Good day, everyone, and welcome to the Texas Instruments National Semiconductor Conference. At this time, I'll turn the call over to Ron Fleimaker. Please go ahead, sir.
Good afternoon, and thank you for joining our conference call to discuss TI's plan to acquire National. As you have likely seen, today, TI and National announced we have entered into a definitive agreement for TI to acquire National for $25 per share in cash. Joining me today is Rich Templeton, CI's Chairman, President and CEO. Also joining me is Don MacLeod, National's Chairman and CEO. Both have prepared comments.
And joining us for Q and A is TI's Chief Financial Officer, Kevin March. We will limit today's call to 1 hour. After introductory comments by Rich and Don, we will open the lines for your questions. For any of you who missed the release, you can find it on TI's or National's website. This call is broadcast live over the web and can be accessed through either company's website.
A replay will be available through the web. We have also posted additional information on TI's website, including an investor presentation. This call will include forward looking statements that involve risks and uncertainties that could cause our results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the news release published today as well as our most recent SEC filings for a more complete description. In today's call, we'll address topics such as how this acquisition fits into TI's analog strategy and growth plans.
We'll also address the financials associated with the transaction, including both Rich's and Dawn's views of how each company's investors will benefit. Rich, could you provide us with your perspective on this acquisition? Thanks, Ron.
As you're aware, TI's strategy is Clearly, we have significant opportunity to grow. Our Clearly, we have significant opportunity to grow. Our announcement today of the acquisition of National is a key step in our strategy. Following the close of this transaction, Analog will represent almost half of TI's revenue. It's an important milestone in our continuing progress as an aggressive analog competitor.
There are 3 core reasons why this acquisition is a great outcome for both companies. First, it makes TI's analog portfolio even broader, stronger and more attractive to customers. 2nd, it gives National the opportunity to grow faster. In fact, I believe the combination of our 2 companies can significantly outgrow the analog market. And third, the numbers work for both companies and our shareholders.
For TI, I expect the return on this acquisition will exceed TI's cost of capital within a few years and create shareholder value accordingly. So let me address each of these points in more detail. Regarding the first point, let me explain how this combination makes TI stronger and will help us serve customers better. National has 12,000 products in its portfolio. TI has 30,000.
In any given year, TI introduces about 500 new analog products. With this acquisition, we add 12,000 products all at once, products that are highly complementary with our own from both an end system and an individual product perspective. Last quarter, over 45% of National's revenue came from industrial applications. Our analog revenue is weighted towards communications and computing applications. Even within the various categories of analog, there is minimal product overlap.
For example, National has a rich lineup of high voltage power management products that are well suited to industrial power applications. While our power management product offerings are more oriented towards portable devices. National has low speed high resolution data converters, while ours are high speed and high resolution. There are plenty of examples like this, but the bottom line is that the combination of TI and National means we can engage with customers and application segments where we have no or minimal engagement today. National's highly skilled analog engineering team will also make TI stronger.
Analog engineers are a critical and scarce resource and this will be an important addition to our ability to develop more solutions and drive more innovation for our customers. National's design engineers will not only have access to all their current process technologies, but also to TI's broader process portfolio. In addition, National brings other capabilities. They've been investing in a number of new technology areas such as automotive power management, general LED lighting and front ends for sensors to name a few that are now poised for growth. Also National has long been an innovator in packaging and we look forward to bringing these capabilities on board.
Now let me address my second point, why I believe we can grow the combination of our 2 companies significantly faster than the market. Although National has a strong product portfolio, we believe its growth potential has yet to be met. TI has the world's largest semiconductor sales force and it will become even more effective with this combination. Important to my belief that we can significantly accelerate National's growth is that together our sales force will be 10 times larger than National's is today. Getting National's great products into the hands of our combined 2,500 person field sales and applications engineering force will jump start its growth because more products will get to more customers with the acquisition than either company could sell on its own.
My expectation is that we will be able to accelerate revenue growth of National's products to the same pace as our own analog revenue. Considering the gross margins that National has achieved, the benefit to the bottom line for each additional dollar of revenue is substantial. There is also an opportunity for TI to cross sell other products such as microcontrollers or other analog chips into those National customers where we may not have a significant presence today. From a manufacturing perspective, National has available capacity that is cost efficient and offers room for growth. Also, TI has the ability to bring on more production because of the additions that we've made in the last 2 years.
Together, we have a unique platform from which to produce the products our customers need in order to grow. And finally, my third point is that the numbers work. I've always said that we would not enter into a sizable acquisition unless it made us better, stronger supplier to our customers and that the numbers made sense, both near term and long term. The financials were a critical consideration for both sides in this transaction. In our case, I was particularly focused on ensuring that the expected return on our invested capital would exceed our cost of capital within 3 to 4 years and I fully expect it will.
This return will be driven primarily by the acceleration of revenue growth from National's portfolio and the resulting profit contribution. We have every reason to believe we can generate growth in National's product line equal to that of TI's. And because of this growth, we are comfortable with the premium we're paying. The purchase price of $25 per share represents a total transaction value of about 6 $500,000,000 We expect to fund this transaction through a combination of cash from our balance sheet and debt. From a GAAP earnings per share perspective, this acquisition will be accretive in the 1st year, leaving aside cost of the transaction.
