Good morning, everyone. Thank you for coming today. I'm Stacy Rasgon. I cover the U.S. semiconductor and semiconductor capital equipment sector here at Bernstein. I cannot express what an honor it is to have our guest here today, Rich Templeton, the Chairman, President, and CEO of Texas Instruments. Before I start, I do wanna mention, if you have questions that you'd like to ask during the presentation, at some point soon, there will be a QR code that will come up on the screen here. You can scan that. That will give you a link to our Pigeonhole form, where you can submit those questions, and we should have time for Q&A at the end. Texas Instruments and Rich have been coming to this conference for almost as long as I've been at Bernstein. It's going on a fairly long time. I always joke the company is so consistent that I know the answer to every question before I ask it, and they're kind of the same answers sometimes no matter what the questions are. This time around, I think there are some very new interesting dynamics at foot. The company is embarking on a plan for capital investment that we haven't actually seen probably since the beginning of those days when Rich started coming to this conference. I have a feeling today's conversation might actually have some real new stuff. I can't wait to dig into. To do that with me, hopefully, it gives me great pleasure as always to welcome Rich. Thank you so much for coming today. I really appreciate it. Thank you, Stacy. Now- I'll see if I can stick with just the old answers. I like my chances. Before I get into that, you know, I always hate to use this session for short-term stuff, and I know the answer is probably. Let's just get going. Let's go. What is going on out there? What are you guys seeing? I know you are a little different, right? We'll talk about this, but you guys decided to build inventory last year when nobody else did. It was probably a very smart decision as it turned out. Your lead times have kind of normalized broadly, whereas many other players have not. You've got maybe a little more concentration in China. You're seeing a little more impact from the COVID lockdowns and those. Just in general, like, what is TI seeing right now in this environment? You know, we've had a chance even this morning to talk with some folks. Mm-hmm. If you look, I think it was in July of 2021, the earnings call, we said that we had started to see a shift from just this, we need more of everything to, okay, we need to really make sure we have these unique parts. Mm. or make sure we have mix right. I think we made those comments. I think Dave and Rafael got profoundly booed when they made those comments in July. I said, "Suck it up. Okay, you guys can handle it." We then repeated that narrative really in October, again in January. Mm. again in April, because it's kind of the same thing we're still seeing. I think, you know, you see it and everybody in this audience hears it. You still have companies talking about supply chain disruptions and lack of availability and. By the way, their inventories are growing, so clearly it's a mix issue that must be- Mm. You know, inside of there. I think that's still, you know, pretty consistent with what's going on in the marketplace. You know, as we joked just in the few minutes before starting, people are like, "Well, you seem very relaxed about it." I'm like, "Well, it's because I'm very relaxed about it. Mm. 'Cause what it's gonna do is it's gonna go up until it stops going up, and then it'll go down, and then after it goes down, it'll go up again. Mm-hmm. I just don't care that much. Mm. Because we know where we're going, and what matters is the longer term. We know how we'll, you know, make those transitions when they occur. You know, when it happens, it will. Let's talk about a little few pieces of that. First maybe on the inventories, and again, as I said earlier, you guys are one of the few folks that actually built inventory in 2020. My impression is that that is a lesson that came out of the financial crisis, and you may have been the only ones that maybe learned the lesson. For those of you that maybe weren't doing this in the financial crisis, I mean, you had this big whipsaw, and everybody got caught on the wrong foot, and lead times like stretched out to, even for you guys, stretched out to amazing levels. I kinda got the impression that it was, for you, it was like you didn't want ever that to happen again. The idea was because most of what you're selling, especially now, doesn't go stale, there's no real like long-term impact. Like you ship it today, you ship it tomorrow, like what's the difference? Like over time, it's the same thing. You did build inventory and it seemed like it worked. Is that an accurate sort of like way to think about how you guys have been thinking about the inventory strategy? Because the other piece of this is you obviously, you wanna take them higher versus- Right. where we are today, right? Correct. I guess broadly, how are you guys thinking about that inventory management and, you know, I mean, the idea of taking inventory to 190 days, it sounds like Rafael wants to go even higher than that? Mm. The other piece of this is I have trouble parsing is anecdotally a lot of the issues when customers are complaining about shortage. In many cases it's TI parts that they're complaining about. Mm. I don't know if that's just 'cause you sell everything to everybody, so like you're, there's always gonna be something. Like I just- I su- How do you square all of that? I suspect that the latter is true. When you're on just about every board- Uh-huh. When you have a lot of things on boards, you'll tend to be popular. I think you, as you said in the introduction, you can ask the question and answer it pretty well, and you have. We do, you know, try to learn lessons over time, and we did feel we could navigate this downturn. You know, I remember in April of 2020, when we said we're gonna keep the factories running, there was this kind of general dismay of what you're doing. We said, "No, trust me, it's really the right move." It really paid off. You know, the only problem was we only got so much inventory built, so it only lasted us until first quarter of 2021 before the world kind of caught up and worked it over pretty well. You also hit, I think, the most important point, which is we could not have done this in the global financial crisis because our mix. Well, we could have done it, but it would have been. Yeah. 40% of our mix, not 75% of our mix, because it would be reckless to do inventory builds on vertical markets where your device is essentially custom. Mm-hmm. Because there's a very great chance you're gonna have an obsolescence risk, and that's just bad business. In some ways, our portfolio, and it comes back to these competitive advantage discussions we have, we're able to do things by design, by intent. Because we've built this broad portfolio, we can sell these parts to many customers. There's very, very low risk of any obsolescence, so it lets us do things that other companies just aren't gonna be able to do on that front. Got it. Now, are you parsing the demand that you're seeing in the sense that, like are you just like, if you can fulfill the order, you're shipping the order? Like, are you applying any sort of filter to the orders at all or? Where there's limitations. Mm-hmm. We are providing a strong hand. Mm-hmm. I think, Dave and Rafael talked on the January 2022 earnings call. We put an enormous amount of work across our senior leadership team between fourth quarter of 2019 and fourth quarter of 2021. We actually grew revenue- Mm-hmm. In every end market. This took extraordinary control and discipline, so you did not allow the noisiest, outrageous customers to commandeer- Uh-huh. disproportionate amounts. Because many times you get into the large industrial market and the quiet mid-sized customer gets hurt because, you know, somebody's commandeering things. We think that's gonna pay great dividends long -term, that we've really been able to reach across a very large customer base. I think we've done a good job because everybody feels like somebody else is getting, you know, their share, but everybody's getting supported. Mm-hmm. That's been an important element that we've applied to it. I think you can see it when we gave the end market update in January of 2022. While industrial and automotive incrementally grew, they didn't grow disproportionately, and that was by design. We wanted to keep that consistency across the customers. Got it. I wanna ask about the new capital plans in a moment, but just as it relates to inventory, I do know you wanna take inventory higher. Yes. You're kind of still, like, closer to the low end of the, what's the range there, 130-190 days? I think it is. I think we're below coming out of it. I can't remember what it is right. Maybe it's below. 127. Okay. Yeah. You want to go to 190 or maybe even above. Is this something that you can do in the current environment once the new capacity starts to come online? Or would you almost need a bit of a pause in demand in order to give yourselves the opportunity to be able to just have enough capacity to make that inventory? You know, it's gonna be a blend of the two. Uh-huh. is my guess. You know, we've got you know, things continue to move along well with our Fab 2 and with the work with the team up in Lehi. You know, they'll be coming on incremental growth from the existing factory. You know, it'll be the combination of what does demand do, what does supply wanna do, and Mm-hmm. We wanna get that inventory replenished as quickly as possible because that gets everybody back to, you know, we can just service people in an easier way. As you can well imagine, Stacy, it's been, you know, both sides of the supply chain, if you're on the support and sales side or if you're on the customer side, it's been a tough 18 months. Mm. For people in that business. The sooner we can get that pressure off them, the better. Got it. One last short-term question, then we will move on with China. Obviously you're seeing some impact from the Shanghai lockdown. You're actually seeing a fairly much larger impact than many others are seeing. I was really surprised. A lot of folks so far are not really seeing much of an impact at all. Now, is this like just can you maybe comment a little bit on why? For those of you that don't know, TI effectively just sort of took a 10% haircut, which was very sell side-ish, by the way, which maybe not a bad thing. Like, what is driving that? Like, why do you think you're having like or seeing a larger Is it just that you're kinda closer to the customer, you do more direct, you've got less of a channel to act as a buffer? Like, what drives that? Yeah. Well, I'm guessing those are parts of. Mm-hmm. Why we see things or potentially see things sooner. It's also a case that, you know, Dave and Rafael, I think we're very transparent. You just said it well. You know, we were watching run rates as we started getting, you know, seven, eight, nine days into April, and you had a different, you know, rate they were going. Is that when it changed? Mm-hmm. Was it kinda like in April? It was. You were leaving March and going into April. It's why, as we said on the call, that we were on our way to probably guiding at, you know, some number around $5 billion. Instead, you know, we ballparked it at, you know, 10% off that. Mm. People are like, "Really? You just 10%?" I'm like, "Yeah, because things are unknown. Mm-hmm. I think we got that call more right than wrong in that during April and May, you know, Shanghai had some real challenges. Mm. You know, as we all read, it's starting to open up, but it's not back flowing at the rate it used to be. In terms of magnitude of impact, I'm careful. Let's get the quarter done. We'll find out what the. Mm-hmm. What the impact to other companies is or isn't. I think you've seen the range of end OEMs get impacted differently as well on this, so. To be fair, you guys have a fairly sizable infrastructure in Shanghai, and you have, I can't remember what the number is, 55 or 60% of your revenue that ships doesn't actually get consumed ultimately in China, but ships into China. Mm-hmm. It's pretty high. There's a higher percentage. Yeah. Okay. Got it. Let's talk about some more of the interesting stuff now, and these new CapEx plans, I find very interesting. There's a few ways. We've got RFAB2. The shell has been built, and so my understanding is that is being equipped now, right? We've got Lehi, that was the old Micron XPoint fab that you've purchased, that will come into volume production beginning of next year. Sherman, which ultimately, who knows how long it'll take, but it'll be four factories, $30 billion of investment in Sherman over that timeframe to equip them however long that takes. That is the sort of universe of the plan at this point. Now this is not the first time you've embarked on a CapEx strategy, although it is different. I still remember, I think it was in 2009 when you first announced RFAB1, when you bought the Qimonda assets. People thought you were insane. I still remember you're gonna be underutilized and all this, and you were, "Guys, it's we're getting it for $0.10 on the dollar. Like, this is. Do you understand the returns on this?" I would say that that's been proven. I think you used to have aspirational targets for something like 55% gross margins, like someday, and you just printed 70%+ last quarter. We snuck over that. That is all done well. There are some differences now, though. Maybe you could just articulate a little bit on, at a high level, what are the differences of the current CapEx strategy versus what we saw over the prior 10 years? Yeah. I actually believe that the commonalities are higher. Okay. The differences are actually pretty minor. Okay. About the only difference is it's not gonna be done with discounted equipment. Yeah. which investors make a big deal about. You know, Stacy, as you know, back to a prior life, you know, it's great to get equipment at 10 cents on the dollar, but as you know, the real magic of 300 mm wafer fabs is the 300 mm, not what did you pay for it. The rates of return that, you know, we'll be able to achieve, the cost that we'll be able to achieve with all of these factories, and you summarized them very well, they're gonna be everything that we've ever seen on RFAB1. We're gonna be thrilled with what that looks like. The commonality, and it's what we loved about the RFAB1 plan, is we knew that we had a great growth plan. Everybody internal knew where it was gonna be. We could get lined up and then just go about executing. The beauty about the roadmap that you described of RFAB and Lehi and the four facilities up in Sherman is we've really got a 10-, in fact, 15-year roadmap, depending on what the growth rates look like. Mm-hmm. You know, I've talked with investors. I think I've probably had 50+ video calls with different CEOs and their teams and used the, in some ways, almost the identical slides that we used on capital management on that capital roadmap. Mm. The response that we've had from customers is just spectacular. It's spectacular. You know, it's one, we love the fact that, you know, you are specifically targeting 45 nm to 130 nm because we are gonna need that type of technology for decades, not just a year or two. In fact, three decades. Two, we love the fact that you own it and that you don't have to negotiate with foundry suppliers and the whims of what may be in that. We love geopolitically where it is. Okay? I've had a number of them sit back and say, "And we love the idea that you have, in fact, a 15-year roadmap, and you're looking at your business that way because that's the type of supplier that we need to be working with." The strength of the feedback that we've gotten from those calls is really very assuring. It's leading to even more work on a day-to-day basis on becoming one of the preferred suppliers, making sure you've got kind of preference on boards that are getting done, because as you can either imagine or you're well aware, almost all companies are starting to rethink their supply chains and what do they have to do differently to get them more resilient, be more focused, make sure they've got the right partnerships and the relationships on that front. I couldn't be more thrilled with how that plan has come together, how that plan has rolled out, the reaction that we've had from customers and the progress that the team is internally making to get this stuff in place. Then lastly, I think it does tremendous things to our internal business people and product line managers because they can operate with great confidence that they know where they can put designs and what they will have to support. That's all really been very, very effective. Got it. I guess in terms of like the amount of capacity that's going with. You sort of talked about a 10 or a 15 year roadmap, and I think you said over that time frame, the