Texas Instruments Inc at Bank of America Global Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Vivek Arya - Bank of America - Analyst : Okay. So maybe let's kind of pick up from that. From what you said, does it mean that the $5 billion per year CapEx plan that you have, is there any scenario in which it can change?

Question: Vivek Arya - Bank of America - Analyst : Okay. What is changing that view versus three months ago?

Question: Vivek Arya - Bank of America - Analyst : I see. And then, Rafael, even longer term, I think the plan was that you would have a few years of this $5 billion and then the exit would be 10% to 15% kind of CapEx intensity, right? So that's more kind of top-line based. But even that 10% to 15% is much higher than what TI used to have, right? Like in the past, you were kind of low-, mid-single digit right, type of CapEx. So why is it so much more inflationary to put this kind of capacity now versus before?

Question: Vivek Arya - Bank of America - Analyst : Okay. But I mean, doesn't 10% to 15% automatically take care of what the revenue level is?

Question: Vivek Arya - Bank of America - Analyst : Okay. So let's say, we get past this inventory correction. Do you think that your addressable opportunity is growing at a 7% CAGR or a 10% CAGR? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 05, 2024 / 10:20PM, TXN.OQ - Texas Instruments Inc at Bank of America Global Technology Conference

Question: Vivek Arya - Bank of America - Analyst : Got it. I thought one of the reasons TI suggested a kind of move towards a 10% growth model was that a lot more of the business is coming from auto and industrial. Like, even in those years, your auto and industrial, right, definitely grew at a very nice kind of double-digit CAGR where some of the weakness and the volatility was on the consumer side. Like, for some of those years, a large smartphone customer was the largest customer for TI, right, not as much so I would imagine now. So doesn't that mix shift towards auto industrial make it more likely that you can grow at that 10% base --

Question: Vivek Arya - Bank of America - Analyst : All right. Got it. If more than half of the customers for automotive and industrial are outside the U.S., why do I need to have all of my capacity in the U.S.? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 05, 2024 / 10:20PM, TXN.OQ - Texas Instruments Inc at Bank of America Global Technology Conference

Question: Vivek Arya - Bank of America - Analyst : Got it. Absolutely. So I can understand that from a supply perspective. I'm trying to think that, is it a factor in terms of share gains? Because when we talk with a number of your peers, right, who have a hybrid strategy where they are, sure, many of them are still dependent on Taiwan, but TSMC is building out more fabs in Japan. So why isn't the capacity access they have in Japan, you know, give them that dependable capacity at a much lower capital intensity than what TI is doing?

Question: Vivek Arya - Bank of America - Analyst : But have you, Rafael, actually seen that in practice? I understand the concept. But if, practically, are customers saying, yes, I was planning to give a part to whoever else, but I would rather give it to TI, because you have that fab capacity in the U.S.?

Question: Vivek Arya - Bank of America - Analyst : I see. At a recent conference, Haviv mentioned that there is -- whether it's a plan, whether it's a trend line or something that can get Texas Instruments to potentially about this $12, right, per share, and you manage your business for free cash flow per share. So where does that $12 number come from? Is that a trend line? Like, what needs to happen for TI to hit those?

Question: Vivek Arya - Bank of America - Analyst : I see. Is that how you're kind of putting all your CapEx and OpEx plans in place to get to that number conceptually at some --

Question: Vivek Arya - Bank of America - Analyst : I see. And does this change in CapEx plans, Rafael, does it change the depreciation schedule that you have given for the next several years?

Question: Vivek Arya - Bank of America - Analyst : Got it. And from what we have seen, right, many other companies who have gotten the CHIPS Act funding, it has been -- so of course, ITC, you mentioned, right? So that is already part of the financials that you are reporting, right, so far. But what we have seen with others is about that 15%, right, or so, broken out in terms of grants and loans. Is that sort of the structure that we should contemplate for TI?

Question: Vivek Arya - Bank of America - Analyst : 10% to 15%.

