Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

TI's Bigger Stack of Chips

As the semiconductor industry inches toward recovery from a two-year slump, Texas Instruments (TXN) remains an anomaly. TI, which makes digital signal processor (DSP) chips used in more than 60% of cell phones, is increasing its sales faster than most other chipmakers. It holds 43.2% of the DSP market, according to tech consultancy Forward Concepts. On Apr. 15, TI reported that its sales for the first quarter of 2003 rose 20%, to $2.2 billion, compared to the year-ago period. It also recorded a $117 million profit vs. a $38 million loss in the year-ago quarter. TI shares jumped $1.78 (10.3%) to close at $19 on the day following the announcement.

TI is the main DSP supplier for Nokia (NOK), the world's largest mobile-phone maker. The chipmaker is benefiting from the run-up up in sales of the newest, feature-rich cell phones. Industrywide, DSP revenues grew 14.1%, to $4.86 billion, in 2002, according to Forward Concepts. TI is also seeing increased demand in consumer electronics, where its digital light processor (DLP) imaging chips are used, says TI Chief Financial Officer Bill Aylesworth. He spoke to BusinessWeek Online reporter Olga Kharif on Apr. 17 about the reasons behind TI's results and the chipmaker's outlook. Edited excerpts of the interview follow:

Q: What has fueled growth in the DSP and DLP markets?

A: In the wireless market, what's benefiting TI is the move by many consumers to cell phones with more features, called 2.5-generation phones -- the phones that have color screens, more music tones, increased data capabilities, and longer battery life. There's much more TI silicon content in those phones.

And in DLP, our customers are realizing that they can make projectors -- the kinds used by corporations for presentations, for instance -- much smaller and as light as two pounds using TI's imaging chips. And in consumer television, our customers are producing large-screen televisions using TI's DLP chip for high-resolution and high brightness. Products with these features appeal to consumers, and that's stimulating the growth in those markets.

Some of our competitors are in markets that primarily serve the computer sector, but our DSP chips are aimed toward the communications and consumer-electronics markets, which are growing -- and that's positioning TI much better.

Q: Some analysts find your growth and outlook surprising given the weak guidance from cell-phone makers like Motorola (MOT). What are you seeing that the analysts don't?

A: Nokia, which reported on Apr. 17, is TI's largest customer. And our outlook is very consistent with that of Nokia, which is projecting further growth, especially in the wireless handsets area, where we're are an important supplier.

Plus, as the wireless-handset market moves to this 2.5G [level], TI's silicon content in these phones can be more than twice the amount that it was in the earlier phones -- so our value and price for those chips can increase by that amount as well. Also, the chips for these handsets are integrating a lot more functions, so our customers don't need as many different suppliers. They're increasingly using TI -- and we're getting an increasing share of the handset cost.

Q: Your revenues benefited from the higher prices 2.5G chips fetch. How long do you think this price premium can last?

A: Fundamentally, there should always be a premium for 2.5G chips compared to the earlier chips because the new chips have much greater performance. They integrate more of the functions -- for instance, we're incorporating more memory into the handset. So even though the actual chips will decline in price over time, the premium will continue going forward because of the higher value that we're offering our customers.

Q: Yet you've announced more layoffs.

A: We're now one of a few semiconductor companies in the world in full production of chips using the larger wafers. That enables a 30% cost reduction. We can also now make chips smaller, thanks to a technology called 130-nanometer lithography. We believe that TI now makes more chips using this technology than any other semiconductor company in the world. Because we're able to manufacture more efficiently, we've announced we would be reducing our manufacturing employment by 450 people in our semiconductor business.

Q: Why cut staff during a return to growth?

A: It's not related to market demand. We can meet the market demand. But because we have more efficient manufacturing, we really have the responsibility to realize the savings that these technologies enable. Therefore, we had to make the decision to reduce manufacturing jobs at the current time.

Q: Do you see the industry recovering in the current quarter?

A: The recovery has been under way for some time in the semiconductor industry -- since the middle of 2001, when most companies experienced the bottom of the cycle. In the first quarter of 2003, our semiconductor revenues were up 23% from the quarter a year ago. So we're in a phase of recovery. Because of a weakness in the world economy, there has been a pause in that recovery, but we're confident that the recovery will resume. In the second quarter, we expect our semiconductor revenues to grow about 4% sequentially, and that's an indication of the continued growth opportunities that we see.

Q: Your cash flows have declined, and your inventory has risen in the quarter. Why?

A: Our cash flow from operations in the first quarter was positive, almost $200 million. The decrease from the year-ago quarter is almost entirely due to the fact that in the first quarter of 2002, we received a substantial tax refund that didn't happen again in 2003. That's why our cash flows from operations were down about $100 million compared to a year-ago quarter.

We've increased our inventories in the first quarter for two important reasons: In the semiconductor business, we've increased our work-in-progress inventory to be prepared for the growth that we expect in the second quarter. And in our calculator business, inventories increased because they have a very sharp seasonal upturn in their business -- in the second quarter, their revenues will double sequentially. All these inventory increases are very appropriate.

Q: So what's TI's strategy going forward?

A: We plan to extend our leadership position in DSP and other chips aimed at markets for communications and consumer electronics. This is the sweet spot of the semiconductor market in terms of the fastest growing and most attractive markets.

blog comments powered by Disqus