Texas Instruments (TXN) 27 Jul 222022 Q2 Earnings call transcript

Welcome to Texas Instruments Second Quarter 2022 Earnings Release Conference Call. Today’s call is being recorded. I’m Dave Pahl, Head of Investor Relations, and I’m joined by our Chief Financial Officer, Rafael Lizardi.

For any of you who missed the release, you can find it on our website at ti.com/ir. This call is being broadcast live over the web and can be accessed through our website. available web. be will replay through the A This and results uncertainties include forward-looking to involve risks statements that that expectations. materially management’s call from will differ current could cause TI’s regarding encourage forward-looking release We today, as for SEC well most as review description. a to the more published statements in complete the you contained earnings recent filings, TI’s notice Today, we’ll provide the following updates.

quick First, quarter. I’ll the start overview of with a

our some customers insight into markets. with second details with of provide results, seeing what I’ll Next, respect revenue to and are we quarter

Lastly, quick Analog Rafael and XX%, Embedded year-ago financial from sequentially X%, an the revenue grew the results and and quarter XXXX. billion, our third grew markets. XX% X% will cover the XX% in guidance year-over-year, Starting overview Revenue $X.X grew segment of for quarter. the with Processing Other quarter. driven was a by quarter increase our across of growth

provide what and let comment quarter on the environment our customers second in with of some to markets. saw Now context me we

As in our call, COVID-XX weak earnings we spoke out restrictions China. about April from in started last

of restrictions part towards forecasts consistent their the demand began ease the into to of and product quarter. the start to with prior customers latter generally at those pull June, As began May

I’ll market some quarter on, quarter. our revenue into from second Moving provide insight by year-ago the

weakness the market digits. quarter digits saw First, throughout electronics, more We grew was and high-single low-single the the up up in industrial XX%. automotive market than was which personal

about XX%. up was equipment communications Next,

Finally, will management enterprise review systems up outlook. and was mid-teens. Rafael our capital now profitability,

afternoon, everyone. Dave, good and Thanks,

the XX-month X% ago expenses revenue. profit XXX was billion was million, basis, basis operating quarter a in were ago, a trailing second up XX% and expected. from points. and $XX XX% billion quarter XX% year second profit are revenue. ago. $X.X mentioned, or share. From Gross the profit $X.X factory from from Net LFAB or charges gross year October $X.X revenue the quarter per On $XXX in that up second quarter Operating in XX% billion, was in associated billion in of a million as we $X.XX was Operating a Dave margin Restructuring quarter billion As expenses quarter the quarter. the or of XX% year. increased in revenue. or Operating of purchased $X.X the income were about year-ago were profit $X.X with the year up last of was

me the were now the in past we XX-month was with the dividends cash of Let from our quarter on months. generation. Free in months. in $X.X operations our billion $X.X comment Cash $XXX have $X.X In starting $X.X million and billion results, expenditures Capital quarter. and flow capital flow returned stock. our a we XX in $X.X over management on the cash billion. billion the repurchased quarter, $X.X paid was total, trailing billion basis In billion XX last

higher ago. a product. customers weighted balance ended the sheet $X.X the billion days billion of $X.X $X.X debt were up this billion two the quarter, COVID-XX cash debt billion, dollars $XXX average quarter. retired Our the Inventory the coupon Accounts This for near sequentially year quarter. Total outstanding made $X.X began at lifted from restrictions end with of to China of billion billion below pulling and were at We desired $X.X receivable investments and a the primarily proportion of down from of of end increase XXX, and short-term prior were in levels. remains quarter in second was up the shipments and days $X.X quarter with million X.X%. strong as reflects

comprehends of range market. demand revenue $X.XX to and This particularly in billion from earnings TI expect the the of we range outlook quarter, third per electronics be personal $X.XX we share customers the to in to the in For weaker see, the billion $X.XX. $X.XX

