Texas Instruments Inc at Morgan Stanley Technology, Media & Telecom Conference Transcript

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

Question: Joseph Moore - Morgan Stanley - Analyst : Thank you. So your Capital Management Day just happened a couple of weeks ago, and you basically remained on message with the objectives. But can you just give us some of the few key points from that and how you guys are thinking about capital management going forward.

Question: Joseph Moore - Morgan Stanley - Analyst : Great. Thank you for that. Obviously, domestic internal capacity has been a big part of the strategy for the last several years. It seems like that's probably helping you sleep at night a little bit these days, given all of the uncertainty around it. Can you talk generally about the importance of having that U.S. footprint, the benefit that you see in kind of a geopolitically challenging world? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 10:35PM, TXN.OQ - Texas Instruments Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joseph Moore - Morgan Stanley - Analyst : Very helpful. Some of your competitors when we've talked about this have sort of talked about a little bit more matching the manufacturing in the region of consumption. So trying to build China for China, Europe for Europe, things like that, whereas you guys have much more of a domestic strategy, as you said. Can you talk about the way you're thinking about that and the reason that you've chosen to do it that way?

Question: Joseph Moore - Morgan Stanley - Analyst : Appreciate that. So a lot of this is framed to me by the shortages that we saw '21, '22, '23, where people realized that these geopolitical strains can put a lot of pressure on the supply chain. But we've now obviously gone from a shortage environment to a little bit of an oversupplied environment. Does that change customer priorities? How aware are your customers of what you're doing? Do your customers still ask you the question, even if they might be drawing inventory down to levels that are lean, they're still focused on where your supply chain is and where their supply is going to be?

Question: Joseph Moore - Morgan Stanley - Analyst : Yes, that makes sense. As I think about 2026, you've talked about, on the Capital Management Day and other times, CapEx of $2 billion to $6 billion -- $2 billion to $5 billion, I think. I think some people were thinking of 2026 as a year where we start to see cash flow go above reported earnings, but it seems like at the low point of that, you're right around your depreciation. So why couldn't 2026 be a year were CapEx falls further than that and you start to see that free cash flow going above reported?

Question: Joseph Moore - Morgan Stanley - Analyst : Yes. but there could come a year where your CapEx starts to fall a little lower.

Question: Joseph Moore - Morgan Stanley - Analyst : And then you mentioned we're going to have an upturn. We've all been doing this. I've been doing this a long time, too. There will be an upturn. I guess, does part of what you're doing, though, sort of lessen some of that cyclicality because you're going to have a lot more capacity. People will know that you'll be able to deliver. You may not have shortages in the way that you did two or three years ago. And maybe that dampens a little bit some of the cyclicality that we see.

Question: Joseph Moore - Morgan Stanley - Analyst : Yes. Okay. That makes sense. So I guess where this all comes to fruition is kind of gross margin. You said at the midyear capital management day last year, that under the sort of low-end scenario, you would be at 60% plus gross margin; you're about 55% now. So obviously, right now, you're at 55%, that's a little bit depressed because of the lower utilization. Do you still feel like 60% is kind of the right long term?

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. But that's still -- those are still the right numbers.

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. And then Dave and Mike were helping me understand how you manage the underutilization sort of expensing -- in a quarter where like last quarter, you saw lower -- somewhat lower utilization, you take that pain kind of in the quarter where the utilization is low rather than running at FIFO, right? So you --

Question: Joseph Moore - Morgan Stanley - Analyst : And essentially charged at the quarter where the wafers are in the fab, not when --

Question: Joseph Moore - Morgan Stanley - Analyst : You have over 200 days of inventory. So if you run it through FIFO, it would take you a year to see the impact of that lower utilization, right?

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. But last quarter, you had lower utilization, and your inventory still kind of went up.

Question: Joseph Moore - Morgan Stanley - Analyst : Yes. Yes. Okay. So the implicit -- the idea that you'll be back at that utilization requires a revenue recovery, I guess, obviously.

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. Great. Maybe we could talk about some of the markets. In industrial, one interesting point from your Capital Management Day was you talked about $700 to $1,000 of content in industrial robots. How are you thinking about that? Like I feel like TI kind of doesn't talk about those speculative markets maybe as much, but you have a lot of opportunity if those markets take off. And when you make these investments into autonomous driving and things like that, if they take a long time to get into cars, they may show up other places first. Can you just talk about how you guys think about those verticals?

Question: Joseph Moore - Morgan Stanley - Analyst : And how do you guys feel about the industrial market at this point? We've been undergoing one of the tougher corrections that I've ever seen in terms of the drawdown. It feels like we have to be shipping below consumption. Do you guys feel that way? And how do you see the market?

Question: Joseph Moore - Morgan Stanley - Analyst : And when you talk about a market like robotics or something new, do you have organizations that are framed around that? Do you have vertical exposures with it? I know it's a catalog focus, but do you use steering those catalog focuses into verticals?

