Texas Instruments 2011 Annual Report Download - page 42

TEXAS INSTRUMENTS40 ■ 2011 ANNUAL REPORT
ANNUAL
REPORT
SVA products: These include catalog analog products, particularly in the areas of power management, data converters, interface and
operational amplifiers, nearly all of which are complementary to our other Analog products. This portfolio of thousands of products is
marketed to many different customers who use them in manufacturing a wide range of products sold in many end markets. Many SVA
products have long life cycles, often more than 10 years.
Embedded Processing
Our Embedded Processing products include our DSPs and microcontrollers. DSPs perform mathematical computations almost
instantaneously to process or improve digital data. Microcontrollers are designed to control a set of specific tasks for electronic equipment.
Sales of Embedded Processing products generated about 15 percent of our revenue in 2011. According to external sources, the worldwide
market for embedded processors was about $18 billion in 2011. Our Embedded Processing segment’s revenue in 2011 was about
$2.0 billion, or about 12 percent of this fragmented market. We believe we are well positioned to increase our market share over time.
An important characteristic of our Embedded Processing products is that our customers often invest their own research and
development (R&D) to write software that operates on our products. This investment tends to increase the length of our customer
relationships because customers prefer to re-use software from one product generation to the next. We make and sell catalog
Embedded Processing products used in many different applications and custom Embedded Processing products used in specific
applications, such as communications infrastructure equipment and automotive.
Wireless
Growth in the wireless market is being driven by the demand for smartphones, tablet computers and other emerging portable devices.
Many of today’s smartphones and tablets use an applications processor to run the device’s software operating system and to enable the
expanding functionality that has made smartphones and tablets the fastest growing wireless market segments. Many wireless devices
also use other semiconductors to enable wireless connectivity using technologies such as Bluetooth®, WiFi networks, GPS and Near
Field Communications.
We design, make and sell products to satisfy each of these requirements. Wireless products are typically sold in high volumes. Our
Wireless portfolio includes both catalog products and custom products. Sales of Wireless products generated about $2.5 billion, or about
18 percent of our revenue, in 2011, with a majority of those sales to a single customer.
Our Wireless investments are concentrated on our OMAP™ applications processors and our connectivity products, areas we believe
offer significant growth opportunities and which will enable us to take advantage of the increasing demand for more powerful and more
functional wireless devices. We no longer invest in development of baseband products (products that allow a cell phone to connect to
the cellular network), an area we believe offers far less promising growth prospects. Almost all of our baseband products are sold to a
single customer. We expect substantially all of our baseband revenue, which was $1.1 billion in 2011, to cease by the end of 2012.
Other
Our Other segment includes revenue from our smaller semiconductor product lines and from sales of our handheld graphing and
scientific calculators. It also includes royalties received for our patented technology that we license to other electronics companies
and revenue from transitional supply agreements that we may enter into in connection with acquisitions and divestitures. The
semiconductor products in our Other segment include DLP® products (primarily used in projectors to create high-definition images)
and custom semiconductors known as application-specific integrated circuits (ASICs). This segment generated about $2.5 billion, or
about 20 percent of our revenue, in 2011. We also include in our Other segment certain acquisition-related charges that are not used
in evaluating results and allocating resources to our segments. These charges include certain fair-value adjustments, restructuring
charges, transaction expenses, acquisition-related retention bonuses and the amortization of intangible assets.
Inventory
Our inventory practices differ by product, but we generally maintain inventory levels that are consistent with our expectations of
customer demand. Because of the longer product life cycles of catalog products and their inherently lower risk of obsolescence,
we generally carry more of those products than custom products. Additionally, we sometimes maintain catalog-product inventory in
unfinished wafer form, as well as higher finished goods inventory of low-volume products, allowing greater flexibility in periods of high
demand. We also have consignment inventory programs in place for our largest customers and some distributors.
Manufacturing
Semiconductor manufacturing begins with a sequence of photo-lithographic and chemical processing steps that fabricate a number of
semiconductor devices on a thin silicon wafer. Each device on the wafer is tested and the wafer is cut into pieces called chips. Each chip
is assembled into a package that then is usually retested. The entire process typically requires between 12 and 18 weeks and takes
place in highly specialized facilities.