Texas Instruments 2005 Annual Report Download - page 51

Semiconductor Segment
Statement of Operations – Semiconductor For years ended
December 31,
2005 2004
Net revenue ............................................................................ $ 11,722 $ 10,941
Cost of revenue ......................................................................... 5,988 5,974
Gross profit ............................................................................. 5,734 4,967
Gross profit % of revenue ............................................................ 48.9% 45.4%
Profit from operations ................................................................... 2,797 2,050
Operating profit % of revenue ........................................................ 23.9% 18.7%
Semiconductor revenue in 2005 of $11.72 billion increased 7 percent from 2004 primarily due to increased shipments
resulting from higher demand for wireless products and, to a lesser extent, increased shipments from higher demand for
high-performance analog products.
For the year, wireless revenue grew 14 percent, with success in both the fast-growing 3G WCDMA market, and in
supplying chips to the rapidly growing emerging market for low-price cell phones. We believe industry shipments of
WCDMA cell-phones doubled in 2005. In 2005, about 55 percent of our 3G revenue came from sales of OMAP application
processors and about 45 percent from sales of digital baseband modems.
For the year, high-performance analog revenue grew 13 percent, reflecting the combination of four consecutive quarters
of solid growth and the inventory correction that was underway at our distributors at the end of 2004. We exited 2005
with distribution inventory levels of our high-performance analog products lower than they were at the end of 2004,
despite resales that were significantly higher.
Gross profit of $5.73 billion, or 48.9 percent of revenue, increased $767 million from 2004, primarily due to manufacturing
cost reductions and, to a lesser extent, higher revenue.
Operating profit was $2.80 billion, or 23.9 percent of revenue, up $747 million from 2004 due to higher gross profit.
Analog revenue increased 4 percent from 2004 primarily due to increased shipments resulting from growth in demand for
high-performance analog products, which more than offset the loss of revenue from our commodity liquid crystal display
(LCD) driver product line, which we divested in the first quarter of 2005. In 2005, about 40 percent of total Semiconductor
revenue came from analog.
DSP revenue increased 15 percent from 2004 primarily due to increased shipments resulting from growth in demand for
wireless products. In 2005, about 40 percent of total Semiconductor revenue came from DSP.
For the year, remaining Semiconductor revenue increased 2 percent from 2004 primarily due to higher shipments resulting
from increased demand for reduced instruction set computing (RISC) microprocessors (designed to provide very fast
computing, typically for a specialized application such as servers), and microcontrollers (a microprocessor designed to
control a very specific task for electronic equipment) that offset a decline in revenue from DLP products.
We began 2005 with excess inventories of DLP products at both our customers and their channels. Overall DLP revenue
declined 8 percent in 2005. We left the year in a much better position, with revenue in the fourth quarter up 10 percent
from the year-ago quarter. In 2005, DLP was about 5 percent of Semiconductor revenue, while RISC microprocessors,
standard logic, microcontrollers and royalties were under 5 percent each.
In total, we estimate that our 2005 Semiconductor product revenue came from the following broad markets:
communications (including wireless and broadband communications) was about 50 percent; computing (including
peripherals and computers) was about 30 percent; consumer electronics was about 10 percent; industrial was about 5
percent; and automotive was about 5 percent.
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TEXAS INSTRUMENTS 2005 ANNUAL REPORT