Q2 2021 Texas Instruments Inc Earnings Call

July 21, 2021

[music] [music].

Please standby we are about to begin.

Good day and walk on to the Texas instruments Q2, 'twenty 'twenty 1 earnings release Conference call. Please note that today's call is being recorded.

At this time I would like to turn the conference over to Dave Pahl. Please go ahead.

Good afternoon, and thank you for joining our second quarter 2021 earnings conference call.

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

This call is being broadcast live over the web and can be accessed through our website at.

A replay will be available through the web.

This call will include forward looking statements that involve risks and uncertainties that could cause ti'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 Ti's.

<unk> most recent SEC filings for a more complete description.

Our Chief Financial Officer, Rafael has already is with me today and will provide the following updates.

First I'll start with a quick overview of the quarter net.

Next I'll provide insight into second quarter revenue results with more details than usual by end market, including some sequential performance since it's more informative at this time.

And lastly, Raphael will cover the financial results, some insight into onetime items and our guidance for the third quarter of 2021.

Starting with a quick overview of the second quarter.

Revenue in the quarter was $4.6 billion, an increase of 7% sequentially and 41% year over year, driven by strong demand in industrial automotive and personal electronics.

On a sequential basis analog grew 6% and embedded processing grew 2%.

On a year over year basis analog grew 42% and embedded grew 43%.

Our other segment grew 30% from the year ago quarter.

Moving on given the current environment again this quarter I'll provide some insight into our second quarter revenue by end market and comment on our lead times.

First the industrial market was up mid teens sequentially and up about 40% from the year ago.

The strength was seen across most sectors.

The automotive market grew sequentially following a strong first quarter 2021, and more than doubled from a weak year ago compare.

Personal electronics was about even sequentially and up about 25% compared to a year ago.

The strength was broad based across sectors and customers within personal electronics.

Next communications equipment was up low single digits sequentially and was down upper teens from the year ago.

Enterprise systems grew upper teens sequentially and was about even from a year ago.

Regarding lead times, the majority of our products continue to remain steady.

However, the growing demand in the second quarter of 2021 again expanded our list of hotspots, which required extending some lead times.

As planned we continued to add incremental capacity in 2021, and first half of 2022 with additional support from the startup of our third 300 millimeter wafer fab our fab 2 that will come online in the second half of 2022.

As discussed during our capital management review in February our competitive advantage of manufacturing and technology delivers the benefits of lower cost and greater control of our supply chain, which really shows through in a market environment like this Raphael will now review profitability.

<unk> capital management and our outlook.

Thanks, Dave and good afternoon, everyone.

As Dave mentioned second quarter revenue was $4.6 billion.

Up 41% from a year ago.

Gross profit in the quarter was $3.1 billion or 67% of revenue.

From a year ago gross profit margin increased 290 basis points.

Operating expenses in the quarter were $816 million up 5% from a year ago and about as expected.

On a trailing 12 month basis operating expenses were 19% of revenue.

Over the last 12 months, we have invested $1.6 billion in R&D.

Acquisition charges are non cash expense were $48 million in the second quarter on a related to the national semiconductor acquisition.

This acquisition charges will remain at about this level through the third quarter of 2021, and then go to zero.

Operating profit was $2.2 billion in the quarter or 48% of revenue.

Operating profit was up 80% from the year ago quarter.

Net income in the second quarter was $1.9 billion or $2 <unk> per share, which included a <unk> <unk> benefit that was not in our prior outlook due to the signing of a royalty agreement.

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

Cash flow from operations was $2.1 billion in the quarter.

Capital expenditures were $386 million in the quarter.

Free cash flow on a trailing 12 month basis was $6.5 billion.

In the quarter, we paid $942 million in dividends and repurchased $146 million of our stock.

In total we have returned $3.9 billion in the past 12 months.

Over the same period, our dividends represented 56% of free cash flow on their scoring its sustainability.

Our balance sheet remains strong with $7.4 billion of cash and short term investments at the end of the second quarter.

Regarding inventory day inventory dollars were down $34 million from the prior quarter and days were 111, which are below desired levels.

In the second quarter, we signed an agreement to acquire microns 300 millimeter fab in Lehigh Utah.

This investment continues to strengthen our competitive advantage in manufacturing and technology.

And as part of our long term capacity planning.

The Lehigh Fab will be our fourth 300 millimeter fab joining demo sixth our fab 1 and soon to be completed in <unk> 2 in our wafer fab manufacturing operations.

