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Thursday April 16, 7:00 am Eastern TimeCompany Press ReleaseSOURCE: Texas Instruments IncorporatedTI Reports First Quarter 1998 Financial Results Progress Continues in DSPS Strategy Despite Severe DRAM Price Pressures April 16, 1998 Following this note is the complete news release on Texas Instruments first quarter 1998 financial performance. In summary: - Revenues and orders for digital signal processing solutions increased in the first quarter from the same period a year ago, driven by record orders for wireless communications. - Overall, TI's revenues and orders were down from the first quarter of 1997, primarily because of severe price declines of DRAM chips. - Results for the first quarter include special charges of $244 million, primarily for discontinuing the DRAM manufacturing joint venture with Hitachi. - Semiconductor revenues were down 3 percent from the first quarter of 1997. Excluding memory, semiconductor revenues were up 7 percent, primarily because of an increase in digital signal processing solutions. - TI's Materials & Controls business continued to make progress and reported a 40 percent improvement in PFO, as well as growth in revenues and operating margins from the year-ago quarter. - Educational & Productivity Solutions saw an increase in both revenues and orders from the comparable quarter. - TI now believes that the world semiconductor market is likely to grow 5 percent or less in 1998, in view of inventory reductions of electronic end-equipment, sharply lower DRAM prices, weakness in Asia and depreciation of the yen. - 1Q98 summary (excluding special charges) Revenue: $2187 million versus $2263 million in 1Q97 Income: $176 million versus $138 million in 1Q97 EPS: $0.44 versus $0.35 in 1Q97 PFO: $222 million versus $227 million in 1Q97 Please call Leslie Price with questions, 972-480-6888.
DALLAS, April 16 /PRNewswire/ -- Texas Instruments (NYSE: TXN - news) today announced that revenues and orders for digital signal processing solutions (DSPS) increased in the first quarter from the same period a year ago, driven by record orders for wireless communications. However, total TI first quarter revenues and orders were down from first quarter 1997, primarily because of severe price declines of dynamic random access memory (DRAM) chips.
Average unit prices for DRAMs dropped 60 percent from the first quarter of 1997 to the first quarter of 1998, resulting in a loss in TI's memory operations that was more than double that of the year-ago quarter. The memory operating loss was $129 million, an increase of $0.08 per share from the memory loss in the fourth quarter of 1997.
The turmoil in Asia and customer inventory reductions during the first quarter of 1998 affected semiconductor product areas in varying degrees. However, TI benefited from its diverse product portfolio as gross profit margins improved both year-to-year and from the fourth quarter of 1997, excluding special charges.
TI's orders were $2137 million, down from $2500 million in the first quarter of 1997. Net revenues for the first quarter of 1998 were $2187 million, compared with $2263 million in the first quarter of 1997. Revenues in the first quarter of 1997 included revenues from TI businesses that have since been sold, primarily software. Excluding sold businesses, TI's revenues were down 1 percent from a year ago.
Results for first quarter include special charges of $244 million, primarily for discontinuing the DRAM manufacturing joint venture with Hitachi, Ltd. As previously announced, TI purchased the operating assets of the joint venture. Last year's first quarter results included a special charge of $56 million, primarily related to severance actions and other costs associated with the sale of TI's mobile computing business.
Excluding the special charges: Profit from operations (PFO) for the quarter was $222 million, about flat with $227 million in the year-ago quarter. TI's operating margin was up slightly to 10.2 percent, versus 10.0 percent in the year-ago quarter. Income for the quarter was $176 million, up from the $138 million in the first quarter of 1997, primarily because of improved net interest. Diluted earnings per share (EPS) were $0.44, compared with $0.35 in the first quarter of 1997.
Including the effect of the special charges, the loss from operations for the quarter was $22 million, compared with a profit from operations of $171 million a year ago. Income was $11 million, compared with $102 million; EPS was $0.03, compared with $0.26.
