BUSINESS OF TEXAS INSTRUMENTS
Texas Instruments is a global semiconductor company and the world's leading
designer and supplier of digital signal processors and analog integrated
circuits, the engines driving the digitization of electronics. These two types
of semiconductor products work together in digital electronic devices such as
digital cellular phones. Analog technology converts analog signals like sound,
light, temperature and pressure into the digital language of zeros and ones,
which can then be processed in real-time by a digital signal processor. Analog
integrated circuits also translate digital signals back to analog. Digital
signal processors and analog integrated circuits enable a wide range of new
products and features for Texas Instruments' more than 30,000 customers in
commercial, industrial and consumer markets.
Texas Instruments also is a world leader in the design and manufacturing of
other semiconductor products. Those products include standard logic,
application-specific integrated circuits, reduced instruction-set computing
microprocessors, and microcontrollers.
The semiconductor business comprised 80% of Texas Instruments' 1998
revenues when the divested memory business is excluded. Texas Instruments'
semiconductor products are used in a diverse range of electronic systems,
including digital cell phones, computers, printers, hard disk drives, modems,
networking equipment, digital cameras and video recorders, motor controls,
autos, and home appliances. Products are sold primarily to original-equipment
manufacturers and through distributors. Texas Instruments' semiconductor patent
portfolio has been established as an ongoing contributor to semiconductor
revenues. Revenues generated from sales to Texas Instruments' top three
semiconductor customers accounted for approximately 24% of total semiconductor
revenues in 1998.
The semiconductor business is intensely competitive, subject to rapid
technological change and pricing pressures, and requires high rates of
investment. Texas Instruments is the leading supplier of digital signal
processors and analog integrated circuits, yet faces strong competition in all
of its semiconductor product lines. The rapid pace of change and technological
breakthroughs constantly create new opportunities for existing competitors and
start-ups, which can quickly render existing technologies less valuable.
In digital signal processors, Texas Instruments competes with a growing
number of large and small companies, both U.S.-based and international. New
product development capabilities, applications support, software knowledge and
advanced technology are the primary competitive factors in this business.
The market for analog integrated circuits is highly fragmented. Texas
Instruments competes with many large and small companies, both U.S.-based and
international. Primary competitive factors in this business are the availability
of innovative designs and designers, a broad range of process technologies and
applications support and, particularly in the standard products area, price.
DEMAND FOR DIGITAL SIGNAL PROCESSORS/ANALOG INTEGRATED CIRCUITS
Texas Instruments has undertaken a business strategy that focuses on
developing and marketing digital signal processors and analog integrated
circuits. Texas Instruments has divested certain of its businesses and acquired
others and invested its resources with the view of furthering its focus on these
products. While Texas Instruments believes that focusing its efforts on digital
signal processors and analog integrated circuits offers the best opportunity for
Texas Instruments to achieve its strategic goals and that Texas Instruments has
developed, and will continue to develop, a wide range of innovative and
technologically advanced products, the results of Texas Instruments' operations
may be adversely affected in the future if the demand for digital signal
processors and analog integrated circuits decreases or this market grows at a
pace significantly less than that projected by management.
ACQUISITIONS AND DIVESTITURES
From time to time Texas Instruments considers acquisitions and divestitures
that may strengthen its business portfolio. Texas Instruments may effect one or
more of these transactions at such time or times as
it determines to be appropriate. In 1998, as Texas Instruments narrowed its
focus to digital signal processors and analog integrated circuits, it acquired
technology companies that brought unique expertise to these core product areas.
In the first quarter, Texas Instruments acquired GO DSP Corporation, a developer
of software development tools for digital signal processors; Spectron
Microsystems, a developer of real-time operating software for use in digital
signal processing applications; and Oasix and Arisix corporations, both digital
integrated circuit design centers for hard disk drive products. In the fourth
quarter, Texas Instruments acquired certain assets of Adaptec, Inc., a developer
of hardware and software for the high-end hard disk drive market, a market that
increasingly will use digital signal processors in addition to analog integrated
In addition, in 1998, Texas Instruments divested its dynamic random-access
memory (DRAM) semiconductor operation. The business was sold in the third
quarter to Micron Technology, Inc., and included Texas Instruments' wholly owned
manufacturing facilities in Avezzano, Italy, and Richardson, Texas, its
joint-venture interests in Japan and Singapore, and an assembly and test
operation in Singapore.
OTHER TEXAS INSTRUMENTS BUSINESSES
In addition to semiconductors, Texas Instruments has two other principal
segments. The largest, representing 12% of Texas Instruments' 1998 revenues when
the memory business is excluded, is Materials & Controls (M&C). This business
sells electrical and electronic controls, electronic connectors, sensors,
radio-frequency identification systems and clad metals into commercial and
industrial markets. Typically the top supplier in targeted product areas, M&C
faces strong multinational and regional competitors. The primary competitive
factors in this business are product reliability, manufacturing costs, and
engineering expertise. The products of this business are sold directly to
original-equipment manufacturers and through distributors. Revenues generated
from sales to Texas Instruments' top three M&C customers accounted for
approximately 15% of total M&C revenues in 1998.
Educational & Productivity Solutions (E&PS) represents 6% of Texas
Instruments' 1998 revenues when the memory business is excluded, and is a
leading supplier of educational and graphing calculators. This business sells
primarily through retailers and to schools through instructional dealers. Texas
Instruments' principal competitors in this business are several Japanese
companies. Technology expertise, price and infrastructure for education and
market understanding are primary competitive factors in this business. Revenues
generated from sales to Texas Instruments' top three E&PS customers accounted
for approximately 26% of total E&PS revenues in 1998.
