TI's Q2 goal--avoid operating losses, move
analog to 8-inch wafers
By J. Robert Lineback
Semiconductor Business News
(04/18/01 08:56 a.m. EST)
DALLAS -- With sales expected to
sequentially drop 20% in the second
quarter and chip inventories still too
high at wireless handset
manufacturers, Texas Instruments
Inc. here is hoping to cut enough
costs from operations to avoid a loss
and to break even in Q2. The market
outlook is too cloudy for TI officials
to predict whether or not the
company will avoid losses in the
second half of 2001.
But to avoid operating losses in Q2,
TI said it will reduce its workforce by
6%, or 2,500 jobs, as well as cut
capital spending plans to $1.8 billion
in 2001 from a previous estimate of
$2.0 billion--down from $2.8 billion in
2000. R&D expenditures have been
lowered to $1.6 billion, down from a
previous budget of $1.7 billion, but
even with the amount spend last
year.
Earlier in the first quarter, TI had announced other
cost-cutting measures, including an voluntary retirement
program, reduced work hours at production facilities, and the
closure of a 6-inch analog wafer fab in Santa Cruz, Calif.,
that will eliminate 600 jobs. All together, the new budget
cuts, layoffs, and other actions are expected to lower TI's
costs by an annualized amount of $400 million once they are
completed.
The new layoffs and budget cuts were announced on
Tuesday while TI posted a 17% sequential drop in Q1 sales
to $2.53 billion, compared to $3.03 billion in Q4 of 2000. TI's
net income, on a pro forma basis, was $317 million vs. $549
million in Q4 (see April 17 story).
"Due to continuing uncertain economic conditions, it is
unclear when demand for TI's semiconductor products will
strengthen," said Bill Aylesworth, senior vice president and
chief financial officer of the Dallas company.
During a conference call after TI released its Q1 results,
Aylesworth avoided predictions about the third quarter and
whether or not markets would rebound in the second half of
2001 as many others are now predicting. "We're taking it one
quarter at a time," he said, in response to one analyst asking
if TI could end up losing money in Q3.
But it is clear that the second quarter will most likely be
worse than Q1--which was difficult enough for TI and its
customers. "The wireless market continues to struggle with
inventory. Hand set demand continues to slow during the
[first] quarter," Aylesworth told analysts. "Inventory has
taken longer to absorb than we and our customers
previously forecast." The CFO added that inventory at TI's
largest wireless customer--i.e. Nokia Group of Finland--has
already brought its inventory in line with system shipments,
while others are "likely to carry excess inventory into the
second half."
TI's semiconductor book-to-bill in the first quarter fell to
0.69 with new orders dropping 39% sequentially from the
fourth quarter of 2000. Compared to Q1 last year, TI's chip
orders were 42% lower in the first three months of 2001.
Analog chip revenues fell 17% in Q1 from the fourth quarter
of 2000, but were up 2% on a year-ago basis, TI said. The
company's digital signal processor (DSP) revenues declined
sequentially by 21% in Q1 from Q4, and DSP fell 28% from
the first quarter last year. TI did not release specific
revenue numbers for these product categories, but the
Dallas company did say that analog and DSP made up 65%
of its $2.18 billion in semiconductor revenues during the first
quarter.
"Unlike the fourth quarter--when high-performance analog
grew while catalog DSP declined--both areas were down
sequentially in this quarter, reflecting the expanded breadth
of the weakness we are experiencing," Aylesworth said,
during the conference call on Tuesday afternoon.
TI's chip sales into wireless applications fell 25% sequentially
in the first quarter from Q4 and declined 34% from a year
ago. One of the only bright spots for TI in the first quarter
was broadband communications applications. The company's
chip sales into those high-speed wired communications
networks grew 15% sequentially in the first quarter from the
prior period, with digital subscriber line (DSL) revenues up
more than 50% in Q1 over Q4, according to TI.
While TI is now planning a second cutback in capital
spending since the start of 2001, the company is not
backing off its primary manufacturing goal of upgrading three
large analog wafer fabs from 6-inch to 8-inch diameter
substrates, Aylesworth said. TI is also still planning to begin
production of its first logic ICs on 300-mm wafers during the
second half of 2001 inside a new fab being equipped in
Dallas.
But TI's capital spending for the rest of the year will be
much less than it has been recently. About $900 million of
the planned $1.8 billion in capital spending for 2001 was
spent in the first quarter, said the TI CFO.
"We have clearly spend half of that [$1.8 billion] in the first
quarter, and so the rest of the year will be focused on
completing the three [analog] fabs that are being converted
to 8-inch and those should be complete in the second
quarter [as well as] completing the tooling for our first
300-mm logic line," Aylesworth said. Beyond that, TI will
spend money on testers and other gear--as necessary--but
there will be "very little other generic capacity" added.
TI's conversion of analog chip production to 8-inch
(200-mm) wafers is expected to put the company in a key
position for the eventual recovery. No more than 10% of TI's
analog chip capacity will be on 8-inch wafers by the end of
the first half, but that volume will move to 25% in the
second half of 2001--primarily focused on high-performance
and CMOS analog processes, Aylesworth said.
"That will be a transition that we think we can manage in a
weak environment to our advantage," he added. |