I caution you though that EPS accretion is a low hurdle in today's low interest rate environment with an all cash transaction. So more important is the opportunity for revenue growth through increased product sales, therefore driving the return on our invested capital. The acquisition will be beneficial to our margins as you would expect from a strong analog portfolio. In 2010, National's gross margin compared favorably to TIs and their operating margin was similar to ours when results are adjusted for items such as restructuring and other non reoccurring events. We have also identified cost synergies of about $100,000,000 annualized run rate starting 1 year from the close, mostly focused in the corporate and support functions.
But why now? What makes this the right time to acquire National? I believe it comes down to three reasons. 1st, all 3 of PI's analog engines are running well and outpacing the market. 2nd, TI's sales force has never been better at selling analog.
And third, the people of National have begun an intense effort to focus on growth. They are ready to grow. And to this fact, the TI and National share very similar cultures and strategic intents. We both see a growing need for analog solutions and are committed to solving customers' problems. We both value the talent of our employees and place the utmost importance on EPIX.
And we've been shaped by 50 plus years of semiconductor heritage, a long and rich history. I couldn't be more pleased with this acquisition. There's a great deal of hard work in front of us and I'm ready to join the people of TI and National to build a system that has the ability to meet the analog semiconductor needs of any electronic system for any customer elsewhere in the world. It's my pleasure to now turn this over to Don for his perspective.
Thank you, Rich. So I'd like to start off by addressing a question you probably all have for me, which is why in my perspective is this a good transaction for National? Well, first of all, this transaction obviously provides our shareholders with very compelling value. You should all know that National was not looking to be acquired. TI approached us and our Board of Directors decided that it was appropriate to engage.
We think that the 2 companies complement each other very well. National, as you know, has a strong foundation and a brand in power management, especially with our industrial customers. And National is investing in new energy efficiency application areas such as LED lighting, solar energy and electric vehicle battery power management. Our in house manufacturing is industry leading and we have a great business model with strong margins and strong earnings leverage. As you've heard from Rich, TI has a much larger platform to the market.
It clearly enjoys the benefits of scale, especially with its very broad portfolio of 30,000 products and its much larger global sales force. It also has a much broader engineering base and intellectual property portfolio. It also has in house 300 millimeter fab capabilities coming online, which will prove valuable down the road for our employees. This transaction benefits essentially all key stakeholders. 1st, our customers now have a much larger portfolio of products to select from.
They have a combined sales team that is 10 times the size of national standalone sales team now addressing their needs. And combined, as Rich said, we have about 100 years of analog and semiconductor experience. We can now cross collaborate and we can drive more innovation. And at the end of the day, this is going to be for our customers' benefits. Our companies really are complementary in technologies and in the end markets and there's minimal overlap.
For our employees, this provides new avenues for further career development as to combine and open up opportunities in what is now a much larger organization. Our engineers are now provided with a larger they'll be able to use this much larger sales force and its customer relationships to drive revenue growth. And lastly, again for our shareholders, this really does provide national shareholders with very compelling value right now. And it allows for TI shareholders a vehicle to unlock the last piece of our puzzle, which is revenue growth. By combining our business model with TI's acknowledged trends and its revenue growth track record going forward.
With that, I'd like to turn it back over to you Ron. Ron?
Thanks, Don. I'll now ask the operator to open the lines for your questions. In order to provide as many of you as possible the opportunity to ask a question, please limit yourself to a single question. I will provide you the opportunity to ask a follow-up question. Operator?
We'll take our first question today from Stacy Rasgon with Sanford Bernstein.
Hi, guys. Thanks a lot for taking my question. Just the first one, you guys have talked for a long time about the potential to achieve well above the market growth level on your own. Why is this all of a sudden the time to decide that you are better off trying to buy some of that growth rather than trying to stick with it on your own?
Rich? Yes. Stacy, I think the answer is yes. And what I mean by that is in some ways you've looked over the past 8 quarters. I think Ron's team provides the update of how we've grown versus the market with the total core businesses, especially analog and we've been outgrowing by that by the 2x metric we've referred to.
So we've got all 3 of our analog businesses, the power business, HVAL and HPA growing above market. And what we see very simply is a unique opportunity to add a 4th strong business to the portfolio right now. So this is not about not growing organically. It's about keeping that organic growth high and then bringing high organic growth to the national portfolio. Jeff, follow on?
I do. Yes. I'm just around, I guess, the balance sheet. So you're levering up here. You guys have always had a pristine balance sheet.
This makes it maybe a little bit of a bigger bet. Can you give us some feeling for how much debt you actually feel like you need to raise? How much cash you might keep on the books? And what does this actually mean for the trajectory of the share buyback that you announced a couple of months ago?
Evan, do you want to take that one?
