Q3 2020 Texas Instruments Inc Earnings Call

October 20, 2020

[music].

Good day and welcome to the Texas instruments. They keep 20 earnings release Conference call Today's conference.

Is not being recorded at this time I would like to turn the conference over to Dave. Please go ahead Sir.

Good afternoon, and thank you for joining our third quarter 2020 earnings conference call.

For any of you missed the release you can find it on our website at <unk> Dot Com Slash IR. This.

This call is being broadcast live over the web and can be accessed through our website a replay will be available through the web.

This call will include forward looking statements that involve risks and uncertainties that could cause T.I.s results to differ materially from management's current expectations. We encourage you to review the notice regarding forward looking statements contained in the earnings release published today as well as to its most recent FC.

SEC filings for a more complete description.

Our Chief Financial Officer Raphael is already is with me today and will provide the following updates first I'll start with a quick overview of the quarter.

Next I'll provide insight into the third quarter revenue results with more details unusual by end market, including some sequential performance payments. It's more informative at this time and then.

And then lastly, Rafael will cover the financial results capital.

Capital management and.

And our guidance for the fourth quarter of 2020.

Let me start with a quick overview with three key points.

Revenue was higher than expected and grew 18% sequentially with notable strength from the rebound of automotive and growing demand from personal electronics revenue increased 1% from the same quarter a year ago.

In April and again in July we explained we would maintain high optionality with our operating plan. So we could support customers, particularly during a time when their ability to forecast will be limited.

This approach has served us and our customers well and we'll continue this posture in the fourth quarter.

Finally.

While visibility for the near term demand has improved we remain cautious as the broader economic impact of the global pandemic could continue for several years.

Our approach in an environment like this is to maintain high optionality with our operating plan in the short term to continue crew.

To continue critical investments in R&D and in new capabilities like those for Ti dotcom and finally to invest to ensure long term manufacturing capacity, particularly for the 2022 to 2025 timeframe.

We've made these decisions with our overall ambitions in mine, which include running the company with the mindset of the long term owner these.

These decisions have continued to serve us well.

Looking at our segments analog grew 18% and embedded processing grew 19% sequentially.

On a year over year basis analog grew 7% in embedded processing declined 10%.

Our other segment declined 19% from a year ago, primarily due to lower calculator sales were COVID-19 impacted back to school sales.

Moving on I'll now provide some insight into our third quarter revenue by end market for.

First the automotive market rebounded with about 75% sequential growth and return to levels similar to a year ago.

Revenue has grown from the bottom we saw in May.

As North American and European Automotive Assembly plants resumed operations.

Next to the industrial market was down low single digits sequentially, roughly a sequential decline in about even from a year ago now.

Not surprisingly there were areas of strength and there are areas of weakness.

The diversity within industrial results in relative stability reinforcing the attractiveness of this highly diverse market.

Personal electronics was up more than 20% sequentially and up about 15% compared to a year ago. The stray.

The strength was broad based across personal electronics combined with Ti being in a position to support unforecasted demand in the third quarter.

Next coms equipment was down about mid single digits sequentially and up mid single digits from a year ago and enter.

And enterprise systems was down in both comparisons.

Lastly, I'll note a housekeeping item, we've simplified our analog business structure into our power business and our signal chain business.

Starting this quarter, our reporting will reflect these changes.

Rafael will now review profitability capital management and our outlook.

Thanks, Dave and good afternoon, everyone.

Third quarter revenue was $3.8 billion up 1% from a year ago.

Gross profit in the quarter was $2.5 billion or 64% of revenue from a year.

From a year ago gross profit margin decreased 60 basis points.

Operating expenses in the quarter were $793 million up 2% from a year ago and about as expected.

On a trailing 12 month basis operating expenses were 23% of revenue.

Over the last 12 months, we have invested $1.5 billion in R&D.

Operating profit was $1.6 million in the quarter or 42% of revenue up.

Operating profit was up 1% from the year ago quarter.

Net income in the third quarter was $1.4 billion or $1.45 per share.

Let me now comment on our capital management results, starting with our cash generation.

Cash flow from operations was $1.4 billion in the quarter.

Capital expenditures were $146 million in the quarter.

Free cash flow on a trailing 12 month basis was $5.2 billion.

In September we announced we would increase our dividend by 13%, marking our 17th consecutive year of dividend increases.

In the quarter, we paid $825 million in dividends and repurchased $15 million of our stock.

In total we have returned $6.4 billion in the past 12 months or 123% of free cash flow.

Over the same period, our dividends represented 64% of free cash flow underscoring their sustainability.

Our balance sheet remains strong with $5.5 billion of cash and short term investments at the end of the third quarter.

Regarding inventory the inventory dollars were down $64 million from the prior quarter and days were 137.

Distribution own inventory decline in third quarter by about a $100 million the eighth consecutive quarter of planned reductions as we have continued the transition to have fewer distribute distributors and bring more customers direct.

As a reminder, as we build closer direct relationships with our customers. We further strengthened one of our competitive advantages the reach of our market channels tactics.

Tactically and strategically were pleased with the progress of the transition and the impact for our customers.

For the fourth quarter, we expect revenue in the range of $3.41 billion to $3.69 billion on earnings per share in the range of $1.20 to $1.14.

Our annual operating tax rate has not changed much but now ramps up to 14% from the year and Thats. What you should use for your models in the fourth quarter for next year, we expect our annual operating tax rate to remain at about 14%.

In closing, we continue to invest to strengthen our competitive advantages and making our business stronger with that let me turn it back to Dave.

Thanks, Rafael operator, you could now open the lines for questions in order to provide you as many as possible the opportunity to ask a question. Please limit yourself to a single question. After our response, we'll provide you an opportunity for an additional follow up operator.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

We are using a secret burn please make sure your mute function is turned off to allow your signal to reach our equipment again.

Again press Star one good question.

Well go ahead and take our first question from Toshiya Hari with Goldman Sachs.

[music].

Hi, guys.

Good afternoon, and thanks for taking the question.

We're off all Dave My first question is on automotive you guys saw very strong results in the September quarter, I think you spoke to us.

75% sequential increase in revenue.

In the automotive end market, what's your view on December as it relates to automotive and how you're thinking about sustainability into the early part of 2021, and then I've got a follow up thanks to associate yes, I think that that.

That 75% sequential obviously was very strong but is probably best explained that looking at the previous quarter.

And as we talked about last quarter. The majority of the automotive revenue is on consignment, so as the North American and European manufacturers had closed plants that revs.

That revenue reacted very quickly and we were down 40% sequentially and year on year.

And so as those factories opened up we saw the bottom and may add.

And we expected revenue to grow and as they opened up obviously that to that revenue reacted very quickly in the in the other direction. So that's really the story that we saw in.

