Texas Instruments Inc. (TXN)
Q3 2009 Earnings Call Transcript
October 19, 2009 5:30 p.m. ET

Executives

Ron Slaymaker - Vice President and Head, Investor Relations
Kevin P. March - Senior Vice President and Chief Financial Officer

Analysts

Uche Orji - UBS
Timothy Luke - Barclays Capital
Ross Seymore - Deutsche Bank Securities
Christopher Danely - J.P. Morgan
Tristan Gerra - Robert W. Baird & Co., Inc.
Glen Yeung - Citigroup
Sweeney Pajory - CLSA
Edward Snyder - Charter Equity Research
Adam Benjamin - Jefferies & Co.
Daniel Berenbaum - Auriga USA
Sumit Dhanda - Bank of America/Merrill Lynch
John Pitzer - Credit Suisse
Doug Freedman - Broadpoint AmTech
Craig Berger - FBR Capital Markets & Co.
David Wu - GC Research Ltd.

Presentation

Ron Slaymaker

Good afternoon. And thank you for joining our third quarter earnings conference call. As usual, Kevin March, TI’s CFO is with me today. For any of you who missed the release, you can find it on our website at ti.com/ir. This call is being broadcast live over the web and can be accessed through TI’s website. A replay will be available through the web.

This call will include forward-looking statements that involve risk factors that could cause TI’s results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release published today, as well as, TI’s most recent SEC filings for a complete description.

Our mid-quarter update to our outlook is scheduled this quarter for December 8th. We expect to narrow or adjust the revenue and earnings guidance ranges as appropriate with this update.

In today’s call, we’ll address the drivers behind our continued revenue growth and margin expansion and discuss what we see ahead on those fronts. We’ll also discuss the investments that we are making that will allow us to accelerate our strategy in analog and Embedded Processing.

I’ll start by noting that revenue and earnings for the third quarter exceeded the high end of our range of expectations for the quarter even after we raised those expectations at the mid-quarter update. The sharp declines we saw late last year and in the first quarter of this year have almost been matched by sharp increases in the third and fourth -- or the second and the third quarters.

Initially this re-down was driven by normalization of demand, as our customers slowed their inventory reduction and our shipments began to increase to their level of production. This quarter that normalization process has been complemented by production increases at our customers.

Overall, TI revenue grew 17% sequentially and was down 15% from a year ago. We were especially pleased with the growth in our core areas of analog and Embedded Processing. At 20% sequentially growth, analog was biggest driver of TI’s growth once again this quarter with all three of its major business contributing strongly, high volume analog and logic or HVAL, power and high performance analog. HVAL was again the biggest contributor within analog to this sequential growth with broad based increases.

Analog revenue was down 8% from a year ago, a performance we believe will compare very favorably to most of our analog competitors. Notably, revenue from power management products has now moved above the year ago level.

Driving the growth in power management are share gains and overall strong demand in battery management, gauges and chargers for notebooks and hand-held devices. TI’s investments over the past decade in power are paying off as we continue to gain share in what will likely prove to be one of the best secular market stories of the upcoming decade as portability and energy efficiency continue to drive innovation and growth.

Embedded Processing grew 12% sequentially, due mostly to strength in catalog products. Growth here came from a number of product areas, including microcontrollers for consumer applications, as well as, industrial applications such as air-conditioning systems in Asia. On the DSP side, we saw growth in video security systems and high performance audio video receivers.

Revenue from Embedded Processing products for automotive applications also grew, including strength in high end automotive entertainment and information systems. Embedded Processing revenue declined 8% from a year ago.

Wireless revenue increased 12% sequentially and declined 26% from a year ago. Base span revenue of $450 million in the quarter declined to 16% of total TI revenue. Base span revenue increased 10% sequentially and declined 33% from a year ago. Excluding base span, our wireless segment, which is focused on smart phones grew 18% sequentially and declined 7% from a year ago. Connectivity products paced this growth.

In our other segment, sequential growth of 20% was driven mostly by a combination of seasonal growth in calculators and strength in DLP prompt projector products.