Q3 2022 Texas Instruments Inc Earnings Call

October 25, 2022

It just seems from an earning call will now begin.

Welcome to the Texas Instruments' third quarter 2022 earnings release Conference call I'm, Dave Pahl head of Investor Relations and I'm joined by our Chief Financial Officer Raphael was already.

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

Call is being broadcast live over the web and can be accessed through our website.

In addition, today's call is being recorded and you'll be able to get it via replay on our website.

This call. 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 most.

Recent SEC filings for a more complete description.

Today, we will provide the following update.

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

Next I'll provide insight into third quarter's revenue results with some details of what we're seeing with respect to our customers and markets and lastly, Raphael will come through our results and our guidance for the fourth quarter of 2022.

Starting with a quick overview of the third quarter.

Revenue in the quarter came in about as expected at $5 2 billion, an increase of 1% sequentially and 13% year over year.

Analog revenue grew 13% embedded processing grew 11% and our other segment grew 20% from the year ago quarter.

Now I'll provide some insight into third quarter revenue by market.

This quarter our <unk>.

<unk> on our sequential performance.

As it is more informative at this time.

First personal electronics declined mid teens as we continue to see the weakness we described in the second quarter.

Industrial was about even sequentially as we saw weakness begin to broaden in the industrial market.

The automotive market remained strong and was about 10%.

Next communications equipment was up high single digits, and finally enterprise systems was up mid single digits.

Turning to our expectations for the fourth we expect that most of our end markets will decline sequentially with the exception of the automotive market.

Lastly, we and our customers remain pleased with the progress of our expansion of our manufacturing capacity, which was outlined in our February capital management, and we will support the long term secular trend of increased semiconductor content per system.

Customers, especially value the geopolitically dependable footprint of our manufacturing additions.

We are now in production and our fab, two and expect production and out fab later this year.

In addition, construction of SME, one and SME, two and Sherman, Texas continues as planned.

Raphael will now review profitability capital management and our outlook.

Thanks, Dave and good afternoon, everyone as Dave mentioned third quarter revenue was $5 2 billion up 13% from a year ago.

Gross profit in the quarter was $3 6 billion or 69% of revenue from a year ago gross profit margin increased 110 basis points.

Operating expenses in the quarter were $862 million up 8% from a year ago and about as expected.

On a trailing 12 month basis operating expenses were $3 3 billion or 16% of revenue.

Restructuring charges were $77 million in the third quarter and are associated with the Alpha factory that we purchased in October of last year.

These charges will move to cost of revenue as we start production the assets associated with the acquisition of the factory will begin to depreciate at the same time.

Moving on operating profit was $2 7 billion in the quarter or 51% of revenue.

Operating profit was up 16% from the year ago quarter.

The third quarter was $2 3 billion.

Or $2 47 per share earnings per share included a <unk> <unk> benefit for items that were not in our original guidance.

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

Cash flow from operations was $2 8 billion in the quarter capital expenditures were $790 million in the quarter and $3 $1 billion over the last 12 months.

Free cash flow on a trailing 12 month basis was $5 9 billion.

In the quarter, we paid $1 1 billion in dividends and repurchased $1 billion of our stock.

In total we have returned $7 1 billion in the past 12 months in September we announced we would increase our dividend by 8%, marking our 19th consecutive year of dividend increases. We also increased our share repurchase authorization by $15 billion.

These actions reflect our commitment to return our free cash flow to our owners.

Our balance sheet remains strong with $9 1 billion of cash and short term investments at the end of the third quarter.

In the quarter, we issued $700 million in debt total debt outstanding was $8 billion with a weighted average coupon of two 8%.

Inventory dollars were up $205 million from the prior quarter to $2 4 billion and.

And days were 133 up eight days sequentially and below desired levels.

For the fourth quarter, we expect Ti revenue in the range of $4 four to $4 8 billion and.

And earnings per share to be in the range of $1 83 to $2.

This outlook comprehensive market conditions that Dave previously mentioned.

We continue to expect our 2020 through effective tax rate to be about 14%.

If youre looking at your models for 2023 without additional changes to tax law, we would expect our effective tax rate to remain about what it is in 2022 with a similar quarterly profile.

Let me now make a few comments on the Chip Act that was recently signed into law. The combination of the investment tax credit the grant as well as funding for research and development will help make the U S semiconductor industry more competitive.

