Originally created 01/07/97

Defense selloff frees TI to focus on chips



DALLAS - Texas Instruments has been in the defense business since World War II, when the company, then known as Geophysical Service, won a contract to build submarine detection equipment for the Navy.

By last year, Texas Instruments was bringing in an estimated $1.8 billion annually making such weapons as missile and anti-tank systems and infrared sensors for the M-1 tank, F-117 stealth fighter plane and F-18 Hornet.

But as of Monday, Texas Instruments had abandoned the defense business to focus on what it calls "digital solutions for the networked society" - semiconductor chips, software, laptop computers and consumer electronics.

The company agreed to sell its profitable Defense Systems & Electronics Group to Raytheon Co. of Lexington, Mass., for $2.95 billion in cash. The deal was the industry's latest in a spiraling consolidation following post-Cold War budget cuts.

"It's the end of an era," said analyst Daniel Klesken of Robertson Stephens & Co. of San Francisco, who began his career at Texas Instruments in the 1960s.

After selling its 12,500-person defense unit, Texas Instruments remains one of the world's largest makers of chips, which act as the "brains" of computers. By focusing on this business, the company can take advantage of a a semiconductor market that struggled in some segments in 1996 but is expected to grow from $130 billion worldwide to $1 trillion by 2010.

"We believe this is a very positive move for the company and will put them in a position to focus their energy on high-growth markets like semiconductors and personal computers," Klesken said.

Raytheon's spinoff came as no surprise to most analysts, who had watched the Texas company slash its defense businesses in the early 1990s, eliminating thousands of jobs.

At the same time, the company poured billions into chip factories, including a $2 billion plant at its main campus in Dallas that will make digital signal processor chips, known as DSPs. In June, Texas Instruments agreed to pay $575 million for Silicon Systems, the semiconductor subsidiary of Japan's TDK Corp.

Texas Instruments Chairman Jim Adams said the company would make more acquisitions, using the Raytheon cash. But he rejected any notion that TI might be betting too large a stake on one horse.

"I think TI is not simply in the semiconductor business, we're in the commercial electronics business," Adams said. "Will there be some volatility? Sure - but we think that'll be good, not bad."