Sure. Stacy, we last quarter had a little less than $3,100,000,000 on our balance sheet and National's most recent quarter had about $900,000,000 So combined, we have quite a bit of cash available. Clearly, we'll keep a fair amount of that for our operating needs. As we look forward, it's going to be somewhat a function of the timing of when this closes because we can clearly continue to accumulate cash as we go through the year. As you well know, Q1 tends to be our lowest cash accumulation quarter that builds up throughout the year.
So I would estimate right now that we'd be looking at somewhere between $3,000,000,000 $4,000,000,000
of total borrowing
when we are closing this transaction.
Hey Stacy, thank you for your questions. And let's move to next caller please.
We'll take our next question from John Barton with Cowen and Company.
Thanks. Rich, could you provide your thoughts on any regulatory hurdles you might encounter please?
Yes. John, we've obviously, we've looked at that pretty closely. And the belief is you can look at it in some ways a very fragmented market. Our share is at 14% in total as a company. Nationals is at about 3%.
But really the story of analog is when you start drilling down into the finer compartments and product areas, you end up finding competitive offerings in many of these spaces. So with the time we've spent on that, that's the confidence we have that it can move through regulatory approval.
Chip, I'll hand John.
Yes, please. Rich, you touched on product breadth, right? 12,000 products, 30,000 products, the rate of product introduction. How much redundant R and D do you think there is between the 2 companies that you'll be able to get rid of and actually further accelerate that product introduction, be it process, be it packaging, the things that could be spread across the bigger organization?
John, the simple answer and we had a chance to chat with employees just a few minutes ago is the intent is really none. And what I mean by that is we look at a talented R and D team out here, talented package development people. They've got their versions of some high voltage and different mixed signal processes. And this is about how you get these teams growing faster, not reducing R and D. So we think what will most likely happen is that the quality of the projects or the quality of the opportunities that the national team has will continue to grow.
We'd love to be investing more over time. And the real secret to this is just getting highly accelerated revenue on top of what's already being invested. So that's where the focus will be.
All right. Thank you, John. Let's move to the next caller.
And we'll take our next question from Tore Svanberg with Stifel Nicolaus.
Yes. Thank you and congratulations
to both of you
on this announcement. My question is on management team. Can you talk a little bit about how the new management team is going to look like?
Yes. Dore, if you look at the structure and you know with our analog segment today, we have 3 businesses or 3 main businesses inside of that. And the intention is very simply that we will add a 4th business. It's a great team of people operating out here and around the world and we want to keep that operating intact. And so the business entity to speak will be a 4th unit.
Greg Lowe, who runs analog for us is going to be spending really time running that 4th business so we can get close and learn everybody in addition to maintaining his ongoing role for the total analog segment. You'll watch us as part of that move the connect the line for the manufacturing sites. So the 2 wafer fabs, the assembly test operation into our manufacturing operation to get the combined strength and being together on that front. We'll have a single face to the customer from a sales force point of view because we think that is a vital area to be able to get more attention on the product. So we'll be bringing the sales forces together and then we will be going through some combinations, especially on the G and A or corporate function side to be able to get some efficiencies on that.
But that is a much smaller piece. Do you have a
follow on, Tore?
Yes. Just on manufacturing. So my understanding is that both on the front end and on the back end, you're going to be keeping everything. I shouldn't expect any potential cost savings there?
That is correct. And I think not only are we going to be keeping the operations that are there, but I believe Don and Louis have talked on their calls in the past, the wafer fabs have been running, I think in the 60s, 60% range, Don.
Yes.
It's good.
60% range on utilization. So boy, this is a magical thing in our business. When you can get more sales across those same fixed costs, good things happen. And that's where our energy will be focused.
Thank you, Tore. We'll move to the next caller.
We'll take our next question from Sean Webster with Macquarie.
Yes. Thank you. My first question is on the deal cost. I was just curious, can you walk through how you came up with the price itself? I mean, the deal cost is $6,500,000,000 looks like it's like 2x the cumulative free cash flow National has generated over the last 13 years?
Thank you.
Yes. If you take a
look at the transaction valuations and we are we believe that in some ways people will look at the premium or the calculation or do even the calculation that you just did looking backward. But what we studied very, very closely was we took a look at the revenue, we took a look at the revenue growth that we believe could be achieved. We looked at things like going back even just 2 years on the revenue levels that National has been achieving. And the fact is we think that's a great indication of the capability of the analog product portfolio that's out here. And the fact is portfolios don't change that fast.
So we took those calculations of what we felt we could drive with growth. We took a look over time what we could achieve. And then it was very simply finding the it was a fair value, but one that we think address is really the needs of both shareholders on that particular front.
Jeff, follow on. Sean?
Yes. Thanks. Just on the overall consolidation process, I was wondering if you could share your thoughts. Do you expect to see more of this in the analog industry? Was this a competitive bidding process?
Thank you.
Sean, you heard me comment before in many different environments that I don't think in the tech field, especially the analog or the chip business where innovation continues to be a pretty important factor that there's necessarily some force of consolidation. And so the thought process that's behind this is not one of consolidation, but one of really just opportunity to grow faster and a great way to put $6,500,000,000 to work earning pretty good rates of return. So that was the sense we had.