industry can grow 7% or whatever the number was, and you wanna have the capacity in place to be able to support that. Is it correct that you are not committing to a 7% growth rate? Is that statement true? Fairness. Wonderful. I still get that from many clients who believe that you have committed to a growth target, so. Yeah. I find this whole growth target thing a silly discussion. Okay, well, who's 7%? Do I have a bid for 8%? What about 10%? You know, let's just go do the work, and let's go get the results done. The key thing, and it's what I think we're successful getting across, is if this world wants to grow at 7%, we're gonna damn well make sure we're able to do that. In fact, if it wants to do more, you know, if we're getting encouragement from customers, and I don't mean orders in the next year or two, because that's all garbage. I mean relationships that we can truly turn into design wins. The encouragement we're getting is that we ought to think even more ambitiously of. I'm not that surprised by that, by that sentiment. The good news with that roadmap is we've got the ability to, you know, the whole reason that we told people we're gonna build Sherman I and Sherman II is we wanted to remove the construction lead time for the second building so that if we wanna move faster on that, we can. Mm-hmm. We don't have that 18-ish, 20 months of delay in place on that. Yeah, that's how I just tend to think about that longer term growth rate. Got it. I have maybe a, I don't know if it's a provocative question or not, but, like, how can the returns on these investments be the same as what you saw in RFAB 1, which was discount equipment, especially if your steady-state CapEx intensity around 10% is two to three times what you were spending post RFAB1? Yeah. What timeframe? Well, maybe that's the question. From my understanding is I get the initial surge to build up, but it was sort of a steady state, like forever 10%. Yeah. You get out past, you know, year five, and you get this absorbed and the P&L is gonna perform spectacularly with that degree of 300 mm equipment inside of there. Maybe a better version. Why is the maintenance CapEx like 10% versus before when it was like 4%? Like, if I'm taking away the, you know, like the initial surge. Yeah. What is the maintenance CapEx need to be? The biggest difference is growth rates between 20% and 30% and growth rates between 10% and 20%. You know, as you just said, we you know probably had 3% growth rate at the company level because you had mix and transitions taking place between 2010 and 2020. Uh-huh. You know. It's a percentage of revenue, right? That should take into account- Yeah, growth rate means you have to have it ahead of time to be able to have it ramped up. Uh-huh. The growth rate is the primary difference in terms of it. Obviously, like I know you guys don't care, but people do get hung up on the impact on gross margins. To your credit, I think you've been very transparent. You're laughing. It's true. I laugh because I care, Stacy. To your credit, you've been very transparent on how to model this. I think historically you've said something like, you know, in regular terms, 75% kind of gross margin on average, and then sort of layer on the depreciation and everything else on top of it. I know ordinarily you don't care about depreciation because that's not cash. The cash gets impacted when the CapEx happens. It does seem at least for the next, like, five years or whatever, free cash flow will get impacted because the CapEx is there, right? At the same time, you guys tend to run for growth of free cash flow per share. Like, I guess, how do we think about that in the sense that I'm not as convinced that free cash flow per share is gonna grow at least over, I don't know, three years or five years or whatever. Maybe the answer is just you're thinking over 15 or 20. Maybe that's the answer. No, I think, your statement is. Let me just back it up a little bit. Mm-hmm. I think if you say, "Okay, with that approach, could free cash flow per share be slower year one, two, or three? Mm-hmm. It's simple math. You've done it. You get to year five, depending on where you're running revenue. Mm-hmm. You're gonna probably have free cash flow per share that's higher. Mm-hmm. Okay? On an absolute basis. To me, what matters is where are we gonna be in 2025 and where are we gonna be in 2030. You know, we've said even on free cash flow margin, we're not driven by how do you maximize that because there's no awards- Mm. for who's winning the biggest free cash flow margin contest. Mm. The award is. I always just clarify sustainable long -term. Mm. You know, what's your free cash flow per share gonna be in 2025? What's it gonna be in 2030? Mm-hmm. That's gonna be the dominant determination of the value of TI, I believe, from an investor perspective or an owner perspective. This will clearly get us in a position where, you know, we're gonna be able to drive that number higher. Mm-hmm. You've asked questions, I think even in the past couple years we've been here, you know, if you think about the transformation at TI over 15 odd years, from 2004 to 2016, a lot of that free cash flow per share growth came from margin improvements and share count improvements. Very small amount from top line contribution. Even though you had Analog growing great, you had other mix thing in place. If you look at the contributions from 2016 to 2021, you see revenue becoming what it needs to be. By the way, what it needs to be, we're not going to be able to do the same thing we've done with margins from the past 15 years. Yeah. I don't know the trick to do that again for the next 15 years. I mean, that's