Q3 2021 Texas Instruments Inc Earnings Call
Good day.
And welcome to the Texas Instruments' Q3, 2021 earnings release conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Dave Paul.
Please go ahead.
Good afternoon, and thank you for joining our third 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.
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 most recent SEC filings for a more complete description.
Our Chief Financial Officer Raphael is already is with me today.
And we will provide the following updates.
First I'll start with a quick overview of the quarter.
Next I'll provide insight into third quarter revenue results with some details of what we're seeing in respect to the customers and markets.
And I'll also provide details by end market, including some sequential performance as we have the last few quarters.
As sequential data begins to be less insightful, we'll move back to reporting only year over year per our normal practice.
And lastly, Raphael will cover the financial results and update of our capacity expansion plans and our guidance for fourth quarter 2021.
Starting with a quick overview of the quarter.
Revenue in the quarter was $4 $6 billion, an increase of 1% sequentially and 22% year over year, driven by demand in industrial automotive and personal electronics.
On a sequential basis analog grew 2% and embedded processing declined 5%.
On a year over year basis analog revenue grew 24% and embedded processing grew 13%.
Our other segment grew 19% from the year ago quarter.
Now, let me comment on the current environment to provide some context of what we're seeing with our customers and markets overall the quarter came in generally as we expected across product segments and markets and geographies.
Lead times for the majority of our products remained stable, but hotspots continue to exist.
However, customers are becoming more selective in their expedite requests focusing on products that complete a matched set rather than expediting products across the board.
This behavior is not specific to any product family end market or geography.
Discussions with customers confirm our high level of interest in our commitment to expanding our internal manufacturing capacity roadmap, including 300 millimeter wafer fabs or fab, two and Lehigh are what we call L fab.
And the associated Assembly test expansions.
These investments to strengthen our manufacturing and technology competitive advantage will provide lower cost and greater control of our supply chain.
And while there is a growing recognition that the near term supply demand imbalance will end at some point.
The secular growth of semiconductor content per system will continue to grow and this requires a robust manufacturing capacity roadmap for 2025 and beyond.
Moving on I'll provide some insight into our third quarter revenue by end market.
First the industrial market was down mid single digits sequentially and up about 40% from a year ago.
The changes both sequentially and from the year ago were generally consistent across the diverse set of sectors.
The automotive market again grew sequentially and was up more than 20% from a year ago.
When comparing to pre pandemic levels of Q4 2019 revenue is up almost 30%.
Personal electronics grew low double digits sequentially and was up low double digits compared to a year ago.
The strength sequentially in the year ago was due to mobile phones, PC notebooks and tablets.
Next communications equipment was down mid single digits sequentially and was down upper teens from a year ago.
Enterprise systems grew sequentially and from the year ago quarter.
Raphael will now review profitability capital management and our outlook.
Thanks, Dave and good afternoon, everyone as Dave mentioned third quarter revenue was $4 6 billion.
Up 22% from a year ago.
Gross profit in the quarter was $3 2 billion or 68% of revenue from a year ago gross profit margin increased 360 basis points.
Operating expenses in the quarter were $800 million up 1% from a year ago and about as expected.
On a trailing 12 month basis operating expenses were 18% of revenue.
Over the last 12 months, we have invested $1 $6 billion in R&D.
Acquisition charges and noncash expense were $47 million in the third quarter and we will go to zero beginning fourth quarter of 2021.
Operating profit was $2 3 billion in the quarter or 50% of revenue.
Operating profit was up 43% from the year ago quarter.
Net income in the third quarter was $1 9 billion or $2 seven per share.
Let me now comment on our capital management results, starting with our cash generation.
Cash flow from operations was $2.4 billion in the quarter.
Capital expenditures were $486 million in the quarter.
Free cash flow on a trailing 12 month basis was $7 1 billion.
In September we announced we would increase our dividend by 13% effective this month, marking our 18th consecutive year of dividend increases.
In the quarter, we paid $942 million in dividends and repurchased $139 million of our stock.
In total we have returned $4 $2 billion in the past 12 months over the same period, our dividend represented 53% of free cash flow underscoring its sustainability.
Our balance sheet remains strong with $9 $8 billion of cash and short term investments at the end of the third quarter.
In the quarter, we've issued one $5 billion of debt in three tranches of $500 million. Each the first is a coupon of one 1% to 5%, which is doing five years. The second at one 9% due in 10 years and the last 2.7% doing 30 years.
This resulted in total debt of $7 8 billion with a weighted average coupon of two 6%.