Question: Joseph Moore - Morgan Stanley - Analyst : Great. And then also thinking about automotive in the same context, I mean, there's such a wide spectrum of analog componentry that goes into a car. A lot of the dollars is in more commodity power discretes, which I know you're not participating in. But a lot of the battery management is very expense high capability stuff. How do you think about verticalizing that market and deciding the right way to -- even if it's a catalog approach, the right places to align those resources? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 10:35PM, TXN.OQ - Texas Instruments Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joseph Moore - Morgan Stanley - Analyst : Great. And so one of the things that stood out from Capital Management Day was you mentioned having a cost structure to be competitive in China, and you talked about the importance of China. In automotive, in particular, it seems very clear that a lot of the center of innovation has migrated to China at this point, and you said you're growing there. So how do those two things come together? You're going to be in that market. Do you see it as a market that's more price competitive? Can you dissuade local competition with pricing? Just how do you think about China as being distinct from the rest of the world?

Question: Joseph Moore - Morgan Stanley - Analyst : So you'll be price competitive where you need to be, but not the first thing you're leading with.

Question: Joseph Moore - Morgan Stanley - Analyst : Yes. Okay. And what is the state of Chinese competitors? Do you expect -- Silergy was here the other day talking about making progress in the analog space. I don't think they're really automotive grade the way we would consider it at this point. But what is the status of that? And -- you obviously dealt with competition in all markets at all times. But is it different in a market where maybe a tie goes to the local --

Question: Joseph Moore - Morgan Stanley - Analyst : And if you see China being more successful in the export market, whether that's in regions where there are no tariff concerns or even migrating their manufacturing footprint into areas that do, it seems like that's a good thing for TI?

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. Great. I wanted to shift to microcontrollers and the Embedded business. You guys have -- have made no secret of kind of underperforming a little bit in that business. But some of that is repurposing and reorienting around a catalog MCU. Can you talk about the strategy there and what you see is happening?

Question: Joseph Moore - Morgan Stanley - Analyst : Yes. Great. And that's at margins that are similar to the rest of the business? Gross margin?

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. Okay. Very helpful. And then I guess, consumer. Consumer has gotten kind of big, personal electronics, largely because everything else has been weaker. But that tends to be a business that you guys look at a little bit more opportunistically. Can you just talk about that -- the personal electronics business?

Question: Joseph Moore - Morgan Stanley - Analyst : Got it. Okay. And then just last question for me; I'll open it to the audience. But, do you guys think about market share in Analog. Do you -- because I know there's been some fluctuations and shortages played into it and how much who had inventory and who didn't at various points played into it. I know there's a view that there's a mean reversion kind of share gain coming for you guys. Just do you think about that at all? And just -- or do you look at it more opportunity by opportunity and the market share will kind of fall where it falls?

Question: Joseph Moore - Morgan Stanley - Analyst : But if you look at like the growth versus like, let's say, the Semiconductor Industry Association analog segment, there's a lot of stuff in there where you don't want to participate, right, low-margin commodity stuff. Is high-performance analog as a category still outgrowing that broader group, do you think?

Question: Joseph Moore - Morgan Stanley - Analyst : Great. Let's open it up to the room. If there's any questions here. There's one in the front here. Unidentified Participant I have two questions. So like last year, like NVIDIA announced like Texas Instruments has been the strategic supplier or partnership with TI. But like I say, from our last quarter report for the enterprise system, which related to the data centers, actually, you have low single-digit downside. So I'm used like also at the same time, Infineon has been a long strategic supplier of NVIDIA, but they still have big business from NVIDIA. So I just say like what's the exposure of TI business to NVIDIA's AI systems. The first question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 10:35PM, TXN.OQ - Texas Instruments Inc at Morgan Stanley Technology, Media & Telecom Conference The second question is like also in your last quarter report, you're saying you have like $1.5 billion direct funding from CHIPS Act. But like this week it was announced like this may be canceled. And also the time line, you mentioned cost is $1.5 billion is like 2026, next year. So it means like it impacted your plan to get funding?

Question: Joseph Moore - Morgan Stanley - Analyst : I guess on the topic of kind of all the geopolitical questions that are happening right now, it's got to be very difficult to run some of these businesses when there's tariffs that are maybe coming, going. We don't know if they're going to be there. Do you see any different behavior? Do you think people are pulling things in to deal with tariffs, just anything that's different because of all of this.

Question: Joseph Moore - Morgan Stanley - Analyst : Great. Thank you for that question. Mic is coming. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 10:35PM, TXN.OQ - Texas Instruments Inc at Morgan Stanley Technology, Media & Telecom Conference Unidentified Participant I was wondering if you could help us understand or size the amount of application-specific revenues compared to catalog, either industrial, automotive or both?

Question: Joseph Moore - Morgan Stanley - Analyst : Other questions? Okay, we'll wrap it up there. Rafael. Thanks so much.