TI cuts 3400 jobs, no longer plans to sell merchant baseband biz

The company decides not to sell its merchant baseband business after determining it is "more financially worthwhile" to run the unit internally as an end-of-life business.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 1/27/2009

Texas Instruments Inc announced a 12% workforce reduction and the end of its efforts to sell its merchant base band business while reporting on a sour Q4 and full-year 2008 Monday afternoon.

Q4 revenue of $2.49 billion was down 26% sequentially and down 30% year over year. That was accompanied by net income of $107 million, down 81% sequentially and 86% year over year; profit of $51 million, down 93% sequentially and down 95% year over year; and EPS (earnings per share) of $0.08, down 81% sequentially and 85% year over year.

The December quarter capped off a year with revenue of $12.5 billion down 10%, income of $1.92 billion down 27%, profit of $2.43 billion down 30%, and EPS of $1.45 down 21% compared to 2007 results.

"Many of us in TI management have been in this industry for a long time and have experience with a number of cycles," said Ron Slaymaker, TI's VP of investor relations, on the company's call with analysts Monday afternoon. "While there are similarities between past cycles and the current environment, there's an important difference: The current environment is not simply an inventory correction that will work itself out in three quarters. Instead, it is a broad economic slowdown in which consumer consumption has dramatically weakened and likely will weaken further."

On that, TI said it will lower its headcount by 3400 employees to reduce annual costs by approximately $500 million by the end of Q3. Of the total, TI said 1,600 job cuts will be on a voluntary basis through retirements and departures and 1,800 will be layoffs.

To further lower costs and align with demand, TI reduced its inventory by $200 million in Q4 and expects to continue to reduce inventory in the current quarter.

"We took aggressive action in the fourth quarter to reduce inventory on all fronts -- our own, with OEMs, and with distributors," Slaymaker said. "This is why our shipments are below those of OEM's. We will be aggressive with inventory again in the first quarter because it is the best way to align production with true demand as soon as possible.

"We cannot predict demand for the second half or into 2010, but we're not waiting around for an economic recovery that may be slow to arrive," he continued. "That's why we've made the additional decision to reduce cost and realign our expenses so that our performance remains solid even in a weak economy."

Slaymaker further said on the call that TI has decided not to sell its merchant broadband business. TI first announced the planned sale in its October 2008 Q3 earnings statement, putting its focus largely on analog and embedded processing and reducing its wireless investment.

"As we progressed, it became clear that a sale would not achieve the same value that we will accomplish by retaining the operation and reducing the investment levels to the minimum required to support our existing customer engagements," Slaymaker said.

CFO Kevin March added that based upon TI's discussions with potential buyers the company determined it is "more financially worthwhile for stockholders" to run the unit internally as an end-of-life business.

"As far as our outlook for wireless, that has not changed," March said. "Our view is still the same and that is that as the baseband has standardized, the growth opportunity in cell phones will continue to be in 3G type smart phones, those phones where the user interface becomes a lot more important to customers and, therefore, the applications processor becomes more important."

For Q1, TI said it expects revenue between $1.62 billion and $2.12 billion, a 15% to 35% decline quarter over quarter. "Our range is wider than normal, reflecting our lower level of backlog," Slaymaker said.

The company also said it expects Q1 EPS to be between a $0.11 loss and a $0.03 profit on Q4.

For full-year 2009, TI said it expects R&D of $1.5 billion, down from 2008's $1.94 billion, and capital expenditures of $300 million, down from 2008's $763 million.