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Goldman Sachs Communacopia + Technology Conference

Sep 10, 2024

Toshiya Hari
Managing Director, Goldman Sachs

All right, great. We'd like to get started. Good, I think it's still morning, everyone. My name is Toshiya Hari. I cover the semiconductor space at Goldman. We're very excited, very honored to have the team from TI with us this morning. We have Rafael Lizardi in the middle, Senior Vice President and CFO. We also have Mike Beckman from IR. I have a bunch of questions, but, I'll definitely go to you guys for questions. So, please have them ready. First of all, Rafael, Mike, thank you so much for coming.

Rafael Lizardi
SVP and CFO, Texas Instruments

[crosstalk] Good morning. Good to be here. .

Thank you.

Toshiya Hari
Managing Director, Goldman Sachs

My first question is about Haviv. He was appointed CEO a little while ago. I think whether it be earnings calls or your capital management calls, Rafael, yourself and Dave would typically take them.

Rafael Lizardi
SVP and CFO, Texas Instruments

Mm-hmm.

Toshiya Hari
Managing Director, Goldman Sachs

I think Haviv, going forward, is attending the earnings calls and the capital management calls as well, I think, which is great. I'm curious, what drove that change? Is that just Haviv and his personality? Was it feedback from investors? Is it both? I'm just curious, about the change going on at TI.

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah, not sure. We got feedback from investors, one in particular, but it was good, good feedback that, and we took that to heart, and you've seen Haviv leading the earnings calls and the capital management. I think it's working out very well.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, great. In terms of the key priorities and some of the debates that you guys would have at TI, I'm curious, you know, what are the key debates when you and Haviv and the broader team sit down? What are the KPIs that you at TI follow most closely? And I guess when you think about priorities, top two or three going forward, what are they?

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah. Clearly, our focus right now is on deploying our capital investments or CapEx in manufacturing-

Toshiya Hari
Managing Director, Goldman Sachs

Mm-hmm

Rafael Lizardi
SVP and CFO, Texas Instruments

... to enable the long-term growth of the company on the top line and, of course, the free cash flow per share line. So maintaining, completing those investments, and I'm sure we'll talk about those some more, and also the R&D investments. Also, be ready with inventory so that we can support a short-term, midterm, and long-term demand for the company.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, great. A question on sort of cyclicality and how you think about sort of the structure of the industry, if you will. Rafael, you've experienced many cycles. Every cycle is different, I understand that. But as you sort of look back, and I guess you're sort of at the early start of the upturn, as you look back at this most recent downturn, what were some of the fundamental differences? What were some of the fundamental similarities vis-à-vis past cycles?

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah. You know, the obvious difference was the synchronous nature of this cycle, and we're still in the synchronous behavior, where different end markets and different geographies have behaved very differently, right? So personal electronics became weak early on, while industrial automotive was still strong. And as we've reported at the last quarter, personal electronics is now Well, it has been for a couple quarters now, growing sequentially, so it's coming out, whereas industrial is still mixed. Auto could be a shallow dip. We don't know yet, but we'll see. And then on the geography, similar, China and Asia. Asia weaker upfront, and now, as we've reported, China grew sequentially for the first time in seven quarters in second quarter.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, great. And I guess the asynchronous nature is that... Again, it's, it's difficult to predict this, but is that fairly specific to this cycle, you think? Or going forward, is this kind of a new normal?

Rafael Lizardi
SVP and CFO, Texas Instruments

I'm not gonna predict the next cycle.

Toshiya Hari
Managing Director, Goldman Sachs

... and how it's gonna behave, but, it's been unique to this cycle compared to previous cycles, for sure. Okay. Got it. And I guess you touched on this a little bit, but, I wanted to throw in a near-term question. You grew revenue 4% sequentially in the June quarter. You guided Q3 revenue to grow,

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah

Toshiya Hari
Managing Director, Goldman Sachs

... about 7%, quarter over quarter at the midpoint. Which end markets or geographies are kind of the standouts, whether it be to the upside or the downside, as it pertains to the September quarter outlook?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah, I think, I think Rafael's description of the end markets was a good one, and it kind of highlights the fact we are seeing them transition at different times. Personal electronics, you know, did appear to bottom in the first quarter of 2023. It's grown well since then. Yeah, as we look at industrial, some of those were early to correct sectors. You know, we started to see some stabilization in those, in the first half, but still some of those larger sectors, like factory automation, still down double digits sequentially, in the early half of the year.

