Texas Instruments: Slump Is Ending

RICHARDSON, Texas (AP) -- Officials of Texas Instruments say the semiconductor giant is coming out of a long slump in the technology industry with improving revenue and profits.

Chairman and chief executive Thomas Engibous also defended the company's recent decision to approve stock options equal to 14 percent of its outstanding shares--a move opposed by a major shareholder-advising group.

Engibous said options are needed to attract technology professionals, and he added that most of TI's competitors do the same thing.

Engibous made the comments Wednesday in an interview after company officials finished a two-day conference with analysts. During the event, a string of top officials gave an upbeat assessment of TI's recovery from a two-year slide in semiconductor sales.

The company said its sales grew 23 percent between the first quarter of last year and the first quarter of 2003--a stronger increase than rivals such as Intel, Analog Devices and STM. Officials predicted growth in sales of computer chips for advanced mobile phones, consumer devices and high-speed Internet.

"The momentum is clearly rebuilding," chief financial officer William Aylesworth told analysts.

Texas Instruments, the leading maker of chips for cell phones, lost $344 million last year. The company closed some plants and announced it would shift sensor manufacturing from Massachusetts to China, Korea and Mexico. Last month, TI reported a $117 million profit for the first three months of 2003.

The return to profitability allowed TI to pare its debt from more than $1.2 billion at the end of last year to $1 billion, and it predicted more improvement in the current quarter. Aylesworth said the company would continue to cut costs and reduce research and development as a share of revenue.

Lehman Brothers analyst Dan Niles said some of TI's increase in sales was due to its ability, with 2,000 engineers, to provide manufacturers with already-assembled components of cell phones and Internet-hookup equipment--"cell phone in a box," he called it.

"I'm impressed by what their market position seems to be compared to a couple years ago," Niles said. "Some of the competitors may have fallen a bit further behind. "

Niles applauded TI's plans to expand into the market for CDMA, or code division multiple access, phones, but he cautioned that other elements of the wireless-phone market--about one-third of the company's revenue--still appeared flat.

Engibous said TI has been held back this year by the sluggish economy, the war and the SARS outbreak in Asia.

"We need to get this SARS thing behind us in the next 30 days," he said. "I doubt consumers in China are out shopping."

Engibous also defended the decision by TI's board, later approved by shareholders, to authorize options for 240 million shares of stock. Institutional Shareholder Services, an adviser to big institutional investors, said the plan was too lavish, and it recommended that TI shareholders oppose the re-election of company directors.

Engibous said the investor-advisory group failed to grasp the damage to recruitment and retention efforts that would result if TI stopped offering options. Without the board action, the company would have run out of options in February.

"In our opinion and the board's opinion, this put the company at risk," he said.

Texas Instruments often goes into the market and buys back shares to avoid having the options dilute the value of TI stock. He said TI averages dilution of 2 percent per year, compared to 4.3 percent average annual dilution at the 27 largest technology companies.

Vincent Dupont, an analyst with Alliance Capital Management, said TI did not abuse stock options but that they represented a cost of compensation that was not always apparent to investors. He asked Engibous whether the company would support expensing stock options.

Engibous said TI would obey if companies were ordered to include stock option costs on its income statement but "won't rail against it."

Many tech companies, among the most active users of options, are resisting proposals to require expensing the costs, which would reduce their reported earnings.