Regarding inventory the inventory dollars were up $7 million from the prior quarter and days were 112.
One day sequentially, but still below desired levels.
For the fourth quarter, we expect the AD revenue in the range of $4 two to 245 8 billion.
And earnings per share to be in the range of $1 83 to $2 seven the.
<unk> acquisition close last Friday, but the costs are not included in our guidance we.
We will provide those details when we report fourth quarter results just as a reminder, the purchase price was about $900 million and.
And we expect ongoing cost of about $75 million per quarter through 2022.
We continue to expect our annual operating tax rate for 2021 to be about 14%.
And our effective tax rate to be about 13%.
As you are looking at your models for 2022 without any changes to tax law, we would expect our annual operating and effective tax rates to remain about what they are this year.
With a similar quarterly profile of discrete tax benefits that are higher in the first quarter compared to the rest of the year.
In closing, we continue to invest to strengthen our competitive advantages and making our business stronger or.
Our investments in our long term roadmap for capacity expansion both in L. Fab and RFS two are great. Examples.
As a reminder, our capex will be higher on an absolute level as well as <unk>.
Percentage of revenue as we strengthen disadvantage.
We are working through detailed plans of our long term roadmap and we'll have specifics of timing and capex spending in our capital management call in February.
We continue to believe owning and controlling our supply chain will be of growing strategic importance 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 an 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.
I would like to ask a question. Please signal by pressing star one on your telephone keypad and if you're on speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
We'll pause just a moment to allow everyone an opportunity to signal for questions.
And we will go first to John Pitzer of Credit Suisse.
Yeah. Good afternoon, guys. Thanks for let me ask a question Dave I know in this sort of environment seasonality doesn't make a lot of sense, but when you look at the September quarter.
I'm just kind of curious the June quarter came in well above your guidance range September was well above the midpoint, but still within the guidance range. We're hearing.
Logistical constraints in supply constraints across the economy I'm kind of curious when you look at sort of the lower level of upside in the September quarter versus the June quarter to what extent might've been supply constraints outside of your control to what extent do you think its customers just being more selective about what they are pulling from you Andrew.
There would be helpful.
Sure John.
And thanks for the question, Yeah, I really think it depends on the customer's bill of material I think that there are supply constraints that are.
Widely reported across the different the different components and as we.
Mentioned in.
<unk>.
My prepared remarks, the behavior that we're seeing that different.
Our customers are showing up in requesting we have meetings with them rather than showing up with long list of devices.
They're asking us to expedite.
They're really just short list. So theyre looking for particular parts that complete those those match set so that they can complete those built for them. So.
It is a different behavior that we're seeing this quarter versus.
The prior quarters so following.
Yes, just as a follow on I know youre going to give us some more color.
<unk> expenses in our Fabs your expenses as we get into next year, but I'm wondering if you could just help us set the stage a little bit next year is obviously going to be kind of a capacity build out year for you and I guess all else being equal how should we think about the gross margin impact on calendar year 'twenty two as you layer in these investments.
Yes.
I'll take that one first.
As you know you've known us for a long time, we don't manage the business to the gross margins, we manage for the long term growth of free cash flow per share and that starts with driving the top line and that's why we're making these investments to support.
Revenue growth and as we do that is it.
This extended our low cost manufacturing advantage.
And that gives us that.
Great structural cost advantage with 300 millimeter any addition to that.
We're controlling the supply chain.
And specifically on your question.
Our fab two.
All in that's about a $6 billion expense about $1 billion of that is the building, which depreciates over 30 years or so the balance of the rest is equipment and we're going to be putting that equipment, starting next year and over the coming years.
<unk>, obviously, a 900 million purchase price.
And <unk>.
And that some of that is building some of that equipment and then on top of that we will put about $3 billion of capex over a number of years as we as we ramp that up.
So we will give you additional details on that in the bigger longer term picture.
How we're going to support the long longer term growth. We will give you those details in February of the capital management goal.
Okay.
Thank you John and we'll go to the next caller. Please.
And well go next to Timothy Arcuri of UBS.
Hi, Thanks.
Raphael I was I was wondering if you could talk about pricing.
Obviously, you're seeing some.
Increases in your input costs can you talk about whether you're passing those on to customers and sort of how ubiquitous any price increases on your side might be.
Yeah, what I would tell you our strategy on pricing has not changed we regularly monitor that and our goal is to be competitive.
And it's really frankly independent of the input and they put the largest or the largest degree.
But our goal is to be competitive.
If prices move higher we were just those overdone and we have been adjusting those over time.
Yes, Tim.
I did I did Dave Thanks, and I guess I'll ask the same question that I've asked the last I think three calls about share repo.
It was pretty low again, I guess is there sort of can you help us think through maybe what the triggers might be for you to start to buyback more stock is there a target cash level, where maybe you would say that the balance sheet is getting a little bit over capitalized and you'd start to buyback more stock I'm just kind of.
Obviously, you're not buying back much but I'm just kind of wondering if you could talk us through what triggers you might be looking forward to start that back again. Thanks.
Yes, stepping back and just to remind everybody. How we think about our returns. Our objective is to return all free cash flow to the owners of the company over the long term and we do that through dividends and buybacks you look at our 18 year history on that and it is really consistent in fact, we've.
Many years most years we've average.
Well over 100%.
Of return.
At that time, we have I would remind you we have increased the proportion of.
Of the return that comes into the dividend. So that also plays into that but as long as we think the buybacks are accretive to our long term owners, we're going to have some buybacks and as you have seen as you pointed out the last three quarters, we have.
In fact, I don't think theres been a single quarter in the last 18 years or so that we have not.
<unk> is a return.
It's cash to the owners through buybacks in one form or another.
Okay. Thank you Tim and we will go to the next caller. Please.
We'll go next to Harlan sur of Jpmorgan.
Good afternoon, and thanks for taking my question on finished goods inventory most of which I assume is sitting at customer consignment hubs.
This does come down faster than overall inventories right finished goods dropped 8% sequentially in Q3.
Up 9% in Q2, they're down 25% from the beginning of this year and down 33% pre COVID-19, I assume due to the strong demand profiles from your direct customers.
So how far below normal are consignment inventories relative to your customers target levels.
And as part of the muted Q4, I'll look to replenish these very low inventories.
Or does the demand profile backlog and forecast actually reflect a sequential decline here in the fourth quarter.
Yes, so I'll start and Dave you want to chime in after that.
I think where youre going with that let me maybe step back yes, obviously inventory levels are below below desired levels right. We're at 112 days are targeted to 130 to 190 day. So clearly we are well below where we want to be and inside of that as you pointed out finished goods all finished goods whether anything concerns.
Women are or product distribution centers.
Are the ones that are.
Our decrease in most in fact, even though inventory total inventory level stayed about flat slightly up sell.
Second to third quarter of finished goods decreased and then with raw materials increase a little bit to offset that.
Our goal is.
Soon as capacity increases. So there is an adjustment in demand we will build those inventory levels back up.
To be at a more healthy levels.
And given our business model is just a great great.
Great bet, just given the low obsolescence of inventory the diversity of positions diversity of products that we can we can afford not only we can afford it makes sense for us to build that inventory have it ready for the put a secular growth that we're confident will happen beyond that.
And I think maybe tactically, where youre going on consignment inventory frankly, those tend to be pretty lean to begin with that's how that process is designed to just keep a couple of weeks. So.
I wouldn't expect that by itself to build significantly purely consignment.
What I would expect the build to happen as more of our product distribution centers and that gives us more flexibility to then.
Where the demand is most needed.
Do you have I think thats.
Well I think just tactically, where we whether we can keep it in our hubs, where we would prefer it or.
If we push it out to a consignment center that will just be reflective of our expectation that a customer will pull it. So that's just a tactical tactical decision I'd also point out that as you said Raphael we do plan to bring on more capacity incrementally.
As we have each quarter.
Through this year and through the middle of next year.
In the back half of 2022.
Our fab two will come online and then that'll be followed by.
L fab.
This is Raphael pointed out we did close on.
On.
On that factory on Friday of last week.
So that is on target to come online in early 2023.
Two to support growth in the future. So did you have a follow on Harlan.
Yes. Thanks I appreciate the insightful answer yes, so exiting last year, the direct business, which includes consignment that was about 65% of revenues what does that mix roughly sit today and it will drive a positive book to Bill ratio in Q3, if you could maybe quantify.
So on the book to Bill.
Thanks.
Rather than frankly, I havent disclosed that in a while and we were we're not disclosing that anymore. On your first question on percent I think you asked for our cinema revenue from consignment, Eric I didn't quite.
Yes, Jerry just repeat it Harlan so we got to make sure we got it right, but you are asking the first question.
Hi, there.
Yes, I think the overall direct business.
Direct business, yes, so yes, so we left last year.
With.
About two thirds of our revenues.
Direct.
So we expect that that percentage will increase over time.
We will provide an update of.
What we've done with that this year in our February call.
Cap management call It February.
Actually what that looks like but just to say over time that we do expect that that will move up.
Slightly overtime, so and just the other color with with Raphael.
Talking about book to Bill.
As we've got a lot of our revenue on consignment, we've got Ti dot com.
The actual backlog isn't quite as meaningful as what it used to be so.
He said, it's just not a number that.
But we look at our measure our we've talked about in some time, so it isn't quite as helpful. As what it used to be so.
Thank you Harlan and we will go to the next caller. Please.
And we'll go next to Stacy Raskin of Bernstein research.
Hi, guys. Thanks for taking my questions. So the first one I wanted to ask you about the near term Micron and <unk> I know you said $75 million in cost impacting the model next year those costs don't go away right.
$75 billion a quarter is people correct and doesn't include the <unk> or anything else as people calls like how do you think about that like what that incremental cost long term.
Very good Stacey good direct questions. So yes.
75 million is mainly people and direct costs not depreciation depreciation will not start until about first quarter of 2003, when we start up production just the way the rules work on that front.
And that $75 million.
We're still working through the details, but we currently believe that the most likely scenario is that most of that cost will go through that restructuring charges less other line.
Till we start production rate and at that point.
The majority of that cost would go to the <unk> line.
Now.
Cause actually doing increase over time, as we increased production, but I think where you're going is that.
As that happens in those core plus our den absorbed.
Revenue right now how quickly those are absorbed beyond utilization underutilization et cetera that just depends how quickly we.
We've ramped that factory right.
Clearly at the beginning that there won't be 100% absorption and we'll get to that.
At some point, but it will.
Got it.
Thus in 2023, so we'll get to that at some point to give you to give you some detail and in February of the capital management I think we will frame it kind of a bigger picture of that along with our other capex investments and you'll get a better sense of how thats going to play out.
Component space.
And it looks like Stacy has disconnected.
Okay.
Okay. If you have a follow on let us let us know Stacy we will go to the next caller. Please.
And we'll go next to Ross Seymore Deutsche Bank.
Hey, guys. Thanks for let me ask a question David Rafael I wanted to talk about the quarterly reported and get into some of the supply dynamic supply demand dynamics.
Was the smallest beat to your original revenue guidance you guys have had in a year and I realize that it's been exceedingly volatile in the last year, but I wonder was that the demand.
The demand profile changing from those investors that selectivity changing that youre talking about or did supply play a role in that where you just couldnt meet up to the demand just trying to get what really changed versus whatever level of conservatism you had built into the prior quarters. When you beat by bigger deltas.
Yes, I think you said demand from investors I think you might see demand from our customers right right wrong, yes, sorry about that yes, yes, okay.
Certainly if any investors wanted by semiconductors from us will be happy to sell them, but.
But yes, I would just.
Say that overall the quarter came in as we expected it to right and.
And.
And that's the statement as we said in the prepared remarks, we looked across <unk>.
Thiago fees in products.
Product groups.
End markets those types of cuts so.
There wasn't like one area that was underperformed or outperformed what we were expecting.
But again the main the main thing of what was different this quarter versus last quarter was really where customers are coming in and.
Requesting expedites and upsides from us.
And those upsides are much much more narrow and focus just on <unk>.
<unk> products. So that was really what the difference was if youre looking for.
What was different this quarter versus last quarter and those types of things.
That's what I would point to to say what's changed in the last 90 days.
Thanks for the help on that and I guess as my follow up.
Emily toned question, you mentioned that lead times remain extended but are stable and then you talked about that whole selectivity dynamic.
What would you imagine it would change the lead times is it going to be to your supply incrementally rising or more so with Lehigh.
Or is the selectivity something as you guys look back in our students of cycles is the demand side and that selectivity side more likely to impact the lead times going forward.
Well as you know <unk> been through many cycles with US right. It's always a combination of both and.
We will and continue to add incremental capacity.
As we have planned for some time.
And <unk>.
Certainly as we go out in time as we get the bigger tranches of capacity coming on with the with our fab two and then al fab.
We will be able to make more progress on that front.
And at some point.
We know that.
Things will change from a demand standpoint and.
So.
We don't spend time trying to predict that but we will be ready for it we know what we want to do.
<unk> talked about one of the top things Theres will want to rebuild inventory.
To prepare for the next time the demand strengthened so we have a long list of things that we're doing to invest in the company to make it stronger so.