So, you know, as we think about the future here, it's we gotta be ready for whatever these markets want to throw at us, and we don't we'll take it one quarter at a time and make sure we're prepared from an inventory perspective, from a capacity perspective. And Rafael also talked about automotive, and that was the last of the end markets for us to begin to correct. So far, it has been a shallower decline in the quarters, starting in fourth quarter. So again, you know, we just want to be ready for what these will do, moving forward.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, got it. I realize you guys don't have perfect visibility when it comes to customer inventory, and I know with your products particularly or specifically, they don't really have a strong incentive to build a ton of inventory because, you know, it's your strategy. You have a relatively short lead times. But curious, how would you characterize OEM inventory, if you will, today, vis-à-vis three months ago, six months ago? Are we at a point where you can kind of call it healthy and normal, or is there still, you know, excess, you know, stuff in the system, if you will?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

I think if you look at where unit shipments are today in our industry compared to the last low point, which was, I think, 2019, they're currently below that point. So I think it's fair to say there's still work being done in getting inventory to where it wants to be. I think it's mixed across customers, depends on the customer and where they are on that journey. Again, I think there's some of the end markets where they're well through that. I think, you know, personal electronics is an example of that.

Again, it's hard to know exactly, but I go back to, for us, you know, what we wanna do is make sure that when those customers do end up in a position where they wanna add more or they wanna grow faster, then we gotta have the inventory ready on our end to be able to support them with it.

Toshiya Hari
Managing Director, Goldman Sachs

Okay. And Rafael, you talked a little bit about China. You know, in the most recent quarter, revenue was up 20% sequentially, still down double digits year over year. You know, what are you seeing today in China from a demand perspective? And more importantly, what are your medium to long-term expectations specific to that?

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah, a couple of things. You know, China, the competition is intense there, and it has been, and probably got a little more intense over the last few years. But it hasn't changed dramatically in that regard. You gotta compete, you gotta be good there, you gotta leverage your competitive advantages. So we feel good in our prospects of winning given our competitive advantages. I also wanna clarify our. You know, about 20% of our revenue comes from customers that are headquartered in China, and about 80%, obviously, comes from customers that are not.

And our geopolitically dependable capacity is very important for all customers, both the ones that are outside of China, for obvious reasons, but even the ones in China. Many of them are exporters, and they're looking at exporting in Europe, South America, the United States. So having assurance of supply is very important to them.

Toshiya Hari
Managing Director, Goldman Sachs

Okay. That's great. Shifting gears a little bit, you know, slightly longer term and sort of scope, the secular growth drivers in automotive, I think you guys talked a little bit about some of the applications that you're pretty excited about. On your most recent capital management call, you talked about body electronics and lighting and ADAS as two applications within the end market that have grown at about 20% per annum. Looking ahead, I guess, when you think about the automotive business overall, what are your growth expectations? And again, within that, what are some of the applications that could drive that business forward?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah, I'm glad you brought up that. That was a lot of fun putting that slide together and talking about the opportunity. If you look at the sectors we highlighted, body and lighting, and ADAS were two of them. Obviously, for us, we have five that exist in a vehicle, infotainment, powertrain, and passive safety are the other two- or the three. All of them are a great opportunity for us. I think body and lighting was one where it doesn't get discussed a lot, but if you look at the how rich the content is there, just in terms of the socket count, and it's not just catalog, it's a application-specific products that we have that go into that. This is an amazing opportunity, and it's not just in EV. You know, think of electrification.

