Texas Instruments posted solid fourth quarter and stellar 2006 results, but the company will cut 500 jobs this year and shift core digital CMOS development to one of several foundries it now uses.

On Monday TI reported Q4 revenues of $3.46bn, down eight per cent from its record-breaking Q3, but up four per cent year-over-year. TI chalked the sequential slowdown to a broad-based decline in company semiconductor product revenue of five per cent and a seasonal decline in graphing calculator sales.

Q4 gross profit was $1.75bn, or 50.5 per cent of revenue. This was a decrease of $184 million from the prior quarter due to lower revenue, TI said. However, it was an increase of $91m from the year-ago quarter.

Net income was $668m, down from the $702m TI made in Q3 but up from the $655m made in Q4 2005.

TI's Q4 R&D expense was $556m, 16 per cent of revenue. R&D expense was down two per cent from the prior quarter, but up $63m from the year-ago quarter.

Q4 orders were $3.08bn, a decrease of $352m from Q3 and a decrease of $411m from the year-ago quarter, primarily due to lower demand for DSP and DLP products in the company's semiconductor segment, TI said.

Across the board, 2006 was a banner year for the Texas giant. For the full year, TI's revenue grew 16 per cent to a record $14.25bn. Gross profit was $7.26bn, or a record 50.9 per cent of revenue, a 21 per cent increase from the prior year.

R&D expense was $2.20bn, or 15.4 per cent of revenue, an increase of $209 million from the prior year. 2006's net income was $ 4.3bn, way up from the $2.3bn it reported in 2005, on orders of $14bn, an increase of $1.17bn from the prior year.

But the company’s news wasn’t all good – at least not for all of its employees. TI noted in its statement that it will change the way it develops advanced digital process technology in 2007. Instead of separately creating its own core technology, TI will shift gears and work collaboratively with its foundry partners on the next generations of digital process technology.

"This is a natural extension of our existing relationships with foundries that will increase our R&D efficiency and our capital efficiency while maintaining our responsiveness to customers," Rich Templeton, TI president and CEO, said. Additionally, he said the company will stop production at an older digital factory and move its manufacturing equipment into several of its analog factories.

TI now works with three foundries, SMIC in Shanghai, and UMC and TSMC in Taiwan. In a twist on current business trends, TI will not eliminate a significant portion of its manufacturing, but it will stop duplicating research that is currently being done by the foundries. A company spokesman said TI will license the technology developed by the foundries and bring it into its own factories.

In doing so, about 500 jobs are expected to be slashed by year end, which will help to cut annualized costs by about $200m, Templeton said. In total, the company will take restructuring charges of approximately $55m over the course of the year.

Looking ahead to Q1, TI expects revenues of $3.01bn to $3.28bn. For the full year 2007, TI is planning to lower capital expenditures to $900m, down from the $1.27bn it spent in 2006.