We had we accrued about $50 million on the balance sheet and third quarter due to the 25% investment tax credit for investments in our U S factories.

This will eventually Florida state minutes, lower depreciation and we will receive the associated cash benefit in the future.

In closing, we will stay focused in the areas that add value in the long term, we continue to invest in our competitive advantages, which are manufacturing and technology.

<unk> product portfolio breach of our channels and diverse and long lived positions.

Thanks, Raphael operator, you can now open the lines 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 Sir My reminder, to the participants if you would.

I'll ask a question please signal by pressing star one on your phone you keep it if youre using a speakerphone. 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 are also just a moment to allow everyone the opportunity to signal for questions.

It will take the first question from Timothy Arcuri from UBS. Your line is open. Please go ahead.

Hi, Thanks, Dave I Wonder if you can sort of go into any detail within distribution versus consignment, maybe what I'm trying to get at is sort of any differences.

Demand pull as measured by bookings inside distribution or demand pull from the consignment segment.

One better than the other and if they are and also was there any.

Cancellations inside of <unk>.

In the distribution.

Yes, so on the first part.

Tim we didn't see.

Really any.

Anything different between the direct business without going through distribution as you know.

We have had an effort.

Over the past few years to have direct closer direct relationships with our customers that the amount of revenue going through distribution is much lower.

Today, so probably only about 30% of our revenue actually goes through.

Distribution.

We did see cancellations.

An increase in the quarters, just as customers work to align.

Backlog to their needs do you have a follow up.

<unk> has there been any moshe.

So we may take the next question from Vivek Arya Bank of America Securities. Your line is open. Please go ahead.

Alright, Thanks for taking my question. So the first one it seems like the consumer electronics is dealer.

Biggest area had been in Q3, I think you said down mid teens and I imagine about the same kind of double digit down in Q4.

You think RV passed the worst of the consumer or should we be expecting.

The seasonal decline again for consumer in <unk>.

Q1, I know, it's a little bit further out, but I just wanted to check what youre seeing in terms of consumer right.

Right now and I guess, a bigger picture question that is more exposed to the cyclical downturn versus your peers. Because you have the highest consumer exposure and if that is the case do you need to do something different given that mix headwind.

Yes.

Thanks for that.

Question on the opportunity to clarify so.

<unk> electronics last year was 24.

Of our revenue if you look at the market overall.

Personal electronics, a little more than 50% of the semiconductor market without memory. So we have less than half of the exposure there.

If you look at industrial and automotive that makes up 62% of our revenues.

And inside of the market, that's 26% of the market so really.

Highly exposed to both industrial and automotive and that's not by accident is.

Probably more than a decade ago.

Began allocating more of our resources to automotive and industrial.

And the emphasis there so we're very pleased with with our exposure.

<unk>.

We believe that that will be where.

There just will be.

More content added into those systems now that said there is great opportunities inside of personal electronics communications equipment and enterprise systems in the decades ahead.

But we'll just have those secular tailwind.

More than average inside of industrial and automotive follow on Vivek.

Thank you, Dave so kind of similar question, but on automotive.

You suggested grew 10% sequentially in Q T. Interestingly you are suggesting it can grow again in Q4.

See what sense of kind of the supply demand balance in automotive among your tier one and then the auto OEM customers. Many investors are concerned that this kind of rolling correction that we're seeing in semi is going to eventually hit.

<unk>, which has been a very strong area over the last one to two years. So what's your sense of what's kind of the supply demand balances in the automotive end market. Thank you.

I'd say first I think when you look at the secular trends inside of automotive I think all of us know that it will be a great grower for us.

And we're investing very broadly.

So we're just thrilled with the position.

If you look at second quarter of 2020.

Growth there has.

Off the bottom then.

Very very strong.

We will that market eventually rollover it will I mean thats just.

What happens.

And we're not trying to predict when that will happen, we will continue to ship product to customers as they request it.

And we're really focused on making sure we've got capacity in place.

For them over over the long term so.

We're not really trying to worry about when.

That will happen. So thank you Vivek and we'll go to go to the next caller. Please.

Next question from Joshua <unk> from Cowen. Your line is open. Please go ahead.

Hey, guys. Thanks for taking my question I wanted to double click on the industrial market.