There's electrification happening in internal combustion engine vehicles, too. Plug-in hybrids or hybrid electric vehicles see this as well. So great opportunity there. I wanted to highlight that and talk about that. ADAS also has an opportunity both in that application-specific products, which we can address, as well as the catalog space. And again, the socket count is just, it's breathtaking. It's great. So we wanted to highlight those, and, of course, powertrain is gonna be an important sector for us as well, as well as infotainment. And so we look forward to all of them contributing. And I think as we look into the next, you know, chapter of growth for us in automotive, you know, you have that capacity and inventory there ready as well. It's gonna be a lot of fun to see that.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, great, and sort of the overall growth rate for automotive, medium to long term, is there a way to kinda contextualize that relative to, you know, SAR growth or GDP growth or relative to overall TI? I would assume it outperforms against all three, but how do you guys think about that?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah, and if you look under the hood of TI, that's grown in kind of that mid-teens range over the last decade or so. As we look into the future, you know, the content is continuing to grow. You know, if you look in the past, that was without SAR really driving that growth and content, and we're continuing to see that. Yeah, I think we're still in the early phases of that electrification, especially on the EV side. You know, it's not the majority of cars on the road. I think if we look out five and ten years out, there's probably gonna be more on the road. So, it's gonna be a good growth opportunity for us, and I think we're really well positioned from a portfolio perspective.

You know, this, you know, I think we've talked about this before, this wasn't on accident, that we've been growing in this market. It's because of the products we've been putting into it. So, do look forward to it, you know, contributing, I'd say, at, you know, above the levels that, you know, we would see in the overall market, just because of the growth opportunity there.

Toshiya Hari
Managing Director, Goldman Sachs

Got it. And a similar question for your industrial business. Again, you sell into all sorts of applications. You've got really, you know, significant breadth there. Any specific applications that you would point to? And again, how should we think about growth on a three, five-year time horizon?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

You know, industrial is probably even harder to come up with a single one or two, sectors or even end equipments. You know, maybe, the way that I would think about it is maybe themes that are driving it, that are exciting, because I think it kinda spans across many. And I think one of the themes that is driving a lot of what you see in industrial for us is automation, and that's factory automation. It's automation of robotics, it's automation involving agriculture, it's the scarcity of, and cost, and safety of labor, and things that you can now automate that you couldn't before, presents not just a probably a one or two or three or five-year opportunity, but probably a multi-decade opportunity across those sectors.

The other one I'll highlight is greenhouse gas emission reduction ambitions across, you know, the world, are gonna require a much more advanced, smarter grid, so the energy infrastructure sector would benefit from that for us. Motor drives, building automation, power delivery, all sectors that benefit from that. And again, that's probably a decades or generation type of theme that drives that. So those aren't the only two, you know, there's many, and again, this comes back to it's been also investment in a portfolio that is well geared toward those sectors.

Toshiya Hari
Managing Director, Goldman Sachs

... Automotive and industrial at this point account for the vast majority of your business. I do have a question on the other businesses, PE and personal electronics, and comms equipment, and enterprise systems, then I guess, other. From a resource allocation standpoint, how do you think about those businesses? Is there a, you know, through cycle ROIC metric or some sort of financial metric that you impose on your team when making investment decisions? How do you think about the non-auto, non-industrial part of your business?

Rafael Lizardi
SVP and CFO, Texas Instruments

There are different angles to that question. I mean, from an R&D standpoint, our focus when we release parts is auto and industrial is probably where the bias is, but many of those parts can be leveraged into personal electronics and other ones. Not all of them, of course, there are some parts that are more specific, but then you focus the investments on where the bigger opportunities are in auto and industrial. On the sales front, for example, those investments there, and I think of that as investments as well, that is maybe a little more segregated because then you go by accounts, so then you have some accounts that are primarily or even entirely personal electronics. But there are good opportunities in all our end markets.

Clearly, we're biased towards auto and industrial, but there are good opportunities elsewhere.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

The only thing I would add is if you look at. You know, I don't think I've ever seen an ROI on a business plan that wasn't amazing and perfect, right? And so you have to really spend the time to understand what are the problems you're trying to solve for a customer when you define a product. And so the bigger hurdle a product has from an ideation to actually getting resourced, and something we've worked a lot on strengthening in the last decade, has been making sure we understand how customers are gonna be using these products, and also how they're gonna need to use them in three, five, 10 years down the road. That's not an easy thing to do, and that's really where the rubber meets the road in getting products that customers actually want.

Those are probably the biggest hurdle metrics. You know, when you look at the catalog portfolio, typically you define a great, you know, highly power dense or low power or a low noise catalog product. Every end market is gonna care about that. You can service the personal electronics market, communications, as well as industrial and automotive. You can do it in ways where you can address all the markets as much as possible.