Third quarter again.

Again as Weve given color last quarter on the automotive market and talked about how that was moving up pretty significantly in the fee.

In the fourth quarter, we're not breaking out any particular end market or or specific color on that front. So there is no.

There is not a reason too as we look into into the fourth quarter. So you have a follow on.

Following.

I do all thanks, Dave.

My follow up question is on gross margins.

In Q3.

Across all you mentioned that gross margins were down 60 basis points on a year over year basis, and I was just trying to better understand what what the puts and takes for overall run.

Overall revenue I think was up 1%.

Your your mix of businesses improved with analog up.

7% year over year embedded processing down Ted.

And.

12 inch versus eight inch I am guessing 12 inch was up year over year.

So I'm just trying to understand what the what the negatives were on a year over year basis that drove gross margin down a little bit I. Appreciate you guys don't run their business for gross margin, but Paul I was just curious thank you.

Yes ill happy to answer Ed So, yes on a year on year basis revenue was up 1% gross margin dollars were off but a little less than that maybe half a percent or so.

So budd sale when you're looking at at such Big numbers that then to the Delta is so small it's difficult to to look at the defaults through.

Like we normally look at it right. So in the Big scheme of things revenue was up a little bit and gross margin dollars were up a little bit, but having said that I would also point out that the mix of personal electronics revenue was higher in third quarter dentists being.

Now whether it was the same quarter last year or even second quarter, great Big Associate and we'll go to the next caller. Please.

Well take our next question from Craig Hettenbach with Morgan Stanley.

Yes. Thank you maybe just follow up on the last point on the strength from personal electronics really as you look out to Q4 gave had how you feel about kind of inventory versus end demand sell through and then as part of that and perhaps other segments as well how you think about wild way in terms of perhaps kind of last shipments there.

And how you're seeing that as you go forward.

Now, let me guidance start and then Dave.

And address their way question on anything else, but I.

At the highest level, we are very well positioned.

To handle whatever comes at odds with whether expressed on electronics or or any other market, but personal electronics is one data that by having.

Led by having the inventory strategy that we have followed by having that optionality that we have talked about for now.

180 days or so and last two quarterly releases has put us in a really really good position now that it's not just having that kind of tactical strategies also our tactical position. Its also having the the strategic position of being the supplier of catalog parts that are.

That are highly diversified that sell to how to.

Too many many customer you have over 100000 different customers sell 80000 different bars, so put us in a position where we can build the inventory have they actually metric bet. So that April revenue strong weekend supported if its not then we hold inventory a little longer than usual, but thats, okay, just a little more.

Working capital with that I also want to I want to make the point that.

Inventory, we think very is a strategic asset as we have talked about earlier, we're comfortable holding our high levels of inventory.

As of inventory and in fact were going to update we're going to.

We're going to give you an update on our range on inventory of the next capital management and our goal in February they sure.

I'll I'll make the comment on why way so while way was about 2% of our revenue in in the third quarter that was a little higher than what they were in the first half of 2020.

So certainly we are in compliance with the with us export restrictions and stop shipping to them on.

On September 14, and and they are not included in our fourth quarter revenue guidance. So you have a follow on Craig.

Sure. Thanks for all the color there I guess, just how you think about it the business rebounds, just from an Opex perspective, any puts and takes there for Q4 and into next year.

Nothing significant that I would point to in Opexa of course, R&D is a big part of that about $1.5 billion a year, that's a big component of our competitive advantage of having to broaden our portfolio.

Our portfolio in the industry, we continue to put out some of the best products.

Catalog products that go into into automotive industrial first on electronics, our communication markets. So we'll continue to strengthen that advantage.

Another one that goes into opexa in the DNA portion and as Jay portion is the investments that we're making.

In Seattle comp to strengthen the reach of our channels. So we continue to strengthen data.

That tool that ability to reach our channels rich customers, better and keeping them engaged longer and selling more and more.

Products to those customers.

Also at the highest level Opex has been running 3.1 $3.2 billion a year on a trailing 12 month basis.

I would expect for that to run at above that level, maybe over time up one or 2% year.

Year on year, but but in that neighborhood great. Thank you and we'll go to the next caller. Please.

We'll take our next question is either can with Bernstein research.

Hi, guys. Thanks for taking my questions. So the first one I wanted to touch on the strength from P.E. I wanted to know if you can give us a little more color on how much of that would be Pcs versus smartphones. I know that you had talked about some of that strength coming from your ability to satisfy unexpected demand I assume that was maybe more a PC state.

But any color you could give us on sort of the relative mix and growth of those two sub end markets would be helpful.

Yes, Stacy I'd say that as.

As a pandemic.

First started back.

In in March and even in last quarter, a lot of the strength was initially driven by Pcs and tablets, but.

We have seen that.

That strength broaden.

So even to TV season.

Smart speakers and other things that are used in the home so our.

Our best guess.

Estimate of our guesstimate of what's going on is that.

As people are spending more time at home they are upgrading the things that that they are using more so.

That spend is is broadening beyond just just the PC and as.

And as Rafael was talking about our portfolio of products.

Serves us well and puts us in a position to be able to do is to support that demand you have a follow on.

I do thank you. So I know you talked about continuing to hold high inventory levels and maintaining high service into Q4 and beyond and I get that I. Just wanted to know if you could give us any color on what that implies for utilization and loading goes but I'm, assuming your utilization was up sequentially in Q in Q2 and in Q3 I mean.

Please let us know if that was the case and what are your plans for our Utilizations factory loadings as we go into Q4, the end of the year.

Sure.

So state as you know, we we only talk about utilization when there's big inflection point or something unusual. So we did talk about it in April going to second quarter because.

Most people.

Most other versus competitors decrease there are done loadings and instead, we kept them flat at that point due to first.

So first quarter to maintain that option I would do have that optionality that frankly has served us tremendously well.

During this last six months.

Since the second quarter, we have bias off hard loadings. So we do.

So we did that from second to third a little higher in third and going forward, we'll probably move that up we're balancing that out by higher it's nothing significant.

But what is biased offline so that we maintain that optionality and we can maximize the revenue and support our customers with any potential upsides.

They have that are on so that will be also bought it otherwise okay. Thank you Stacy will go to the next caller. Please.

Well take our next question comes in the theater.

Our Curie would you be.

Thanks, a lot I guess my first question is on the share buyback it was quite small.

Even lower than in the depths of the financial crisis back in a way yet your business is already small backlog, what's the what's the thinking there you've always been pretty astute about the intrinsic value of your stock so how should investors sort of wide read that thanks.

Yes, no first let me step.

Step back and remind everybody, how we think about a cash return.

Cash returns.