Did anything change materially through the quarter or anything you can give us on linearity or by geography.

As we think about what's baked into the guide is it more I guess conservatism on the macro or was there really a material change in your customers' order patterns. Thank you yes.

Yes, Joshua Thanks for that question I would say if you look at the third quarter results.

Across the board and also inclusive of industrial the quarter came in as we would expect that if you look at.

No.

And even sequential is not unusual inside of industrial that's about what we were expecting.

As we described it the weakness began to.

To broadened into that so.

Wasn't one place that we could put the finger on to say it was.

No.

One thing or one group of customers, but we did see.

Just different signals inside of there.

It is leading us to that.

Conclusion that it is that weakness is broadening.

And in fact, we expect that weakness to broaden into into most of the other markets as well as we move into the fourth quarter of course with the exception of.

Auto so.

That's really what we're seeing it's it's order rates if you look at order rates.

To date there.

Of course, consistent with our outlook, but they are weak.

Quarter to date.

So it's those types of signals that are leading to the to the outlook and really those are the types of signals that are that really best inform.

What what our shipments in the quarter and in the short term are going to be you have a follow up Joshua.

Yes. Thank you that's very helpful.

Just wanted to clarify the comments on the chips Act you mentioned a $50 million was accrued on the balance sheet was that from the investment tax credit only because there's a second bucket for manufacturing incentives.

And if not when should when would you expect to take I guess get more clarity on how much you'll be able to accrue for the manufacturing incentive portion of the chips out. Thank you.

Yes, So first let me step back.

Big picture the combination of the investment tax rate the grant as well as the funding for research and development will use semiconductor are more competitive.

We accrued at $50 million that we talked about in the prepared remarks that you referred to that was about a 25% investment tax credit that is for manufacturing assets.

<unk>.

We will go into service in 2023 and beyond and that is that was for 200 million. So a quarter of that is what we accrued that we will.

We will receive from the government at some point in the future as a slower taxes, but in the in the P&L. It flows it will flow through lower depreciation I think maybe what you are referring to when you were talking about manufacturing the grants that portion.

Is that what you're referring to.

Well, maybe we lost them, but if you are talking about the grant that is that as part of the tips Xactly is separate from the investment tax credit that remains to be seen that's more on we will apply photos that application window doesn't open until February . So we will apply for those and as we learn more we'll let you know.

And Big picture when we get to February at our next capital management call.

We will talk about the <unk>. The overall investment will try to quantify that and what what benefit we will get at the same time since the last capital management call our confidence around them long term growth prospects.

In our industry the secular trends that Dave talked about earlier that confidence has only grown so we feel really good about that so we'll tell you about the.

The net impact between those two the benefits of the <unk> and the growing confidence in the next capital management goal and then any changes to our to our numbers based on that great.

Great. Thanks, I think you dropped off.

Thank you we will go to the next caller please.

We will take a follow up question from Timothy Arcuri UBS. Your line is open. Please go ahead.

Thanks, a lot Dave.

Let me come back and so my follow up was on China.

And I'm wondering if you can talk about your business. There are you seeing any signs of pull ins or push outs. As a result of some of these bands are you seeing any changes sort of in the linearity around demand is getting announced and I think also you had talked about China being like high teens of consumption of the product is that still where you see it.

So so.

Raphael maybe.

Want to add to it but on the bands.

The recent changes in some of the bands.

Yes.

Their.

Companies added to the entities list overall.

We don't expect that.

Theres really much if any impact.

Due to those those changes.

Really to that or.

Any of the restrictions from.

Overall from that <unk> only thing to add on that yes, correct got 99% of our bars fallen they're very low is the category of restrictions just given the nature of the types of parts that we sell so.

So we don't have restrictions on those of course their restriction specific to entities.

The entity list that you hear about <unk>, that's another lift and we of course follow all the regulations when it comes to that so when an entity.

Goes listed in there.

That into a gallon restrict shipments as according to the law.

Given given how that works, we don't expect any meaningful or significant impact to our revenue given.

With those export loss and that was the first part of your question, Tim and the second part you had mentioned high teens, it's actually about 25% of our revenue comes from customers that are that are based in China. So.

So thats the number so thank you Tim and we will go to the next caller. Please.

Next one from States curious Cohen with <unk> Research. Your line is open. Please go ahead.