In addition, Texas Instruments continues to invest in digital imaging, an
emerging business that produces micro-mirror-based devices that enable
revolutionary brightness and clarity in large-screen video displays. The primary
sales route is directly to original-equipment manufacturers. Texas Instruments
faces competition in this business primarily from a competing technology known
as liquid crystal displays from Asian manufacturers. Primary competitive factors
in this business are price, brightness and performance of the display, and in
some applications, size and weight.
Texas Instruments is headquartered in Dallas, Texas, and has manufacturing,
design or sales operations in more than 25 countries. Texas Instruments' largest
geographic markets are in the United States, Asia, Japan and Europe. Texas
Instruments has been in operation since 1930.
The financial information with respect to Texas Instruments' business
segments and operations outside the United States, which is contained in the
note to the financial statements captioned "Business Segment and Geographic Area
Data" in the notes to Texas Instruments' consolidated financial statements on
pages F-24 through F-26 of this proxy statement/prospectus.
The dollar amount of backlog of orders believed by Texas Instruments to be
firm was $1,233 million as of December 31, 1998 and $1,623 million as of
December 31, 1997. Texas Instruments' backlog does not represent actual revenues
and is only an indication of future revenues which may be entered on the books
of account of Texas Instruments. Backlog orders are, under certain
circumstances, subject to cancellation by the purchaser without penalty and do
not reflect any potential adjustments for price decreases.
Texas Instruments purchases materials, parts and supplies from a number of
suppliers. The materials, parts and supplies essential to Texas Instruments'
business are generally available at present and Texas Instruments believes at
this time that such materials, parts and supplies will be available in the
PATENTS AND TRADEMARKS
Texas Instruments owns many patents in the United States and other
countries in fields relating to its business. Texas Instruments has developed a
strong, broad-based patent portfolio. Texas Instruments also has several
agreements with other companies involving license rights and anticipates that
other licenses may be negotiated in the future. Texas Instruments does not
consider its business materially dependent upon any one patent or patent
license, although taken as a whole, the rights of Texas Instruments and the
products made and sold under patents and patent licenses are important to Texas
Texas Instruments owns trademarks that are used in the conduct of its
business. These trademarks are valuable assets, the most important of which are
"Texas Instruments" and Texas Instruments' corporate monogram.
RESEARCH AND DEVELOPMENT
Texas Instruments' research and development expense was $1,206 million in
1998, compared with $1,536 million in 1997 and $1,181 million in 1996. Included
is a charge for the value of in-process research and development of $25 million
in 1998 as a result of two business acquisitions; $461 million in 1997 as a
result of the acquisition of Amati Communications Corporation; and $192 million
in 1996 as a result of the acquisition of Silicon Systems, Inc.
Texas Instruments' revenues and operating results are subject to some
As of June 30, 1999, Texas Instruments had approximately 35,000 employees.
Texas Instruments' principal executive offices are located at 8505 Forest
Lane, Dallas, Texas. Texas Instruments owns and leases plants in the United
States and 11 other countries for manufacturing and related purposes. The
following table indicates the general location of Texas Instruments' principal
and the business segments which make major use of them. Except as otherwise
indicated, the principal plants are owned by Texas Instruments.
SEMICONDUCTOR & CONTROLS E&PS
------------- ---------- ----
Dallas, Texas(1)............................................ X X X
Houston, Texas.............................................. X
Sherman, Texas(1)(2)........................................ X
Santa Cruz, California...................................... X
Attleboro, Massachusetts.................................... X X
Freising, Germany........................................... X X
Baguio, Philippines(3)...................................... X
Hiji, Japan................................................. X
Kuala Lumpur, Malaysia(4)................................... X X
Miho, Japan................................................. X
Taipei, Taiwan.............................................. X
Aguascalientes, Mexico...................................... X X
(1) Certain plants or portions thereof in Dallas and Sherman are leased to
Raytheon Company or Raytheon-related entities in connection with the sale in
1997 of Texas Instruments' defense systems and electronics business.
(3) Owned on leased land.
(4) Approximately half of this site is owned on leased land; the remainder is
Texas Instruments' facilities in the United States contained approximately
17,700,000 square feet as of December 31, 1998, of which approximately 3,300,000
square feet were leased. Texas Instruments' facilities outside the United States
contained approximately 5,600,000 square feet as of December 31, 1998, of which
approximately 1,300,000 square feet were leased.
Texas Instruments believes that its existing properties are in good
condition and suitable for the manufacture of its products. At the end of 1998,
Texas Instruments utilized substantially all of the space in its facilities.
Leases covering Texas Instruments' leased facilities expire at varying
dates generally within the next 10 years. Texas Instruments anticipates no
difficulty in either retaining occupancy through lease renewals, month-to-month
occupancy or purchases of leased facilities, or replacing the leased facilities
with equivalent facilities.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Texas Instruments' restated certificate of incorporation and bylaws provide
for the indemnification of directors and officers in the event they become
parties to legal proceedings arising in connection with their positions with
Texas Instruments. The SEC has expressed its position that the indemnification
of directors, officers and controlling person against liabilities arising under
the Securities Act is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
All of the current directors and executive officers of Texas Instruments
will be the directors and executive officers of Texas Instruments following the
merger. For information regarding these directors and executive officers and
executive compensation, see "Management of Texas Instruments."