We continue to believe that our competitive advantage of manufacturing and technology will be of growing importance in owning and controlling our supply chain.

For the third quarter, we expect Ti revenue in the range of $4.42 for $76 billion.

And earnings per share to be in the range of $1.87 to $2.13.

We continue to expect our annual operating tax rate to be about 14%.

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

Thanks, Raphael operator, you can now open the lines up for questions in order to provide as many of you 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.

Thank you and everyone to ask a question that is star 1 on your telephone keypad and share honest speaker phone, we do ask that you pick up your handset or de press your mute function before asking your question again that is star 1 on your telephone keypad and we'll go first to Vivek Arya of Bank of America.

Thanks for taking my question.

Rafael and Dave and I look at the last few quarters, you reported sales have been significantly above your guided range and I mean like between 5% to 13% above your original outlook on that is just making it very hard to distinguish.

Alright between how to read your guidance because even now you are guiding to a flattish outlook and what's supposed to be a seasonally stronger quarter should we take that to the conservatism should we take that to be peaking in the cycle and how is it that the demand is so strong you are increasing supply, but yet your sales outlook is there any flattish.

I think it's a very confusing message that I would love your insights into how to interpret your.

Guidance on RV, leading them in the right way.

Yeah Vivek. Thanks.

Thanks for the question I think.

First I'd say, perhaps the normal seasonal patterns may not be the best measure.

To look at things in periods like this.

Certainly the last few quarters, we would all agree have been unusual periods that we've gone through.

And as we continue to continue to move through so.

And as you said the last few quarters have been exceptionally strong second quarter was certainly strong both sequentially and year on year. So.

If you look at.

Our guidance it would suggest that next quarter will again be a very strong quarter. So.

And as you know our guidance is the best estimate that we have at this time so.

What we try to do.

And try to give you that insight.

Ron.

Yes.

Thanks, Dave So from what you said.

I assume that you're on again, implying conservatism.

Unless you suggest otherwise.

The question is when I look at the share buyback activity, it's been very low the last few quarters and there are only a few reasons why that would be right..1 is the simplest reason that maybe the stock is perhaps not attractive at these valuations or it could be that youre preparing for some M&A or does it some large capex or some caution about.

Macro.

Just trying to understand why is there such a material shift in terms of your return of free cash flow strategy.

We understand the dividend part has been very strong, but the share buyback activity has been.

Very low over the last almost a year now so we'll just I appreciate your views as to why you are not buying back your stock at the pace at which you have historically.

So thank you.

Now I'll happy to address that 1 vivek. So first let me take you back to how we think about cash.

Cash return and you know us very well you follow us for many years.

You've heard us talk about disciplined capital management at year end on your out and our objective when it comes to cash return to return all free cash flow to the owners of the company, we do that through dividends as well as the buybacks now that that has never men and doesn't mean that every single quarter or even every single year.

Where that return is going to be exactly 100% rate.

If you look at our history over 15 plus years.

He has been actually above 100% so that shows our commitment to that and Echo amendment has not changed.

We are committed to return on all free cash flow for the rest of the company over time great.

Alright, Thank you Vivek and we'll go to the next caller. Please.

And that next caller will be Toshi Hari of Goldman Sachs.

Hi, guys. Thanks, so much for taking the question I had 2 as well.

I guess, 1 clarification, Dave I think when you talked about automotive you said up sequentially.

In the second quarter, the cash that right did you not give a specific number for automotive.

That's correct. It was it was up low single digits, Okay got it.

Yes, yes, so in terms of gross margins I realize you guys don't run the business management business for for gross margins, but but clearly you had a very very strong quarter in Q2, and I know you don't guide gross margins going forward, but based on how youre thinking about utilization rates in your factories.

Given what you know about pricing in your business both on the analog side as well as the embedded side going forward. How are you thinking about gross margins and kind of the opex leverage going forward on your business. Thank you.

Yes, no so first.

Let me emphasize the point you made we do not focus on gross margins and how we run the business. Just like you said our focus is on on free cash flow generation on in fact free cash flow per share and how we can grow that over the long term right. Because we think ultimately that is what drives.

Value for the owners of the company and you can do that at 60 numbers on margin you could do it at a lower margin or you can do at a higher margin depends on a number of factors.

The model of the company as we go forward.

As you can put whatever revenue expectation you have there and for that through at about that rate and youll be in the ballpark.

Okay. Thank you took share we'll consider that 2 questions if thats okay.

We will move on to our next caller.

And the next caller is going to be Stacy <unk> of Bernstein research.

Hi, guys. Thanks for taking my question. So I know you don't think about running the business to gross margins, but I'm going to ask your gross margin question anyways.

In theory, you were at $65..2 obviously you did very strongly this quarter, but you said you had 6 tenths of royalties that was unexpected that should have been about 1.4 points of gross margin as I as I understand it if I did the math right and I.

Thank you had something like $50 million in Austin cost last quarter that should have rolled off this quarter that would have been another 100 basis points give or take.

So I'm actually wondering why gross margins were in.

If I take out the royalties they would've been up 60 basis points, only with 100 basis points of cost that should have rolled off with a massive revenue increase like like what's going on with what happened with gross margins in the current quarter given all of that.

So.

So Stacy let me address 1 on then I have to ask you a question I am quite understand part of your question, but all day.

Good morning, Ken gross margins, maybe maybe exactly as the part I did okay. So the U S royalty. Okay. So let me address that first we took a royalty it used to be in revenue and gross margin, but that was years ago, I think 3 or 4 years ago.

Yes, we move that to other income and expense. So that is that isn't deadline on other income and expense. So it has nothing to do with.

With margins may have been for 3 or 4 years or so since we are so and the reason we moved that is it's very de minimus.

Relatively small amount it averages about $100 million a year of course on the big scheme of things given given our revenue level is.

Is that relatively.

Small amount and we expect that that will continue to be small going forward on the other part of your question. So last quarter, we had about a $50 million hit to gross margins that was because of the winter storm in Texas. We did talk about that during the call. We mentioned and that was all in gross margin. So yes, you can adjust that.

Can you guys. Just however, you wish for fourth quarter to get you the the gross margin without that impact right in.

And that May make more sense when you look at the trends.

Does that answer your question.

Yes.

Thank you.

I think I think you have a second 1 are you still have a follow up on.

So my follow up yes, youre guiding revenue was flat and youre guiding EPS down slightly so either either gross margins or going down to the opex is going up.

Alright.

Opex I think seasonally into Q3 would be down a few points I guess on all of those are you expecting any sort of different opex trends into Q3 as you would normally see like in a normal Q3 is there something else going on because normally it's down sequentially, yes, well. So the reason that EPS is moving at the midpoint is the royalty that we just talked about right. So you just take out the <unk>.

From the.

The EPS that we just delivered.

You'll get to.

To a more normalized EPS.

EPS without that royalty and then compare that to the next quarter in and Youll see that.

There's nothing unusual there.

We only gave revenue on EPS range.

For some very unusual in between the lines, we would pointed out and there is nothing unusual.

Nothing is changing much between between the other other lines right. Yes, okay. Thank you Stacy and we'll go to the next caller. Please.

And next we have John Pitzer of credit Suisse.

Yes. Good afternoon, guys. Thanks for let me ask the question, Dave and Rafael I just wanted to go back to the revenue guidance sort of flat at the midpoint with down sequentially I guess I'm just trying to wrap my head around the fact that.

Youre deficiency has kind of increased in the June quarter, you said your hotspots 1 up it sounds like demand is still relatively strong and yet there is.

A part of your guidance that could be down sequentially, which I'm, having a hard time grasping Dave maybe you can talk about end markets are there any end markets that particularly it looks like they are cooling off sequentially into the calendar third quarter or why the down sequential I think I have to go back to <unk>.

Quite a bit of time to see you guys have a flat to down sequential Q3.

And John when you say down sequentially just to clarify are you, saying that part of our range.

Imply that it could be down in the other part would imply that it will free up.

That's what.

Just to clarify that part of the question I got yes, yes, so yes John.

Something that's unusual going on within a end market.

For a region or a product area.

Ways provided.

Insight into into that to help.

Understand.

<unk>.

On outlook or even something that's happened in a current quarter I'll just say that there is nothing unusual like that that we see.

Feels that we would need to explain what's going on I think that is.

As I mentioned earlier to <unk> question on the topic.

Seasonality, probably isn't the best thing to be looking at as.

As we've been moving through the last few quarters.

And I would say.

With that with that range implies that the revenue is still will be will still be strong.

Follow on yes, just as my follow on on our Fab 2 I'm just curious with the proposed purchase of Lehigh should we think about sort of the building going on as planned the pilot line going on as planned but capacity at our fab 2 kind of slowed or how do we think about kind of now your mix of capacity that Lehigh comes in next year.