We expect to about be XXXX XX%. effective rate tax our

remain ground pleased long-term semiconductor broke work in long-term. Capital on for trend of of will and progress Call which LFAB focused areas add Sherman content and our We support we Lastly, output. to at with our continues Management manufacturing RFABX May the we in increased the prepare secular the was customers and per in of that in complex outlined the the expansion manufacturing closing, system. stay production our In February capacity, and value will

long-lived invest a product advantages, competitive which in of and and manufacturing portfolio, our broad positions. and are We to technology, continue channels, diverse reach our

focusing through disciplined these that, free advantages We Dave. back With continue by growth best us to to to will opportunities, believe share cash will let and per the capital long-term. flow it enable to turn allocation continue me over on strengthen we the which deliver

to Thanks, provide a we’ll response, In you can of opportunity single for our possible many to Rafael. After Operator, an open Operator? now you yourself as limit lines question. you for please additional opportunity the as questions. provide to ask questions, order follow-up. an your an

Research. with [Operator Instructions] you. Please Stacy question first our Thank We’ll ahead. Bernstein go from take Rasgon

Thanks ask guess, about My wanted margins. taking for I questions. guys. gross to my Hi, first I one,

like on, grow declined they they being just in environment down that line you don’t of if but margins to and math, gross squint for the be at on cost I’m probably or pricing if be going they is line may wondering to a little margins then influencing even more this the seem whether QX they revenues. objectively, very quarter, something QX at on So, gross guided sequentially as all? than -- but were guide I declined strong the sort from I next revenue know

happy that. I’m Stacy, to address Yeah.

in you out, as quarter margin pointed was second our gross about first, So XX%.

depreciation your was that The this On capacity. result of almost that in February you that’s statement, through call. I’ll on go-forward a flow the the and in year. you, about would of point help XXXX up? performance. full XX%. expect see basis a you cash question sequentially pleased We’ve for year-on-year are follow fall about be our about We on investments have that depreciation $XX on for $X To can part to is with by expected, a billion Do out talked your increase I also to million tell second the that manufacturing basis, you depreciation increase. direct as a going

sounds had Thank you. in opened a at It as up. do. like demand surge of you I end the everything QX,

shape looks finish guess QX, weak saw leading just had QX of start we into that’s that, start reverse a I we it? do So got QX, through finish the maybe surge strong what QX. the a wondering have a if in then like that I’m a we’ve the guess, kind the of into in and strong demand into weaker think linearity you and revenue going the just given I of we QX,

it unusual was that had Stacy, COVID last talked Yeah. obviously, in because we of the about, right? So quarter. this earlier restrictions scheduled quarter, the were those in shipments

of to to restrictions that our ability and customer’s So the able really lifting be receive to were and reflective ability product.

So you in we as that in quarter. prepared have did see the third we into guidance that is weakness in personal that But said, weakness comprehended going it. in remarks electronics the noise the market and

go caller, the We’ll Stacy. you, next thank please. So, to

question America. Please We’ll from of Vivek ahead. Bank with go take Arya next our

Thanks question. my for taking

seasonal forth? consumer. mentioned, demand that? about you the think, comm. one, or you I’m other seasonal, is different on curious, segments, of First Do and the is industrial, see QX equipment, because what their pressure than so I automotive, below enterprise

that quarter know, highlighting as when the that’s don’t would by and electronics. outlier I with Yeah. Vivek, there’s we’re hence you significant market, forecast that’s say personal exception we the something out an why

we’re That’s that. would just the it where of have leave I seeing you at So weakness. Do really follow-on? most

Dave. you, And yes. my fellow Thank --

follow-up actually on of If my year XXXX, go to cash TI’s back was last XX%. it I was XX% free cash is So calendar flow. free flow sales,

mentioned XX-month also then down you’re XX%. seasonal below QX be And plans. Now just below on to your basis, then guiding QX CapEx QX and and that you’re that a to it’s through committed are tend and you trailing

is representation at flow near- that margins expect for be a of So how should range flow target end just medium-term? of free we to think to lower free the you cash about margins the this cash the fair

the angles, tactically pointed question was, of a the second that as take in revenue amount quarter, few in or disproportionate revenue the to late quarter came I’ll out came late. in first, we a

of that stuck talked the as prepared cash about remarks. a lot was I in in means accounts receivable, the that So

flow that’s distort some to a going little cash your So standpoint bit. of a trends cash -- from from

that that Beyond increase, to these going are very we support is excited as February. to will continue for platform talked investments in about the about CapEx big well technology. and us picture, have to revenue and that needed manufacturing in the They’re us long-term, have we given position growth manufacturing

per XXXX years, year. and time, talked about In the we of XXXX $X.X average billion fact, that’s that from CapEx, an to average next at four for

For expected in looks then, in billion, is about subsequent you the as then it would could obviously, we’re $X.X this And average at year, that. $X.X to that it number. going the higher little to come billion, in a coming like since come than about years expect higher than be

to We’ll the please. caller, Okay. next go Vivek. Thank you,

take Deutsche Ross go We’ll our question Bank. Please with from next Seymore ahead.

online. new I equation, that about coming Hi, to supply ask wanted a the bunch are have guys. facilities you of the of side

talked breaking and LFAB. RFABX Sherman. have about you that you You then in ground have before But

in should to about depreciation capacity revenue as just where you the online this going we’re think you depreciation acknowledging, of have -- for can year billion to rolling us it from tailwind to that can does $X when about come course, just So a us Rafael, how whole? that a those talk be and for we told

Correct. Correct.

and about earlier, RFABX So, I very these first, talked excited LFAB. investments, about as we’re

of that sometime of and ground then have on the And LFAB production half Sherman XXXX. RFABX the We’re factory couple support on year we there revenue to facility, and expect ago broke first -- a Sherman, just in going early supporting in XXXX. we second we months this

So you a for about standpoint, want billion think year. just depreciation I it. $X From this the that’s you to gave

given of appreciation how approximate can of had likely the come linearly expect I end from February, to $X and that you billion depreciation billion, $X.X in. together you $X.X to between in XXXX already by XXXX will then to billion the roughly that and XXXX about Beyond tomorrow

have you Ross? follow-on Do

of Yeah. and the assume thereof I the advantage I just policies impacts are that of TI you Act on in Thanks gave, not Chips exclusive think for company? side, those final the those equivalent topical policies? color. financially government those maybe lowering about numbers we Europe. or of taking should your in guess some How All the

have did from that prior numbers we given The bills. those last you months six the benefit correct. over not any of include or So any

see On provision That be will specifically, bipartisan meaningful industry’s the of boost is semiconductor manufacturing ability roadmap. manufacturing improve great domestic competitive. support and that and chip support Chips This hasn’t will the strong production to remain Act U.S. passed to bill yet. our

passes, it when portion be we analyzing and appropriate. that investment the benefit that the -- as from tax rate as portion, we more said beneficiary it as and get we’ll from in that a you the we we’ll updates So but said, both -- detail grant have we be provide benefit should and will as have that of

you, Ross. Great. Thank

to go next will We caller.

our next Please We’ll Stanley. take Joe Moore, go ahead. question from Morgan

Great. this in other I to April how $X lockdown. Can capturing you. maybe $X in adjustment? to that you $XXX talked this when you billion, of million? QX how regions? the the you sense Just much demand of in given much back going some or had China that down up guess reflects give then that upside billion Thank Did were taking billion end put of of context you but of guidance you upside it to kind and original us support because $X in about of just

as about in were was original They wanted as their with They started we say, on, generally we’re weren’t So last customers still that we quarter, said canceling would we to right? pulling I meaning demand talked the lower. customers at tracking But the what that Joe as quarter, prepared that have Yeah. looked rescheduling. forecasts, orders. going remarks, weren’t we product.