Rafael Lizardi
SVP and CFO, Texas Instruments

And the capacity on the manufacturing front is very fungible.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah

Rafael Lizardi
SVP and CFO, Texas Instruments

where that moves, so.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah.

Toshiya Hari
Managing Director, Goldman Sachs

Makes sense. I appreciate that. A couple of questions related to the off-cycle capital management call you guys hosted a little while ago. So the 2026 CapEx number is now a range. It used to be 5.5, 5.5, 5.5 for the three years. 2026 is now 2 to 5. I guess, just to level set, what drove that change, and what kind of environment or setup would get you to 2 versus 5?

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah. So, you know, at the end of the day, more time over target, right? So we've had an extra couple of years looking at factory performance, looking at productivity metrics, modeling the future factories with more precision, and we're able to now give you that range. Think of the $2 billion as about the floor, where we want to be and still accomplish the strategic objectives that we're trying to accomplish. And, and namely, to have if you go back to our presentation, there was one slide, I guess it was slide seventeen, I believe, where it has phase one, phase two, phase three. Phase one is the current upturn, loading the factories that are running with equipment so they can maximize we can maximize revenue.

Phase two is anything that's brick-and-mortar that needs to be built, because half a building is not gonna help you. You need a full building with clean room. So that is for Lehi Two and SM One. So think of that as phase two. And then phase three is once you have those buildings, it's purely incremental. It's modularity, so you just go with whatever revenue you need on a very incremental basis. It's just equipment lead time, right? So the $2 billion, along with the several billion dollars that we have spent over the last three or four years, gives you the foundation for that phase two. And then after that, if we go from 2 to 5, that delta is primarily equipment that will serve to fuel the growth beyond that.

Toshiya Hari
Managing Director, Goldman Sachs

Got it. Got it. Okay, that makes sense. And I guess you sort of answered this question as well, but the capital intensity beyond twenty-six that you presented in this most recent update was slightly lower relative to the prior one. What drove that?

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah, so and to level set, we said one point two times. So for example, one point two times revenue growth equals capital intensity. So if you have revenue growth of 5%, capital intensity is 6%, and that is gross capital intensity before we get ITC benefits, which I'm sure you'll ask about in a second. So that is just more time over target. Same answer as what I gave before.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, got it. You guys have talked about geopolitically dependable capacity and how you are continuing to build that, and that being a competitive advantage. I think you spoke to, you know, there being breadth in terms of the customers wanting access to that geopolitically dependable capacity. But as outsiders, you know, when do we see sort of the share gains associated with that? I know these things kind of take time. Design cycles, product cycles are very long in your business, but is it you know, are we about to see an inflection in share gains, purely based on sort of this advantage that you have?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

I'll start. You know, first, every customer cares about their continuity of supply and where they're getting their products long term, and I think that is something that has... Five years ago, very few customers were talking about it. Today, there's active projects going on to take existing designs and replace them with parts that they would deem are from geopolitically dependable locations. Those are great opportunities. But first, you have to have a product that solves a problem for a customer. It's, you know, that breadth of portfolio and making sure you have the right product is foundational.

From there, though, having that geopolitically dependable capacity, and you think about a customer that has a longer design cycle, someone that's gonna build an engine ECU that's gonna last for ten, fifteen, twenty years, that's something you really wanna be considering, "Where am I gonna get this product from for a long period of time?" So I think that's where it's probably the most attractive, and it's a big part of every discussion as you design in. But I don't wanna minimize the importance of having a good product as well, and which is a big part of our investment is, of course.

Toshiya Hari
Managing Director, Goldman Sachs

Got it. On embedded processing, specifically, I think Haviv was at a conference, another conference, last week, and I felt like he made, you know, some comments about your team being pumped, and, you know, after several years of some structural changes, they're gonna be playing offense. I don't wanna paraphrase too much, but, maybe talk a little bit about that. What are some of the initiatives going on in, on the EP side of the portfolio?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Frankly, we're excited about the opportunity for embedded processing. You know, we've spent a lot of time working on improving embedded's ability to leverage TI's advantages. I think for a period of time, it probably didn't fully benefit from TI's manufacturing technology, the breadth of portfolio, the reach of channel. Today, if you look at, you know, what the team is. First of all, getting to a place where we are really selling the portfolio we have, that's the first step, and made good progress there. But you look at the releases, you know, several dozen devices were released in the catalog MCU space in the last twenty-four months.