Over the quarter, TI announced a number of strategic actions and developments to further its leadership in digital signal processing solutions. Acquisitions during the quarter included Spectron Microsystems, which brings TI additional expertise in DSP software tools, and Oasix and Arisix corporations, which provide integrated design for hard disk drive products.
New product developments in the quarter included three ADSL chipsets that use digital signal processors to speed Internet access. Most recently, TI announced a new DSP architecture that combines digital signal processing with microcontroller functions, primarily targeting mass storage applications such as hard disk drives and digital video disks. The ramp-up of TI's 'C6x DSP chip continues to meet strong market acceptance, with a design-in rate five times faster than any previous generation of TI DSP.
In addition to the joint venture with Hitachi referenced earlier, TI also announced a definitive agreement for the Acer Group to purchase TI's shares in the TI-Acer semiconductor memory chip joint venture, located in Taiwan. The TI-Acer transaction is expected to close in the second quarter and TI expects to recover its original investment. TI and other joint-venture shareholders continue to explore further measures with respect to the joint-venture structures.
''TI's future is increasingly driven by a fundamental shift in the industry from the PC era to digital connections, both wireless and networked solutions,'' said President and Chief Executive Officer Thomas J. Engibous. ''That's good news for TI, because we rank number one in the components that lead this technology shift, digital signal processors and analog chips. Despite the difficult near-term environment, we will continue to do what's necessary to improve our margins and take the strategic actions to strengthen our leadership position in digital signal processing solutions.''
Outlook
TI now believes the world semiconductor market is likely to grow 5 percent or less in 1998, in view of ongoing inventory reductions by electronic end-equipment manufacturers, sharply lower DRAM prices, weakness in Asia and depreciation of the yen. As a result, TI expects to see continued pressure on its semiconductor revenues and margins in the second quarter of 1998.
While the semiconductor market in the near term will continue to be affected by pressure on DRAM prices and weakness in Asia, end-equipment demand in the U.S. is relatively healthy and Europe remains strong. These strengths, combined with possible stabilization in the Asia Pacific region, could set the stage for stronger semiconductor growth in 1999 and beyond.
In the market sectors most important to TI, the company expects about 30 percent growth in DSP and about 20 percent in mixed-signal for 1998, fueled by wireless and networking applications. Over the next few years, these end- equipment markets are expected to grow in excess of 20 percent annually. Based on the projected strong growth of end-equipment markets and the major role that communications will play in such growth, TI remains positive about the longer-term prospects of the semiconductor industry.
TI will continue to take actions to align costs with demand. The company now plans to hold capital spending for 1998 at $1.2 billion, essentially flat with 1997. TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Income Statement
(In millions of dollars, except per-share amounts.)
For Three Months Ended
Mar. 31 Mar. 31
1998 1997
Net revenues $2187 $2263
Operating costs and expenses:
Cost of revenues 1517 1472
Research and development 328 239
Marketing, general and administrative 364 381
Total 2209 2092
Profit (loss) from operations (22) 171
Other income (expense) net 57 10
Interest on loans 18 24
Income from continuing operations
before provision for income taxes 17 157
Provision for income taxes 6 55
Income from continuing operations (B) 11 102
Discontinued operations: income from operations --- 27
Net income $ 11 $ 129
Diluted earnings per common share: (A)
Continuing operations $ .03 $ .26
Discontinued operations --- .07
Net income $ .03 $ .33
Basic earnings per common share:
Continuing operations $ .03 $ .27
Discontinued operations --- .07
Net income $ .03 $ .34
Cash dividends declared per share
of common stock (C) $ --- $.085
(A) Diluted earnings per common share as reported are based on average
common and dilutive potential common shares outstanding (400.0 million
shares and 394.4 million shares for the first quarters of 1998 and
1997).
