Texas Instruments Q3
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Texas Instruments Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> UNION CITY, Ca., October 15, 1996/FOOLWIRE/ --- Texas Instruments reported third quarter results this morning. Net revenues for the quarter were $2841 million, down 17% from the third quarter of 1995. Profit from operations for the third quarter, exclusive of a one-time charge of $192 million for in-process R&D associated with the purchase of Silicon Systems Inc. (SSi) was $68 million, compared with $437 million in the third quarter of 1995. Including the charge, loss from operations for the third quarter was $124 million. Income for the quarter was $44 million, compared with $289 million in the third quarter of 1995. Excluding the one-time charge, earnings per share were $0.23. After the charges, they would show a loss per share of -$0.78.
DRAM PRICES & LOW ROYALTIES HURT RESULTS. TI's operating results were adversely affected by the continuing price declines of DRAM and/or royalty revenues. Excluding the SSi charge, their semiconductor business remained profitable despite the major impact of lower DRAM prices. That is marked contrast to prior cycles where they have had large negative effects from DRAM prices.
DSPS BUSINESS IS STRONG. They continue to see strength in their digital signal processing (DSP) solutions business. They refer to this business as DSPS and by that they mean their DSP business and their mixed signal business which now includes the SSi numbers for the first time. That combination, DSPS, represented about 40% of their semiconductor revenues in the quarter, up substantially from prior period and year ago. With the growth of DSPS and the shrinking of DRAMs as a percent of revenues, their total differentiated products now approach 2/3 of their semiconductor revenues. Their long-term goal has been to get that up to about 50% of TI's business and it is now approaching about 2/3.
The SSi acquisition added approximately, on an annualized basis, $400 million to revenues. So, in the range of $100 million of revenues were added in the third quarter from that business. However, TI's semiconductor business would have been solidly profitable even without the SSi revenue contributions in the quarter.
DRAM PRICING STRENGTHENS. DRAM prices declined about 35% from Q2 1996, resulting in a larger loss in their memory business in the quarter. DRAM prices have turned up in recent weeks. The 4-meg DRAMs basically now are somewhere in the $2.25-$2.50 price range from the lows in late August and early September that were just below $2.00. On the 16-meg DRAM, it is generally now around $9-$10. The 4X4 goes up into the $11-$12 range and that is up from the lows which went below $8 at some points. It is hard to say how sustainable the price increases are and prices have still been jumping around quite a bit. That is why they predict that the market is likely to remain volatile in the near term. The trend in contract prices is also up from where it has been. There probably is not that much difference now between the contract and spot pricing for DRAM with the inventories that were built up and the way the customers were ordering pretty much hand-to-mouth. They are seeing customers willing to go a little bit further out in placing orders. So, if that trend continues that would be a sign that the industry is getting somewhat back to normal. But it still has a long way to go to be satisfactory in terms of profitability.
DRAM INVENTORIES ARE LOWER. Companies have bought products now anticipating a stronger Christmas season. All of TI's data shows that the PCs are tracking well in retail take-away. There doesn't appear to be a build-up in equipment inventories. The Department of Commerce's latest data shows that those inventories are remaining at low levels. Also, in TI's own surveys, they are seeing customer inventories have declined since the July timeframe. Their survey result (US only which is a cross section of all of the industries and they try to weight it to the market demand as much as they can) showed 2.9 weeks of inventory versus 4.7 in July at customer sites. While that is quite a bit lower, it is still higher than a year ago. A year ago, the third quarter was 2.6 weeks. So, it was encouraging to see the drop in customer inventories, but it is still a little higher than it was a year ago.
So, they think it gets back to a question of how strong the Christmas season will be. They think the computer industry is optimistic about a good season. As far as 1997, TI's view is that they will see modest recovery in the semiconductor market and that they will see continued growth in the worldwide PC market, generally, over the balance of the decade, in the 15-20% range.
The DRAM business is not profitable at the current prices. They need more improvements and they need to continue to execute their shrinks and cost reduction programs.
TI IS TAKING ACTIONS TO REDUCE FUTURE COSTS. This includes the voluntary early retirement program that they announced today that is being offered to about 5300 domestic employees. This will result in a fourth quarter charge depending on how many people accept the program. They also commented on plans to reduce capital spending significantly in 1997, following the high level of about $2.3 billion which they expect for 1996. This will be positive for cash flow in 1997 and they will retain the flexibility to add capacity as needed to meet demand. The joint ventures and in fact all of the company's DRAM fabs are essentially at capacity. The 0.50 micron and below areas are at capacity. There isn't a big mismatch in terms of capacity. There clearly is some excess capacity in the industry and still more capacity coming online in 1997. That is why they think we will still see some price volatility going forward. They are trying to size their capacity increases next year pretty much to the bit growth rate they see, somewhere in the 65-70% range.
TI'S PLANS FOR 1997 ARE BASED ON MODERATE RECOVERY IN THE WORLD'S SEMICONDUCTOR MARKET. Their DSPS design activity is remaining at a high level. They noted the very active period of new product development that will be seen in the months ahead. At the same time, they are seeing a step-up in the memory per CPU as the lower prices are stimulating more 32-megabyte systems. Corporate purchases are standard 32-meg and even in some of the consumer channels they are seeing systems move to 32-meg because of the graphics needs. Again, they have seen some increase in prices in recent weeks, but most likely they expect it to remain volatile in the near term.
VALUE ADDED SOLUTIONS. Looking forward, they are accelerating their pace to compete and win in the high growth markets, to add stability to their business, and to create higher value added solutions for their customers. As they do that, they believe it will dramatically change the mix of TI's product offerings to more of the value added solutions. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |