Texas Instruments Inc at Sanford C Bernstein Strategic Decisions Conference Transcript

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

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : So I want to start out, I think, I guess, with the Elliott in the room. So clearly, I don't think TI has ever had an activist involved. And maybe just to start out there, can you -- just to level set where we are, can you just go over what the actual baseline plan is for your capacity and CapEx investments? And then I want to talk a little bit about the letter itself and the case that they're kind of laying out and just get whatever you -- because I don't know how much you can say at this point -- but like whatever you can say, I'd love to hear your thoughts.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Got it. So I guess just to level set on the current point, let me know if I got it wrong. So it's $5 billion in CapEx per year from '22 to '26, and that was taken up from $3.5 billion to $5 billion. My impression there was you're effectively reinvesting the investment tax credit in more CapEx because the depreciation guidance at the time was sort of held constant. So $5 billion through '26, and then '27 and beyond was 10% to 15% of revenue on CapEx to support, in theory, 7% to 10% revenue growth at that point. Do I have that right?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : And why, to your point? Because I mean I think by the end of '26, maybe by 2030 the revenue capacity was -- I can't even remember was supposed to support -- I can't even remember the number. Was it $30 billion? Maybe it was more.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Because this is -- industrial auto, I mean, you've been pushing this. You were one of the first, I think, (inaudible) got to be 10, 15 years ago at least, right?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Yes, please. There's a lot of different pieces here.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Just analog then, or it's embedded here?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Okay. How much revenue does Lehi support when it's at full capacity?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : RFAB1 was the original one back from 2010 with the Qimonda assets? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 30, 2024 / 2:00PM, TXN.OQ - Texas Instruments Inc at Sanford C Bernstein Strategic Decisions Conference

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : You don't have to requalify or anything.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Are you rewinning those sockets?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : But for the equipment that's there --

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : And that supports another, what, $4 billion or $5 billion when it's fully (multiple speakers). without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 30, 2024 / 2:00PM, TXN.OQ - Texas Instruments Inc at Sanford C Bernstein Strategic Decisions Conference

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : I thought you closed all your 6-inch fabs.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : And those ones are fully depreciated anyway, the 200 --

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : That's all phase one.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : $11 billion. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 30, 2024 / 2:00PM, TXN.OQ - Texas Instruments Inc at Sanford C Bernstein Strategic Decisions Conference

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Do you have any products on 28?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : For LFAB --

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : That was also on the slide, I think --

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Right. I mean, if revenues are growing 2% in '27, I'm assuming that [your CapEx would be lower] (corrected by company after the call).

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : That's the plan for Sherman right now?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : And there's going to be four fabs eventually?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : I guess if I add all of the incremental revenues, we had Lehi, which was -- maybe I don't know how much of it is incremental from where we are right now, it's somewhere you look maybe it's...

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Okay. Okay. And I guess same thing with Lehi 1 and 2. So Lehi 2 is $11 billion. And then it sounds like Sherman when it's done is what $36 billion, $9 billion apiece you said.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Incremental revenue capacity growth between now and '26 is primarily Lehi 2 then, is what you're suggesting? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 30, 2024 / 2:00PM, TXN.OQ - Texas Instruments Inc at Sanford C Bernstein Strategic Decisions Conference

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Okay. So there's $5 billion a year in spending between now and '26, but there's not a ton of incremental revenue capacity that's ready to go between now and '26.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : How much revenue do you think you gave up or left on the table in by '21 and '22 because of the constraints you had?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Because it really is interesting if you actually look at the data over the last like four, five years. I mean, you clearly did lose share. I mean, is this the primary reason? Because it wasn't just analog -- it was analog, and it was embedded. If I just look like strictly just at China as well, I'm sure we'll get to China, but everybody is worried about the Chinese taking share, and like broadly the multinational analog players have been gaining share in China except for you. Like you've been losing share in China over the last several years if you just the data. Do you think it was just all because of constraints? Do you think there was something else going on? And is there anything changing there?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Yes. I mean your inventory strategy flows into this is correct. So I find it interesting that -- I wondered about -- I know you guys were constrained, but at the same time, you were also building a ton of inventory, and you still are -- and again, I'm not going to -- I understand why, I understand the whole idea of the lifetime of the product as we move on, it doesn't go stale. Did you just build the wrong kind of inventory like at that point? Was it just hard to match what you built with (inaudible).

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : The beginning. (inaudible) Yet like anecdotally a lot of the constraints were coming from TI.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Not enough of it?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : You were the only ones that actually decided to keep running on COVID. Everybody else shut down. It was a problem, right?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : (inaudible) versus 2019 was the last industry downturn, `23 was a downturn. Non-memory revenues in '23 were down about 2% year over year. It wasn't a bad down year, but units were ¡ revenues were down -- units were down almost 20%. The only other worst year for year-over-year unit growth was 2001.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : And units (inaudible) were below the prior downtown, and ASPs were 30% higher for the industry and ex-memory (inaudible).

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : So let's talk about that. Broadly, it's been a weird cycle, right? I mean it's been very asynchronous, and we've had different end markets that have like peaked and troughed and leveled off at different points. It does look like industrial has rolled over really, really hard. A lot of these guys are down 40% or whatever peak to trough. Auto starting to -- it's not collapsing, I wouldn't say, but it's starting to roll over. It does look like broadly for most ¡ for you and most of your peers -- people are calling Q2 as the bottom. And you talked about like sort of like hopeful signs of recovery. I think there's still some controversy over the shape and trajectory that (inaudible). But like what are you seeing in, I guess, in the near term? I'm looking at the second half and maybe in the (inaudible). Are we seeing actual signs of like robust recovery yet? Or is it V-shaped or U-shaped or L-shaped, or like, and I know you guys usually don't talk about cycle. In this forum, I don't usually like to like drill a ton into short-term questions. Especially if you're actually looking for a recovery and preparing for it, what are you seeing in terms of where that recovery might actually be starting now?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : It's kind of stabilized for you guys. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 30, 2024 / 2:00PM, TXN.OQ - Texas Instruments Inc at Sanford C Bernstein Strategic Decisions Conference

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : (inaudible)

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Is it fair to say that you guys clearly do a lot more inhouse, more control, everything you're doing is you have more control over your own destiny. But you don't have as much of a channel, you don't have as much of a buffer. Is it fair to say that you're what you're seeing is likely closer to what your end customers are actually seeing versus having that buffer between [you and your customers, or distribution]. People look at you as one of the first to actually start to see the decline, right? Maybe for that reason, people wonder -- is that a...

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : What's your distribution revenue mix? It's not that high anymore.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : What are your sales going through there, by the way? You gave some numbers on the cash a couple of years ago only happen...

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : I guess it gives you like an early view to what customers...

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : I do want to talk about China.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : So even beyond TI, like a lot of investors, I mean, they see just a ton of capacity coming on in China as well. Questions of what is going to go into those fabs. It's all lagging edge because they can't do it again. So people clearly worry about potential for like local Chinese replacement particularly in Analog and other lagging edge technologies. And I think you guys have, I don't know, 50% of your revenue goes into China though -- I don't think that -- a lot of that's multinationals. I guess what's the local consumption in China? Do you have 20%? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 30, 2024 / 2:00PM, TXN.OQ - Texas Instruments Inc at Sanford C Bernstein Strategic Decisions Conference

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Do you think the pricing trends in China are different from what you've seen elsewhere in the world? Like do you compete harder in China versus where you have to compete up?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : I guess to touch on that concept of geopolitically dependable capacity. How important is the Chips Act? If it wasn't for the Chips Act, would you be pursuing the same CapEx strategy that you're pursuing right now?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : The ITC is actually bigger, right?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Got it. Got it. I want to ask about a couple of the growth markets that might your top line (inaudible). So how much EV exposure does TI -- because I was -- it's not really, really a joke like I would say that you were as happy to sell like the headlight controller of the cars as -- or are you in anything else, right? It doesn't seem to be -- you're just playing the general content trend. But like how do we think about EVs and their impact on...

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Correct or clarify anything I say.

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Like how much of your auto revenue today is EV? I don't know if -- you said there's going to be overlap, I'm assuming...

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Do you think your content in EV is 2x you said?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : How much TI -- what's the average TI content in the average car?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Got it. And then I'd be remiss -- I don't know if you want to hear but I have to ask about AI. Like is there any -- is there an AI play for TI? Like where do you guys benefit from that?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : What node does Sherman go down to?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Do you that's going to be a thing, humanoid robots?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : I wanted to ask a little bit more about like industry structure, particularly on M&A. So like TI has not really participated in like large-scale M&A for quite a while. Like you've had some competitors who have, and I'd argue have been fairly successful at it. What are your thoughts on that view? Is there anything -- I guess, do you need like -- have your priorities on what you would be looking for if you were looking for deals? Have those changed at all over the years? Or is that what kind of kept you out of it?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : And I guess talk about the free cash per trend. Free cash flow per share trend. Do you have a number in mind? I know you've given like sort of revenue capacity like kind of numbers. And if you go back to the Elliott letter, I know they were coming out at $9. I think it was $11 in '27. And I presume you guys have done the math on, hey, if we cut our CapEx (inaudible), free cash flow per share goes up. But you have some idea of like what that free cash flow per share trend ought to get you in '26 or '27 or 2030 or like whatever it is? Like what are we shooting for here?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : That why I'm asking. I can't remember what the number was. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 30, 2024 / 2:00PM, TXN.OQ - Texas Instruments Inc at Sanford C Bernstein Strategic Decisions Conference

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : That was not a target. That was to...

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : Actually down (inaudible)

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : That makes sense. Look, we've got about a minute and a half left. You've kind of been doing it, but I'll give you your soapbox. Why should investors buy TI stock today?

Question: Stacy Rasgon - Sanford C. Bernstein & Co., LLC. - Analyst : And I think that's a good place to leave it (inaudible). Thank you so much.