(B) Income from continuing operations for the first quarter of 1998
includes the effect of a pretax charge of $219 million in connection
with the company's discontinuance of its U.S. DRAM manufacturing joint
venture with Hitachi, Ltd. The charge is included in cost of
revenues. Also included in first quarter income is a charge of
$25 million for the value of acquired in-process research and
development from two business acquisitions. There is no tax offset
for $10 million of this R&D charge. Income from continuing operations
for the first quarter was $176 million and diluted earnings per share
was $.44, excluding these special charges. Similarly, income was
$138 million, or $.35 per share for the first quarter of 1997,
excluding special charges of $56 million, of which $22 million were
included in cost of revenues with the balance primarily in marketing,
general and administrative expense.
(C) As previously announced, the timing of dividend declarations was
moved, effective March 1998, from the third month of a quarter to the
first month of the following quarter.
SELECTED BALANCE SHEET ITEMS
(Millions of dollars)
Mar. 31 Dec. 31
1998 1997
Cash and short-term investments $2366 $3020
Accounts receivable (net) 1666 1705
Inventories 776 742
Total current assets 5450 6103
Property, plant and equipment (net) 4283 4180
Total assets 10370 10849
Current liabilities 1985 2496
Long-term debt, loans and current LTD 1313 1357
Stockholders' equity 5977 5914
Debt-to-total-capital ratio .18 .19
First Quarter 1998 Segment Review
NOTE: UNLESS STATED OTHERWISE, THE FINANCIAL RESULTS IN THIS REPORT ARE
FROM CONTINUING OPERATIONS AND EXCLUDE SPECIAL CHARGES DETAILED
EARLIER IN THIS REPORT.
Semiconductor
Semiconductor orders declined by 17 percent in the first quarter versus the year-ago quarter primarily due to weakness in memory, and declined by 3 percent from the fourth quarter of 1997, with about half the decline due to memory and the balance from softness in modem and hard disk drive orders. Semiconductor revenues were down 3 percent from the first quarter of 1997. From the fourth quarter, revenues were down 12 percent, with about half of the decrease related to weakness in memory and most of the balance reflecting customer inventory corrections in electronic end equipment. Excluding memory, semiconductor revenues were up 7 percent from a year ago, primarily because of an increase in digital signal processing solutions.
Profit from operations for the quarter was $229 million, down 18 percent from the year-ago quarter, primarily because of lower DRAM prices. Compared with the fourth quarter of 1997, profit from operations declined by $125 million, with about $50 million related to the weakness in memory, and most of the balance from lower revenues in other semiconductor areas, primarily due to softness in demand from OEMs. Operating margins were down from the year-ago quarter by about 2 percentage points, primarily because of lower DRAM prices.
Orders for digital signal processing solutions were up from both the year- ago quarter and the fourth quarter, driven by wireless. Revenues for DSPS were up 18 percent from a year ago, though down 8 percent from the fourth quarter, primarily due to softness in demand from OEMs. DSPS accounted for almost 50 percent of semiconductor revenues in the quarter.
Memory continued to be affected by declining DRAM prices, which caused revenue to decline by $157 million from the year-ago quarter. From the fourth quarter, revenues declined by $126 million, with about one-third of the decrease due to price declines and the balance due to lower shipments. As a result, memory revenues were 12 percent of total semiconductor revenues.
Materials & Controls
TI's Materials & Controls (M&C) business reported first quarter results of $242 million in revenues, up 4 percent from the first quarter of 1997. Progress from continued emphasis on the ''best cost producer'' strategy was seen in profit from operations of $36 million, up 40 percent from a year ago. Operating margins were 14.8 percent in the first quarter, a gain of 3.7 percentage points from the year-ago quarter.
M&C's automotive sensor market continues to participate in high growth segments, particularly in Europe where the growth of air-conditioning and automatic transmissions is accelerating for local markets. TIRIS(TM) also continued to broaden its served markets in automatic customer recognition systems, with pilot programs with Shell International in Europe and the next phase of U.S. market fanout of the Mobil Speedpass(TM) program.
Educational & Productivity Solutions
Revenues and orders were up for the Educational & Productivity Solutions (E&PS) business from a year ago, primarily because of increased shipments of graphing calculators. Revenues increased to $76 million, compared to $69 million in the year-ago quarter, while profit from operations remained flat at $1 million, reflecting seasonal patterns.