Hey, guys. Thanks for taking my questions. My first one I just wanted to verify are there any changes to.

The trajectory of the near to medium term Capex plan, just given changes in the current environment and I guess related to that.

The Lehigh headwinds that are coming due you have any of those embedded in Q4, because you said, it's coming online starting in Q4 and Im getting implied gross margins down a few hundred basis points sequentially. Yeah. So let me answer that first one the last one first.

So youll see on our on our P&L about $77 million of restructuring charges in the third quarter that is all because of that those are the lehigh cost that we've chosen to put in there before it qualifies.

Just to qualify that that cost will move to cost of revenue. So it will move to gross margin Q4, though does it happen in Q1, well it will happen. During Q4 of course is not changing it doesn't affect EPS. So you're just going to move and we don't guide the specific lines right.

But if it qualifies Danielle December one a third of that will go into <unk> and then all of it will be there for first quarter right. If you quantified December 31, then.

And then all of it will be in restructuring in fourth quarter, and then all of it will move.

In first quarter.

And just to clarify that's already in.

It is operating profit and great quarter. Its been there, it's just moving above above the lines.

Into gross by Verizon being in profit from.

<unk> the entire time all of this year.

The first part of your question Big Picture, We will give you an update in about four months that the capital management with all the puts and takes but what I would tell you that well short term.

We expect.

Our change.

Our capex expectations for 'twenty two to have not changed.

That is two six to $2 8 billion for this year depreciation about $1 billion for this year I'm talking 2022 bigger picture as I said earlier the chips that great legislation. We're very excited about that that is going to decrease.

On a net basis, our investments because we are going to get a 25% a reduction from the investments that qualify the manufacturing investments in the United States.

But on the other hand, as I alluded to earlier, our confidence around in our long term growth prospects have only grown over the last six to 12 months based on the secular trends based on input from our customers. So we feel really excited about that the net effect of those two.

And whatever that does to our Capex plans, we will tell you about that in February .

On spacing.

I do thank you I wanted to ask about Opex, that's been running in the $800 million range, plus or minus for quite a while and frankly people are wondering how you've been keeping it there and such inflationary environment. It is now ticking up.

Picking up as revenues are falling I guess why is it increasing now, whereas it didnt increase before and what happens going forward because if I were to just hold it flat on the revenue guide going forward or do something like 19% of revenue. So it is still below your kind of what you've talked about in terms of long term targets for opex. So how do we think about that why is it growing now versus before and how do we think about.

Where the range might go going forward.

Yes, so here's how we think about it step back for the last five five years really we've been running opex on a trailing 12 month basis, which is how I prefer to look at it at $3 million pretty consistently we're really steady hand over that time, our hiring has been very consistent during that time and that is underpinned by a real.

Long term expectations on growth and inside of that RMB has actually moved up SG&A has moved down inside of that $3 two but it's been really consistent on that this last quarter for the first time it ticked up to three $3 billion on a trailing 12 month basis, and I would expect that to continue picking up over the next.

Many quarters and years as we continue stepping up our investments and that is driven.

Driven by the higher investments must be inflation is playing a factor is clearly wage inflation, we're not immune to that so that is that is also affecting and will continue to affect those trends.

Okay. Thanks.

Thank you.

Yes.

Blayne Curtis from Barclays. Your line is open. Please go ahead.

Hey, guys. Thanks for taking my question I had two maybe.

Maybe just a clarification, though on Chase's question, because you said, but I didn't hear.

Anything negative to net off of two positive so I'm just kind of curious.

I guess, we'll see what March brings and I'm happy if you want to comment on that but it seems like at least personal electronics is back to where you were at 1920 things like industrial kind of kind of get back there and at that point Youre building inventories you had more capacity than demand. So if we do go back to those levels and you're adding more capacity I'm just trying to understand is still the view.

That youll build inventory due to 19 and 20 in fill rollout the capacity for the long term.

Let me try to answer that frankly, I didn't fully understand.

You throw in several premises there, but let me let me just address it the best way I can in levels and capacity. So capacity, we've been adding capacity incrementally for a number of quarters now our fab two is in production Lehigh Lehigh is about to start production within a few months, so clearly our increments in incremental.

<unk>.

Is is going up at the same time, we've been increasing inventory very slowly and now more recently, we added $200 million of inventory in this last quarter.