a broader question in Analog that I already have—I always have, which is, does growth need to be a bigger part of the recipe? You're not gonna get another 1,500 basis points of margin. That's, yeah, simple answer. Yeah. Yes. Now does it mean that there is an incremental margin opportunities? I think there are. I think there's incremental margin. I think there's incremental share count gains depending on what valuations do and how that works out. You've gotta be looking at revenue as the primary driver. You've gotta have the capacity in place. You know, I make the statement kind of in a silly way, but you know, the criticism or the critique that you know, Dave and Rafael kind of felt was, we like the plan, we like the growth. Can you do it without the capital? Well, wouldn't we think of that? You know, that's a hell of an idea. Oh, yeah, by the way, we like that you control your own manufacturing. Like, oh, another constraint. It's just, you know, people have actually, well, we kinda like the plan is what they're, you know, now saying when they look at that. It's not popular in the West or in the U.S., you know, we've had a 25-year period of, well, the best models are outsource the hell out of everything and have no fixed assets on the books. I just don't think that's a great recipe for everything. We certainly don't believe that. You know, our plans are we think we're gonna be able to drive that growth in a very, I think, smart and disciplined way. How much of your manufacturing capacity today is, like, self-controlled? Like, where does that go to in five years, 10 years? Self-controlled. Self-controlled. You own it, like you control versus, like, outsourced. Oh, yeah. You know, about 80% of wafers, okay, are internal. 60%-ish of units, all of test is inside. But the good news, the units we can move quickly because that percent is highly skewed to lower complexity package type. So we can move those pretty quickly when we wanna move that. That 80% wafers will trend up. I think we showed that on Yeah. That one slide. The units will trend up as well. Mm-hmm. Got it. I guess just to refresh our memory, like, so you're basically full right now. How much capacity, and just in terms of, like, revenue capacity is coming online with our Fab 2? How much is Lehi and how much is each of the Sherman units? Yeah. Ball-ballpark. Yeah, I go ballpark because, you know, these things always depend on what you build and what the world looks like. It's kinda simple math of, you know, each of those wafer fabs is probably $5-$6 billion of revenue annually, probably closer to the $6 billion, depending on what we've got inside of it. Lehi is a little smaller, so that number is not exact for that. That's not a bad, you know, just approximation for what you can put across those over time. Got it. As RFAB2, will you be capable of running it, assuming, I'm not saying the revenue would be there, but if you had $6 billion of incremental revenue by the end of the year, would RFAB2 be capable of running it? Will it be fully equipped at that point? No. You've got to ramp that over time in terms of just, you know, very simple calculation of number of tools per month you can move in and how many tools end up on the floor. That's then the number of months that it takes to get all that work done. Well, how long will it take to ramp our Fab 2? Like, because Lehi is sort of self-contained, right? It's already... No, we've got to get a mix of tools in there as well. Okay. It came with equipment, but we've also got unique, you know, they were building something very different. Okay. As you know, then, you know, the processes that we'll install in there. We've got equipment that we'll have to get installed. I guess, like, when is it? Because everybody's wondering, like, when the supply constraints ease. For you, like, that's the biggest driver, you get incremental capacity that comes online. Yeah. How long does it take to ramp that stuff? You know, it's gonna take some time to get that stuff going. We had a first equipment move-in occurred in February for our fab. The team is moving on that. Revenue, we'll have moving across it in the second half. Mm-hmm. We've talked Lehi as early 2023 for production out. We've got a great friendly contest with the Lehi team on Connect. I had pulled into 2022 to try to move that even sooner. Everybody's going as fast as they can on that. Okay. Got it. It's exciting times. It's, I guess maybe one last question on this. You talked about obviously, like, there's strategic reasons to bring stuff onshore and to have, like, fixed assets here in the U.S. Subsidies is certainly a big question, and we're all waiting still for some of the regulations to get this. Presumably, you guys should be, you know, very eligible for some of these subsidies. Is that impacting your decision to actually do this now? Because my own view is, like, I figure if you need capacity and you're gonna build it in the U.S., now is probably not a bad time to start, right? Is that driving any of the decision at this point? Zero. Okay. We made our site choices. We've picked our locations by where they will be most cost-effective and most efficient for the long -term. That's about location within regards to engineering. It's about cost of energy, and it's about making sure those roadmaps make sense. If there is indeed a CHIPS Act or hopefully even a FABS Act, it's all. Mm-hmm. It's just gravy on top. In terms of that, I think we were, you know, very clear on that February call that the numbers we're showing on CapEx is what the gross capital expenditures would be, and if there's something that changes on that, it'll just net it down. Okay. Got