The E&PS business continues to make advances in its calculator line. During the quarter, the business introduced the TI-73, an electronically upgradable calculator designed for middle grades, and the TI-89, a powerful calculator for advanced mathematics for high school and college students. Response among educators has been enthusiastic.
Digital Imaging
Shipments increased in TI's digital imaging business to set an all-time high. The increase in revenues helped to reduce the loss in this emerging business.
Additional Financial Information
The income tax rate for the first quarter of 1998 was 34 percent, which is the estimated rate for the full year.
During the first quarter of 1998, cash and cash equivalents plus short- term investments decreased by $654 million to $2366 million. The discontinuance of the joint venture with Hitachi and the acquisition of those operating assets required $281 million of cash, and $91 million of cash was used to purchase the remaining outstanding shares of Amati Communications Corporation's common stock.
First quarter 1998 cash flow from operating activities, net of additions to property, plant, and equipment, was negative $429 million; and first quarter capital expenditures totaled $384 million, compared to $225 million in the first quarter of 1997.
At the end of the first quarter, the debt-to-total-capital ratio was .18, down from the year-end value of .19.
Depreciation for the first quarter of 1998 was $275 million, compared to $246 million in the year-ago period. Depreciation for 1998 is projected at $1.2 billion. BUSINESS SEGMENT NET REVENUES
(Millions of dollars)
For Three Months Ended
Mar. 31 Mar. 31 June 30 Sept. 30 Dec. 31
1998 1997 1997 1997 1997
Semiconductor
Trade $1816 $1860 $2053 $2081 $2069
Intersegment 5 8 6 6 4
1821 1868 2059 2087 2073
Materials & Controls
Trade 242 231 250 238 231
Intersegment --- 1 1 1 1
242 232 251 239 232
Educational & Productivity
Solutions
Trade 76 69 157 138 83
Corporate activities 48 41 39 34 40
Divested activities --- 53 53 2 ---
Total net revenues $2187 $2263 $2559 $2500 $2428
BUSINESS SEGMENT PROFIT (LOSS)
(Millions of dollars)
For Three Months Ended
Mar. 31 Mar. 31 June 30 Sept. 30 Dec. 31
1998 1997 1997 1997 1997
Semiconductor $ 229 $ 279 $ 354 $ 367 $ 354
Materials & Controls 36 26 33 29 35
Educational & Productivity
Solutions 1 1 32 24 2
Corporate activities (44) (54) (59) (64) (96)
Special charges and gains, net
of applicable profit sharing (244) (56) 17 --- (493)
Interest on loans/other income
(expense) 39 (14) (9) 11 44
Divested activities --- (25) (24) 1 (2)
Income (loss) from continuing
operations before income
taxes $ 17 $ 157 $ 344 $ 368 $(156)
Note: In addition to the 1998 and 1997 first quarter segment data, the
other quarters of 1997 are provided on the new segment reporting
basis for informational purposes.
''Safe Harbor'' Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties including, but not limited to, global economic conditions, fluctuation in exchange rates, product demand and industry capacity, timing of customer inventory corrections, competitive products and pricing, manufacturing efficiencies, new product development, ability to enforce patents, availability of raw materials and critical manufacturing equipment, new plant startups and continuity of DRAM joint venture manufacturing operations, timely completion of announced acquisitions, the regulatory and trade environment, timely completion of Year 2000 software modifications, and other risks indicated in filings with the Securities and Exchange Commission.
Texas Instruments Incorporated is a global semiconductor company and the world's leading designer and supplier of digital signal processing solutions, the engines driving the digitization of electronics. Headquartered in Dallas, Texas, the company's businesses also include materials and controls, educational and productivity solutions, and digital imaging. The company has manufacturing or sales operations in more than 25 countries.
Texas Instruments is traded on the New York Stock Exchange under the symbol TXN. More information is located on the World Wide Web at ti.com
Trademarks: TIRIS and Speedpass are trademarks of Texas Instruments Incorporated.
SOURCE: Texas Instruments Incorporated
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