But we are still below desired levels gave keep in mind, our business model is such where we our target the vast majority of our bar cell to many many customers. So they're very broad in nature of their product life cycles of the parts is decades.

In many.

Many times.

The products themselves last 10 years in inventory.

Most of them so the risk of so less than for the inventory is very very low the potential upside of having that inventory ready is very high. So thats why we prefer to have more than less inventory. So I would not be uncomfortable as I've said before adding another $1 billion billion.

Dollars of inventory over the next.

Several quarters to get us well positioned for the next upturn that invariably comes at some point.

And blayne, Thanks, and I just want to ask you specifically on the auto segment you said, that's the only one.

Not down and obviously, it's a very well known that it's been so tight but just any more comments on why that market is taking a bit longer than say industrial.

Correct.

Yes, I think.

As well documented I think as we went through the <unk>.

Pandemic it had the deepest.

Correction.

From a starting point standpoint.

The mix of.

Auto manufacturers to the high end.

Got Evs.

That are inside of those mix that are all adding to that.

To those secular trends so.

I think that we're well positioned as we make investments.

Across our businesses, we're investing in.

Powertrain, which would include electric vehicles and hybrid.

We're investing in Adas systems, we're investing in infotainment systems.

We're investing in body and lighting.

That doesn't get talked about a lot on.

On on conference calls, where we just get as excited about turn signals as we do.

BMS systems, and and then we also invest in safety systems. So we're growing very broadly.

Got close to a 1000 different automotive.

Oems.

That we service and we really believe that we've got.

Probably decades of growth ahead of us.

We're preparing for so thank you Blayne and we'll go to the next caller. Please.

We have seen.

<unk> from Deutsche Bank. Your line is open. Please go ahead.

Hi, guys. Thanks for letting me ask a question.

A high level one on your analog business year to date, I think it's 15% year over year with the midpoint ish of your guidance. It seems like this year might be up about 10% that's roughly half of what the broader market is running at.

Can you guys explain a little bit about why you would be under growing the market as defined by USAA.

And if you are is that something that you expect to mean revert because you don't lose this amount of share in a year unless there's something unique going on so any help in explaining that would be great. Yes, Sir.

I think that.

Whenever.

I'm asked that question and it's always a lot more comfortable to be at answering it win.

We're up twice the rate of the market they really need to look at it over a longer period of time, so look at the rate of growth.

Versus the industry from fourth quarter of 19, I, just picked that because its a pre pandemic number and and.

We look we look.

Very good.

<unk> those against those numbers so.

We were as you remember as we went into the pandemic, we continue to build inventory.

So the numbers initially look.

Look very very strong as customers pulled pulled product from us so.

When you look some of the sequential were harder and thats, not not making excuses, but.

When you look at our manufacturing footprint and how we're positioned.

You look at the customer excitement around that.

Is that.

That manufacturing footprint.

And customers look at where that addition is coming.

<unk>.

The geopolitical dependable.

Locations of where that that footprints coming on.

We are very confident in where the trajectory of our market share is going longer term. So you've got a follow up for us.

I do I just wanted to revisit the gross margin side not going into whether the Lehigh charges are moving into Cogs or not but are there any other moving parts because it appears that the midpoint of your revenue guide and your earnings Guide Opex is roughly the same sequentially that the gross margin.

I'll have to go down the better part of two or three points just wanted to know if theres any other unique aspects implied in that guidance.

Yes, I would tell you we're very pleased with our gross margin performance.

On a year on year basis, the third quarter, we just finished.

Defaulted or whats <unk> percent and that is actually higher than the guidance that we've given on 70 to 75.

I would point you to is as you can see in the cash flow statement depreciation is increasing sequentially have increased sequentially extra for a number of quarters, but this last quarter $27 million of course that is a direct result of the capex investments that we're making and so you should expect depreciation to continue ticking up I said earlier in the call.

We expect this year to be close to $1 billion. So you can obviously you didn't do the math and get good fourth quarter depreciation there, but clearly that is that is picking up and the bulk of that depreciation goes into cost of revenue.

Thank you okay.

Thank you Russ will go to the next caller please.

Next one is Joe Moore from Morgan Stanley . Your line is open. Please go ahead.