Adding new wireless connectivity products that make, you know, this whole palette of different wireless connectivity standards easy for customers, building the RF front end for those easy for customers, is exciting. You look at the real-time control developments, very exciting in the industrial space. You look at radar solutions, something that would typically be very difficult for, again, a customer to design in, we've made it very easy, cost-effective for customers. And then you combine that with the fact that we own the process nodes that goes in, and we own the factory it goes in. It's in a geopolitically dependable location. We're excited about the opportunity in front of us. So it's part of, you know, our overall. We've got a strong analog business, and we're looking forward to embedded also contributing to growth in the next peak.

Toshiya Hari
Managing Director, Goldman Sachs

Got it. Okay. And from an end market perspective, again, automotive and industrial should be the sort of drivers here?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Predominantly.

Toshiya Hari
Managing Director, Goldman Sachs

Predominantly.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah, that's where it sits mostly, is in auto and industrial. That's right.

Toshiya Hari
Managing Director, Goldman Sachs

Okay. And the insourcing of embedded processing, is that already happening? Is that on the come from a timing perspective, when does cost become even an sort of a additional competitive-

Rafael Lizardi
SVP and CFO, Texas Instruments

That has been happening, and it will continue to happen.

Toshiya Hari
Managing Director, Goldman Sachs

Continue for a number of years before embedded gets anywhere close to where analog is. But-

Got it

Rafael Lizardi
SVP and CFO, Texas Instruments

... but it's already happening.

Toshiya Hari
Managing Director, Goldman Sachs

Got it. And that's primarily Lehi?

Rafael Lizardi
SVP and CFO, Texas Instruments

Lehi is disproportionately embedded factory.

Toshiya Hari
Managing Director, Goldman Sachs

Right.

Rafael Lizardi
SVP and CFO, Texas Instruments

Not entirely, but disproportionate to the rest of the footprint.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, got it. I guess on the pricing outlook, you know, I realize you're not in DRAM, you're not running a commodity business, and again, these cycles are very long for you. You know, curious how you think about pricing into 2025, and more importantly, longer term, just given how inflationary the environment has been, and given how much capacity that's gone into the ground, whether it be the IDMs or foundry. I know your pricing has been much more stable than some of your peers, but at the industry level, and more specifically for TI, how do you think about pricing going forward?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah, you're right. You know, the pricing doesn't move quickly in our industry, typically.

Toshiya Hari
Managing Director, Goldman Sachs

Yeah.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Our base case assumption is that it seems to follow a low single digit, you know, maybe call it 2%-3% decline, you know, annually. But that's a base case assumption. Could you, you know, make a case for it as flat or inflationary, depending on scenarios? That could happen. We don't know, but what we do know is that we can adjust to where the market moves.

Toshiya Hari
Managing Director, Goldman Sachs

Mm-hmm.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

I think at the end of the day, you've got to realize that the market sets the price, and, you know, we choose whether we wanna participate or not, and we're in a really good position to be able to participate-

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

... in more sockets.

Rafael Lizardi
SVP and CFO, Texas Instruments

So let me just stress, one, the 2-3% is not just a base assumption, that is what we're seeing.

Toshiya Hari
Managing Director, Goldman Sachs

Mm-hmm.

Rafael Lizardi
SVP and CFO, Texas Instruments

In aggregate, of course, there are some places where it's a little more, some places a little less, but that's what we're seeing in aggregate. And the other one is, we're ready for whatever environment. If it's inflationary, great. If it's deflationary, or it continues to be deflationary, whatever percent, we're well positioned given our cost structure. The market sets the price. Our cost structure is such that we don't have to subsidize.

Toshiya Hari
Managing Director, Goldman Sachs

Got it. Got it. On your capital management call, you, you gave a 2026 free cash flow per share range of $8-$12. The revenue scenarios were very clear. I'm curious what kind of gross margin or OpEx sort of variability went into that sort of math. If you can-

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah

Toshiya Hari
Managing Director, Goldman Sachs

... elaborate on it, that would be really helpful.