Thank you, Sean. We'll move to next caller.
Our next question comes from Amit Shah with Nomura Securities.
Hey guys. Just based on my math, the deal looks like it's $0.04 to $0.05 accretive to my earnings in 20.11. Would you agree with this? And as a follow-up, is there potential to generate additional cost synergies if the revenue growth, Rich, that you talked about does not materialize?
Okay. Kevin, you want to take a shot of that?
Sure. Amit, I won't go so far as to predict the actual number of pennies of EPS accretion, but I would say that we do expect to be accretive immediately when you exclude the actual transaction deal costs. And that's on a GAAP basis. So we're not getting on GAAP basis, of course, amortization, goodwill and other things going on that will be even more so.
Okay. And there was a second part of that question.
Yes. I would say on the question of cost synergy versus growth, guys, you've watched us. We've had pointed analyst meetings even several years ago when it came to our H valve business wasn't growing at the rate we wanted it to. And the focus is how do you get it growing well. And I think in many ways that's the part that's exciting about this.
Don's team is well into the beginning of that journey. And I think we're providing even more tools now with the expanded sales force to try to accelerate that even faster.
Thank you, Rohit. Thank you, Rohit. And we'll move to the next caller, please.
And we'll take our next question from Chris Danely with JPMorgan.
Thanks guys and congrats on the deal. I guess first just a question for Rich. I mean, it seems as though over the last few years, some of your growth has come at the expense of National. So can you just take us through the puts and the takes and as to why not just continue to take share from National versus buying them now? And did you guys look at any other companies involved in this?
And was National sort of the best out there?
Yes. Chris, I think the easy way to look at that is if you take a look at the growth, the share gain that our analog businesses have collectively added over the past couple of years, it is significant. But it's also a case that while some of that may have come from the national product line, When you take a look at the breadth of competitors in the markets, be it signal chain or the mixed signal side, which the national portfolio really doesn't address, that's where we see great opportunities to put the combined growth on top. My confidence is I've just watched in this business too long that analog and particularly analog catalog portfolios take a long time to build. And I think there's a lot of inherent value inside of them.
And I think we've got a chance with the changes that have been begun here, but that we can accelerate to really push growth against a lot of other power competitors that are out in the world.
Okay. And operator, I or Roman, I realized I didn't give you your follow-up question. So if you will queue back in and Billy, if you can work with the operator to get Roman back up to the top. Do you have a follow on, Chris?
Yes. Thank you. So it sounds like there's a lot of synergies between TI and National. Do you guys have an estimate of how much overlap there is in terms of the product lines?
Chris, it's an interesting one and it was one where we spent a lot of time, Don and I and Greg Lowe and the team, you can take a very simple description, for example, switch mode power supplies. And we've got strong offerings with a product family called Swift. National has got a strong offering with the I think it's the simple switcher business. And so at a high level, you can say, boy, that's an overlap. You're both in switch mode power supplies.
But when you take the time and put it on a graph and you look at output voltages versus drive, you all of a sudden start seeing a little bit of our heritage difference. So you'll see with the national family higher voltages, indicative of industrial telecommunications type power supply applications. You look at our family of SWIFT, you see it more driven by mobile or portable devices from that perspective. So that's where when you start sorting down through that, you really get pretty intrigued by what the complementary nature is. And we've got examples of that on the data converter lines.
You can look at it in amplifiers. They've got a strong Class AB offering. We've got a stronger Class D offering. So we really have studied that pretty closely.
Okay, Chris. Thank you. And we'll move to next caller.
And we have Ramit Shah back.
He's back. Go ahead, Ramit. Hey, thanks guys.
Rich, I just want
to ask, you guys have been a longstanding player in the analog market and you've been very competitive there yet your market share has been in the mid teens. And I'm just curious why is it so tough to gain share in this market and just having national accelerate your trajectory?
Amit, I might take a little bit of exception if you get the if you take the time back and look over the longer term. And you'll actually see a pretty steady 5 6 year process of us building up. In 2010, I think most consensus is that number probably moved into the 14% range. We've clearly had even during that climb, for example, HVAL not performing for a couple of years, but now really dating back to 2,009, growing and supporting our growth strongly. So I think we've got the ability to continue with the organic growth that I've commented on already.
What today is about is not was that good or was that good enough, but we think we have some assets, a sales force that covers the world better than any other sales forces, some manufacturing, some technology scale that we can really bring to bear with the national team and that product portfolio and their skilled folks and then add even more growth on top of that. So it's per one of the earlier questions, it's not a trade off of doing one versus the other. Great.
Thank you, Rohit, for coming back. And operator, we'll move to the next caller.
And we'll move on to Srini Pajjuri with CLSA Securities.
Thank you. Rich, given your growth target that you communicated to us in the past, 2x the analog growth rate, combined with National, do you think you can sustain that growth given the large size of the business now? And also, if you look out to the different end markets, where do you see the biggest growth potential given your combination of national today?