We talked about there is around capital management every year in February and and when we meet with investors, but when we think about cash returns. The objective. There is to return all free cash flow to the owners of the company via buybacks and dividends we use both.

And if you look at in the last three.

Trailing 12 month basis, which is the best way to look at that we have generated $5.2 billion of free cash flow and have have returned 6.4 billion. So one 1.2 billion more than degeneration, so well ahead.

Of the of the generation the returns we do have a follow up.

I did I did so I wanted to double quick just a little bit on the drop through and analog it's it seemed like the drop through and embedded was fine, but you're still a little below where the op margin was back in sort of the.

Great.

2018 timeframe.

Similar levels, there's something going on with mix is that maybe the PE next that you were talking about before I within analog thanks.

You know I, there's nothing unusual there to comment.

Early analog is.

Is the biggest segment that we have so anything that we would comment of the of the company level applies.

Likely came from from analog so and they have.

[music].

A fair amount of IP in fact, a disproportion amount of personal electronics, given that embedded doesn't have much personal electronic bill, yes, yep and embedded as essentially industrial and automotive for the most part by 90% raise so those two so that's where that's where that growth would would come from so thank you Tim and we'll go to the next caller. Please.

We'll take our next question comes Harbin fairly JP Morgan.

Good afternoon, great job when according to execution on can you guys, just give us a quarter on quarter and year over year trajectory by geography, I know theyre just ship to locations, but I think it's still useful as a proxy for demand and overall economic activity just depending on the breadth of the participation.

Sure Harlan, yes year ago Asia was up and all of the other regions were down and sequentially.

All of the regions were up in Japan growth was down.

They have a follow on.

Yes, So you guys mentioned.

Last quarter that there had been some industrial customers that were building some inventory to potentially buffer against future supply chain disruptions and just.

Prudent business continuity planning did you guys continue to see that in Q3 or are these customers starting to work down these inventories or just sustaining the higher levels as we head into the winter months include season.

Yes in the Heartland I think our comments last quarter.

We're one just more of an observation of history in our industry that basically it's taught us that whenever we've seen supply constraints that.

Customers react by building some inventory so you know.

It's just our belief that it would be naive that this would be the first time that that wouldn't happen right. So I think that those subs.

Supply constraints in our industry still exists so to that.

To that extent.

Could still be the case.

And now our lead times have remained stable our product availability is still very high I think today you can go to tie dot com and get immediate availability of over 40000 different.

Different devices so.

And that doesn't mean that we don't have pockets of.

Of.

Delivery problems, we'll always have that at any time.

But overall our lead times are very solid.

And availability is high but that's not true for the industry. So yes, I think it just would be naive to believe that that wouldn't be the case. So.

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

Your next question comes from John Pitzer with Credit Suisse.

Yeah. Good afternoon, guys. Thanks for let me ask the questions. Congratulations on the solid results. David If you look at kind of your guidance over the last two quarters. It looks like you sort of rightfully discounted kind of what the bottoms up bookings was telling US you said as much when you guided for the June quarter, and just given the magnitude of beat in September it kind of feels.

Same way and that to me seems to make sense in the midst of a global pandemic I'm just kind of curious youre guiding the december quarter to plus or minus about seasonal inclusive of what sounds like a 200 basis point headwind from wild way, but I guess I could argue maybe fumbled start a little bit later this year that should help December.

I guess as you forecast the December quarter seasonal kind of the metric you are going for and are you discounting kind of your bottoms up in the December quarter as much.

In hindsight as you did in June and September.

Yes, no I think you've covered a lot of good points, John and like you point out in any quarter, there's puts and takes you've got the headwind of wild way, we've got the unwind of.

Of the distributor program, which in fact.

We've actually wound that up this past quarter.

And just with the growing demand in the inventory needs in positions that weve essentially completed that so we depleted about is Raphael I think mentioned about $100 million worth of inventory in that quarter. So.

So you've always got puts it puts and takes but I'll tell you that the the most important thing that we see in the.

In the most important input that we get is the demand that our customers tell us they want.

And.

We get that from the orders and the backlog that our customers provide us as well as demand fees that we get through consignment.

And so thats that is really what drives an informed.

The the outlook that the that we provide so.

Follow on John.

Yeah, Dave It's fair to say that there has been nothing typical this year, but you and I have talked about this in the past if you look at the year over year growth discrepancy between analog and embedded it's fairly wide I'm wondering now that we're 90 days more into this kind of despair different from year over year growth is there a good explanation in your mind.

And importantly, as we look forward when do you expect the embedded business to kind of catch up to analog running year over year basis.

Yes, sure I think that certainly the embedded business isn't performing the way that we would want it to over.

Over the last multiple quarters.

And I think that if you look over the most recent quarter here certainly we're encouraged by.

The.

The progress or the numbers to that that would show.

But we've been working very hard.

On on turning that to that business around and getting it performing like we would like it to be programming.

And we're making investments there because we believe that it will be a great contributor in the coming years. So.

And so we're busy building that business stronger and but it will take time.

Success in.

In that business will be not measure over this quarter.

Or even over a couple of quarters, but that will be measured the measured over time. So thank you for that John and with that we'll go to the next caller. Please.

Our next question comes from Ross Seymore with Deutsche Bank.

Hi, guys I want to follow up on that same last question of Johns on the embedded side of things Dave last quarter were embedded was sequentially weekend year over year weak you talked about the over indexing to automotive and industrial but given that automotive was up 75% sequentially I'm a little surprised embedded was basically the same as analog from a sequential.

Perspective, where there are some offsets in that business I know you said industrial was down a little bit, but it doesn't seem like it would be enough to offset that to that over.

That over indexing on the industry or excuse me on the automotive side.

Yes, well and embedded grew a little faster than than than analog and essentially just as last quarter as you pointed out Ross.

It Didnt.

Have any offsets.

To to the business.

Centrally all you have left is is industrial so it's those two.

Those two end markets.

And.

So with with the return of revenue it's.

It's performing.

About the same as about the same as analog is so those those are the two those are really the two components driving that so it doesn't have a nearly as much PEO in fact hardly any b that personal electronics in person electronics was a big contributor to growth in third quarter shipments over that's right now.

Thats right.

Great I guess for my follow up yes, if I can pivot over to the industrial side, just a higher level question you guys seem to be flat to up year to date in your industrial segment.

How do you explain the actual growth in that segment versus the global GDP and the general economic activity dropping it doesnt seem like the inventory concerns are as high as what you had last quarter, where you first said it would be naive to think otherwise it seems like some of those concerns have gone by the wayside, but.

You are still nonetheless, outperforming that the global economy, if it's not inventory I guess what is it.

Well the longer term thesis of courses that content is expanding inside of inside of those markets and I think if you look below we talked about theres areas of strength and there's areas of weakness. So if you look at a certain markets like.

Like aerospace and defense that has obviously weak people aren't taking deliveries of planes.

As as an example.

There is other areas of strength like appliances, if anyone that's listening on the call that is.

Doing any home renovations like my wife is.

You have to wait multiple months to to get to home appliances, and so we're seeing very very strong strengthen in those types of and those types of areas. So.

But I think the diversity of that market.

Coupled with the content expansion I think just proves out why it's such an attractive.

Market for us.

And our products are.

Really tailor made well positioned to take advantage of that.

Of that market.

The other thing I would add is this and we have 100000 different customers.

80800 products the vast majority of those sell into industrial that is the most diverse.

End market so.

So it would be impossible for us to know what those customers are doing on what that adds up to.

The important part is the way we run the company to give ourselves the highest possible optionality.

So that if it is driven by.

Driven by the secular.

The secular trends also acid is driven by the secular trend over the long haul maybe any one quarter, a good or two quarters ago to oscillate and it could be inventory build in but over the long term secular trends are there and we put ourselves in a good position tactically to have that inventory available to support customers.

And if we have our correction inventory correction or something of that sort will go into that and that inventory will not go back I will not go bad we'll have it in in storage for years, and then we'll sell it.

The other end of that of whatever correction, we may have.

Okay. Thank you Ross, we'll go to the next caller please.

Your next question comes from tore.

Dan starting with.

People.

Yes. Thank you.

I wanted to ask John.

John's question a bit differently.

Does it does it feel like bookings are not going to back to reflecting true end demand. Obviously this year everything's been abnormal light but.

As I think about your fourth quarter guidance is it safe to say that bookings are now running very much aligned but would end demand.

Well its torry those that's always a question that we don't have a precise insight to right. We don't have a system that tells us that I think you have to even go back to third quarter 18, where.

You know the the market had turned we're going through a classic inventory cycle, we worked our way through that through 19.

And just as we've bottomed out and saw signs of inflection.

COVID-19 heads so.

So that kind of change things, but certainly you know we started this year with inventories.

At at lower levels.

And so that certainly that's where we started the year right so but.

But inventories in demand are certainly tie.

Certainly tied together and.

So I don't believe that there were there were ever largely disconnected overtime and so much of our business is on consignment or just in time.

Demand that.

The bookings versus revenue drain is really not that meaningful that's right. Yeah. So it's almost what what is.

Inventory, our customers have that so thats downstream.

And.

So thats why I think that we from an optionality standpoint, trying to ensure that we've got product available.

That if things want to continue to strengthen from here, we're in a position to support it.

And that.

Thats thats the posture that we are taking if it doesn't we certainly know what to do in the other direction as well you have a follow on tour.

Yeah. That's fair. Thank you so I know.

So I know communications is smaller for you and it may even be less of a strategic end market for you but.

It did take a sequential breed there it was still up year over year Directionally do you have any views on where that market is headed.

Well it.

No I think that to our longer term thesis is is that it's not the not a structural grower just theres not new subscribers being added to the net.

The network overall.

We've made investments in Fiveg and will benefit from it but as you say, it's just not a very large portion of our of our revenues.

Certainly there is noise.

This quarter's numbers with the with wild way.

But.

Growth will resume and as it always does I think everyone in the industry describes it as a choppy market and that doesn't make it a bad market. It just makes a choppy.

So we will continue investments there it's a it's a good market for us and.

And we will continue to continue to make investments in it and.

And.

We we continue to like it so and take.

And thank you Tory and I think we've got time for for one last caller. Please.

Okay.

Well take our last question from Ambrish Srivastava with BMO.

Hi, Thanks for squeezing me in.

They've been golfer I had a question on the industrial business as well.

So clearly.

You mean, the Vegas in the independent back at the past cycles.

It is also because.

I know you guys look at it very long term as well.

2019 for four consecutive quarters and and for the full year it was down so.

So is it because as we I think Dave you mentioned that in an answer to an earlier question that we entered the year.

The really it was the supply chain is drained out of any expenses because of what you have seen in Somalia.

Despite all the problems, we've seen and the demand collapsing in certain end markets and industrials its held and also because of that factor that is.

Hi chain inventory was pretty lean.

Yes, Yes, I think we've just completed.

Seven quarters of the year on year declines. This is the first quarter of year on year growth that we've had.

So industrial has been been a piece of that I think those year on year decline. It's a good part of that was just.

Our industry cyclicality is.

As you pointed out so.

That.

But structurally.

Industrial with its breadth and.

If you look Weve got 13 sectors that were investing in all of them are.

Have content, that's growing and so we're I think we're very positioned position.

Positioned very well to to be able to to support that growth. So.

What we can't call and what we don't know is in the short term how.

How the economy is going to behave.

And even in a weak environment.

That that market has done done reasonably well.

Compared to some of the other some of the other markets.

You have fallen.

Okay quick one on the embedded side I think last earnings call. So you mentioned that you are encouraged by the signs of stabilization I just wanted to just.

Just help us understand what are some of the steps you've taken to to write the business and as you say it doesn't happen overnight and you talked about investment and I know several years ago. You said that you were going to deemphasize comps infrastructure, because that's longer term you didn't see growth there at least on the comps on on the embedded side. So is the.

Investment profile in this business looking a little bit different as you look forward what are some of the other steps.

That you guys have taken to quote unquote write the business and get it back on track.

Yes the.

Yes, so you've highlighted a couple of steps that we have taken in the past I think none of those.

Those have been secrets.

The decisions on the comp side with something that we had talked about I think going back six seven.

Seven years ago now as.

As we Didnt believe that.

Coms equipment was going to be a structural grower.

And so.

Specifically on the embedded side, we did believes that there was some opportunities on the analog side. So we took up investments there and we're enjoying the benefits of those investments.

On the analog side today.

But that did provide a headwind.

We talked about I think it was a couple of quarters ago now the.

Some of the restructuring that you've mentioned inside of the embedded business and.

We've got to I think a different product.

Product groups, and we took down some of the resources and some an uptick up some of the resources and others.

And really just getting resources onto the best opportunities.

Overall and.

And making sure that.

Making sure that we.

We have resources into the places that we believe will.

It will be the best growth opportunities.

And and.

Well I'd just say in general what were trying to do is leverage our competitive advantages ensure that the products that we are investing in have a broad base.

Appeal.

And a customer base standpoint and.

And there will be products that will generate cash flow for a long time to come.

And.

And just taking a step back.

Again, I'd say that we're investing in that business, because we believe it will be a great contributor.

When we look at the years ahead so.

And so.

So again, there is a lot of effort going into building that business stronger.

But.

We will take time, so that successful we'd be measured over years not just in a call.

In a quarter or two so with that I will turn it over to us to Raphael to wrap this up for for the night. Thanks, Dave Let me wrap up by emphasizing what we have said previously at our core were engineers and technology is the foundation of our company, but ultimately our objective and the best metric to measure progress.

Doesn't generate long term value for our owners is the growth of free cash flow per share our strategy to maximize free cash flow per share growth has three elements a great business model focused on analog and embedded products and built around for sustainable competitive advantages.

To discipline in allocating capital to the best opportunities and lastly efficiency, which means constantly striving for more output for every dollar spent while we strive to achieve our objectives. We will continue to pursue our three ambitions. We will act like owners, who will own the company for decades, we will.

We'll adapt and succeed in a world of ever changing and we will be a company that were personally proud to be a part off and would one as our neighbor. When we're successful our employees customers and communities and owners are all benefit.

Thank you and have a good evening.

This concludes todays call. Thank you for your participation you may now disconnect.

[music].

Good day and welcome to the Texas instruments Q 20 earnings release Conference call Today's conference.

Is not being recorded at this time I would like to turn the conference over to Dave.

Right sorry.

Good afternoon, and thank you for joining our third quarter 2020 earnings conference call for any of you missed the release you can find it on our website at <unk> Dot Coms Flash IR.

This call is being broadcast live over the web and can be accessed through our website a replay will be available through the web.

This call will include forward looking statements that involve risks and uncertainties that could cause <unk> results to differ materially from management's current expectations.

We encourage you to review the notice regarding forward looking statements contained in the earnings release published today.

As well as <unk>, most recent SEC filings for a more complete description.

Our Chief Financial Officer Raphael was already is with me today and will provide the following updates first I'll start with a quick overview of the quarter.

Next I'll provide insight into the third quarter revenue results.

With more details than usual by end market, including some sequential performance since its more informative at this time.

And then lastly, Rafael will cover the financial results capital.

Capital management and.

And our guidance for the fourth quarter of 2020.

Let me start with a quick overview with three key points.

Revenue was higher than expected and grew 18% sequentially with notable strength from the rebound of automotive and growing demand from personal electronics red.

Revenue increased 1% from the same quarter a year ago.

This approach has served us and our customers well and will continue this posture in the fourth quarter.

Finally, while this.

While visibility for the near term demand has improved we remain cautious as the broader economic impact of the global pandemic could continue for several years.

Our approach in an environment like this is to maintain high optionality with our operating plan and the short term to continue critical investments in R&D and a new capabilities like those for T.I. dotcom and finally to invest to ensure long term manufacturing capacity, particularly for the 2022 to.

2025 timeframe.

We've made these decisions with our overall ambitions in mine, which include running the company with the mindset of a long term owner.

These decisions have continued to serve us well.

Looking at our segments analog grew 18% and embedded processing grew 19% sequentially.

On a year over year basis analog grew 7% and embedded processing declined 10%.

Our other segment declined 19% from a year ago, primarily due to lower calculator sales were COVID-19 impacted back to school sales.

Moving on I'll now provide some insight into our third quarter revenue by end market.

First the automotive market rebounded with about 75% sequential growth and return to levels similar to a year ago.

Revenue has grown from the bottom we saw in May as North American and European Automotive Assembly plants resumed operations.

Next to the industrial market was down low single digits sequentially, roughly a sequential decline in about even from a year ago not to.

Not surprisingly there were areas of strength and there are areas of weakness.

The diversity within industrial results in relative stability reinforcing the attractiveness of this highly diverse market.

Personal electronics was up more than 20% sequentially and up about 15% compared to a year ago the strike.

The strength was broad based across personal electronics combined with Ti being in a position to support unforecasted demand in the third quarter.

Next coms equipment was down about mid single digits sequentially and up mid single digits from a year ago and enter.

And enterprise systems was down in both comparisons.

Lastly, I'll note a housekeeping item, we've simplified our analog business structure into our power business and our signal chain business.

Starting this quarter, our reporting will reflect these changes.

Rafael will now review profitability capital management and our outlook.

Thanks, Dave and good afternoon, everyone.

Third quarter revenue was $3.8 billion up 1% from a year ago.

Gross profit in the quarter was $2.5 billion or 64% of revenue from a year.

From a year ago gross profit margin decreased 60 basis points.

Operating expenses in the quarter were $793 million up 2% from a year ago and about as expected.

On a trailing 12 month basis operating expenses were 23% of revenue.

Over the last 12 months, we have invested $1.5 billion in R&D.

Operating profit was $1.6 million in the quarter or 42% of revenue.

Operating profit was up 1% from the year ago quarter.

Net income in the third quarter was $1.4 billion or $1.45 per share.

Let me now comment on our capital management results, starting with our cash generation.

Fassler from operations was $1.4 billion in the quarter.

Capital expenditures were $146 million in the quarter.

Free cash flow on a trailing 12 month basis was $5.2 billion.

In September we announced we would increase our dividend by 13%, marking our 17th consecutive year of dividend increases.

In the quarter, we paid $825 million in dividends and repurchased $15 million of our stock.

In total we have returned $6.4 billion in the past 12 months or 123% of free cash flow.

Over the same period, our dividends represented 64% of free cash flow underscoring their sustainability.

Our balance sheet remains strong with $5.5 billion of cash and short term investments at the end of the third quarter.

Regarding inventory the inventory dollars were down $64 million from the prior quarter and days were 137.

Distribution own inventory decline in third quarter by about $100 million, the eighth consecutive quarter of planned reductions.

We have continued the transition to have fewer distribute distributors and bring more customers direct.

As a reminder, we will close or direct relationships with our customers. We further strengthened one of our competitive advantages the reach of our market channels tactics.

Tactically and strategically were pleased with the progress of the transition and the impact for our customers.

For the fourth quarter, we expect revenue in the range of $3.41 billion to $3.69 billion on earnings per share in the range of $1.20 to $1.14.

Our annual operating tax rate has not changed much but now ramped up to 14% from the year and Thats. What you should use for your models in the fourth quarter for next year, we expect our annual operating tax rate to remain at about 14%.

In closing, we continue to invest to strengthen our competitive advantages and making our business stronger with that let me turn it back to Dave.

Thanks, Rafael operator, you could now open the lines for questions in order to provide as many as possible the opportunity to ask a question. Please limit yourself to a single question. After our response, we'll provide you an opportunity for an additional follow up operator.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again.

Again press Star one to ask a question.

We'll go ahead and take our first question from Toshiya Hari with Goldman Sachs.

Okay.

Hi, guys.

Good afternoon, and thanks for taking the question.

Well, Dave My first question is on automotive you guys saw very strong results in the September quarter, I think you spoke to.

75% sequential increase in revenue.

That 75% sequential obviously was very strong, but it's probably best explained that looking at the previous quarter.