We won't control the timing of that but that will be ready very foreign for sure and just to emphasize that point right. When that adjustment happens whenever that is we will continue investing in R&D focus on the areas of auto and industrial.
For the secular long term growth, we will continue to invest on capex.
To set up the company for the next 10 to 15 years.
Have a great long term roadmap and we will build inventory.
As Dave mentioned, our ranges of 130 to 190 days frankly, we'll probably end up being at the higher end of that range just because we feel so good about the business model and how good that inventory will be and how it sets us up for the next upturn on the other side.
Given the.
The long lived nature of that inventory that's right. Yes, okay. Thank you Ross and we will go to the next caller. Please.
We will go next to Vivek Arya of Bank of America.
Alright, Thanks for taking my question.
I just wanted to get the supply side right our customers not ordering as much from you because they don't have enough from you on the component side or they don't have enough from others that they need to complete their bill of materials.
It's both Vivek.
There is there are instances of both of those.
And sometimes it's not even semiconductors right.
The other components that they may be missing.
So yes, it's a combination of those things supply chains are complex depends on.
On the bill of materials and the systems that.
They are building so.
It depends yes.
And the new ones J&J is 90 days or 180 days ago. They were exciting everything almost almost regardless of of matched set position now there are more selective in what they are expediting right.
We have follow on to that.
Yes. Thank you.
Could you talk specifically to the automotive market.
This year, it's clear the production has not been that strong.
But auto semiconductor seems to have been pretty strong so as it applies to Ti. What do you think has been kind of the interplay between content and mix or do you think that there is perhaps inventory stuck in the automotive supply chain. Some there that we should watch out for.
Yes.
I'll comment on automotive I think I'll leave an extended into industrial and.
Those are two markets that we have long talked about that we believe that there is content growth in those markets.
Content per system, it's easy to see in cars.
Well reported on I know that in your reports that you've reported on that content growth you can see it in.
In automotive, it's happening in industrial across 13 different sectors, so harder harder to see.
And we.
We invest in all the markets but.
We have a strategic focus on automotive and industrial so youre beginning to see some of the benefits of those strategic bias that we have.
Our channel advantages the breadth of our products advantages in those markets as well so there's components of that but.
But that said anytime that we have supply shortages in the industry customer behavior is always very consistent in that.
That behavior is that they will want to build inventory to protect themselves. So whether they have already begun that or have already done that they certainly will want to do that and at some point. They will have too much product and that's what creates the cycles in our and our and our industry. So.
It won't surprise us if the cycle comes to an end at some point.
We will be prepared for that and we will know what to what.
What we want to do with that at that point so thank.
Thank you for those questions and we'll go to the next caller. Please.
We'll go to Joe Moore of Morgan Stanley.
Great. Thank you I Wonder if you could talk to the hotspots.
Is there any particular pattern, that's driving which products you havent short supply I mean, it seems like.
We see it most in areas like enterprise and some of the personal electronics.
Higher volume stuff is that is that something that you guys would agree with and do you think is it.
Is there more foundry versus internal Fabs like is there anything in particular driving those hotspots.
Yes, I wouldn't I wouldn't put it down on any one thing Joe.
Certainly there is.
Reports of.
The tightness across boundaries. So obviously, we see that as well so.
There is tightness in some lead frames, so we see that as well.
Other input.
Raw materials more compounds.
We have.
Testers in some cases some process technologies.
Some particular products themselves that have large number of.
Customers.
<unk>.
And those hotspots move around as our operations teams will sometimes.
Sure.
Move capacity from one area to the other so theyre not always always consistent or persistent.
Sometimes they are but sometimes theyre not and there's things that we can do to to.
To mitigate those or actually completely alleviate them. So.
And that's why as we describe them.
It's not just one particular product area or one particular product set.
In one particular market.
Even I would say, even one particular customer that would be impacted by that.
C C.
And just to highlight something far made new listeners.
Dave mentioned, the foundries are only about 20% of our of our wafers are come from foundries.
Asked majority, 80% and growing.
With our investments in 300 millimeter or internal wafers and that just gives us a much better control.
Our destiny and for all the reasons that Dave mentioned and then the local store.
Structural low cost that we go with 300 millimeter, yes, I think that makes it.
Especially clear why we believe that continues to be a strategic advantage for us in times like this so you have a follow on Joe.
Yes, I Wonder also with the hotspots is it a situation where you can't respond to upside in demand and that's why it's tight or are there actual areas, where I know, there's always a little bit of this but on a broad scale, where youre not meeting kind of commitments that you had made because of some of those things that are upstream from you.