So on the question of the 2x growth goal, let me just remind for other callers that may not have heard it or remember what that means exactly. What we've really said is whatever assumption you have for the semiconductor market over a 3 to 5 year basis, if you believe that's an 8% overall market, the definition of growing 2x the market is that you would be 8 percentage points higher or 16% annually. If you felt the market was smaller, it would be the same type of math. So we have spent time with the national team. We're very clearly the goal is to quickly get the national portfolio growing at that same rate or to that same objective that we have for the TI team.
And as I believe, we've been able to turn that growth in for the past couple of years with the TI analog businesses. So we've been clear about that. We've got a lot of work to go do, but we're encouraged by that opportunity. In terms of end markets, I'm careful about narrowing that down because I think with the skills that we've got across the product portfolio, this is a product portfolio that such as power management, such as amplifiers, some positions in converters. And I think it's going to give us an opportunity, probably the most unique one, as I commented in the prepared remarks is, National stronger in industrial and that's going to get us into customers that we're going to take longer.
It was going to take 5 years for us to get into and build relationships. We can accelerate with this acquisition. So industrial is probably the most standout one, but in general, we see opportunities to engage across the market.
Sreen, do you have a follow-up? Yes. And then obviously, half of your business is analog. And as the baseband business declines over the next few years, as a percent of sales, analog will continue to increase. I'm just curious, Rich, where does OMAP and connectivity fit into this whole analog and embedded processing?
What's the strategy for that business longer term? Thank
you. The strategy and we've talked about it before is great growth opportunities are a nice thing to have. And if you look inside the surprised the outside world with just how fast Greg DeLaghi and Remy and Aviv and that team have grown. Obviously, smartphones and tablets are all the craze and we're excited about the customers we're dealing with. But we also see the ability to diversify great business to think it's going to be a great business to be driving growth and driving earnings for TI in addition to what we're doing on the analog front.
Thanks, Srini. And we'll move to the next caller.
Your next question comes from Uche Orte with UBS.
Uche, are you there?
Yes, I am. Thank you very much.
So let me just ask
about the manufacturing strategy. So you have some assets you bought from memory companies, which you are moving to analog and then you have your own analog processes and also you now add in National's process. Is there going to be a way to kind of harmonize this? Or are you going to just run these processes? And if so, are there any synergies from a manufacturing standpoint that you could have?
I'm just trying to see how to quantify any additional synergies to the $100,000,000 annualized you're getting company and support functions?
Yes. Ute, my advice on that is the word harmonize near a technical population is usually a bad thing. It usually means everybody compromises for a lesser output. So what we are so excited about with what we have with the National acquisition is that not only do you have this strong product portfolio, but you've got manufacturing assets that have tremendous headroom to grow. We talked about the 60% utilization.
So the fall through on the national front can be very strong on that. What we will literally be doing, if you spent time and would spend time with the development teams once this gets closed is we have told folks very simply, every process that you design on or every package technology that you use today as a national design engineer, you have it tomorrow. You have it in a year. Any extensions that you're planning on the process team making, you've got those. By the way, if there's things over in the TI portfolio that you don't have and it lets you put out a great product, you've now got access to that as well.
So we don't have to move processes between fabs. We don't have to recall part numbers for customers, all of which is highly inefficient and waste time. So the synergy that will come from that is really just comes back to how fast we can grow the revenue.
Jeff, on Ute?
Yes, I do. So the closing time is 6 to 9 months. Outside of regulatory concerns, at the end of the reasons why we have we could have a 9 month closing period, which in the context of some of these deals is quite a long one. And in terms of market share, when if and when they still close it, what do you think will be the combined market share of the 2 companies? Because you used give us your own market share somewhere in the 17%, 18% range.
I'm not quite sure how it kind of adds up now with National.
That's a multipart question, so multi choice. Take 21.
A 2 short question.
So on timing and if Kevin wants that, he certainly can. But in general, the regulatory approval is why we've got a 6 to 9 month window that we've described for anticipated closing. If we can do it sooner, we certainly will. But that would be the longest item anticipated on that front. And then on the shares themselves, I think most public market analysts would put TI in the 14 and change range.
I think national is at the 3 and change. So it's going to be somewhere between 17 and 18 if you use again industry calculations and our analog segment revenue and the National Semiconductor number.
I think you are one of those analysts who say we should be asking you. Kevin, do you have anything to add?
Yes. I would just say on the length of closing, the reason that we have framed it at 6 to 9 months is it's not just U. S. And European regulatory authorities, but its authorities in an assortment of other countries. And we think we'll be probably going through 10 or more different countries for regulatory authority on this.
And frankly, some of them, it's not entirely clear how long it will take. And so that's why we range 6 to 9 months on that.
Okay. Thanks, Kevin, and thank you, Uche. We'll move to next caller.
Our next question comes from Craig Berger with FBR Capital Markets.
Hey, guys. Congratulations on the deal. My main question is how much of National's output are you going to be moving into 300 millimeter fabs?