And as we talked about last quarter. The majority of the automotive revenue is on consignment, so as the North American and European manufacturers had closed plants that revs.

That revenue reacted very quickly and we were down 40% sequentially and year on year.

And so as those factories opened up we saw the bottom and may add.

And we expected revenue to grow and as they opened up obviously that that revenue reacted very quickly in the in the other direction. So that's really the story that we saw in.

Third quarter again.

Again as Weve given color last quarter on the automotive market and talked about how that was moving pretty significantly in the fall.

In the fourth quarter, we're not breaking out any particular end market or or specific color on that front. So there is no.

There is not a reason too as we look into into the fourth quarter. So you have a follow up.

I do.

Thanks, Dave.

My follow up question is on gross margins in Q3.

Paul You mentioned that gross margins were down 60 basis points on a year over year basis, and I was just trying to better understand what what the puts and takes for.

Overall revenue I think was up 1%.

Your mix of businesses improved with analog up.

7% year over year embedded processing down Ted.

And.

12 inch versus eight inch I am guessing 12 inch was up year over year.

So im just trying to understand what the within that guidance or on a year over year basis that drove gross margin down a little bit I. Appreciate you guys don't run their business for gross margin, but just curious thank you.

Yes, I don't have a happy to answer that so yes on a year on year basis revenue was up 1% gross margin dollars were off but a little less than that maybe half a percent or so.

So but still when you are looking at such a big numbers that then the Delta is so small it's difficult to to look at the pull through.

Like we normally look at it right. So in the Big scheme of things revenue was up a little bit and gross margin dollars were up a little bit, but having said that I would also point out that the mix personal electronics revenue was higher in third quarter than it's been.

Now whether it was the same quarter last year or even second quarter, great. Thanks, Toshiya and we'll go to the next caller. Please.

Well take our next question from Craig Hettenbach with Morgan Stanley.

Yes. Thank you maybe just follow up in a last point on the strength from personal electronics really as you look out to Q4, Dave how you feel about kind of inventory versus end demand sell through and then as part of that and perhaps other segments as well how you think about wild way in terms of perhaps kind of last shipments there.

And how you're seeing that as you go forward.

Now let me go to start and then Dave.

And address the why.

The Wawa question anything else, but I.

This level, we are very well positioned.

To handle whatever comes out on whether it's personal electronics or or any other market, but personal electronics is one data that by having the inventory strategy that we have followed.

Having that optionality that we have talked about for now.

180 days or so the last two quarterly releases has put us in a really really good position now that it's not just having that kind of tactical strategies also our tactical position. Its also having the strategic position of being a supplier of catalog parts that.

That are highly diversified that sell to the.

Many many customers have over 100000 different customers fell 80000 different bars, so put us in a position where we can build the inventory have they actually metric bet. So that if revenue is strong weve got supported if its not then we hold inventory a little longer than usual, but thats, okay, just a little more.

Working capital with that I also want to I want to make the point that inventory.

Inventory, we think very is a strategic asset as we have talked about earlier, we're comfortable holding a high levels of inventory and in fact were going to update.

Going to give you an update on our range on inventory of the next capital management call in February they sure.

I'll I'll make the comment on why way so while way was about 2% of our revenue in in the third quarter that was a little higher than what they were in the first half of 2020.

So certainly we're in compliance with.

With us export restrictions and stop shipping to them on.

On September 14, and and they are not included in our fourth quarter revenue guidance. So you have a follow on Craig.

Sure. Thanks for all the color there I guess, just how you think about it the business rebound just from an Opex perspective, any puts and takes there for Q4 and into next year.

Nothing significant that I would point in Opex of course, R&D is a big part of that about $1.5 billion a year, that's a big component of our competitive advantage of having to brought it up or following the industry.

We're following the industry, we continue to put out some of the best products.

Catalog products that go into into automotive industrial personal electronics that communication markets. So we'll continue to strengthen that advantage.

Another one that goes into opexa in the DNA portion and as Jay portion is the investments that we're making.

Data comp to strengthen the reach of our channels. So we continued to strengthen data.

That tool that ability to reach our channels rich customers, better and keeping them engaged longer and selling more and more.

Products to those customers.

Also at the highest level Opex has been running 3.1 $3.2 billion a year on a trailing 12 month basis.

I would expect for that to run at above that level, maybe over time up one or 2% year on.

Year on year, but but in that neighborhood great. Thank you and we'll go to the next caller. Please.

We'll take our next question.

Ken Bernstein research.

Hi, guys. Thanks for taking my questions.

The first one I wanted to touch on the strength through from P.E. I wanted to know if you can give us a little more color on how much of that would be Pcs versus smartphones. I know that you had talked about some of that strength coming from your ability to satisfy unexpected demand I assume that was maybe more a PC statements, but any color you could give us on sort of the relative mix.

Both of those two sub end markets would be helpful.

Yes, Stacy I'd say that.

A pandemic.

First started back.

In March and even in last quarter, a lot of the strength was initially driven by Pcs and tablets, but.

We have seen that.

That strength broaden.

So even to TV season.

Smart speakers and other things that are used in the home so our base.

Our best debt.

Estimate of fair guesstimate of what's going on is that.

As people are spending more time at home they are upgrading the things that that they are using more so.

That spend is is broadening beyond just just the PC and as.

And as Rafael was talking about our portfolio of products.

Serves us well and puts us in a position to be able to do is to support that demand you have a follow on.

Please let us know if that was the case and what are your plans for our Utilizations factory loadings as we go into Q4 at the end of the year.

Sure.

So state as you know, we we only talk about utilization when there's big inflection points or something unusual. So we did talk about it in April going to second quarter because.

Most people.

Also there are competitors decrease there are done loadings and instead, we kept them flat at that point do.

The first quarter to maintain that option I would do have that optionality that frankly has served us tremendously well during.

During this last six months.

Since the second quarter, we have biased our loadings. So we did.

So we did that from second to third a little higher in third and going to forward, we'll probably move that up we're moving that up a higher it's nothing significant.

But it is by the offline so that we maintain that optionality and we can maximize the revenue and support.

Revenue and support our customers with any potential upsides.

That they have that are on so that will be also bought it otherwise.

Okay. Thank you Stacy will go to the next caller please.

Well take our next question comes from.

Our Curie would you be.

Thanks, a lot I guess my first question is on the share buyback it was quite small.

Even lower than in the depths of the.

Financial crisis back in a way yet your business is already small backlog, what's the what's the thinking there you've always been pretty astute about the intrinsic value of your stock so how should investors sort of.

Read that thanks.

Yeah, No first let me step back.

Step back and remind everybody, how we think about about cash returns.

