Great, welcome back. I'm Joe Moore. Very happy to have with us here today, the management team of Texas Instruments, Rafael Lizardi, CFO, and Dave Pahl, who runs investor relations. Just a quick research hedge for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please feel free to reach out to your Morgan Stanley sales representative. With that out of the way, thank you so much. I wonder if we could spend the first part of this talking about the insights from the Capital Markets Day. Maybe start with, you know, you're kinda increasing the long-term growth to 10%. You know, what gives you the confidence about that long-term growth rate? Sure. At the Capital Management call, about a month ago, we talked about a plan that would enable growth of about 10% for the foreseeable future for the next several years. We're putting in place a CapEx plan. We have put in place a CapEx plan that will support that. What gives us the confidence on that is the increasing content in semiconductor content, Analog and Embedded specifically, going into auto and industrial. That's number one. Number two is our position in those markets, that now the company's increasingly more on auto and industrial. Roughly 2/3 of our revenue is in auto and industrial. The third one is the input from our customers, on the geopolitically dependable capacity that we have put in place and we continue to put in place, both on the fabs as well as, on the assembly test, operations. I guess, I mean, one of the things I appreciate about TI is I feel like that's not a three-year CAGR from here. That's more of a long-term over time. I mean, you're not trying to make a cyclical prediction with it. Absolutely. We don't, right. The cycles come and go. In fact, we had a very interesting chart on our Capital Management call, I encourage you to go download that, which shows the ups and downs of the cycle. What is pretty consistent is the long-term growth, and we believe that's gonna continue. Great. Then to support that higher growth, you know, you're talking about capital spending that moves higher from the prior year's call, $3.5 billion- $5 billion a year now. Obviously, there's benefits from that you talked to, but maybe you could kinda walk us through some of those benefits and then talk about, you know, what drives you to do that at this point. Yeah, sure. Our plan puts our CapEx at about $5 billion per year for the next four years. That is up from roughly $3.5 billion last year. Now the difference is, we fortunately, Congress passed the CHIPS Act, which we do applaud as a good step to put the United States on an even playing field, 'cause many of those type of incentives are offered in many countries around the world. Roughly speaking, we expect about a $1 billion offset per year. That $5 billion will essentially get reduced to a net $4 billion. That's, there's a time offset to that, right? The cash actually comes in about a year and a half, later. The result in depreciation, it's about the same then as what we told you last year, despite the higher CapEx. Of course, you get that with now much higher revenue enablement. Yeah. I'd love to come back to the CHIPS Act portion of this. What informs the strategy, I mean, you come out of a two-year period where the shortages have been quite significant, not just TI, but everybody in the industry. Now you'll be able to go out with a message of supply chain certainty. You know, how much does this factor into this? You know, it seems like that's gonna resonate with customers. You know, a few angles on that. Dave, you wanna comment on that? Sure. You know, we put together this CapEx plan with the long-term growth in mind. Clearly the pandemic and the tightness taught us some things that we're trying to implement as far as our order fulfillment strategy and our inventory strategy, which we talked about at the capital management, we're gonna take inventory higher. That's because our business model allows us to, given the nature of our parts, catalog in nature, off the shelf, so to speak, long-lasting, diverse position. It's really low risk. That combined with our expectations from growth and allows us to put this plan in place to support that growth over time. I would add, as we went through the pandemic and had those shortages, there's a lot of boards asking their CEOs to look at the resiliency of their supply chain. Really, for the first time, at very high levels, at our customers, they're looking, you know, where products, who's, who they're buying products from, what their needs will be in five years, 10 years, 20 years, and then even down into where those products are sourced. As they do that, they find out that, you know, in some cases it might be 50%, some cases it may be 70% of their product is sourced either in Taiwan or China. When that gets reported to the board, you know, with the geopolitical tensions we've had, they've said, "Okay, what's our plan longer term to reduce that dependency?" When they look at our footprint and see where our factories are today, and then they look at where the additions are going, they really like that. They want to align their roadmaps and their teams to what we're doing. If we've had 100 of those, we've had hundreds of those types of discussions with customers. Yeah, we've seen that awareness as well, that the biggest OEMs are much more aware of where these things are being built than we've ever seen before. I'm sorry about that. Well, I just wanna clarify something back on the CHIPS Act. The numbers I gave you were for the ITC, the investment tax credit. Right. That's the part that is essentially non-discretionary, as long as obviously you follow what's in the law and it qualifies. That we're not accounting or for anything for the grant side of that, and the grant is what you hear about in the news, especially in the last two weeks. We're gonna aggressively apply for many projects on that front, but we're not counting on that yet. We'll see what we get, and then whatever we get, then we'll implement it. We'll include it. Maybe following up on that point, because I've gotten some pushback on our modeling of this. The $500 million of incremental depreciation fully comprehends the tax credit benefit of the CapEx, but nothing from the grant side, right? Correct. Anything grant-wise would be incremental to that. You know, how does that grant process work that's gonna be on a project-by-project basis, and what's the timeframe of making a determination around that? The guidelines just came out last week, more specific guidelines on that. If I recall correctly, for our matured... high level is about $40 billion that the Department of Commerce will be allocating. Roughly $10 billion of that is expected to go to mature technology, where we play essentially. The 45 nanometer to I think they define it 28 nanometer and above, but we're mostly in the 45 nanometer to 130 nanometer. They have a long list of criteria that some of it is kind of mandatory. If you don't do this, you don't, you're not eligible. Many is more preferential. Depending on what you commit to do or Then you'll have a preference to get some of the money or not. Each project can get up to $3 billion on a project-by-project basis. Yeah, we'll be a, for our technologies, I believe the window opens in May to submit the applications. There's a pre-application due in the next few weeks, and then sometime in May, we get to submit the full application, and then we'll hear sometime after that. Okay. It seems like a lot of the media focus has been around 2 nanometer advanced technology and things like that. A lot of the customer focus is really on the nodes that you serve. I mean, the customers who are most going through the process that you articulated, Dave, that they're going through and looking, you know, at their entire supply chain and making sure that it's derived from the right location, that seems to be more of an automotive industrial phenomenon than other markets. That's correct. The, of course, the low nanometer technology are very important, and they power, you know, very advanced chips. You cannot use those chips without everything that goes around those, which is a lot of what we provide with analog and embedded. Particularly in automotive and industrial, there are many functions or, and devices that don't use the more advanced technology at all. Mm-hmm And rely on the kind of embedded and analog technologies to to function. Okay, great. How does the cycle play into this, if at all? I mean, do you look at that $5 billion as this is the number for the next few years? Is there the potential to make a cyclical adjustment? How do you think about that? This is the number for the next few years. Okay. Yep. Yeah. I would add, as Rafael Lizardi pointed to it, but in our Capital Management slide deck, we showed semiconductor unit shipments over the last 30 years, I think it was. You can see the cycles, and we marked the, kind of the peak of e- or each of those cycles, and we listed how many months in between those peaks were on the slide. Then we just took the mathematical average, and the mathematical average is 40 months. If you call that roughly around four years, and the variability, as you know, you've been following it as long as we have, is quite wide. If you made a decision today to build a fab, you know, the time for the first wafers to come out is that long or perhaps longer, depending on how quick of a head start you have on it. The investment cycle is longer than what the typical or average cycle you'd see in semiconductors. You really need to be planning for that gray line that we show on that chart, the trend line over time, 'cause if you try to time that, you'll be either too early or too late if you're trying to be cued on trying to pick the next peak. Then I think that's helpful. Thank you. Then as you think about your cost structure coming out of these facilities, you know, subsidized CapEx is good, higher 300 millimeter mix is good, but you're also, you know, if you're competing with companies that are fabless, there could be all kinds of foundry wafer pricing dynamics that are moving around over time. You know, It feels like your view is that that will sort itself out over time, and the best thing you can do is control your own cost structure. Is that right? A couple things on that, and, you know, we could argue ad infinitum on this one and what model makes more sense. We, A, like the idea of controlling our own destiny, and our customers like that. B, we like that to be in a geopolitically dependable location where, you know, we minimize or eliminate any potential disruptions from any issues that may have at the geopolitical level. The last one is, you know, that foundry model relies on essentially one player, maybe a two or three players that are have most of the market share on that, and that is just not a good place to be if you're a, if you're the customer of those type of companies. Okay, great. Last question on this. You know, significant focus on domestic capacity. What about European markets? Isn't that an area where they may have the same preferential treatment for fabs in Europe, and how do you think about those kinds of dynamics? You know, right now we have a just a great center of excellence in the United States, in Texas, in particular, but also now in Utah, where we bought a factory about a year and a half ago, that is a slightly different technology, the 45 nanometer, 65 nanometer. There we announced a second factory in Utah. We bought one and we just announced, it's embedded in the plan that we talked about on the CapEx front, but a second factory there, both of those 300 nanometer. In Dallas, in the Dallas area, North Texas, we have our fab one and our fab two, in addition to the older factories. Now, we're building in Sherman, where we're gonna have four factories there. We're building the first two concurrently, and we'll equip the first one. That's just a great place to have factories. The town, the cities there have been very embracing, have very supportive. We're getting the incentives, and by the way, Texas is also a great place for electricity. The labor supply and the technology focused people that we have there is also fantastic. I mean, the softball question, you depreciate these in five years, what's the useful life of these facilities? Much longer than five. Yeah, it varies depending on the type of tool. Mm-hmm You know, we, at the fab level, which of course they don't, you know, a fab doesn't keep the same tools throughout its life, but we have fabs that are 50 years old and many of those tools are have been there for a while. Okay. great. Maybe we could shift to talk a little bit about the near term environment. Can you just give us an update? You know, you've seen your lead times come down a little bit. You've seen revenue weakness, maybe a little bit more at TI than other places. Can you just talk generally to that? Yeah. That, you know, haven't updated from our last earnings release, and we'll finish the quarter up and report that out. I think more broadly, you know, we saw all our markets begin to weaken with the exception of auto. That was our expectation for this quarter. I'd say generally when you look at our products and we have, you know, 80,000 plus products, if you count in SKUs, it might be four or five times that number. You know, generally the lead times have remained stable, 12 weeks or less. We have many peers that are at 52 weeks or longer, and some of them are making progress on that. In addition, we have ti.com where we've got tens of thousands of products that are available for immediate shipment, and we can deliver in most places, the next day around the world. In some places. 24 hour lead time these days. Yes. Yeah, t hat's right. In some places we deliver three times a day. Order it in the morning and get it in the afternoon. You know, we're moving to, you know, a replenishment model where we'll have inventory of product. The ideal situation that we wanna move to is we've got all product that's immediately available through ti.com. Customers can place orders on a backlog at lead time or give us visibility through consignment programs. That's the model that we're working to and customers really appreciate that model. It'll be interesting, but that channel of ti.com I think will be increasing importance in the future. Great. I think when one of the things we're learning about this environment is how different companies react to these conditions. You know, it seems like I would summarize TI as being, you know, fairly proactive about making sure that your inventories are lean, making sure that, you know, you're not holding anyone to backlog commitments that they don't, product that they don't want, things like that. Can you just talk to that philosophy a little bit? Yeah. It starts with our business model because our parts are, we call them catalog, but think of off the shelf, right? Anybody can just design them in their product. They're not built specifically for any customer or even any application. And they last for a long time, both in inventory on the shelf, as it's waiting, you know, to ship, but also the product life cycle. A customer may design it in a, in a thermostat, and that same thermostat will sell for many years, and even the second version of the thermostat will use the same, some of the same parts. When you have five, 10, 20 customers buying those parts, even if some of those customers stop using them, you'll still have many customers that will use it. That puts us in a position where we can build inventory ahead of time, have it on the shelves, and that enables better customer satisfaction and shorter lead times. Great. I think, you know, a lot of us that live our lives tactically from quarter to quarter ask a lot of questions about, you know, deviations in growth. I feel like over a couple of years it evens out and you had a very strong relative year in 2021 when you had inventory and other people didn't, you know. I mean, do you care about what the rationale is, or are you focused more just on your business, and just how do you, how do you guys think about market share over the longer haul? I think, as you described in the short period, you know, even a couple of years, there's a lot of things that'll put noise into the system, especially as we've gone through the last couple of years with the pandemic and, as demand has shifted around. If you do look at share gains over a longer period of time, you know, we've been gaining probably 30 or 40 basis points when you look at a three, a five, a 10, a 15 year. Our confidence in our ability to continue to gain share has probably never been higher. Our competitive advantages that we've been talking about now for quite some time as we've invested and strengthened them, they were important before, but I think that they're really delivering tangible results. That doesn't mean, I think because of the quality of the markets, you know, that's not gonna be a huge inflection in market share gains, and we're not counting on that. We'd like it to grow faster and, but I think just the quality of the markets, the share just doesn't move very quickly, in the near term. Okay, great. Then in terms of the demand by end market, you know, you've sort of seen the most weakness maybe in the personal electronics market. You've talked about the most strength probably in automotive, but you've seen more cautious on automotive than some of your peers saying, you know, inevitably we're gonna go through the same correction there. Can you just talk to that view and, you know, is it possible that automotive just remains strong through the cycle because there's that much content growth for all the reasons that you've articulated that's a target market? Sure. Yeah. I'll comment, Rafael, if you want to add anything. I'd just say that, you know, could it remain strong? Out of the realm of possibilities, it could. Just from our experience and having done this for multiple decades that, you know, when you have shortages, customers build inventory to protect themselves. If they just stop building inventory, that's gonna lower demand, right? Mm-hmm. We saw that happen in first in personal electronics that has now moved into other markets. Our expectation would be at some point, don't know if that's in a quarter or 2 or 3 or 4 quarters of weakness in automotive, but the longer term trend in automotive remains extremely robust and our confidence in more content per car increasing in the next decade, the rate of EV adoption, we believe will be faster than the previous decade. You know, what happens in the short term, we won't have direct control over, but we can focus on that longer term trend line, and we know it's gonna be really solid. I mean, the customer mindset towards inventory in these markets, you guys decided a couple of years ago, we can hold more inventory than we have historically because of the nature of these businesses, long life products, zero obsolescence risk, not much value risk over time. Why shouldn't customers make that same decision? Having wrestled with shortages for two years, you know, it seems like a reasonable thing for them to be building, you know, a lot of safety inventory to make sure this doesn't happen again. Some of them have articulated that they are doing that. Like, how do you guys deal with that? Do you lean into that? Do you know, presumably if they wanna build it, you let them, but, you know, how do you stay on top of the trends when that's happening? Yeah. Correct. I mean, remember we have 100,000 different customers and, you know, for some of those we do have information of what they hold in on a consignment basis because that would be on our books. For most of them we don't. They buy whatever they want, right? If they wanna hold inventory, we don't, you know, we're not gonna stop them. Mm-hmm. we, you know, it is more efficient as an ecosystem for us to have it. Mm-hmm. Whatever they want to do, they'll do it and we'll also have our inventory for the reasons I talked about earlier. I mean, ultimately if they feel comfortable that they can get it, then they don't need to hold it. You would think over time... Yeah They feel comfortable, right, they, it'd be better for everybody if we hold it. You know. Yeah. Yeah. A-a-and maybe- Joe, I'd just add that as customers look to improve the resiliency of their supply chain, you know, one option is to carry more inventory, but that's, you know, pretty tactical and near term. As we talked about earlier, the CEOs of companies are looking at the supply chain, and if you think of an industrial customer or an automotive customer, an OEM, they're not making the decisions on our products. It's the tier one, the tier two, the tier threes, the frontline engineers are making those decisions. For the most part, they haven't been involved when you're the OEM, and they study that supply chain, and we have in most cars 300 or 400 different SKUs, we've got EVs that we've got over 1,000 different SKUs that we'll sell into. They're shocked. They didn't know that we had that many parts in their automobiles. When they look at that resiliency, it's more than just carrying inventory. It's where is it gonna be sourced, where are the technologies that they're gonna need for the next five and 10 years, and ensuring that they've got some influence in who's picking those parts and what decision matrix they're using to make them. That's different today than it was five years ago. Yeah. You know, that's a fantastic point because take, you know, a customer may decide to, okay, I'll hold a year's worth of inventory, which would be pretty onerous to begin with, if they do that across their supply base. At the end of the day, there's a significant disruption, a year may not be enough. Yeah. Right? If they don't have, if their suppliers don't have a good business continuity plan, they don't have good alternate sources, they're not in geopolitically dependable locations. That is where our broader strategy- Yeah comes in besides just holding more inventory, right? Well, we saw that to some degree with your strategy in the sense of I thought building that inventory would mean that you would have enough for any environment, and then suddenly we're in an environment where you still don't have enough and the CapEx probably leads to more conviction that you won't run into that situation. Correct. Same thing, right? Holding more inventory, you know, only gets you so far. Right. Right? The CapEx, having capacity ahead of demand takes you the rest of the way. Great. I'll ask one more question then we'll open it up to the audience in case there's some. You know, can you talk about your approach to distribution? You know, Dave, you mentioned ti.com. You guys have a kind of along the similar vein of rethinking your business model, rethinking about, you know, let's optimize things. You guys have sort of moved, in some cases, away from distribution more towards a direct relationship with all sizes of customers. Can you talk about that thought process and how that's going? Yeah. I'll start off. We put together a team in 2019. You know that we've been investing in ti.com for well over a decade now in demand creation. In 2019, we put a team in place to look at bringing more customers direct. I think in 2020 we had 2019, go back to that, we had 2/3 of our revenue going through distribution, 1/3 of it direct. As we executed that program to bring more customers direct, last year, we now had 70% of our revenues direct. And our head of sales has described the number of customers that wanna go direct as down the street and around the corner, lined up. And it's really just our IT's team ability to bring those