For the next session, very pleased to have Texas Instruments, and very pleased to have Rafael Lizardi, who's the CFO of TI. Thank you for coming. Good morning. Thank you. Good morning. So, I'll just lead off with a couple questions. Sure. So, you know, Rafael, I'll ask you the first question that I get a lot, which is, when people look at your long-term model, and they look at 10% CAGR, and they look at all the CapEx dollars that you're spending to add all this capacity, people have a hard time seeing how, you know, the growth can be 10% over the longer term. Can you sort of explain some of the underlying growth drivers that you think will transpire over the next 5-7 years that justify you spending all this money? Sure. So good morning, everyone. So a couple things. First, that 10% was, is optionality, it's enablement. So it's the investments that we're making, so about $5 billion a year for the next four years, through 2026, are gonna position us to be able to achieve that type of growth if the market if it comes to fruition in the market and as we gain share. But, it's not a forecast that that is what's gonna happen, right? But given the dynamics of our market, you're much better off being ready for that upside and than not being, because the downside of having that equipment in place and those fabs is very low, because those fabs and that equipment last for a long time. So if you have it a year or two ahead of schedule, then it's okay. You just adjust the CapEx at some point in the future, and it all rectifies pretty easily. If you don't have it, you miss out big on potential, not just short-term revenue, cash flow opportunities, but the market share and the relationship with those customers that could take you for many, many years. Now, with that preamble, let me tell you why we have confidence in that potential for 10% or whatever ends up being. One, of course, the secular growth in semiconductors. Just everywhere where you look around you, more semiconductors are going into play. That is particularly the case in the two markets where we have been strategically focused. That's automotive and industrial. Automotive, EV is obvious. There's just a ton of semiconductor to, in order to, to make an EV go. But even in internal combustion engine cars, with more automation, more safety features, more little bells and whistles, everything that's going into cars, that requires more and more electronics, and I'm sure all of you have seen that in your own experiences. In industrial, it's a little hidden out of the way because we don't all go to, you know, factories to look at these things or look at the inside of buildings, but all kinds of automations are happening there. By the way, all those are automation investments that pay for themselves by with lower energy, more safety, lower costs. So those are investments that are happening, will continue to happen. As of last year, two-thirds of our revenue was in industrial and automotive. So the two spaces that are growing the fastest and are expected to continue growing the fastest for a long time, that's where we have two-thirds of our revenue, so we are very well positioned. The last point I'll bring to support our thesis is the geopolitically dependable nature of these investments, right? So in the current world, with all the dynamics that we read about in papers and are concerned about, our investments on the fab side, which is where the bulk of investments are happening, they're all in Texas and Utah. They are geopolitically dependable. Our customers are giving us that feedback that they really like that. They want that dependability. And by the way, we're getting CHIPS Act, ITC money to help support that. We're also applying for grants, and we took that into account when we made these investments. So that's also gonna help support those geopolitically dependable investments. Great. And how much of that geopolitical... And you're talking about that, you know, more and more as being a big piece and a big, you know, driver for why you're actually, you know, spending all this money. But do you think that? Are domestic content requirements part of that? Do you see, you know, for example, you know, carmakers having or, you know, headed toward having domestic content requirements? My sense is that their key care about is the supply chain robust, geopolitically speaking. So, you know, we know, well, you know, what we're talking about, the two countries that are facing off in some of these challenges, and sometimes they put restrictions on each other, and customers just don't want to be in the middle of that. So I don't think it's so much about domestic content, you know, U.S.-based or so forth, but they just don't want to be in the middle of a potential export or import restriction. So take, you know, for example, our fabs, I just said they're in the U.S. primarily or entirely, the new investments. Our assembly test operations, they're across the world, but we're making significant investments in Malaysia. We have a significant presence in the Philippines. We also have a presence in a few other places, including Mexico. So those are all dependable locations. And just to that point, how much of your experience from last cycle feeds into your plan going forward? Because if you kind of look at what happened last cycle, you look at your share of, you know, SIA analog revenue, I think, you know, we all ask about this on the earnings calls from time to time, is down, you know, 200 basis points versus where it was pre-COVID. And I think a lot of that really is because you didn't have, you know, you didn't have the supply in the upturn. You weren't, you know, you weren't pursuing NCNRs the way that some of your peers were. So your share is artificially lower, and you should get that back, you know, coming out of this next cycle. But how much of the shortages that you experienced during the last cycle is sort of informing your decision to, you know, spend this money? Yeah, well, let me maybe reframe it a little bit. I would suggest you look at it, maybe peak to peak would be a good framing to look. So look from, like, 4Q 2008 to 1Q 2022, and look at how we performed compared to our peers, because actually, early in the cycle, we were the ones that had the inventory. If you recall, well, I, I recall 1Q 2020, we exited that, that quarter with 166 days of inventory, I think it was, and at the time, that was high. And our, our peers were decreasing. I think it may have been 144, and then we went to 166 days by 2Q, something like that. So our peers decreased their inventory. We actually kept our factories building, but then we built inventory, and that put us in a great position. If you recall, automotive customers cut their their orders by a ton, and then they came back. So we had a period of a couple of years where we our revenue grew a lot faster than our competitors. Now, we got to a point where... We'll, you know, we have to wait until this cycle plays out, but we got to a point where, over the last three or four quarters, our competitors appeared to to have held their revenue better until recently. And you mentioned LTAs or long-term agreements, that may be part of it. Our contention is that that doesn't create demand, that just makes customers mad, because now you're forcing them to take parts they don't need. And that just delays the reckoning for that particular engagement. There's also been some pricing that's played in that. But frankly, at the end of the day, we have to wait, we have to wait to see how the cycle develops before we can really assess what's really happened. So, you know, we're focused on doing what we think is right. We're deploying that CapEx to build the capacity. We're building the right inventory to be prepared. We're strengthening our competitive advantages, and we'll be ready for the next upturn. We are ready for the next upturn. Can we talk a little bit about competition in China? I know you get asked about this a lot. You know, we see all this money that they're investing in mature node foundry. We have, you know, domestic Chinese companies like Silergy, you know, recently talking about taking 10% plus share in domestic China for, you know, high-end analog, and in the long run, thinking that they can also take share, you know, beyond China. Has the competitive environment in China, has it gotten tougher? And how much of a risk do you think it is to your business? Are we all sort of, like, worrying too much about that in- Yeah ... relation to TI? Yeah. So as you said, SMIC, in particular, is deploying a lot of capital to build fabs in China, and there are plenty of strong, good Chinese competitors, fabless companies there. Now, at the end of the day, though, the way we compete with those companies, that combination of those fabless companies and SMIC, the same way we compete with everybody else, is where our competitive advantage is. First, we have our manufacturing technology competitive advantage, and that's the 300 millimeter best-in-class cost advantage factories. Then we have the broad portfolio, so tens of thousands of parts that go into tens of thousands of customers, tens of thousands of end applications. That is for a particular industrial customer, but also an automotive customer. It's very important to deal with a supplier that can provide you a broad set of parts, as opposed to 20 suppliers that each one specializes in one vertical. And that's what tends to happen with Chinese competitors as they're going after vertical parts of the market, personal electronics, phones, where they can get really good at one part and then sell hundreds of millions of parts. So in the industrial automotive space, having that broad portfolio really plays well. But frankly, at the end of the day, we also compete in the personal electronic space. Having that 300-millimeter cost advantage puts in a position where we can compete in everything. Oh, one more point, I'm sorry, on that. About 20% of our revenue comes from China-headquartered customers, and everything that I said applies specifically to that, you know, to your question. The other 80% of our customers are not headquartered in China. They're obviously in North America, Europe, and other places. But North America and Europe are the main ones, and other parts of Asia. So they care about all those competitive advantages that I just talked about, plus the geopolitically dependable footprint that we're putting in place. Great. Can we talk about your Embedded business? You've done a very, very nice job there. You've, you know, really invested. There was a time, you know, five or so years ago, where you were lagging. You've done a great job, and the business really is, you know, held up much better than the Analog business has. Can you sort of deconstruct why the business has held up better? Do you think it's just the, the, you know, end market exposure of that business? And can you talk, you know, maybe, you know, brag a bit about the successes that you've had in Embedded. And is Embedded maybe a little more susceptible to competition in China, or do you think it's the same for Embedded as it is in Analog? Yeah, maybe I'll take that. So strategically, if you go back, 2019, you probably saw that we made some changes to our Embedded organization, and very pleased with the progress that we've made. The first order was to stabilize the business and then begin to return to growth and be able to consistently do that over time. And I think we need to see many years of that to feel like we're where we wanna be, but certainly are pleased with the progress that we've made. You know, in terms of competitiveness, compared to Analog, you know, they both play in very similar end markets. I don't think there's a vast difference between the sensitivity there between the two. But as we think about, you know, more near term and tactically, the differences I think that you're just seeing is, you know, as Embedded has historically had a little bit higher exposure to external manufacturing, it's caught up quite a bit. The nice thing is that moving forward, you know, we now have Lehi that provides 45 nanometer and 65 nanometer, which Embedded does have, a portion of it that sits in those nodes. So a greater percentage of it can run internally longer term, which is gonna be helpful. Great. And is part of why it's held up also... I know that a significant piece of the wafers, particularly on that side of the business, come from external foundry, and the constraints there seem to have lasted a bit longer. So is that part of also why the Embedded business has held up a bit better than the Analog business, do you think? I think it's more that it had to catch up 'cause there was weakness there, as I just described. And so again, that's kind of that tightness has loosened a bit. It's caught up. Probably that's more tactically what's gone on, but also, you know, we did wanna stabilize the business, and we are seeing some good progress there. A big part of it strategically has been building out a more catalog portfolio of products. And you go to the website, you'll see, you know, what the team has released there. It's very compelling. So, again, over time, you know, we see both Analog and Embedded, very important pieces of our business long term. Again, pleased with the progress, and, and it's gonna be really exciting as now a greater percentage of it can run internally, in 45 nanometer and 65 nanometer, again, becoming internal. It's gonna be very helpful for that business. Rafael, one thing that I've noticed, I think last call, you sounded definitely more confident that you'll get, I think you said, a significant amount of money from the CHIPS Act. You sound more confident now that you've applied, and you sound you know, you're an American company, you're in Texas, you have three fabs. There's a you know, $3 billion per fab cap, I believe. So in theory, you could get $9 billion out of the $39 billion that's been allocated toward front-end manufacturing. So can you talk just a bit. I'm not asking for guidance on how much you'll get from the CHIPS Act, but can you just talk a bit about that whole process? Yeah. So we're still in the process of applying. We haven't applied yet, but we're in that process. But we comprehend. When we came out with our most recent capital management guidance in February, that was after CHIPS Act passed last year. So we comprehended that in our decisions to take our CapEx from $3.5 billion per year to $5 billion. At the end of the day, we're the poster child for what we think the Department of Commerce is looking for in terms of investments, the type of products that we sell, the end markets where we sell them, obviously the location, the acceleration that we're putting in place, those fabs being put in place, either you know ahead of demand or as we said earlier, to enable that potential optionality. So I think all of that fits very well, but at the end of the day, it's a decision by the Department of Commerce. So we'll be working with them, submitting that application, we'll see what happens. Is it right to think that 3 times 3 is a theoretical maximum that you could get? Tell me how you came up with that again? Well, you have three, you have three projects, and as I understand it, there's a $3 billion per project cap. You know, yeah, that's the cap, right? There's also a loose... It's not guidance, but there's a number the I think Commerce threw out, is that they're looking at 5%-15% of support, but that's 5-15 of the projects that they like and, based on the criteria, et cetera. So, it's unclear to me, but, you know, we're... Again, I think we're a great candidate for that, and I'd be disappointed if we don't get a fair amount on that. Great. Can we talk for just a bit about gross margin? I know there are some bad optics right now in gross margin because you know, because your depreciation's going up. But if I exclude your depreciation, your gross margin hasn't really changed very much. You have the same drop-through you always have had. You seem to have reached a point now where you don't wanna keep putting product on the balance sheet, so you are beginning to you know, to reduce loadings in the factories. So can you talk just a little bit about you know, where we should think about gross margins over the next few years? Is the 75% drop-through, is that still, if we exclude depreciation, that's still the right way to think about it? So yes. Yes, it is. Let me answer that quickly. And that's just flow-through ex depreciation, then you have to add depreciation. But that's one point. The other point, remember, depreciation is an accounting formula, and today we depreciate equipment over five years, but the true economic life of that equipment is a lot longer than that, right? So, so you have to. That's why we don't optimize for depreciation. We don't optimize for gross margins. We're optimizing for free cash flow growth over the long term, just like you would in any personal investment, right? You're gonna invest $100 today, you expect to get how much over the years, and what return is that? So that's how, that's how we think about it. Oh, the other angle you gave was the underutilization. So, I think, as we have positioned inventory for the next upturn, and we have grown inventory over the last three or four quarters, as that inventory has come into fruition, we have slowed down the rate of growth of inventory by slowing down the wafer starts. So three quarters ago, we grew inventory by $500 million, then $500 million, then last quarter was $180 million. We did that through that slowdown of wafer starts, and we expect to continue that slowdown in fourth quarter, and that's played into the guidance that we gave. What happens beyond that, it depends obviously on revenue expectations, but we are, I expect a continued upward pressure on inventory levels, but similar to what happened in the last quarters, right? A much lower rate than we were growing before. Maybe since you brought up your guidance, I'll just give you a chance if there's anything that, you know, as the quarters progressed, do you feel, you know, you feel good about the guidance? Do you feel good about how things are progressing through the quarter? We do not update the guidance mid-quarter, so. Let's talk about OpEx. You sort of run OpEx a bit differently than I think a lot of other companies do. You invest more strategically and more in longer term, as you do generally. Is it more sort of a case where you're just adding headcount ratably over time, so we should just think about OpEx growing at a fairly consistent rate for the next few years? Yeah, I think that's about right, and let me give you some context. So, OpEx for, I think, 2017-2021 was $3.2 billion, steady for all those years. There were some changes inside, right? There was a little more R&D, a little less SG&A. Even inside of R&D, there was always some pruning and some additions, but net-net, it was flat. Since then, you've seen ticking up, so 2022 was $3.4 billion. This year, we're trending to $3.6-$3.7 billion. So that's about the growth rate, so mid-single digits or so. As we just juxtapose it to the opportunity that we see ahead, we're increasing R&D in some places as that makes sense. Now, and Mike, maybe you wanna chime in and add to that, but let me give you some other angles to R&D. One is geographically. We have the largest R&D center is in Dallas, obviously, but we have large centers in Santa Clara, from the National Semiconductor acquisition in Tucson, nearby here. We also have a really large center in India. They do great work, and in fact, we're expanding there. And we have a few other smaller ones. Another angle is how the R&D is deployed, meaning the bulk of it or a large percentage of it is in the product lines, and those are the teams that actually release parts for revenue. So they work with sales and marketing, with customers, and they release families of products, and we release 400-600 products per year. So that's where a large portion of the R&D goes. Another bucket is significant, process technology, and they're releasing the recipes for the next level of process that will then the product lines eventually will design on. And we probably have 10 different families or more of product process technologies, and then every year, we kind of upgrade that a little bit by changing different features that the designers can use. Alongside process is packaging technology. So another 'cause as you make the chip smaller and smaller and more efficient, different things you need, package becomes a really important feature and make it smaller, more efficient, be able to dissipate heat, et cetera. The other angle is, we call it Kilby Labs, after Jack Kilby, the Nobel Prize winner, was a employee at TI many years ago. And those are about 80 PhDs who work on things that are not directly tied to revenue, so they're not releasing products, but they're releasing... They're working on concepts that then, but they work hand in hand with the businesses, so that when one of those things works out well, eventually we can take that to market through different products. You wanna give an idea to that? Yeah, and if you look deep down into those organizations, the product teams that we have, you've got product line managers, business unit managers that are incredibly talented, and their job is to build out a creative backlog of ideas they wanna go off and work on and build. But you can imagine there's a list that's very, very long, and you got to decide as a leader where the line should be in terms of what we wanna go after. And part of the responsibility of our leaders there is also to go, "Okay, I see an opportunity here where I can go deeper in and invest more," and we do that. And so, it really is a great team that just has the ability to look at that, create a backlog, to prioritize it, and to make sure it's invested properly, and, you know, we release around 600 new products a year, and with a big focus on them being successful. So that's something we're gonna continue to do. You know, you