Trailing 12 month basis, which is the best way to look at that we have generated $5.2 billion of free cash flow and have returned 6.4 billion. So one 1.2 billion more than they generations are well ahead.

Of the of the generation there with our hands, we do have a follow up.

Great.

2018 timeframe.

Similar levels, there's something going on with mix is that maybe the PE next that you were talking about before I within analog thanks.

You know I, there's nothing unusual there to comment.

Early analog is a is a big is a segment that we have so anything that we would comment on the at the company level applies a likely came from from analog so and they have.

A fair amount of IP in fact, a disproportion amount of personal electronics, given that embedded doesn't have much personal electronics, yes, yes, and embedded as essentially industrial and automotive for the most part probably 90% raise those too so that's where that's where that growth would would come from so thank you Tim and we'll go to the next caller. Please.

Okay.

We'll take our next question from Harbin fairly JP Morgan.

Good afternoon, and great job on the quarterly execution.

Can you guys just give us the quarter on quarter and year over year trajectory is by geography, I know, they're just ship to locations, but I think it's still useful as a proxy for demand and overall economic activity just depending on the brass and participation.

Sure Harlan, yes year ago Asia was up.

All of the other regions were down sequentially.

All of the regions were up and said, Japan words was down.

They have a follow on.

Yes, So you guys mentioned.

Last quarter that there had been some industrial customers that were building some inventory to potentially buffer against future supply chain disruptions and just.

Good business continuity planning did you guys continue to see that in Q3 or are these customers starting to work down these inventories or just sustaining the higher levels as we head into the winter months and flu season.

Yes in the Harlan I think our comments last quarter.

One just more of an observation of history in our industry that basically it's taught us that whenever we've seen supply constraints that.

Customers react by building some inventory so you know it's just our.

It's just our belief that it would be naive that this will be the first time that that wouldn't happen right. So I think that those subs.

Supply constraints in our industry still exists so to that.

To that extent.

That could still be the case.

And now our lead times have remained stable our product availability is still very high I think today you can go to tie dot com and get immediate availability of over 40000 different.

Different devices so.

And that doesn't mean that we don't have pockets of.

Of.

Delivery problems, we'll always have that at any time.

But overall our lead times are very solid.

And availability is high but that's not true for the industry. So yes, I think it just would be naive to believe that the that that wouldn't be the case. So.

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

Our next question comes from John Pitzer with Credit Suisse.

Yeah. Good afternoon, guys. Thanks for let me ask questions. Congratulations on the solid results. David If you look at kind of your guidance over the last two quarters. It looks like you sort of fully discounted kind of what the bottoms up bookings was telling US you said as much when you guided for the June quarter, and just given the magnitude of beat and September it kind of feels.

Same way and that to me seems to make sense in the midst of a global pandemic I'm just kind of curious you're guiding the december quarter to plus or minus about seasonal inclusive of what sounds like a 200 basis point headwind from wild way, but I guess I could argue maybe fumbled start a little bit later this year that should help December.

I guess as you forecast the December quarter seasonal kind of the metric you are going for and are you discounting kind of your bottoms up in the December quarter as much.

In hindsight as you did in June and September.

Yeah, No I think you've covered a lot of good points, John and like you point out in any quarter, there's puts and takes you've got the headwind of wild way, we've got the unwind of a of the.

Of the distributor program, which in fact.

We've actually wound that up this past quarter.

And just with the growing demand in the inventory needs in positions that.

Weve essentially completed that so we depleted about as Raphael I think mentioned about $100 million worth of inventory in that quarter. So.

So you've always got puts it puts and takes but I'll tell you that the the most important thing.

Thing that we see.

And the most important input that we get is the demand that our customers tell us they want and.

We get that from the orders and the backlog that our customers provide us as well as demand fees that we get through consignment.

And so that that is really what drives an informed.

The the outlook that we provide so you have a follow on John.

Yes, David it's fair to say that there has been nothing typical this year, but you and I have talked about this in the past if you look at the year over year growth discrepancy between analog and embedded it's fairly wide and I'm wondering now that we're 90 days more into this kind of despair different from year over year growth is that a good explanation in your mind.

Importantly, as we look forward when do you expect the embedded business to kind of catch up to analog than any other year basis.

Yes, sure I, you know I think that certainly the embedded business isn't performing the way that we would want it to over.

Over the last multiple quarters.

And I think that if you look over the most recent quarter here certainly we're encouraged by.

The.

The progress or the numbers that that would show.

But we've been working very hard.

On on turning that that business around and getting it performing like we would like it to be performing.

And we're making investments there because we believe that it will be a great contributor in the coming years. So.

And so we're busy building that business stronger and but it will take time.

And success.

In that business will be not measure over this quarter.

Or even over a couple of quarters, but that will be measured the measured over time. So thank you for that John and with that we'll go to the next caller. Please.

Okay.

Our next question comes from Ross Seymore with Deutsche Bank.

Hi, guys I want to follow up on that same last question of Johns on the embedded side of things Dave last quarter were embedded was sequentially weekend year over year weak you talked about the over indexing to automotive and industrial but given that automotive was up 75% sequentially I'm, a little surprised embedded with basically the same as analog from a sequential.

Perspective, where there are some offsets in that business I know you said industrial was down a little bit, but it doesn't seem like it would be enough to offset that to that over.

That over indexing on the industry or excuse me on the automotive side.

Yeah, well and embedded grew a little faster than than than analog and essentially just as last quarter as you pointed out Ross at the.

It Didnt.

Have any offsets.

To to the business.

Centrally all you have left is is is industrial so it's those two.

Those two end markets.

And.

So with with the return of revenue it's.

Thats performing.

About the same as about the same as analog is so those those are the two those are really the two components driving that so it doesn't have a nearly as much be in fact hardly any be electronics and personal tronics was a big contributor to growth in third quarter shipments over that's right now.

Thats right.

Great I guess my follow up yes, if I can pivot over to the industrial side, just a higher level question you guys seem to be flat to up year to date in your industrial segment.

You are still nonetheless, outperforming that the global economy, if it's not inventory I guess what is it.

Well the longer term thesis of courses that content is expanding inside of inside of those markets and I think if you look below we talked about there's areas of strength and there's areas of weakness. So if you look at a certain markets like.

Like aerospace and defense. It was obviously weak people aren't taking deliveries of planes.

As as an example.

There's other areas of strength like appliances, if anyone that's listening on the call that is.

Doing any home renovations like my wife is.

You have to wait multiple months to that to get to home appliances, and so we're seeing very very strong strengthened and those types of and those types of areas. So.

But I think the diversity of that market.

Coupled with the content expansion I think just proves out why it's such an attractive.

The market for us.

And our products are.

Really tailor made well positioned to take advantage of that.

Of that market.