Yes. Thank you I Wonder if you could talk about if the lead time environment has changed I know you've talked about there being hotspots in the past few quarters.

That gone now or delinquencies kind of back to below normal levels or where are you out with that.

Yes, so we still do have.

We'll do have hotspots.

Market environment, we've got hotspots, but we still do have them.

Probably still most pronounced in side of automotive.

Lead times.

It didn't change much second quarter to third quarter.

And at the same time as we've talked about before customers can get immediate availability of our products on Ti dot com. So you have kind of all of those all of those dynamics going on volatile.

Yes, thank you for that.

We're hearing from some of your industrial and automotive customers desire to hold higher safety stock.

And then what companies have historically held.

Is that something that you can.

I mean, do you think might affect <unk> in gist.

How do you think about that going forward do you think thats a normal state of affairs.

Yes.

We see.

Seen and heard and been in those discussions.

Before.

We know that.

Some customers that are really taking a hard look at.

At their supply chains, where their product is coming from what technologies. They are being built on ensuring that they've got the supply of those technologies.

As part of the reason why when they look at.

Product being built in the capacity, we're putting in place.

45 to 130 nanometer they know they need that capacity for decades.

To come so.

They get excited about when they see that capacity overall, but the change the supply.

Those supply chains is really hard work it will take a long time to be able to do it is not oftentimes just as simple as carrying more inventory on the balance sheet. So.

There probably will be some of those customers that do.

Do that hard work and restructure the supply chains.

And there probably will be some that once we get supply demand imbalance that just kind of fall back into normal practices. So I think time will tell as that plays out failure, yes, I'll just add.

At the end.

Customers will do what they wanted to right and of course, if they want to hold more inventory there. They're welcome to do that what we believe is that for us to hold more inventory. We're in a great position to do that given the nature of that inventory that its catalog in nature that can sell to many many customers though.

All better off in our customers will be better off when we hold more of that inventory and we can direct it.

Where it's most needed.

So that's why as I said earlier, we our goal is to continue growing inventory, we're still below desired levels and we will.

<unk> significantly more inventory over the quarters to come we are ready for the next upside alright. Thank you Joe I will go to the next caller. Please.

William Stein from QE Security. Your line is open. Please go ahead.

Oh, great. Thank you very much for taking my question.

I wanted to ask about Ti dot com.

Past quarters, I think maybe even a quarter ago, you talked about how.

<unk> revenue from that channel had gone from less than 1% of sales to over 10% I think that occurred in about a one year timeframe.

You just mentioned a moment ago. Dave This is the channel where customers can go for yearly.

Nearly immediate availability, so one would assume that they get that availability at a price.

When things start softening as you are alluding to on this call.

Perhaps that channel.

A more precipitous decline did you see that during the quarter and do you anticipate that to happen in coming.

Coming quarter too.

Yes, yes.

We did see a decline there.

Sure.

And we.

We'll finish up the year and provide an update in our capital management or how it did for the year wont be something that we'll be reporting out on a quarterly basis, but there there was a decline there.

Not that it was unexpected so now longer term is a fantastic channel.

To engage customers in a number of levels and customers are very pleased so there will be fluctuations quarter to quarter, maybe even year to year, but over the long term is we're very pleased with.

With that channel and what it's doing to get us even more directly engage with customers absolutely following well.

Yes sort of along the same lines there has been speculation in the press for example.

This has been a channel for <unk>.

Companies that you might call brokers or some people call it the gray market and distribution to get their horizontal Gi product.

Perhaps.

There is still inventory that was acquired.

As such parties that is still sort of floating around and waiting to be sold on to end customers I wonder whether.

<unk>.

A better reason to maybe trough volatile measure it in any observations you've made with regard to that thank you.

Yes, well as you know I spent eight years of my career in sales and.

There have always been brokers in our market and as Rafael talked about we've long believed that owning and controlling our inventory as a strategic.

Advantage so.

And having policies of like noncancelable orders and things like that as customers take product.

That they don't need.

Typically the source of.

Of that product going out the back the back door for for brokers. So.

Ken brokers go onto <unk> com and get good product they can.

But.

Sure.

That's that's pretty minimal in comparison to other sources.

Might be able to get it so.

Overall.

The majority of customers that we service our customers that we have large engagements with.

Directly.

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

Thanks C J Muse from Evercore. Your line is open. Please go ahead.

