prior  quarter  and  a  decrease  of  $30
              million  from  the  year-ago  quarter  due  to  lower  revenue.
          *  Operating  profit  was  $831  million,  or  26.7  percent  of  revenue.    This
              was  a  decline  of  $77  million  from  the  prior  quarter  and  a  decline  of
              $52  million  from  the  year-ago  quarter  primarily  due  to  lower  gross
              profit.
          *  Semiconductor  orders  were  $3.08  billion.    This  was  an  increase  of  3
              percent  from  the  prior  quarter  due  to  higher  demand  for  DSP  products
              and  a  decrease  of  10  percent  from  the  year-ago  quarter  due  to  broadly
              lower  demand.

        Semiconductor  Highlights

          *  TI  introduced  a  new  high-performance  analog  product  that  will  enable  a
              range  of  portable  electronic  products  to  draw  power  from  new  energy
              sources,  such  as  solar  and  micro-fuel  cells.  The  DC/DC  boost  converter
              can  operate  at  the  industry's  lowest  input  voltage  of  less  than  0.3
              volt  with  high  efficiency.
          *  TI  demonstrated  a  prototype  DLP  pico-projector  small  enough  to
              integrate  into  mobile  devices,  such  as  cell  phones  and  digital  cameras.
              This  innovation  will  give  manufacturers  a  new  and  enhanced  display
              option  for  their  devices.
          *  TI  launched  its  "LoCosto  ULC"  single-chip  platform  for  the  ultra  low-
              cost  cell  phone  market.    This  platform  enables  cell  phone  manufacturers
              to  include  more  features  in  their  products,  including  an  enhanced  color
              display,  FM  stereo,  MP3  ring  tones  and  playback,  and  camera
              functionality.    The  new  platform  will  include  the  industry's  first
              single-chip  GSM/GPRS  cell  phone  products  to  be  manufactured  using  65-
              nanometer  process  technology  and  is  expected  to  sample  in  the  second
              quarter  of  2007.
          *  TI  extended  its  OMAP(TM)  3  platform  with  products  that  allow  cell  phone
              manufacturers  to  scale  their  product  offerings  to  address  a  range  of
              performance  levels  and  price  points.    The  products  bring  "life-like"  3D
              graphics  to  the  handset  and  create  a  mobile  gaming  experience
              comparable  to  today's  handheld  gaming  devices.    In  addition,  the
              products  are  the  industry's  first  application  processors  to  play  720p
              high-definition  video  on  cell  phones.

        Education  Technology

          *  Revenue  was  $76  million.    This  was  a  decrease  of  $2  million  from  the
              prior  quarter  and  an  increase  of  $2  million  from  the  year-ago  quarter.
          *  Gross  profit  was  $45  million,  or  59.0  percent  of  revenue.    Gross  profit
              was  even  with  the  prior  quarter  and  increased  $4  million  from  the  year-
              ago  quarter  primarily  due  to  a  combination  of  higher  revenue  and
              product  cost  reductions.
          *  Operating  profit  was  $16  million,  or  20.6  percent  of  revenue.    This  was
              a  decrease  of  $3  million  compared  with  the  prior  quarter  due  to  higher
              SG&A  expense.    It  was  an  increase  of  $3  million  from  the  year-ago
              quarter  due  to  higher  gross  profit.
 


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