have a very different model to some of your peers' distribution. You've actually brought it down a lot. And, you know, TI.com's a, you know, very, very big channel for you. So can you talk about just what sort of an advantage that provides you? I mean, have you seen tangible evidence? Not just TI.com, but, you know, having more direct and, you know, cutting out disti. How much of a, you know, benefit has that given for the- Yeah, and I, I'd even go back even further than the last few years. You know, if you go back more than a decade, we've made the change long ago to own and control our sales and marketing portion of finding chips on boards. And when we did that, we found a lot more sockets were on boards than were apparently there before. And that has served us really, really well. Now, as you've seen this investment that we've been making over these years improve, you've seen expansion in making it really easy to do business with TI. So thinking about TI.com and the ability now to do large order quantities, being able to do things like local currency transaction, importer of record, some of that messy stuff that you wouldn't wanna normally do, we've been able to create that and then scale it. What it means is, for a customer, you know, if you wanna have a part tomorrow, you can do that. If you wanna order direct through to TI, you can do that. And if you'd like to still order through a distribution partner, you can do that too. What we've seen over the last several years is, as we open that up to more customers, you know, they've decided they wanted to move direct in many cases, just because of that environment we've made for them. Great. Rafael, one thing, last earnings call, there was a little bit of a change in the depreciation outlook for 2025. I think you've been saying 2.5, and now you're saying 2-2.5. And I got a lot of questions, "Well, does that mean that they're not gonna grow as much? Is there some change in their growth outlook?" Can you just kind of talk about that? No, that has nothing to do with the growth outlook or the CapEx. The CapEx is $5 billion per year. That is steady and no change in that. It's just we have... As we've gotten closer to in time, we just have a better sense on the timing. And maybe a little more specific, the depreciation on buildings, that depreciation doesn't start until the certificate of occupancy is issued, but that's really not the driver of the change. The driver of the change was more on the equipment side. Depreciation doesn't start until the equipment not only arrives, but is installed and then qualified, and then turned on, right? So that's when depreciation starts. Some of that was just not quite right in our initial forecast, so... And it was, as you pointed out, the difference is not significant, but it's, you know, it's come down a little bit as we've rationalized that better. So, we gave you those numbers for this year, shy of $1.2, next year, $1.5-$1.8, and then 2025, $2-$2.5 is the latest expectation. I guess if there was some, you know, change in your growth outlook, you'd be cutting CapEx, but you're obviously not doing so, so that- Correct. We're not, right? - speaks. Yeah. And by the way, depreciation, I think I said it earlier, we do not optimize for depreciation. We do not optimize for gross margins. At the end of the day, it's accounting, right? We optimize for free cash flow, and depreciation is just the equipment divided by 5 over 5 years, right? But that equipment lasts a lot longer than that. Can you talk about autos for a moment? You've done a very, very nice, you know, job in autos. You've, you have very broad exposure. You've gained a, you know, bunch of share in autos, at least the way that we measure it. And it doesn't appear you've benefited from ASP increases, maybe some of your peers have. So can you just talk a bit about just the auto segment and, you know, I know all of us are worried that autos are the last shoe to drop, and there are some cracks here and there. But can you just talk about all that and sort of whether we should be concerned about your autos business? I mean, in near term or, you know, as we look through the cycle, who knows how that's gonna play out? We'll have to see. You know, longer term, clearly, there's a great opportunity in automotive. You know, the- it is a, it's an end market that has, you know, we define with five different sectors. A few of those include things like ADAS, powertrain, infotainment, body electronics and lighting, things like that. You know, a typical vehicle, that's an ICE vehicle, you know, somewhere in that $400 or so of content. You go to an EV, that doubles or, or triples in some cases. And so, the exciting part of that is we can play in a huge portion of that. So that is a very exciting market long term. And part of what's led us to be successful there is that's been a bias for us and a focus for a long time. We didn't just decide, you know, two or three years ago, this was gonna be something we were going to do. This goes back quite a ways, more than 10 years, beginning to bring automotive broadly across the businesses. So if you look into our product lines, the vast majority of them build products for automotive, but also for industrial, personal electronics, and comms, enterprise. So, just having that as part of the DNA inside the organization has really helped us have a great portfolio. It comes back to the breadth of portfolio. Great. Well, we're just about out of time. So again, thank you to, thank you to both of you.