customers in so we can do exchange of invoicing and orders and those types of things direct. We're gonna put some systems in place that makes that process easier, that be more self-serve by customers and their ability to come direct. And operations teams that our customers have lots of concerns, but the number top few concerns is what's pricing and what's availability. We've already talked about a little bit of, we've long believed that owning and controlling our inventory in the channel and at customers is a strategic value. We've got the best availability, and we just have structurally the lowest cost. Those two things I think are especially as we've gone through shortages, having that direct communication and visibility of where product is and where the shortages are, where we need to focus to close those. They're just gonna get better information if they're dealing directly with us. That's where, right where we are. Just strategically, being engaged with customers just gives us better insight, better knowledge of the programs that are operating, and we don't have a third party between us and those customers. We just think long term, that's going to lead to share gains. Your competitors are doing what I would do in their situation, which is saying, you know, the distribution will now be helping us. How do you make sure? I feel like a lot of the initial demand creation happens two or three years before any business people actually get involved in these types of parts. How do you make sure that you're still getting, you know, your parts in front of the designers at the time that they need to do their design? It's really investments we've made over the years in ti.com, and we get, you know, close to 100 million sessions with our customers, engineers a year. Those sessions range in three to four minutes in time. This is engineers coming when they're doing designs, going through the process of picking parts, and we can use that information to make that engineer's time productive, so that we know within a click or two what system they're developing. Our portfolio goes from tens of thousands of products down to the couple of dozen we know that engineer's gonna be interested in. The goal is to make their time as productive as possible, but also to get as many parts in front of them and the right reference designs and information. We've been doing that for, you know, well over a decade now. We've got a lot of experience doing it. That's how we ensure that we're in front of those customers. Let's see if there's questions from the audience. One here. There. Hi. You guys already know this. You came to market today with two bond deals, 10 year and 30 years. I was wondering if there's been any changes in your thinking about capital structure or leverage targets given the high rate environment we're in right now? Yeah, no, when it comes to debt, you know, we, our objectives, have not changed, and that is, that is a useful tool to complement our operating cash and, when the economics, make sense. There's two sides to the economic. Obviously, the cost is one and, you know, interest rates have obviously, gone up. You know, it's still, in the big scheme of things, it's still a relatively good deal. The other side of that is what we're gonna use that cash for, right? We have ample cash on the balance sheet. We finished, last quarter at $9-point-some billion, $9.7 billion, I believe, which is ample cash, for our business. We wanna keep it that way, and that is because in the next three or four years, we have CapEx coming, as we talked about, and we're also going through a cycle and potentially a recession. Part of controlling our own destiny is to have ample cash so that we can continue to protect that. That starts with our operating cash, which is very strong. The cash on our balance sheet, which again, very strong. We supplement that also with debt as that makes sense. Question here. I have two quick questions. The first one is, most of your Asian competitors would tell us that, thank goodness TI cares about margins, otherwise they wouldn't survive. As you guys build out more capacity, what do you think about using pricing more strategically perhaps to curb the competition from Asia? Yeah. I'll give you my take, and Dave, you wanna chime in, but a couple angles to that. One, the type of parts that we run, even though they're off the shelf, as I said earlier, in catalog, and they have potential replacements, but for the most part, they're not drop-in replacements, right? You need something else to change on the board. Slightly different capacitor, resistor, slightly different board. You know, if you push it, you can make the change, but it's just from a customer standpoint, it takes investment in R&D, it takes time, you gotta respin the board, you gotta qualify. It's not, you know, it's not as easy as I drop prices and all of a sudden I'm gonna get all this demand 'cause customers... Remember, our average selling price is less than $1, half a dollar, less than that. Customers are not gonna change a bunch of stuff just so that you move so that they can save a few pennies. That's one angle to the question. The other angle though is there are some areas of the market, personal electronics, for example, where pricing makes a difference in the initial process of designing the part. If you're selling a thermostat or a phone, well, let me stick with personal electronics, a low-end phone, a few pennies here and there, a few pennies there make a difference. Our cost position is great for that because we have a 300 millimeter, we have on the AP front, we're very efficient, so we can design parts that are bare bones, let's call it, just for those type of end markets. We can compete on that. We do compete on that. We'll make sure we maybe give them a little more for their money on that front. Yeah. Great. Well, Dave Rafael, unfortunately, we're out of time. Thank you so much. Okay, thank you.