So Craig, the simple one, so we can cover it clearly and this is on behalf of all analysts plus any employees that are listening as well is with the utilization levels that are inside of National today, our intent would be to continue to grow and fill those factories that are there. Now if we have people inside of National that want to use a particular process that we're qualifying and running in 300 millimeter or it makes sense for a new product that they're releasing, could they put new products into that fab for the long term? Absolutely. We've talked about that being one of the really great benefits is in the long term that becomes an asset that the team out here can take advantage of. But there'll be no fab shifting or near term fab shifting plan.
And Craig, I think I'll note we did that even with our own products. When we brought up RFAB, we talked about it was for growth. It wasn't for purpose of cost reduction and that's the way we're executing.
Do you
have a follow on, Craig?
Yes. Can you just remind us how much 300 millimeter capacity you have? How much you're utilizing? And then if you can make any comments on supply chain over in Japan as it relates to that, great. If not, we can skip it.
Yes. Craig and Ron, I'll have
to clarify. We talked Renner with the tooling that we had in it was capable basically to be able to run $2,000,000,000 of annual revenue. And as you know, and I'll remind all those that are on the call, qualified October of 10. So 1st production basically in Q4 calendar 10. And we will ramp that as a function of demand.
Obviously, with some of the things to the second part of the question that are going on in Japan, we'll put some of those mass sets that we're running or are running over in the Miho facility in Japan, just so we've got customers double tooled and supported as the Miho facility comes up accordingly. So on the Japan side, I think we put a release out, boy, I forget Monday, Tuesday a week ago. And fact is the team is really the guys have done a superb job going around the clock. They've got the clean room recertified and the plan is to have that mini line or the first production moving in mid April and the folks are going around the schedule to do that and we feel pretty good.
Any additional update on that, Craig? We'll try to provide with our earnings in a couple of weeks. Okay, Craig. Thanks for your questions. We'll move to next caller.
And we'll go now to Ross Seymore with Deutsche Bank.
Hi, guys. Congrats from me as well. First question on the growth side of things, Rich, you talked about getting National's revenue growth up to matching TIs. You also talked about how it takes such a long time to kind of move the needle in the analog space in both directions. When do you expect National's growth rate to match TIs?
And sort of what timing is built into that positive ROI of 3 to 4 years that you mentioned?
Yes. Ross, I'm going to I'm not going to give a specific answer just so we can limit the amount of fund Ron has in trying to answer that over the next couple of years. But you can imagine that we have set some objectives for the team and we've talked to them about that. We've got to get the acquisition closed to put that in place. But you can probably guess that we would model a step in 12 and then really when you get further out, get it up to the full rate.
But it's not that target is not a date we're going to put out in front of everybody.
Well, I guess just to keep it more kind of general, is the assumption that that growth rate matches yours implicit within your positive return assumption that you talked about in your press release and in your prepared comments?
Yes, Ross. If I wasn't clear on that, that's absolutely the case. The basis or the economics that are required to drive the payback on this thing is about achieving the types of goals that we talked about.
Okay. Thank you, Ross. We'll move to the next caller.
We'll go now to Jim Cappello with Goldman Sachs.
Great, guys. Thanks so much for taking the question. Really just one question for me. Rich, over the years, whenever you've been asked about acquisitions, one of the things you always highlighted is how important the culture of the company that you're acquiring is and a lot of that was based on your experience with Burbrand and Unitrode over the years. How do you think culturally these two organizations will come together given how much you've emphasized that issue in the past?
Yes. This is one where every day I spend on this, the more I got to know Don and meet some of the folks out here, you feel better and better. And as we just talked with an employee, large all hands deck meeting, At the heart, we've got passion of innovation. We've got passion in the importance of ethics and how you operate. We're global companies.
We love the analog business. We love coming up with new circuits, new process, new package. These are all things that are very common. As Don commented in his remarks, we've got over 100 years of experience in analog between the companies, National being really the original analog company, TI with the invention of the integrated circuit. So I think we're going to find the things that are common very, very high.
And so it's exciting to see it and it's I think it's going to be fun to turn the energy loose.
Okay, Jim. Thank you. And we'll move to next caller.
Question comes from Chris Caso with Susquehanna Financial Group.
Hi, guys. Thank you and congratulations on the deal. I guess the last time that you guys did an acquisition like this was Burr Brown excuse me, Burr Brown Unitrude. And I'd assume that you guys had some observations from how you integrated those acquisitions and apply it to this. And specifically, I remember the time that it took a while to get real synergies between those groups and TI.
And maybe you could talk about that and what you intend to do differently this time?
Yes. Chris, in some ways and there's a shorter list of us that remember the time, but remember at the time of those acquisitions, we also then went through a modest decline from the tech bubble in 2000 and 1 and 2. So there was a few other things happening out in the marketplace. I think there was also a difference at that time that we were building as a company to learn what did analog really mean. And that was all about and some of you will recall that we talked way back in that timeframe of how do you attach analog to DSP so that we could get salespeople to understand how to sell accordingly.