it. Let's talk about some other issues now. I wanna talk about R&D investment in OpEx. You guys just in terms of total OpEx, you're running on a 16% of revenue right now, which is below the target range, which I think is 20%-30%. The reason that is primarily revenues have obviously grown a lot and OpEx has not moved at all. How have you done that? How is OpEx. I mean, we got wage inflation and there's, you know, need to invest it. Like, how have you guys managed to keep up? OpEx down, like, how should we be thinking about that, assuming revenue is kind of like staying in this new range? Yeah, I would, I guess I would describe it a little differently. You know, the world gets into this, "Well, what's your OpEx model as a% of revenue?" Yeah, we've got it, we've said it, but we're also very careful about letting that drive things. What we care about is how we grow free cash flow per share over the long term. If we think spending more makes sense, we'll spend more. If spending less makes sense, we'll spend less. I mean, can you talk maybe a little bit how you guys think about investing R&D? Yeah. Like what drives- I'll go right to the heart of your question. Please. The other thing that's difficult, if, you know, you make the comment of what the OpEx trend looks like, and gee, you look at it over a couple of years, or if you look at it over 10. The danger when you back up over 10, usually you get better insight with time. We've had a lot of mix changing over a 10-year period as we were bringing down wireless and making some portfolio changes. The bottom line, if you look at how we're thinking and how Haviv and I are operating on a daily basis, we wanna be steadily growing, okay, our staffing and our resources, okay, to drive R&D. Mm-hmm. That is a recruiting plan. That is a new college hire plan. Just when we left the building on Tuesday, the halls were full of all the interns that are in for the summer. The average age, you know, had dropped to 24 in the hallway, but there was a lot of energy. That is a great way to build the company over time. We've been on that strategy for a number of years. We kept our, you know, intern program. We had to do it virtually. We kept it going during COVID. Most companies stopped it. Mm-hmm. We are gonna benefit by that kind of long-term steady hand of hiring and growing. I would expect to see R&D, now that most of the portfolio changes are done and in there, you'll find R&D steadily growing, okay? Not alarmingly. You've seen tech companies talk about slowing hiring, and I get asked, are we slowing it? So we never sped it up, so- Mm-hmm. We're not slowing it. We're gonna run it on a very, very steady basis. Mm-hmm. Regardless of what revenue does. Mm-hmm. That really is the right way to think about it. SG&A is in many ways the same thing, and the only thing that we'll do a little different on that is to make sure that mix. You know, if we could spend less, we would, but if we've got important projects building out capability on ti.com, those are damn near like R&D investments. You need to make those because of the long-term value. You're not gonna see us gyrate SG&A down, even if you have corrections on revenue as well. It's gonna be a very steady hand in terms of where those investments are going and what we want out of that. Got it. I guess on an SG&A front, you guys are a lot more direct. You've got probably a lot larger field force and sales force in a lot of these regions. I wanna talk a little bit about that move to direct and away in general from distribution. You guys, everybody sometimes they when I talk to clients about you guys, they look at the distribution or the direct strategy like it's something new. It's not. Like it's, you've been going down this path for at least probably 10 years, like maybe longer, like different. Correct. Pieces of it, right? You've pulled away a lot of the, I think you use disty still for fulfillment, but not so much for demand generation. It's interesting, there are not a lot of other companies that do this, especially companies that sell to, you know, 100,000 different customers. Can you talk a little bit about how it is that you're actually able to do this? I mean, there's a reason in theory that the distributors exist. You seem to be able to do it. There's always a counter is they're gonna lose share because their distis are not. We haven't really seen it, right? We haven't seen those share losses or any of those kinds of share losses develop. What are you doing that enables you to take that functionality that's sort of the bread and butter, what the distributors do and do it yourself and do it very successfully? Yeah. Well, I think embedded in that question, you gave a lot of help in it. This has been a long-term view, and it's really a very simple thought process of you do not want people between you and your customers because they have other agendas. Mm-hmm. I don't want inefficiency or people with other agendas buffering between us and customers. By the way, if you're closer to your customers, you learn more, you know more. Mm-hmm. You're gonna win more business. It really is that simple. Well, the practical then is how do you do it? If you can do it really well, I actually think, given the way you asked the question, it's a very difficult thing for our midsize and smaller competitors to emulate. Mm-hmm. We've built the fielded sales force and application force. We've put business processes and techniques in place to go very efficiently combine ti.com, and even the broader mass markets with app engineers so they can be supported. If they need help, we've got a way to be able to do that. Those systems are all coming together, and they're