TI posts strong Q4, plans job cuts on more foundry work

By Colleen Taylor & Ed Sperling -- Electronic News, 1/23/2007

Texas Instruments Inc. posted a solid Q4 and stellar 2006, but the company will cut 500 jobs this year and shift core digital CMOS development to one of several foundries it now uses.

TI Monday reported Q4 revenues of $3.46 billion, down 8 percent from its record-breaking Q3, but up 4 percent year-over-year. TI chalked the sequential slowdown to a broad-based decline in company semiconductor product revenue of 5 percent and a seasonal decline in graphing calculator sales.

Q4 gross profit was $1.75 billion, or 50.5 percent of revenue. This was a decrease of $184 million from the prior quarter due to lower revenue, TI said—however, it was an increase of $91 million from the year-ago quarter.

Net income was $668 million, down from the $702 million TI made in Q3 but up from the $655 million made in Q4 2005.

TI's Q4 R&D expense was $556 million, 16 percent of revenue. R&D expense was down 2 percent from the prior quarter, but up $63 million from the year-ago quarter.

Q4 orders were $3.08 billion, a decrease of $352 million from Q3 and a decrease of $411 million from the year-ago quarter, primarily due to lower demand for DSP and DLP products in the company's semiconductor segment, TI said.

Across the board, 2006 was a banner year for the Texas giant. For the full year, TI's revenue grew 16 percent to a record $14.25 billion. Gross profit was $7.26 billion, or a record 50.9 percent of revenue, a 21 percent increase from the prior year. R&D expense was $2.20 billion, or 15.4 percent of revenue, an increase of $209 million from the prior year. 2006's net income was $ 4.3 billion, way up from the $2.3 it reported in 2005, on orders of $14 billion, an increase of $1.17 billion from the prior year.

But the company’s news wasn’t all good – at least not for all of its employees. TI noted in its statement that it will change the way it develops advanced digital process technology in 2007. Instead of separately creating its own core technology, TI will shift gears and work collaboratively with its foundry partners on the next generations of digital process technology.

"This is a natural extension of our existing relationships with foundries that will increase our R&D efficiency and our capital efficiency while maintaining our responsiveness to customers," Rich Templeton, TI president and CEO, said in a statement. Additionally, he said the company will stop production at an older digital factory and move its manufacturing equipment into several of its analog factories.

TI now works with three foundries, SMIC in Shanghai, and UMC and TSMC in Taiwan. In a twist on current business trends, TI will not eliminate a significant portion of its manufacturing, but it will stop duplicating research that is currently being done by the foundries. A company spokesman said TI will license the technology developed by the foundries and bring it into its own factories.

In doing so, about 500 jobs are expected to be slashed by year end, which will help to cut annualized costs by about $200 million, Templeton said. In total, the company will take restructuring charges of approximately $55 million over the course of the year.

Looking ahead to Q1, TI expects revenues of $3.01 billion to $3.28 billion. For the full year 2007, TI is planning to lower capital expenditures to $900 million, down from the $1.27 it spent in 2006.