So what's so dramatically different 10 years later is that we've got 3 analog businesses growing fast and we've got a sales force that has simply never been better at selling analog. If you spend time with them, they know how to hunt for literally every socket on the board. We've got training programs in place where you don't train on specific products. You train on how do you go across and take out not just power, but look for clocks and look at converters and what about the microcontroller and really have people institutionalizing that skill. So I think the speed at which we can actually bring help to the national growth acceleration is actually quite a bit higher than where we were with the acquisitions of Burr Brown and Unitrode.
And I believe, Rich, is it not true that Greg Lowe was very closely involved in the integration of Burbrand?
Greg had the opportunity to learn firsthand.
So he will bring some of those learnings to this one as well, I'm sure. Jeff, follow on, Chris?
Sure. And it was actually Greg who's told a lot of those stories on the road. So that's why I knew they asked the question. But just as a follow-up, and I guess there with respect to the distribution network, perhaps you could talk to the differences in the distribution network between TI and National. And I suppose there's a considerable amount of overlap there.
What are the tasks you need to do on that in the days to come?
Yes, that'll just be one that we will have to take a look and you really have to do that globally and really look market regional area by area of what makes best sense. So I think the team comes into it with the mind open and it really is a case of what drives best growth. And so we don't try to have any more restrictions in that right now. Okay. Thank you, Chris.
We'll move to next caller.
Our next question comes from Brendan Furlong with Miller Tabak.
Everybody. Quick question on the communication side, two aspects here. On the infrastructure where both TI and national are have a decent exposure, the overlap there. And then on the wireless handset side, the analog portion for TI versus the connectivity OMAP, what's TI's analog exposure on handsets?
The infrastructure side, I want to be careful drilling deep on that because I have not seen a breakout in base station itself from an analog portfolio. We've obviously got quite a bit from the power growing on the signal chain side. Don, I don't know if you have anything to add or can expand on that.
Well, this is one of the areas where National Semiconductor uses its proprietary in house process technology. For example, we have clocking circuits using our silicon germanium capability and our biCMOS capability. So what we do tends to be differentiated from what TI does because we have different processes. And this is a good example of where our circuits and TI circuits together actually make a much more complete solution the system level for wireless base stations in this particular example. Likewise, Rich talked about power management in some of those areas where we have some of the very high voltage power solutions that go into the bricks, the power supplies for these base stations, our complementary high voltage power management along with TI circuits including by the way the FET circuits really complements it very well to provide again a complete system level solution.
So we fit very well together there even if both of us do focus on the overall market.
Any comments on the handset side? Yes.
I wasn't sure the exact question of total content in handsets. I want to be careful just trying to throw a number out on that. Was just maybe talk a
little bit about where TI plays in the handset on the analog side? Yes.
If you just look at handset content and I'm going to leave out baseband because that's out, we give an update on that as that business ramps down. You will find across our analog portfolio a variety of spaces from highly integrated mixed signal power management ICs, also applications with amplifiers or backlit LED and different devices like that. When you then go into the wireless business, it's been talked about and then you start getting into the application processor and connectivity side. So think wireless LAN, think Bluetooth, think GPS. And that's really a combination of smartphone and tablet with some heritage medium performance voice only handset as well.
Okay. Brendan, did you have a follow on?
I guess my follow on would be, National is running pretty lean business model currently. And you're talking about $100,000,000 in synergies a year from the closing. I'm just curious if you give us kind of a roadmap on where you think you've only got the $100,000,000 from when National is running pretty tight already.
Yes. I think this is one. If you take a look at it, there's the obvious just at the higher level of corporate functions when things come together on that front. But there are some other areas as we looked just throughout the world in terms of where we have things and where we're doing things. Kevin, do you want to add any color?
I know you've spent the most amount of time around that.
Yes. I think it's really what you said there, Rich. There's a lot of corporate and support functions that over the course of the integration process will be able to be streamlined and that's really the largest opportunity. For example, as a corporate staff function in both companies and that's it doesn't necessarily have to scale with the size of the combination. The same is true for procurement activities and IT activities and a host of other sort of things that go on in those sort of support functions that in fact when you do the math, it's not that difficult to be able to see $100,000,000 of annual synergies by the end of the 1st year.
Okay. Thank you, Brendan. We'll move to the next caller.
Our next question comes from Glenn Young with Citi.
Glenn, are you there? Can you just
hit the mute button? We'll check his line and we'll move on.
Okay. Thank you.
We'll move on to Sumit Chandra with Citadel Securities.
Yes. Hi. Rich, I guess first question for you. One of the things you talked about was the benefit of scale that you bring to National's portfolio. I guess my question was, there are other companies the size of National, who've actually grown faster.
So what gives you the conviction that scale is what was lacking from National's ability to grow at its full potential so far?
So, I would make a couple of things, a couple of points on that. First is, in the world of analog, there is no replacement for great products and great product development and unique features. So scale does matter, but it matters as part of the portfolio, not scale instead of great products and great innovation on that particular front. The other thing is I think it's been reasonably well discussed that Don and his team have been working on swinging the focus from a lot of the great margin improvement work that was done really up through and probably including 2,008 and getting a strong focus on the growth side. So the view we have and the reason that we've got the confidence to be able to put these things together and do well is you've got momentum already moving in that direction.