Question: Vivek Arya - Bank of America - Analyst : I see. And when we look at that denominator of that CapEx, is that all of RFAB2 and LFAB, and all the Sherman fabs and LFAB2? Like, what is the denominator that Department of Commerce could be potentially looking at and say, okay, I need to fund this percent of that?

Question: Vivek Arya - Bank of America - Analyst : I see. So if I look at CapEx, let's say, $5 billion towards $4 billion, right. Somewhere $20 billion to $25 billion, is that kind of the rough math between now and 2030?

Question: Vivek Arya - Bank of America - Analyst : Okay. And just the last thing. Let's say you get a grant, does that also then impact your depreciation schedule? Because then, this will be net CapEx. So what you have given for this next year could be -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 05, 2024 / 10:20PM, TXN.OQ - Texas Instruments Inc at Bank of America Global Technology Conference

Question: Vivek Arya - Bank of America - Analyst : I see. Right. Because where I was going with that is because that formula does affect, right, as much as you manage the business for free cash flow, we look at gross margin for sure.

Question: Vivek Arya - Bank of America - Analyst : Got it. Okay. So whenever you hear about the grant, does that kind of move that a little bit? Or that's more '26...

Question: Vivek Arya - Bank of America - Analyst : Got it. So that only changes. Okay. The second thing I wanted to ask you is back to the demand side. So you did guide June to grow, right, sequentially?

Question: Vivek Arya - Bank of America - Analyst : At the midpoint. Would you consider that seasonal? Would you consider it not -- like, should we think June is now a normal quarter? Or you still think you are battling inventory headwinds that -- the end market has not really stabilized. I'm just trying to understand where we are in the spectrum moving to normal. Are we there --

Question: Vivek Arya - Bank of America - Analyst : Okay. So automotive, do you think that is in a better state than industrial? Like, if you had to think about where TI gets back to seasonal trends in the back half, is it more likely to happen with industrial? Or more likely with automotive?

Question: Vivek Arya - Bank of America - Analyst : All right. Not to parse words, so have you seen a shallow dip in auto already? Or is that shallow dip yet to come?

Question: Vivek Arya - Bank of America - Analyst : But are they both increasing?

Question: Vivek Arya - Bank of America - Analyst : Okay. Next thing, Rafael, there's a lot of debate about what does all this buildup of capacity in China mean, right, from a competitive perspective for you. So first of all, how much is China domestic kind of demand as a percentage of your sales, and have you seen any design-outs for TI based on the capacity that's being built up?

Question: Vivek Arya - Bank of America - Analyst : Right. But when we look at how much China was, as a percentage of sales, for a lot of the fab equipment, right, tool companies, it was over 40%. So what capacity are they building? Like is it all consumer? Like there is zero overlap with what TI is doing?

Question: Vivek Arya - Bank of America - Analyst : Makes sense. Finally, on pricing, I think you have been kind of more measured in your approach, saying that industry pricing over time could get back to kind of the historical trends of low-single digit. I think many of your peers have kind of maintained a flattish profile. So when you say low-single-digit decline, is that because that is what you're seeing? Or is that just because of the conservatism in how you...

Question: Vivek Arya - Bank of America - Analyst : You are actually seeing prices go down?

Question: Vivek Arya - Bank of America - Analyst : Do you think the fact that you're building a lot more capacity makes you a little more open to having the pricing discussion?

Question: Vivek Arya - Bank of America - Analyst : So are you then surprised when you hear your peers on public conference calls say that there is no change in pricing while you're giving a price discount?

Question: Vivek Arya - Bank of America - Analyst : Okay. Perfect. And before we close, Rafael, just any update on your kind of return of cash plans that as the free cash flow starts to, right, improve from here, do you think we should start to see buybacks start to resume, right? What changes --

Question: Vivek Arya - Bank of America - Analyst : On that optimistic note, thank you so much, Rafael.

Question: Vivek Arya - Bank of America - Analyst : Thank you, Mike, for your time.