And what that means for Capex.

And the ramp of our fab 2.

Yes, no let me let me tell you about that so first let me step back remind everyone objective when it comes to Capex is to invest to support new technology development on revenue growth and specifically extending our low cost manufacturing advantage.

Primarily 300 millimeter right. So we have talked about that for a long time and it's a core part of our strategy 1 of our competitive advantages having.

Having that manufacturing and technology advantage our fab 2.

We will be the third 300 millimeter factory Lehigh will be our fourth.

300 millimeter factory RFS II will become operational sometime in the middle of next year. That's when the shell will be completed and then we'll be deploying equipment there and.

And then incurring capex because of that so capex as I said at the last call will be higher both in absolute dollars and as a percentage of revenue because of that and then on top of that AD Lehigh right, which we didn't have last quarter when we when.

When we talk when we had the earnings call. So now Lehigh is going to be on top of that that's a $900 million purchase price, which will run through capex, but.

And in addition to that factory is ready for production once we qualify but a relatively low volume side, we still have to add capex at that factory to take it to the volume that we won and that will happen over time.

And think of that that Capex is probably going on it's probably going to run about half of what our fab 2 capex will run on I'm talking over over years right as we are.

As we deploy.

Equipment, there and both of those will add to the strength of will strengthen our competitive advantage on manufacturing technology with 2 more 300 millimeter factories.

Okay. Thank you John and we will go to the next caller. Please.

And that will be Blayne Curtis of Barclays.

Thanks for taking the question.

Sorry, I just wanted to ask on I know you are not.

I'm not going to probably guide for December, but just kind of any feel you can for that quarter, obviously seasonality you put out the window. It's typically a down quarter I'm, just trying to get a better handle on the back half here, obviously, the flattening market, but at much higher levels for anything.

You can throw out there for December.

Yes Blayne.

And certainly I know there is lots of speculation on how long.

The strong demand last in <unk>.

Certainly we've read the ranges that it is going on.

And soon and others that say it.

Is going to continue.

For quite some time and.

Obviously as you stated, we're not going to forecast the fourth quarter or even comment on.

How long the cycle lasts because honestly as you know we don't know I don't think anyone knows but I think we can frame how the actions that we've taken and our approach as we've gone through.

Through the cycle.

In the first phase you've seen us accelerate into the widely anticipated decline and that really enabled us to gain ground and really in the second phase we're working to ensure that we gained strategic ground, particularly in industrial and automotive and that those.

Gains will reward us for years to come and an independent.

Pendant of that.

We're investing for the long term so some of the obvious things that you can see are the new manufacturing investments in our fab 2.

Youre down here in Texas Youll see.

Cranes up over over the building I think accounted for 6 or 7 at the at the Max that we are up over that.

The addition of Lehigh some of the less visible ones are the R&D investments in new capabilities at Ti Dot com and those investments are continuing so we won't we'll go through cycles, we won't be able to predict it but we can make the play stronger we can continue to invest in our competitive advantages.

So yes on follow on thanks.

Yes, I just wanted to ask you on inventory levels, obviously weigh down on these sales levels on a days of inventory, but your ability to grow that absolute amount and if youre able to do that in the September.

Well I'll start and Dave do you want to follow up but inventory levels first let me remind everyone. The objective there maintain high levels of customer satisfaction, while minimizing obsolescence.

Frankly, it's not it's not on ACO, given our business model.

We are clearly below this higher levels just like we said during the prepared remarks right. We're running about 100.

And 11 days in AR.

Our target was 130 to 190 days.

That's part of the reason why we have the hotspots that we talked about at the same time I'd tell you we.

I'll go back to second quarter last year when the pandemic was starting in fact March of last year, everybody all our competitors were decreasing their inventory levels.

Slowing down factories, we went the other way right. We we maintain on if I could increase our production levels, we increased our inventory on a level, where they went from about 140 days to 160.770 days almost.

And that.

Along with our business strategy, our business model helped to put us in a great position to take advantage.

Of this situation and has helped us.

Do significantly better than our competitors over the last 3 or 4 quarters, but we have gotten to a point where things are.

Inventories.

Now below desired levels will continue to.

On to add incremental capacity as we have talked about that is in all of our factories, 1, especially ARPA of 1 but the next.

On a bigger tranche of capacity will come in with our 5.2 as we talked about earlier ones that is operational sometime in.

In the second quarters on next year then.