And so we will simply be able to do some really in some ways classic stuff, Get out to customers, make sure you've got coverage of boards, being on ABLs or approved vendor lists, really making sure you're just very thoroughly engaged in the sales channel. And those are things where I think we can bring the scale of the sales force very quickly to bear and we're going to challenge our teams to do that accordingly.
Do you have a follow on, Sumit?
Yes, a quick follow on. The other thing that you mentioned, Rich, was that there's no or the fact that you have a common computing exposure within analog national and industrial exposure. I understand the vertical synergy, so to speak. But why not look at other companies out there, which offered both the vertical synergy as well as maybe a product synergy, data converters an area where you've not really established as dominant a market position. So walk us through why you thought national was the best fit from that perspective?
You heard us talk and this is something I had a chance today with the team even being out here beyond just Don and I talking. And if you take a look at the power opportunity and you think about the demand and the impact that power management skills have in system performance and system applications, This has been an area of great growth for us and we think it can be an area of tremendous growth going forward because shares are still pretty low in that market and there is a lot of room to innovate around the whole power management side. You've watched us and Don actually touched on it on the infrastructure question. A couple of years ago, we added the FET line with an acquisition And continuing to move across that power chain from the power management receivers into the power stages themselves, these are great complementary areas that are going to grow rapidly. So that was where when we stared at that type of opportunity, we said this really makes sense.
There's also another very key feature in this and that is while the headline of what the premium is going to look like is very high. If you take a look at the actual cost or the value that we paid or will be paying for National on a cap for revenue or price to revenue, you actually find it sitting, I think it's at about 4.1 with the announced price. If you take a look at those top 3 standalone analog companies that you could think about out in the marketplace, so analog devices or Maxim or LTC, you'll actually find the average price to sales at 4.2. So you end up at a market price even with a pretty significant premium. And folks, that is an important element in order to be able to drive the returns on invested capital that we've been able to calculate and gives us the confidence on this deal.
So that's a little bit of insight into some of the thinking and some of the background of why we think this makes sense.
Okay. Sumit, thank you. We'll move to the next caller.
And our next question comes from Vivek Arya with Bank of America Merrill Lynch.
Thanks for taking my question. Rich, I'm curious, how are you going to make sure that you don't lose momentum internally during the couple of quarters it could take for the deal to close?
And if you take a look at the question internally, I assume that is both here at National as well as at TI? Yes. It's pretty simple. You've got to keep running the places. And we were very clear even at the employee meeting, until close, these are competitors.
We're going to compete tomorrow like we did yesterday, and we're going to be very focused. And I think the great news is that you know the amount of energy that we've had on growth inside of TI And I know Don and his team have had a similar amount of growth focus at this side. So I think that's going to be the challenge for the management teams, but people have got those tasks well lined out.
Jeff, on to that?
Yes. Is there a just a clarification, is there a breakup fee associated with the deal? And do you expect any other bidders to emerge?
Evan, would you like to address that? Sure.
There is a breakup fee as you would normally see in a deal like this. In fact, the fee is $200,000,000 There's also a reverse breakup fee should there be some issue at the end of about $350,000,000
All right.
Thank you, Vivek. And operator, I think we have time for one additional caller to ask questions.
Okay. And we'll take that last question from Ed Snyder with Charter Equity Research.
Thanks for taking my question, squeezing me in there. This is Ryan Cram. I'm actually filling in for Ed Snyder. My question is really surrounding fab utilization and you guys have kind of touched on this a little bit earlier in the call. But on National Semi's last conference call, they indicated fab utilization of about 58%, down from 68% from the previous quarter.
And I know Texas Instrument has also talked about some headroom in their capacity. How does this translate near term to margins?
Do you
see that being dilutive or accretive? And how will you guys manage that going forward?
Yes. Let me comment on the TI front because I think we touched on this, Ron and Kevin did pretty hard back in the January call. And that is, we have gone out in the past, whatever it is, 18 months. We've added the 3 wafer fabs, the ramp up of Renner, the 300 millimeter site, the addition of the Japan fab and the acquisition in China. And where we are absolutely thrilled, guys, is because of the prices that we're able to acquire them at, our 4th quarter P and L was literally an all in cost.
So you've got full depreciation, operating costs, everything running through that. So unlike the old days when you're out putting in a new CMOS fab at $2,000,000,000 $3,000,000,000 or $4,000,000,000 and you've got that big depreciation spike rolling through, it's all in there now. So this is not about us worrying about having under utilization at TI. We view that as the opposite and that is we've got great growth headroom that very few other companies have in the world right now. And I think this is really going to be critical.
You see competitors in the analog business operating wafer fabs in the 90% utilization level and that's called full in our business. And when you're full, you can't grow. And so it is this is a really great position to be is great products and a lot of headroom to be able to grow both with the comments I gave on TI, but also as Louis and Donav indicated, utilizations in the 60% range to give us that same chance out here. Do you
have a follow on Ryan?
No. That answers my question. I appreciate your time.
Okay. Thank you. Okay. So before we end the call, I'll remind you that the replay is available