the of really that’s that, for we help? what majority where quarter. came that in the Does made So up

around do is you mentalities And Yeah. are tight are feel automotive markets characterize to then of your that? of Again, build industrial, conditions hotspots Obviously, how and this looking just customers thinking just while, That buffer point. like you could a kind at about with your stock we’ve so people this that customers tempered? inventories in inventory, dealing been does. if kind for

Yeah.

types that clear have signs many can in have being of is see and built several think those inventory quarters. how there’s had, customers permanently the filings how And discussions our that behavior time. inventory see We’ll there I on last the do that reported they we more changes and things. of hold much over over

think where and it think look some But advantage. manage customer’s some and long we what won’t. believed we our strategic I inventory, probably where can manage it, won’t at thing owning stick our inventory that places we a I when we’ve most And that do. because important there’s but is places the will controlling probably really we

So finished just you’ve We us the time. seen take quarter actions of over a $X those over little inventory. billion with

that we’ll are and times the will we’ll stable So time we that to inventories And whenever quarters. do few keep things the weakened, lead next those that as take best and we can control what do low. move through things replenish

Joe. you, please. caller, thank We’ll go next So to

ahead. Citi. We’ll take with our Danley from Please go Chris next question

Thanks, Hey. guys.

the capacity towards auto stronger So, and you in strength that with or parts how also industrial, long and the allocate it if from the that can are weakness parts does PE, take and take? the in so, you of weaker some but

course, We nooks Yes. relatively level? a constantly. At that capacity we do particular different part. or crannies some We, There’s little each that always is technology -- each highest the are the and of fungible. for

at yes. but level, highest So the

roadmap. the the best the are our strategic last been two months and support deploy have to capacity -- We tied things uses been to our we that I’ve adjusting over long-term

Do you have follow-up, Chris.

And for along of that line with questioning. my follow up, -- for sort of yes, going

and have improvement of talked do year? seeing about extended end before shortages times there the you Are anticipate guys all year. the any You or improvement lead we any

jump if Yeah. I’ll you comment do. to please and want Rafael in,

changed last much quarter. times from haven’t lead Our

look we it to demand quarters, begins up. depends out as I really the how in on think shape

got online or difference lap capacity several any given going we really significant capacity not but we’ve the and We sequentially, as will quarter, a in a quarters make will we’ve talked coming difference. have about, in make that’s it that to But year available. huge

that that control, we be Yeah. soon. shortly increasing can the what LFAB all our with first market. billion put the Sherman, and again, XXXX, -- the ability can grew agree, and And the So just right? And so see, about in to believe, out it’s for supply in just that factories the will I by $X.X increase of after supply. I inventory as fourth online of quarter. we’ll you increasing our revenue four we way, consecutive then That’s coming RFABX

developing to of the you the increased that ability So also market. that sense gives a supply we’re

That’s right.

good point. That’s a

Thank you, Chris.

caller, the Now please. next we’ll go to

Thanks, guys.

Hari. We’ll -- Please take Sachs. go our with ahead. next question Goldman from Toshiya go Please

much. so to Thanks well. I Hi. had as

and your the would pursue more ramping on raise of with facing than from to sort going to they’re aggressive you going foundry or forward, partners. peers you your inflationary pricing First, opportunity and for months for a there share market then all an be trends strategy historical forward? along Is bit with more you to curious than little and suit just you XX supply XX next RFABX and peers and follow look much LFAB their months pressures over constrained to your are ramping pricing

us pricing made Toshiya, in doing. our question. line product about We’ve say, pricing approach close I These to market, hasn’t different They’re at past, industry thanks customers, XX that close seen the the Yeah. in as the you’ve to decisions would to peers the understand behave product their are got what are for changed. Yeah. lines. level.

to have see market they suppliers. many of So, your point, our peers are from their take do the outsourced, that increases pricing they when and in to action,

invest that have in continuing that think competitive technology, to highlight continues advantage. I we’re of advantage part Do we reason So you competitive why that, follow-on? just to the strengthen have and and manufacturing the emphasizes to

Thanks, do. I Dave.