Yes. Good afternoon. Thank you for taking the question I guess a question on end markets into December .

If I adjust down 12% sequential for the strength in auto it looks like all your other businesses are tracking at least down kind of mid teens. So curious.

What parts of the market are down.

Seasonally I would think the other.

And calculators would be one.

What's maybe more down cyclically in terms of the correction that you are saying.

And C. J just to clarify you're talking about for the fourth quarter guidance, yes. Thanks, Dave.

Yeah, Yeah, so again.

We're not trying to provide guidance by quarter or by by each each each market inside of that we are obviously with the guide overall it is.

A weaker fourth quarter than a typical fourth quarter.

So with the exception of auto as we've talked about that.

We will continue to see weakness inside of personal electronics, but we will see the other the other markets weakened as well so.

We're not trying to get get specific on that.

So we'll finish up the quarter and report that out, but we do expect.

The weakness to broaden across those markets.

A follow on.

Yes, please I guess as a follow on.

One question two to China.

Obviously, you talked about very little impact.

For me embargo on your business, but curious.

As you contemplate China's ability to invest in the lagging edge in.

I'm, assuming it will take years, if not decades.

To try to compete in high performance analog we're just curious how your thoughts are evolving.

For China.

Competitor to you in the coming decades.

Yes, I'll start and Dave do you want to chime in but I would tell you at the end of the day. It all comes down to our competitive advantages and.

And it starts with the broad portfolio that we have in the analog and embedded.

Our space you need a huge portfolio to compete effectively particularly in industrial and automotive and we have 80000 or so parts that we sell to a 100000 different customers. So you need that type of diversity and second is manufacturing and technology.

This investment that our position in 300 millimeter.

But then all of the investments that we're making are just building on that so we have our five to come in that just came online.

A new factor in Lehigh aimed at Mega site that we just broke ground in Sherman that's going to have four factories. Each one the size of our factories, so that really puts us.

In a very strong position to compete against anyone whether is in the United States or <unk>.

In China.

Thank you.

Thank you C J with that we'll wrap it up.

Raphael Yeah. So let me wrap it up at our core we are engineers and technology is the foundation of our company, but ultimately our objective and the best metric to measure our progress and generate long term value for our owners is the growth of free cash flow per share, while we strive to achieve our objective will continue to pursue our three ambitions.

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

Will adapt and succeed in a world of ever changing and will be a company that we're personally proud to be a part of and would want as our neighbor when were successful our employees customers communities and owners all benefit. Thank you and have a good evening.

That concludes today's event. Thank you for your participation you may now disconnect.

Okay.

Sure.

Yes.

Okay.

No.

Sure.

Thank you.

Okay.

Sure.

Yes.

Okay.

Yes.

[music].

Okay.

[music].

This assumes for months, earning call will now begin.

Welcome to the Texas Instruments' third quarter 2022 earnings release Conference call I'm, Dave Pahl head of Investor Relations and I'm joined by our Chief Financial Officer Raphael was already.

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

Call is being broadcast live over the web and can be accessed through our website.

In addition, today's call is being recorded and you'll be able to get it via replay on our website.

Recent SEC filings for a more complete description.

Today, we will provide the following updates.

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

Starting with a quick overview of the third quarter.

Revenue in the quarter came in about as expected at $5 2 billion, an increase of 1% sequentially and 13% year over year.

Analog revenue grew 13% embedded processing grew 11% and our other segment grew 20% from the year ago quarter.

Now I will provide some insight into third quarter revenue by market.

This quarter our <unk>.

<unk> on our sequential performance as it is more informative at this time.

First personal electronics declined mid teens as we continue to see the weakness we described in the second quarter.

Industrial was about even sequentially as we saw weakness begin to broaden in the industrial market.

The automotive market remained strong and was about 10%.

Next communications equipment was up high single digits, and finally enterprise systems was up mid single digits.

Turning to our expectations for the fourth we expect that most of our end markets will decline sequentially with the exception of the automotive market.

Lastly, we and our customers remain pleased with the progress of our expansion of our manufacturing capacity, which was outlined in our February capital management and will support the long term secular trend of increased semiconductor content per system.

Customers, especially value the geopolitically dependable footprint of our manufacturing additions.

We are now in production and our fab two and expect production in <unk> later this year.