coming together very well because we've been working on them with that plan in mind. The cycle of COVID and the demand is actually, you know, as we started that final phase of moving from 35% direct to 70%, you know, a lot of customers said, "Yeah, okay, we're good." Well, about a year ago, it went from we're good to we want in. Uh-huh. Okay? We want direct. We want, we wanna make sure, you know, we're on your list, and we want you knowing who we are and having access. Mm. We were enormously fortunate to get that all going when we did. It's allowed us to navigate this cycle even better, and I think strategically we're gonna be in a very, very unique position. You know, when you hear Dave and Rafael talk about competitive advantages, manufacturing and technology, breadth of the portfolio, reach of the channel, diversity and longevity, those all work together. We really do believe that the ability to replicate what we do is very, very difficult, even for some of our closer competitors. Mm 'Cause they don't have the breadth, they don't have the manufacturing and technology. Take this topic that we're on, they don't have the field force, they don't have the infrastructure, they don't have the investments, they don't have investments we've made in logistics. We keep doing this well, we're just simply gonna be the most convenient supplier to do business with. Yes, it's a technology industry, yes, your parts and your technology matter, but if you do all that well and you're really convenient to work with. Mm-hmm It's a great combination, and that's what we're well on our way to. Got it. You know, you have a competitor now that's starting to get closer to your scale. You're not seeing any of this? They're not trying to duplicate anything that you guys are doing? They don't have the capability. Like, do you think there's maybe the broader question is, do you think there's any broader threat to you guys, like from the consolidation we've seen in the industry that, you know, you guys have not participated in, like probably since 2011 or 2012, right? Yeah. We've thought for years, I get asked, you know, what are the risks, and one is, could somebody combine and build up what we built so they could play the game the same way? You've seen some consolidation with acquisitions, especially in Analog, but, you know, while it's bigger, it's not as broad. Then start working through each of those slices. Mm. Okay, what's the answer on manufacturing and technology? Mm. So- Not there. The reach of the sales channel. Mm the investments we've made on logistics. I think, I'm gonna guess we just think about the problem differently. Mm. If we keep doing that and we stay aggressive on those implementations, I think it's a difficult thing to replicate. Got it. I wanna shift over to some of the businesses. I actually wanna start with embedded first. What's going on in embedded processing? Like it's undergrown and you've talked about. I mean, I know some of it was deliberate, some of it there was the comm piece that was exited, but some of it was not deliberate. You haven't heard that from us for three years, that it was deliberate. That was a while back, right? It’s I think I've been very clear. I think Rafael and Dave have been very clear. Business has underperformed. I just wanna understand why. Like what's going on? I think if you take a look, and we made a leadership change in 2019, and I was very clear with Amichai when he took over, I said, "I am not looking for quick fixes. Don't go chase a bunch of one-off pieces of business, so it looks better in the short term. I want this thing rebuilt for the long term, and long term means that it stabilizes, and then, you know, as we get into 2022 and we get into 2023, we start putting together long-term consistent growth like we're experiencing with Analog. The changes that are being made are just easiest to describe as go get a product portfolio in place that can serve a broad set of customers, as opposed to let me go chase a single socket that when you hit it's a lot of fun for a couple of years, but it doesn't have sustainability, and it doesn't have the long-term strategic legs. That team has done a great job. I've been pleased with the progress. I'm pleased with the energy, pleased with the product roadmaps. We're starting to see some of those parts come out. Mm. I'm a huge believer that if you wanna get a sense of how a team is doing, go check with the sales force because if your parts and your people are not getting customers excited. Mm ... your sales force won't care. The great news is that the energy is high. The leading indicators are all good. Then the final piece of that could be one of these great, sometimes you just get lucky if you work hard enough and prepare, is you've got Lehi showing up with 45-nanometer and 65-nanometer capacity along with a refreshed product portfolio in a time when a lot of the other embedded suppliers have not exactly pleased the world with their supply, and they don't have great alternatives on 65-nanometer. Are those new products gonna take advantage of some of the more advanced process nodes? Mm-hmm. Okay. I guess Lehi is. As Amichai has said, Lehi is his new favorite city. Okay. Do you see that, like, I guess, like longer, if we're looking out to 2025 or 2030, do you see more of your portfolio actually maybe moving to some of those more advanced nodes? No. I think what you're gonna find, and it's why even, you know, go back to that slide that the guys used, talking 45 to 130. You're gonna have die sizes and types of devices, especially Analog, that you just look at the voltages they wanna handle, capacitors, size of the die. You wanna figure out