OpEx up very -- past X% in a plus up, barely been the I environment. I OpEx, on what’s your it’s four think, budget X% think, is So inflationary months, over

up the been Just in about model, offsets Thank over singles, months curious think kind four how what the have double being growing of revenue your while past and strong you. low sustainability we digits? should OpEx

Happy to No. Yeah. that. address

SG&A investments is We and to industrial R&D automotive. are to allocating with our and we’re and best opportunities how the primarily pleased that

advantages long-term. share such per talked flow ultimately that have our Ti.com strengthen to free the also cash over we ability about grow initiatives, and our As as maximize competitive

On increase several the of the absolute on continue last to over years investments see to would next your expect an we strong market opportunities. question, I basis, as part

Thank you.

Thank you. it. Appreciate

caller, We next to will go please.

from our with take next Please will JPMorgan. go question We Sur Harlan ahead.

Thank X% Good They year. question. versus below taking Is slightly your you goods sequentially. inventory On are my levels. is afternoon, for down which are unfinished guys. where resides. is down customer They consignment They’re XX% pre-pandemic fair to inventory, just you it last direct to days very with direct your profiles a can this ramping? demand year inventory their guys to especially at is RFABX continue rate exiting assume that that a target and your strong pull this given customers get still reflection

would inventory four go they you, I the our is pointed finish What go as web, tell then last has Harlan, you still process this last they out given greatly quarters, manufacturing said, goods lean. at to quarter process, kits, to the then $XXX the over Yeah. finished million. Overall good. been

to Our goal to is for grow. inventory continue

about in talked said range, ultimately that days that lessens XXX I long our very and the to inventory given really have that will be business they many, not inventory us $XXX tremendous high and be support customers of just good products nil, just risk position We have I support customers model, have us and that because to a optionality, a goes inventory lives. on many of sell as at because uncomfortable puts the before, to end to gives is to target

that inventory comfortable reason. feel for we So increasing

have XX% XX% revenues that, our Harlan, remind question that reflection let reductions And and your includes… of was, last add direct, a we is direct of of that around just year, me part that Yeah. just customers

Right.

asset as we to controlling we which through we And what for strategic that TI.com, owning goes distribution is us and is important. to move through combat, a believed be still believe going my prior forward. revenue significant long that going … inventory

We’re of than that. or probably running that inside less two weeks

when it ship because want what we really revenue, inside customers So, and quarter. that of that inventory, we’re controlling reflective is owning of

follow have on? you So a

Yeah. Thanks for the there. insights

location, it’s but to year-over-year shipped for I wanting So what different know Thanks. the know to like geographies? the look profiles

Yeah.

of as the a up. were ago, the compared up regions and they sequentially year were all the year-on-year inside all quarter well. So That’s with

So in both year-on-year we sequentially. and trends did those see

So, caller, thank you, to please. we’ll go next the Harlan,

Thank you.

Yeah. Thank you.

Muse C.J. with question ahead. next our take from Evercore. go Please We’ll

and around for $XXX recovery you million an went was industrial the Thank took million do beat as Is therefore, you of it in guided of $XXX all May? particular run recaptured of of that market? or any before, $XXX portion question. that when you see upside that June guided? started to you Yeah. earlier or where kind you where question just and relative revisiting revenue guide the versus the million isolated midpoint it auto initially taking maybe guess end you the a that? above question, see I first the you was beyond your haircut to And for to that or of rate, you then So that, part curious, I’m safe and given that say to

me Yeah. your of ask the part first C.J. not quite I’m it. sure you Could you I got just can help with question? it…

midpoint look I of about did, if you versus actually what the million $XXX better your initial and was guidance… your at in it guidance So