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah. So on OpEx and R&D for the next few years, expect 4-6% growth, SG&A, 2-3%. Now let me get to gross margin, which is the more important one. And of course, we run the company for optimization of long-term free cash flow per share, but I understand gross margin is important, that's obviously a component. So on gross margin, we gave you a range on the full trough of 75-85%, and we said for the foreseeable future, we're gonna be at the high end of that.

So you take whatever incremental revenue from one year to the next. This works better on an annual basis, not on any one quarter, but on an annual basis, one year to the next. You take that revenue, the delta revenue, times 0.85, then you add it back to the initial gross margin, and then you subtract an increase on depreciation, 'cause that flow-through doesn't account for significant step-ups that we're having on depreciation. And I gave a range for depreciation, but the midpoint is roughly $1.5 billion this year, $2.1 billion next year, and $2.5 billion the year after next, so in 2026. So you make those adjustments, and you get to using whatever revenue assumption you wanna make. You get to a to a reasonable gross margin estimate there.

Toshiya Hari
Managing Director, Goldman Sachs

Got it. Very clear. I'm gonna pause here, and see if we have any questions from the audience. If you do, please raise your hand, and we'll get you a mic. In the front row, please.

Thanks, Toshi. On the auto question, in light particularly of today's announcements, what's happening with GM and German auto manufacturers and the challenge of the Chinese, could you be more specific on your auto split between, you know, Chinese vehicles versus non-Chinese, particularly if, depending upon the outcome of the election, we're looking at significant Chinese tariffs?

Rafael Lizardi
SVP and CFO, Texas Instruments

Yes. So it's not significantly different than the overall footprint. So as I said, 20% roughly of our revenue is from China-headquartered customers, so then the auto footprint would be similar.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Yeah, there's not like a big skew in by region.

So 20, so industrial, auto is 20, which maps to China?

So the percentage of our total revenue that's associated with auto isn't vastly different by region. So that, that's a good first order approximation of it. And also, keep in mind, our automotive exposure is pretty broad, even across the sector, so we don't have a strong, you know, single focus on one socket in vehicles. So it's pretty broad across those sectors I described and across customer base, too. There's not, like, one customer or one socket that drives most of our revenue. It's pretty broad, and I'd say at a first order, very similar to the top-level exposures.

Rafael Lizardi
SVP and CFO, Texas Instruments

To be more clear, so roughly 35% of our revenue-

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

In that ballpark, I think, yeah.

Rafael Lizardi
SVP and CFO, Texas Instruments

So, 20% of that would be out of China, so 7% of our overall revenue would be auto China. Ballpark. And that is when I say China, meaning China-headquartered customers.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Correct.

Sorry, yeah, similar question on autos. Look, it's pretty obvious when you look at a car, that socket count's going up, right? The harder bit to get our head around is content going up and also market share, competition, pricing, et cetera, between you and, say, the Chinese competitors who are buying also a lot of equipment, like you're buying a lot of equipment. So maybe if you could just parse that out for us a little bit in terms of how you get to that 15% revenue growth for the auto business.

You, you're talking specifically in China, how to compete for automotive or just worldwide? Make sure we speak to it. And then frankly, it's the same in both places. You. It starts with having a good product portfolio. I think that that slide that we showed in our capital management, I highlighted it well. It's not one device, it's hundreds of devices, and in fact, thousands of devices when you look in a given vehicle, as the opportunity is in front of us. And we wanna address as many of those sockets as we can, and it's not just the catalog, it's also the application-specific product. So it's gonna start with having a broad portfolio.

It's gonna have our own manufacturing technology behind that, and then we're gonna make it as easy and as low friction as possible for customers to design in and buy our product. Those are things that, regardless of region, customers care about. And in China, it's an advantage that we have that many don't. You know, we do build our own product. We do have the ability to reach our customers in more direct ways. You know, we'll continue to leverage those things. And then, of course, these are faster-growing markets, and just being exposed to them is something we see as an opportunity for us.

Toshiya Hari
Managing Director, Goldman Sachs

And just to jump in, do you have any comments on the Chinese?