The other thing I would add is this and we have 100000 different customers.

80000 in home products, the vast majority of those sell into industrial that is the most diverse.

End market, so it'd be impossible for us to know what those customers are doing on what that adds up to a.

The important part is the way we run the company to give ourselves the highest possible optionality. So.

So that if it is driven by.

Driven by a a secular trends what's I asked that is driven by the secular trends over the long haul maybe any one quarter, a good or two quarters ago to oscillate and it could be inventory build in but over the long term secular trends are there and we put ourselves in a good position tactically to have that inventory a available.

Due to support customers and if we have a correction on inventory correction or something of that sort will go through that and that inventory will not go back I will not go bad we'll have it in in storage for years and then we will sell at a at the other end of that of whatever correction we may have.

Okay. Thank you Ross, we'll go to the next caller please.

Your next question comes from Cory.

Sam with.

People.

Yes. Thank you.

I wanted to ask John.

John's question a bit differently.

Does it does it feel like bookings are now kind of back to reflecting true end demand. Obviously this year everything's been abnormal light, but as I think about your fourth quarter guidance is it safe to say that bookings are now running very much aligned but would end demand.

Well two are those that are always a question that we don't have a precise insight to right. We don't have a system that tells us that I think you have to even go back to third quarter 18, where you know the the market had turned we're going through a classic inventory cycle, we worked our.

Way through that through 19.

And just as we've bottomed out saw signs of inflection.

COVID-19 heads so.

So that kind of change things, but certainly you know we started this year with inventories.

At at lower levels.

And so that certainly that's where we started the year right so but.

But inventories in demand, our certainly tied together and.

So I don't believe that there were there were ever largely disconnected overtime and so much of our business is on consignment or just in time a demand that the.

The bookings versus revenue trend is really not that meaningful that's right. Yeah. So it's almost what.

Inventory, our customers have that so thats downstream.

And.

So that's why I think that we from an optionality standpoint, trying to ensure that we've got product available.

That if things want to continue to strengthen from here, we're in a position to support it.

And that.

That's that's the posture that we are taking if it doesn't we certainly know what to do in the other direction as well you have a follow on tour.

Yeah. That's fair. Thank you so I know.

So I know communications and smaller for you and it may even be less of a strategic end market for you but.

It did take a sequential breed there it was still up year over year Directionally do you have any views on where that market is headed.

Well, it's a you know I think that to our longer term thesis is that it's not the not a structural grower just theres not new subscribers being added to the net.

The network overall.

We've made investments in Fiveg and will benefit from it but as you say, it's just not a very large portion of our of our revenues.

Certainly there is noise.

This quarter's numbers with the with wild way.

But you know.

Growth will resume and as it always does I think everyone in the industry describes it as a choppy market and that doesn't make it a bad market. It just makes a choppy.

So we'll continue investments there it's a it's a good market for us and.

And we will continue to continue to make investments in it and.

And.

We we continue to like it so and thanks.

And thank you Tory and I think we've got time for for one last caller. Please.

Okay.

Well take our last question from Ambrish Srivastava with BMO.

Hi, Thanks for squeezing me in.

They've been golfer I had a question on the industrial business as well.

So clearly.

You mean, the Vegas in the independent back at the past cycles.

It is also because and I know you guys, so kind of great long term as well.

2019 for four consecutive quarters and and for the full year it was down so.

So is it because as we I think Dave you mentioned that in an answer to an earlier question that we entered the year.

Really it was the.

The supply chain is drained out of any expenses because of what you have seen and some that will be.

Despite all the problems, we've seen and the demand collapsing in certain end markets and industrial building also because of the tractor that.

Supply chain inventory was pretty lean.

Yeah, Yeah, you know I think we've just completed the.

Seven quarters of the year on year declines. This is the first quarter of year on year growth that we've had so industrial has been been a piece of that I think those year on year decline. It's a good part of that was just the.

Our industry cyclicality is.

As you pointed out so.

That but.

But structurally.

Industrial with its breadth and.

If you look Weve got 13 sectors that were investing in all of them are.

Have content, that's growing and so we're I think we're very positioned ppas.

Positioned very well to to be able to to support that growth. So.

What we can't call and what we don't know is in the short term.

How the economy is going to behave.

And even in a weak environment.

That that market has done is done reasonably well.

Compared to some of the other some of the other markets.

Yes fiberlan.

Quick one on the embedded side I think last earnings call. So you mentioned that you are encouraged by the signs of stabilization I just wanted to.

Just help us understand what are some of the steps you have taken to to write the business and as you said it doesn't happen overnight and you're talking about investments and I know several years ago, you said that youre going to deemphasize comps infrastructure, because that's longer term you didn't see growth there at least on the comps on the embedded side. So is.

The investment profile in this business looking a little bit different as you look forward what are some of the other steps.

But you guys have taken to quote unquote write the business and get it back on track.

Yeah the.

Yes, so you've highlighted a couple of steps that we have taken in the past I think none of the.

Those have been secrets.

The decisions on the comp side with some of them that we had talked about I think going back six or seven years ago.

Seven years ago now as.

As we Didnt believe that.

Coms equipment was going to be a structural grower.

And so.

Specifically on the embedded side, we did believes that there was some opportunities on the analog side. So we took up investments there and we're enjoying the benefits of those investments.

On the analog side today.

But that did provide a headwind.

We talked about I think it was a couple of quarters ago now the.

Some of the restructuring that you've mentioned inside of the embedded business and.

We've got I think a different product.

Product groups, and we took down some of the resources and some an up tick up some of the resources and others.

And really just getting resources onto the best opportunities.

Overall and.

And making sure that.

Making sure that we.

We have resources into the places that we believe will be.

We will be the best growth opportunities.

And and.

I'd just say in general what were trying to do is to leverage our competitive advantages ensure that the products that we are investing in have a broad base.

Appeal.

In a customer base standpoint, and.

And there will be products that will generate cash flow for a long time to come.

And.

And just taking a step back.

Again, I'd say that we're investing in that business, because we believe it will be a great contributor.

When we look at the years ahead so.

And so.

So again, there is a lot of effort going into building that business stronger.

But.

We will take time, so that successful we'd be measured over years not just in a call.

In a quarter or two so with that I will turn it over to to Raphael to wrap this up for for the night. Thanks, Dave Let me wrap up by emphasizing what we have said previously that our core were engineers and technology is the foundation of our company, but ultimately our objective and the best metric to measure progress.

We'll adapt and succeed in a world of ever changing and we will be a company that were personally proud to be a part off and we would want us our neighbor when we're successful our employees customers and communities and owners are all benefit.

Thank you and have a good evening.

This concludes todays call. Thank you for your participation you may now disconnect.

Q3 2020 Texas Instruments Inc Earnings Call

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