I think theres, probably both both of those.
That exists.
I mean at 112 days of inventory it is harder to respond to upsize than if we were at 150 160 to 190 days or so.
Yes for sure.
Okay well. Thank you Joe we will go to go to the next caller. Please.
And our next question comes from Kristine <unk> of Citi.
Hey, Thanks, guys.
So Dave Rafael you mentioned that the lead times hasn't really changed but expedites are getting better or less bad.
Why do you think that is do you think that your competitors are reducing lead times do you think that the <unk>.
Supply chain is a little bit of a chance to build some buffer inventory why do you think the situation is getting I guess, either either better or less bad.
Yes, Chris I think that's a great question I don't know that we know the answer specifically to that question. So I think we're trying to stick to the facts of we can observe that behavior change I think youre offering some some good good theories of why that.
Behavior may be may be changing.
But what we're trying to do is to stick to the facts of.
Of what's going on.
Multiple reasons, why it might be changing and we'd rather not venture into.
Guessing or predicting or.
Calling.
What's driving that behavior.
We have a follow on.
Yes, I guess you can leave the guessing in predicting up to sell siders.
Since you guys will talk about.
Gross margin, but you did talk about free cash flow margin.
I think you had an all time high in free cash flow margin in Q3, and it looks like there is some headwinds coming down the pike.
I guess near to medium term is there any reason for us to believe that you're seeing your all time peak in free cash flow margin or eventually could it get back above where it was in the most recent quarter.
Sure So I'll take that Chris and Chris you know us very well you followed us for a long time, you know, we do not manage to a free cash flow margin percent right that is not what drives our long term value for our owners is the long term growth of free cash flow dollar right.
And to your point there are some headwinds on that.
With the Capex.
We're talking about the setup the company well for the future but of course, we are only doing that because we think that is going to drive even faster growth of the long term trend of free cash flow dollars. So we'll continue to.
To focus on that because we think that is that is what drives value for the month of August.
Okay. Thank you, Chris and we've got time for one more call.
Okay.
And we will go to Sandburg Paul.
Yes. Thank you for squeezing me in.
As far as the question on controlling the supply chain you talked about 80% outsourced now I believe that's kind of the more advanced nodes.
Should we assume that that 80% is just going to grow and that you're going to rely less and less in foundries going forward yes.
Yes. So you said 80 outsources 80 in source just to make sure a firsthand update.
Yeah, So 80, 80% are own wafers.
Yes that should grow over time as we continue to add this wafer fabs that were talking about all in 300 millimeter, which.
The efficiency of 300 millimeter is huge right because.
300 millimeter wafer accounts for almost two three times, our 200 millimeter wafer and these are pretty large.
Our wafers for efficiency purposes in fact RFS II.
Going to be bigger than <unk>. So so yes, it's reasonable due to the news that.
That that percent will increase over time.
Very good and then as a follow up.
Don't want to steal your Thunder from February but in the past you've talked about capacity of $22 billion, obviously youre going to go through capacity expansion here for the next 12 to 18 months.
Would you share any new numbers with us I don't know $25 48.
Nothing at all.
Yes, so great question, thanks for to set up for February.
I'll talk about that in February so until then what I would tell you is you've heard us talk about demos takes on RFS one.
Roughly.
The potential of about $8 billion of.
Annual revenue on 300 millimeter than our fab two and this is all dependent highly dependent on mix right. So these are not exact numbers, but.
Our fab two.
That caveat our factors should add another $5 billion of annual revenue again, when it's fully equipped price obviously not on day, one and Lehigh should add $3 billion to $4 billion of annual revenue. So we're thinking in terms of that and we're thinking even beyond that right because as we as.
As we look at the company's potential for growth into the next 10 and 15 years. Then we are not stopping just thinking in the next four or five years. We're thinking 10, 15 years, and we'll talk about that in February and in more detail.
That's great and I think we can go ahead and wrap up Raphael.
Okay. So let me wrap up by reiterating what we have said previously.
Our core where engineers and technology is the foundation of our company, but ultimately our objective and 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 our three ambitions. We will act like owners, who will own the company for decades, we will adapt and socks.
<unk> in a world of ever changing and we will be a company that we're personally proud to be a part of and would one is our neighbor when were successful our employees customers communities and owners all benefit. Thank you and have a good evening.
And this concludes today's call. Thank you for your participation.
You may now disconnect.
Yes.
[music].
[music].
[music].
[music].