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

What we have seen generally is competition in China has intensified, I'd say, but it's moved more into that we have to earn our sockets. It's not that it's impossible. It's actually really, you know, something that we have great opportunity, given the competitive advantages. But typically, what you see is an emerging competitor will find a single socket that may be a single high-volume vertical socket that they can, you know, put an amount of R&D that can scale pretty easily or a high AUP type of device that's highly complex, but they only have to build one chip, and they can address a lot of TAM very quickly.

What's harder to do, which is why it took us decades to do it, is to build a portfolio of tens of thousands of operational amplifiers and voltage regulators and clocking chips and transceivers. That takes time, and it takes time over target and knocking on a lot of doors with customers to get those designed in. Even across the automotive space, by the way, which has hundreds, I think, pushing almost a thousand customers in it, so it is a diverse space.

Rafael Lizardi
SVP and CFO, Texas Instruments

Let me frame it maybe this way to help, and this is beyond auto, this is broadly speaking. Of everything that is manufactured in China, so now I'm switched to manufacturing, not customer headquarters, right? So manufacturing in China, roughly 15% is serviced by local suppliers, roughly 15% is our share, and then the remaining 70% is non-Chinese, European or American suppliers. Our sense is we're all in China. It's an important market. We're there to win. We wanna grow share. We wanna continue growing. Local suppliers are also all in there. The remaining US and European suppliers, not some of them are not as excited about being in China. So we compete against the local suppliers, and we compete against also the US and European suppliers.

And in some cases, Mike alluded to, the competition has gotten more intense. The local suppliers wanna win, and they're aggressive, and they're smart. But in some cases now, instead of winning 100% share or 80% share, we have 50-50, right? Because our part, if our part is the best, then they'll take our part, but they also wanna have some local supplier customers there, but wanna have an alternative that is local. So that's the, that's the fight that we're, that we're fighting there.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, great. On CHIPS Act funding, $1.6 billion in grants, $68 billion in ITC. I'm curious, was this sort of the outcome that you had expected, what you had hoped for? And what are some of the key milestones that you need to hit to start receiving the cash?

Rafael Lizardi
SVP and CFO, Texas Instruments

Yeah, so to level set, and you mentioned the numbers, but just to repeat that. So on ITC, Investment Tax Credit, that really is the bigger one. We expect $6-$8 billion when it's all said and done. This year, close to $1 billion, which we received in cash. So that's really the bigger bucket of funds. We were recently awarded on a preliminary basis, so we still have to negotiate the full contract, but on a preliminary basis, $1.6 billion of direct funding, that's the grants, and $3 billion in loans, of course, potential loans, if we decide to go that way. You know, we always wish we had gotten more, but that's... it is what it is.

At this point, we're in the process of negotiating that long-term agreement.

Toshiya Hari
Managing Director, Goldman Sachs

Okay, great. Just given how topical AI is, I've been asking this question to all my companies. I'm curious, at TI, to what extent you leverage artificial intelligence in your chip design or in your day-to-day operations? And to the extent you do leverage AI, what kind of benefits have you been able to identify or leverage?

Rafael Lizardi
SVP and CFO, Texas Instruments

You know, we have versions of AI, machine learning, a lot of things that we do from R&D, manufacturing, sales, but we still have a lot of room for to leverage that and to do more of that. The other thing I would mention that our parts help enable our customer systems that power AI, right? So that is another element of what we do.

Toshiya Hari
Managing Director, Goldman Sachs

Of course. Got it. In the last two minutes, maybe I'll give you the opportunity to kinda speak to anything that we didn't touch that you wanna highlight to the group, or I think TI is a well-covered stock, but anything that we collectively missed or underappreciated?

Rafael Lizardi
SVP and CFO, Texas Instruments

You didn't miss anything. We're just to rehash on a few things, you know, we're 60% through our investments that we talked about. We're excited about that phase one, phase two, phase three, that I talked about, is gonna put us in a great position to grow the company, grow the top line, grow the free cash flow per share for many years to come. We also, I would mention at that capital management call showed a framework of what free cash flow per share could look like under multiple scenarios, and our goal is to get it back to the growth trend line under any scenario.

Toshiya Hari
Managing Director, Goldman Sachs

Great. Thank you, gentlemen. Really appreciate the time.

Rafael Lizardi
SVP and CFO, Texas Instruments

Thank you.

Mike Beckman
VP and Head of Investor Relations, Texas Instruments

Thank you so much.

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