Well, that's when we finish on the Lv. So for this revenue sometime in the second half.

Next year, then that will add a significant amount of capacity and then shortly after that Lehigh will also come in line for additional revenue.

Our capacity there.

And maybe just quickly what I might add to that obviously.

Whenever things do slow we will then use that period of time to rebuild inventories in those positions to be.

We able to support growth in the future.

I'll just add 1 more thing both RFS II and Lehigh.

First on long term plays on this or this is to strengthen our manufacturing advantage of owning our own manufacturing, which clearly has proven over the last year and a half we knew that already but it is proven.

<unk>.

How important that is in.

In the current environment and the current environment day, theyre going to happen to helping the medium term most likely.

But if they don't if things slow down on and it doesn't work out that way that is completely fine with us thats not why we are equipment does factor thats not why we bought where we're buying Lehigh is for the long term positioning of the company to support long term revenue growth in both analog and embedded.

Okay. Thank you Blayne and we'll go to the next caller. Please.

And next we will go to umbrage share matter of BMO.

Hi, Thank you very much Rafael and Dave I had a question on free cash flow per share.

And you guys know I don't look at it on a quarterly basis. So if I look at the last 2 years.

But look at 2020.

Free cash flow per share down 3% in 2019 was flat.

I don't know.

That.

If I look at this year on a trailing 12 month basis. It is up double digit.

But it has lagged sorry for the background noise, if all that happens on how on a conference call.

If I look at it.

The trailing 12 months have been so so that's in line with what you have said consistently but should we expect this to come back to the double digit on an annualized basis.

What's the right for me to think about the lag over the last 2 years and how should we think about it going forward.

Yes.

This is 1 most most financial metrics, our digitally do but you want to look at this over the long term rate any 1 quarter or even any 1 year.

They could be a little choppy.

You mentioned a couple of years when.

And in 2019, and even 2020.

Where.

On that trajectory.

<unk> does not represent the longer term and arguably the same thing for 2020.1 right on the trailing 12 month number that you just quoted right. So you want to look at this over the long term and Thats, how we look at it and Thats whats going on ultimately.

Drive value for the for the owners of the company on.

Okay.

Yes, I did.

<unk>.

But on the tightness and contrasts with the way you guys have managed the business.

And the share shifts probably don't show up that quickly because these designs are such long lasting and they don't change on a dime.

Seeing any discernible change in your design in activity as a result of what we've seen from your peers with the tightness and you managing lead times.

Net inventory much better than some of your peers. Thank you.

Yes, I'll start off on Raphael for you want to add I would say that.

As you know on Bruce we have started on the journey to have closer direct relationships with customers really 878 years ago.

With our investments on <unk> Dot com.

Investments in our sales applications teams.

Investments in processes, and how we do business.

And just our structure inside of the company and last year, you saw a pretty major step of taking more customers direct in.

Operating.

With fewer distributors.

As well as transacting business through through Ti Dot com so.

You kind of mix that together with the pandemic and our ability to do virtual sales calls I think all of those things have.

Positioned us well strategically, especially in markets like industrial automotive those markets, where we want to gain that that strategic ground you couple that with availability and like you say things don't move quickly.

But the supply shortages really started showing up in the beginning of the.

2020.

Took a break in the first or second quarter when the pandemic hit and then re accelerated after that so.

There are cases or unusual, but there are cases, where customers redesign boards just because of availability.

I'll describe that as an outlier.

But we do see cases of that.

But we see more cases, where you have designs that are being intersected as they come through and again. Our sales teams are engaged from production on all the way back into into engineering that gives that visibility is a great strategic advantage.

Those benefits again, it will be things that will.

PE.

Rewards for us for a long time to come.

Okay, well thank you.

<unk> and I think we've got time for 1 last caller.

And that color will be Chris Danley Citigroup.

Thanks, guys.

Hey, Dave by the way thanks for that and the other analysts go first then beat you up on the flat guidance. So I don't have to.

My question is.

On the auto revenue. So if we look at the headlines and talk to the folks on the auto supply chain, there's still a lot of shortages et cetera et cetera out there.

And I think your revenue was only slightly up so can you just explain the discrepancy it seems like it would be up a little bit more than that if theres. All these for.

Folks clamoring for parts out there.

Well I'd point out at over doubled from a year ago, Chris So, it's a little bit more than up up a little bit and I think you're pointing to the sequential.

But again last quarter it was up over 25% from pre pandemic levels.

I don't think we are.

