Texas Instruments Inc at Goldman Sachs Communacopia & Technology Conference Transcript

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

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : So 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. I think Haviv going forward is attending the earnings calls and the capital management call 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 the TI.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. Great. In terms of the key priorities and some of the debates that you guys would have at TI, I'm curious, 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 5:10PM, TXN.OQ - Texas Instruments Inc at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : 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-a-vis past cycles?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. Great. And I guess the asynchronous nature is that -- again, it's difficult to predict this. But is that fairly specific to this cycle, you think? Or going forward, is this kind of the new normal?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : 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 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?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. All right. 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 it's your strategy, you have relatively short lead times. But curious, how would you characterize OEM inventory, if you will, today vis-a-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 excess stuff in the system, if you will?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : And Rafael, you talked a little bit about China. In the most recent quarter, revenue was up 20% sequentially, still down double digits year over year. 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 to that --

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. That's great. Shifting gears a little bit, slightly longer term in 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 are 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 5:10PM, TXN.OQ - Texas Instruments Inc at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Great. And sort of the overall growth rate for automotive medium to long term, is there a way to kind of contextualize that relative to SAAR 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?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Got it. And then a similar question for your industrial business. Again, you sell into all sorts of applications. You've got really 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?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : 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 and, I guess, other. From a resource allocation standpoint, how do you think about those businesses? Is there a through-cycle ROIC metric or some sort of financial metrics that you impose on your team when making investment decisions? How do you think about the nonauto, nonindustrial part of your business?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Yes. 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 billion, $5 billion, $5 billion for the three years. 2026 is now $2 billion to $5 billion. I guess just to level set, what drove that change? And what kind of environment or setup would get you to $2 billion versus $5 billion?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Got it. Okay. That makes sense. And I guess you sort of answered this question as well, but the capital intensity beyond '26 that you presented in this most recent update was slightly lower relative to the prior one. What drove that?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : 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 there being breadth in terms of the customers wanting access to that geopolitically dependable capacity. But as outsiders, when do we see sort of the share gains associated with it? I know these things kind of take time. Design cycles, product cycles are very long in your business. But is it -- are we about to see an inflection in share gains purely based on sort of this advantage that you have?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Of course. Got it. On Embedded Processing specifically, I think Haviv was at a conference, another conference last week. And I felt like he made some comments about your team being pumped. And after several years of some structural changes, they're going to be playing offense. I don't want to paraphrase too much. But maybe talk a little bit about that. What are some of the initiatives going on the EP side of the portfolio?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. And from an end market perspective, again, automotive and industrial should be the sort of drivers there?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. And the insourcing of Embedded Processing, is that already happening? Is that on the comm -- from a timing perspective, when does costs become even sort of an additional competitive --

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Got it. And that's primarily Lehi?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. Got it. I guess on the pricing outlook, I realize you're not in DRAM. You're not running a commodity business, and again, these cycles are very long for you. Curious how you think about pricing into '25 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?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Got it. Got it. On your capital management call, you gave a 2026 free cash flow per share range of $8 to $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 to elaborate on that, that would be really helpful.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Got it. Very clear. I'm going to 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. Unidentified Participant On the auto question, in light of particularly 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 Chinese vehicles versus non-Chinese particularly if -- depending upon the outcome of the election, we're looking at significant Chinese tariffs.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. Great. On CHIPS Act funding, $1.6 billion in grants, $6 billion to $8 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?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : 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?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Of course. Got it. In the last two minutes, maybe I'll give you the opportunity to kind of speak to anything that we didn't touch that you want to highlight to the group or -- I think TI is a well-covered stock, but anything that we collectively miss or underappreciate --

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Great. Thank you, gentlemen. Really appreciate the time.