where the cost optimized wafer lithography is to have. In many of those, that'll be, you know, a 90 or a 130 nanometers. We'll be running those nodes for literally decades, where they will be the most cost-effective nodes. We'll talk about Embedded, really, you know, the new favorite city is Lehi, but you've got portions of Analog that can go down and take advantage of a 65 nm node, and we will certainly do that, and we've got roadmaps on that. Mm-hmm. It'll be very dependent on the product, the density, the die size, where does that make sense the best position it. Got it. Let's talk about Analog a little bit. So this is where you guys have killed it. I know market share is slow, but it's steady, right? You know, only half a point a year or whatever, but it's been pretty consistent there. I guess can you just maybe talk about just in general how you think about the attractiveness of that market, whether it's content or it's sustainability or it's barriers to entry, it's the terminal value of the portfolio. What is the TI-like recipe like within Analog? Well, I think it's, you know, it goes back to, and even the answer on what we're doing on embedded, I think shines a light on how we think about it, which is invest and build out product portfolios that can sell across customers, sell across markets, and can live for a long time. Okay? Uh-huh. By the way, they all tend to be what people would call low average unit prices. Most people say, "Well, low average unit price must be bad." I'm like, "No, no. What's your AUP? Yeah, $0.40 isn't a bad number. You just, you know, we did 50 billion units or something in 2021. The AUP is not an issue. What you care about is the margin inside of that thing. We just, we are firm believers as we just look at the sustainability of that strategy and the value of that, continue to invest to build that portfolio out, and then have highly efficient manufacturing and highly efficient channels, okay, to be able to get those portfolios to customers in unique ways. Now continue to strengthen those portfolios and build them larger. Got it. Got a couple of minutes left. Should we go to the lightning round? Some of the questions from the audience, let's see we've got. Okay. Demand weakens, will you keep the fabs full and build inventory? If so, what is the inventory level you're comfortable with before cutting utilization? Answer is yes, we will. Answer is higher, and we'll determine at what level we start wanting to not take inventories higher, but stay tuned. Okay. Can you talk about the competitive landscape in analog semis and how it's changed with consolidation of major competitors? Yeah. The simple version is not a great change. We competed against all these companies when they were Maxim and Linear Tech and ADI, and now you compete against these same companies. They just have one name. That's always been. We've talked about it. Even the question is do you use those assets differently and can you get to customers differently? You know, today you're competing very much the same way. Okay. Are any of your segments more or less impacted by the China issues? Haven't broken it down. Let's stay tuned, and we'll get an update on that in July. Got it. What areas in industrial do you believe have the most potential to drive growth and why? Yes. You know, we joke a little bit about that. Dave is tired of me saying he starts with his boring speech of, is it 13 end markets? 13, 15, I thought. 13? 13. I think it's 13. Thirteen. We love them all. It's the, you know, which is your favorite children discussion. We've got focus teams, and we've got work in all those areas. No one of them is ever gonna be the subject of an annual report, the subject of Strategic Decisions Conference, but the addition of all of them, the thing that's exciting about that broad industrial market is the same semiconductor content growth that you see, and electric vehicles gets used as the best example of it. Mm. Because you've got mechanical objects thrown out and you've got, you know, batteries and semiconductors and electric motors replacing it. Well, that's just literally taking place across all those industrial markets as our customers are trying to get their equipment smarter, easier to service, using less power, able to connect and be smarter. I think that's gonna be a great, you know, collective set, and we love all those markets. Got it. I might ask the same question actually on auto. Like, auto you have, what, five sub-segments? I think you've talked about all of them doing like, well, safety was one I know for a little while was a little bit of an issue, but how do you think about the auto segment? It really is the same. Even today, if you bring up automotive, I think most attention goes to electric vehicle because it's so topical, it's growing fast. By the way, it's gonna do that for a long time when you look at diffusion curves of what are still in front of us. You know, I think one of the great things that we've done, and I think it's why you've seen, you know, a decade plus of consistent outperformance on automotive space. We don't chase single applications, single customers, single exciting things. We've got teams deployed to all five. You know, we joke, we get excited about the tail lights as we do about EVs. You go in and look at motor drives. You go in and look at ADAS. Mm-hmm. All of those are wonderful opportunities with growing semiconductor content. Got it. Rich, we are unfortunately out of time. I wish we had another hour. I could sit here and do this all day. I think that's as good of a place to close it out as any. Excellent. Stacy, thank you as usual. Thank you so much for coming. Appreciate it.