This summary is based on the second quarter fiscal 2008 earnings call conducted by Texas Instruments Inc. (TXN: chart) on July 21, 2008.
Management:
SVP and CFO: Kevin March
VP and Manager, IR: Ron Slaymaker
Key Investor Issues:
- Q2 total revenues were $3.35 billion versus $3.42 billion in the year ago quarter.
- The quarterly EPS increased from 42 cents to 44 cents.
- The company repurchased 14.1 million common shares for $433 million in Q2.
Second-Quarter Financial Highlights:
The company reported lower quarterly revenues versus the same period last year.
- The Q2 revenue was in the lower half of the company’s range of expectations.
- The demand slowed unexpectedly in June primarily because the distributors reduced inventory levels and did not replenish them late in the quarter.
- The Wireless revenues dipped in the quarter, continuing its first quarter weakness.
The management reported that the slower demand was due to a number of reasons.
- These include a weaker economic environment and greater confidence in the company’s ability to deliver products within short lead times.
- However, the core areas of Analog and Embedded Processing delivered solid revenue growth.
- Each grew sequentially and increased 10% from a year ago.
- The company reported that these technologies are critical to thousands of different types of electronic equipment, making them some of the most attractive markets in the semiconductor industry.
The quarterly gross profit was $1.75 billion or 52.2% of revenue.
- The gross profit was down $35 billion from the year ago quarter due to lower revenue.
- The gross profit was about even with Q1 although it would have been expected to be stronger given the higher revenue level.
- The shortfall was a result of several factors that drove manufacturing costs higher such as decreased absorption of fixed costs as a result of the lower factory utilization levels that resulted from reductions in wafer starts in the quarter.
- The manufacturing costs were also impacted by expenses associated with converting capacity at the DMOS 5 wafer fab from digital to analog, higher costs on commodity raw materials such as gold and the exchange impact on expenses such as labor in regions where compensations are in currencies other than U.S. dollars.
- The company continues to incur expenses associated with transferring equipment from the shuttered KFAB factory to increase capacity at analog wafer fabs around the world.
The quarterly operating expenses dipped 6% from a year ago and 3% sequentially.
- The lower R&D expense was the biggest factor in both comparisons.
- The other income and expense decreased to $17 million due to a combination of lower interest income and lower earnings from investments.
The operating profit for the quarter increased to $833 million.
- This represents an increase of 3% from the year ago profit of $809 million.
- The increase in operating profit was a result of lower operating expenses.
- The cash flow from operations however weakened 42% from $898 million in the past year quarter to $520 million in the current quarter.
- The company ended the quarter with $1.65 billion in total cash.
The income declined 4% from the year ago quarter due to low interest income.
- The management reported that income declined 11% from the prior quarter due to a higher tax provision.
- The prior quarter included $81 million of discrete tax benefits.
- The orders were about $3.46 billion, about even with the year ago quarter and an increase of 4% from the previous quarter.