Yeah. Yeah.

million $XXX told you uncertainty China haircut. a us …

drivers that $XXX all million Was better? were there understand, it within to really or in trying other that? how came So China

the say talked due that was, speak, to would about, so primarily as we that, right, the term using was that I Yeah. restrictions. that COVID to haircut

at about than up, the we weakness the with different didn’t customers have loosened -- that electronics. again, of yeah, those Do quarter, so forecasts, have as that on. exception were original we talked to pulling beginning the the personal we really inside what would you of of follow expected So, anything see they

Please. Yeah.

of and actually RFABX, On is the which understand kind comes equipment wafers just to that $XXX the that more the to ballpark you’re like parts sounds year, really trying revenue qualify wafers like later to be million for it start of the QX depreciation revenuing, going wafers, guide it’s $XXX roughly a XX% begin there up or for moving of And kind estimate? of that depreciate maybe given in when really and -- to half-on-half considering it’s the you going million, starts? qualification

in estimate is lower little right I an come earlier, and I fair beyond XXXX It you billion said go $X a now, just you on it estimate. XXXX. roughly billion about $X.X it good of But little can would to -- then in can And depreciation and point that, think Yeah. model XXXX is easily a or could in linear a a as the to get that say, and for XXXX higher. from

Thank you, Rafael.

got we’ve And more please. for time C.J. one caller, you, Thank

last our We’ll BMO take with Srivastava go question from Please Ambrish Securities. ahead.

the a Industry question. quarters. had the and I similar see Did Hi. low very I up know has pricing. Rafael, that last benefit did pricing, from on Thank you a Dave? high I of been much. David question second last pricing double, a you David acknowledged pricing. had single-digit, from see quarter you benefit had couple quarter

impact was the do that I the couple over expect wondering, to next what you quarters? of was So continue and

practices We did Ambrish. in a And changed. Yeah. again, pricing second haven’t our benefit quarter, see

no share So, from that gaining aggressively. to that changes we’ll continue standpoint. price ensure And and to we’re so

what see just the marketplace. in happens we’ll So

clarification. sorry, a just just a Dave,

imperfect, use from TI proxy the whatever pricing ascertain to SIA spits SIA data to As the the up? is, what advantage reasonable data it got is

Yeah. Yeah.

once just a doing. having cautious is some We’ve enjoying and TI.com. units shipments We’ve convenience of give more SIA customers. that is you docks to number the So got buying They’re took as revenue what -- by day product the specific those customers we’re and at through available of price, we’re got our that’s regions doing immediately than that in to are average you would it. if an which a just divided give look we

got They a convenience higher enjoying. a you’ve for that price they’re But so mixing in. there’s pay that. So that

of products So there’s other that types we factors the mixing besides there’s that, ship.

sell ASP each of we of can move ship that for end pennies spectrum, depending dollars average We sell of on we your and for have and thousands it or products price that a around. your selling either that couple products

like said, the that over makes I sorry in up or So, price give it that in as can’t fine. seen that environment for well. Do you product that we’ve increases quarters, follow am specific. like-on-like customers but that have seen any just we benefit that have I an a last several

Okay.

Ambrish. Thanks, Okay.

Thanks.

let wrap So up and cash is by generate best we’re me At we But said share. flow our the ultimately, measure the objective what to reiterating previously. growth technology foundation our owners the progress and engineers is free have and per metric company. of core, our long-term value for of

While to will we our to strive objective, ambitions. three achieve we our continue pursue

We will act like the for owners own who company will decades.

and that communities neighbors. us have world that’s personally and our all company be benefit. we’re our ever be to of customers, a a you will would we When changing. And We Thank evening. want succeed part owners a proud good will successful, adapt and in we’re employees, a and

this Ladies participation. appreciate conference. today’s We gentlemen, your and concludes

disconnect. now may You