Texas Instruments 2007 Annual Report Download - page 48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
46 TEXAS INSTRUMENTS 2007 ANNUAL REPORT
The following should be read in conjunction with the Financial Statements and the related Notes that appear elsewhere in this
document. All dollar amounts in the tables in this discussion are stated in millions of U.S. dollars, except per-share amounts. All amounts
in this discussion reference continuing operations unless otherwise noted.
Overview
At Texas Instruments, we design, make and sell high-technology components; more than 50,000 customers all over the world buy
our products. We have two business segments: Semiconductor and Education Technology. Semiconductor is by far the larger of these
segments, accounting for 96 percent of our revenue in 2007. This segment sells integrated circuits, or semiconductors, to electronics
designers and manufacturers, many of whom innovate rapidly and bring new products to market multiple times a year. Our Education
Technology segment accounts for the remaining 4 percent of our revenue and sells calculators and related technologies to consumers
and educators.
The details relevant to each segment are discussed below.
Semiconductor
Our Semiconductor segment invents and produces a variety of semiconductors, commonly called “chips.” These semiconductors are
used to accomplish many different things, such as processing data, canceling noise, converting signals, improving resolution and
distributing power. We are among the world’s largest semiconductor companies as measured by revenue, having been ranked in the top
five for the past decade. Our Semiconductor segment can be affected by cyclical upturns and downturns characteristic of our markets,
which sometimes cause wide swings in growth rates from year to year.
Products
Over the past decade, we have focused most of the resources of our Semiconductor segment on two areas – analog semiconductors
and digital signal processors (DSPs). In 2007, about 80 percent of the segment’s revenue came from sales of these two broad types of
semiconductors. In general, analog semiconductors and DSPs convert and process signals very quickly, enabling people to talk on a cell
phone, hold a real-time videoconference over the Internet, or overcome deafness with a digital hearing aid, for example. Our portfolio
includes products that are central to almost all electronic equipment.
Analog semiconductors are responsible for changing real-world signals – such as sound, temperature, pressure or images – by
conditioning them, amplifying them and often converting them to a stream of digital data so the signals can be processed by DSPs.
Analog semiconductors also manage power distribution and consumption. Analog semiconductors can have long life cycles that reach
into decades. We introduce hundreds of new types of analog semiconductors every year.
Our analog semiconductors can be put into two primary categories: custom products and standard products. Custom products are
designed for specific applications for specific customers. Standard products are used by multiple customers, though some are used
only in specific applications and some are used in many different applications. Almost all of our custom and standard products are
proprietary in nature, which makes them difficult to copy or imitate. Both also typically deliver good gross margins, with margin on
standard products being somewhat higher. While our analog portfolio is primarily comprised of custom and standard products, we also
manufacture and sell another category of analog semiconductors known as commodity products. These are sold in high volume to a
broad range of customers for use in many different applications. Commodity products, unlike custom and standard products, are easily
imitated, which means differentiation is generally achieved by price and availability.
The size of the total market for analog semiconductors was about $36 billion in 2007, and we supplied an estimated 13 percent of this
market. Our share of this market has increased over the past five years as we have expanded our portfolio with higher performance
products and grown the size and reach of our sales force. We believe that with continued improvements and focus, we can keep
increasing our share of the market for analog semiconductors.
DSPs are semiconductors that perform mathematical computations almost instantaneously with a high level of precision. They use
complex algorithms to process and improve a stream of digital data. DSPs are ideal for applications that require precise, real-time
processing, such as cell phone conversations or receiving digital radio transmissions. The processing speed and power efficiency of a