No Recession for Texas Instruments: Fool by Numbers

On Jan. 22, broad-line semiconductor designer Texas Instruments (NYSE: TXN  ) released earnings for the 2007 fiscal year -- a period ended Dec. 31, 2007.

  • Generous share buybacks turned flat earnings growth into a very nice ramp-up on a per-share basis. Management explains that the leaner, meaner asset-light manufacturing model that was implemented a couple of years ago simply doesn't call for a lot of infrastructure investments -- so the cash is pumped back to shareholders instead.
  • TI customers clamored for high-margin digital signal processors and analog chips, which helped to drive gross margins wider.
  • The company didn't tell us how much of these results came from international markets, but in 2006, U.S. sales accounted for only 13% of total revenue. Thus TI joins Intel (Nasdaq: INTC  ) and IBM (NYSE: IBM  ) in the recession-insulated international club.
  • The P/E ratio may look lofty, but TI backs it up with rambunctious cash flow growth, which gives you a better valuation basis.

(Figures in millions, except per-share data)

Income Statement Highlights

FY 2007

FY 2006

Change

Sales

$13,835

$14,255

(2.9%)

Net Profit, Cont. Ops

$2,657

$2,638

0.1%

EPS, Cont. Ops

$1.83

$1.69

8.3%

Diluted Shares

1,446

1,560

(7.3%)

Get back to basics with the income statement.

Margin Checkup

FY 2007

FY 2006

Change*

Gross Margin

53.0%

50.9%

2.1

Operating Margin

26.7%

25.4%

1.3

Net Margin, Cont. Ops

19.2%

18.5%

0.7

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

FY 2007

FY 2006

Change

Cash + ST Invest.

$2,924

$3,717

(21.3%)

Accounts Rec.

$1,742

$1,774

(1.8%)

Inventory

$1,418

$1,437

(1.3%)

Liabilities

FY 2007

FY 2006

Change

Accounts Payable

$657

$560

17.3%

Long-Term Debt

$0

$0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

FY 2007

FY 2006

Change

Cash From Ops.

$4,406

$2,454

79.5%

Capital Expenditures

$686

$1,272

(46.1%)

Free Cash Flow

$3,720

$1,182

214.7%

Owner Earnings

$3,041

$4,180

(27.2%)

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating (out of 5)

Qualcomm (Nasdaq: QCOM  )

$60,001

18.8

***

Texas Instruments

$41,210

16.9

****

Analog Devices (NYSE: ADI  )

$8,230

18.1

***

STMicroelectronics NV (NYSE: STM  )

$10,500

N/A

**

National Semiconductor (NYSE: NSM  )

$4,580

16.0

**

Using the latest reported numbers from Capital IQ. Keep your partners close and the competition in your vest pocket.

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