Shipping, 25% more cars from pre pandemic levels right. So.

Our shipments into automotive are up.

And up significantly.

And we continue to add capacity.

And to continue to.

We believe we're gaining share there as well you got to measure it over time.

Yeah. So we are our shipments are up there on up strong.

Yes.

Just I guess a hotspot question. So you said that on.

Youre seeing a few more.

Hotspot last quarter do you think that day.

Situation gets a little bit worse this quarter or do you think it gets better when you guys think youll start to get a handle on all of these that share.

Supply issues out there I guess.

Chris it's kind of been on demand.

We are on the supply side as we said we are adding capacity incrementally.

We have been on will continue to do that the the bigger tranche of capacity it doesn't come in until about a year from now on rate as we just talked about where fab 2.

And then 6 months later with Lehigh sold so it will be a while before we have a big tranches of capacity coming on line. So it's going to depend on demand.

At the end of the day, we don't we don't flow control that is more of a macro situation, but we are.

Better prepared than than our peers and have been in both.

The tactical decisions, we have made during the pandemic, we're more importantly, our business model on how we run the company.

Specifically on in our own manufacturing that has been a key in this whole process and we're just.

We're really doubling down on that with what we're doing with all those factories that are that.

We just talked about.

That's helpful. Thank you Chris rock value.

On a net but for I'll go ahead on Rob. So let me just emphasize what we have said previously at our core we're engineers and technology is the foundation of our company.

Ultimately our objective on the best metric to measure progress and generate long term value for owners is the growth of free cash flow per share.

While we strive to achieve our objective we will continue to pursue on 3 ambitions. We will act like owners, who will own the company for decades, we will adapt and succeed in a world that is ever changing and we will be a company that we are personally proud to be a part of and would want as our neighbor. When we're successful on employees customers communities and on.

<unk> all benefit thank you and have a good evening.

This concludes today's call. We thank you for your participation you may now disconnect.

[music].

Good day and walk on to the Texas instruments Q2, 'twenty 'twenty 1 earnings release Conference call. Please note that today's call is being recorded.

At this time I would like to turn the conference over to Dave Pahl. Please go ahead.

Good afternoon, and thank you for joining our second quarter 2021 earnings conference call.

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

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 second quarter revenue results with more details than usual by end market, including some sequential performance since it's more informative at this time.

And lastly, Raphael will cover the financial results.

On insight into onetime items and our guidance for the third quarter of 2021.

Okay.

Starting with a quick overview of the second quarter.

Revenue in the quarter was $4.6 billion, an increase of 7% sequentially and 41% year over year, driven by strong demand in industrial automotive and personal electronics.

On a sequential basis analog grew 6% and embedded processing grew 2%.

On a year over year basis analog grew 42% and embedded grew 43%.

Our other segment grew 30% from the year ago quarter.

Moving on given the current environment again this quarter I'll provide some insight into our second quarter revenue by end market and comment on our lead times.

First the industrial market was up mid teens sequentially and up about 40% from the year ago.

The strength was seen across most sectors.

The automotive market grew sequentially following a strong first quarter 2021, and more than doubled from a weak year ago compare.

Personal electronics was about even sequentially and up about 25 per cent compared to a year ago.

The strength was broad based across sectors and customers within personal electronics.

Next communications equipment was up low single digits sequentially and was down upper teens from the year ago.

Enterprise systems grew on upper teens sequentially and was about even from a year ago.

Regarding lead times, the majority of our products continue to remain steady.

However, the growing demand in the second quarter of 2021 again expanded our list of hotspots, which required extending some lead times.

As planned we continued to add incremental capacity in 2021 and.

And first half of 2022 with additional support from the startup of our third 300 millimeter wafer fab our fab 2 that will come on line in the second half of 2022.

Rafael will now review profitability capital management and our outlook.

Thanks, Dave and good afternoon, everyone as.

As Dave mentioned second quarter revenue was $4.6 billion.

Up 41% from a year ago.

Gross profit in the quarter was $3.1 billion or 67% of revenue.

From a year ago gross profit margin increased 290 basis points.

Operating expenses in the quarter were $816 million up 5% from a year ago on about as expected.

On a trailing 12 month basis operating expenses were 19% of revenue.

Over the last 12 months, we have invested $1.6 billion in R&D.

Acquisition charges are non cash expense were $48 million in the second quarter on a related to the national semiconductor acquisition.

This acquisition charges will remain at about this level through the third quarter of 2021 and then go to zero.