Texas Instruments wants to hand more cash back to shareholders

SAN FRANCISCO Thu Mar 13, 2014 1:05pm EDT

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SAN FRANCISCO (Reuters) - Texas Instruments (TXN.O) said on Thursday it plans to return more cash to its shareholders, expanding a capital management policy that has helped boost the chipmaker's stock to its highest level in more than a decade.

Improved manufacturing efficiencies mean Texas Instruments will now be able to turn between 20 percent and 30 percent of its revenue into free cash flow, Chief Financial Officer Kevin March said on a conference call with analysts.

That is more than Texas Instruments' previous free cash flow target range of between 20 percent and 25 percent of revenue set last year.

In 2013, Texas Instruments promised that, except for money used to pay debts, it would return all of its free cash flow to shareholders in the form of dividends and share buybacks in what FBR analyst Chris Rolland called the "gold standard" of cash return policies.

Texas Instruments will now also return to shareholders the proceeds from the exercise of employee stock options, March said.

Chipmakers have been growing far less quickly than companies in other areas of the technology industry, like cloud computing and social media.

"So now to entice shareholders they're pushing the cash return story," Rolland said of Texas Instruments and other chip companies.

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The changes to Texas Instruments' capital management policy were incremental improvements but not enough to fuel an immediate stock rise, Rolland said.

Its firm commitment to dividends and share buybacks over the past year have helped push the company's stock to highs not seen since 2001.

The stock is up 31 percent over the past 12 months. However, it slipped 1.3 percent to $45.84 alongside a lower underlying market on Thursday, after the company announced the new cash return policy.

"Our capital management strategy reflects our beliefs that free cash flow growth is most important to maximizing shareholder value in the long term," March said.

The chipmaker's ability to generate cash has been bolstered by growth in its analog and automotive businesses and by replacing older factories with newer, more efficient ones, he said.

Last year, Texas instruments paid out $1.18 billion in dividends and spent $2.87 billion to repurchase stock.

Other chipmakers have also made recent commitments to give more cash back to investors.

Last week, Qualcomm Inc (QCOM.O) raised its cash dividend by 20 percent after vowing in November to return 75 percent of free cash flow to stock holders.

Graphics chipmaker Nvidia Corp (NVDA.O) in November increased its cash dividend by 13 percent and announced an additional $1 billion for its stock buyback program.

(Reporting by Noel Randewich; Editing by Sophie Hares)

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