Q4 2024 Texas Instruments Inc Earnings Call
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Speaker Change: Welcome to the Texas Instruments fourth quarter 2024 earnings conference call. I'm Dave Pahl, head of investor relations, and I'm joined by our chief executive officer, Haviv Ilan, and our chief financial officer, Rafael Lizardi. For any of you who missed the release, you can find it on our website at ti.com slash IR.
This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded and will be available via replay on our website.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: I would like to provide some information that's important to your calendars. On Tuesday, February 4th, at 10 a.m. Central Time, we will have our capital management call.
Speaker Change: Similar to what we've done in the past, Haviv, Rafael, and I will share our approach to capital allocation and summarize our progress as we prepare for the opportunity ahead.
Speaker Change: Moving on, today we'll provide the following updates. First, Haviv will start with a quick overview of the quarter. Next, he'll provide insight into fourth quarter revenue results with some details of what we're seeing with respect to our end markets.
Speaker Change: Haviv will then provide the Annual Summary of Revenue Breakout by End Market.
Speaker Change: And lastly, Rafael will cover the financial results and our guidance for the first quarter of 2025. With that, let me turn it over to Haviv. Thanks, Dave. Let me start with a quick overview of the fourth quarter.
Haviv Ilan: Revenue was $4 billion, a decrease of 3% sequentially, and 2% from the same quarter a year ago.
Haviv Ilan: Analog revenue grew 2% year over year after 8 quarters of decline.
Haviv Ilan: Embedded processing declined 18% and our other segment grew from the year ago quarter.
Haviv Ilan: Now, I'll provide some insight into our fourth quarter revenue by end market.
Haviv Ilan: Our overall results reflect the performance from our two largest markets, industrial and automotive, which saw modest sequential declines.
Haviv Ilan: Similar to last quarter, I'll focus on sequential performance as it is more informative at this time.
First, the industrial market was down low single digits.
The automotive market was down mid-single digits.
Haviv Ilan: Personal electronics grew mid-single digits. Next, enterprise systems declined low-single digits. And lastly, communications equipment grew upper-single digits.
Haviv Ilan: In addition, as we do at the end of each calendar year, I'll describe our revenue by end market.
Haviv Ilan: As a percentage of revenue for 2024, industrial was 34%, automotive 35%,
Haviv Ilan: personal electronics 20% enterprise systems 5% communication equipment 4% and other was 2%
Haviv Ilan: We see good opportunities in all of our markets, but we place additional strategic emphasis on industrial and automotive.
Haviv Ilan: Our customers across all regions are increasingly turning to analog and embedded technology to make their end products more reliable, more affordable, and lower in power.
Haviv Ilan: This drives growing cheap content per application, or secular content growth, which will likely continue to drive faster growth in industrial and automotive.
Rafael will now review profitability, capital management, and our outlook.
Rafael Lizardi: Thanks, Haviv, and good afternoon, everyone. As Haviv mentioned, fourth quarter revenue was $4 billion.
Rafael Lizardi: Gross profit in the quarter was $2.3 billion, or 58% of revenue. Sequentially, gross profit decreased primarily due to lower revenue, higher depreciation, and reduced factory loadings.
Gross Profit Margin decreased 190 basis points.
Rafael Lizardi: Operating expenses in the quarter were $937 million, up 4% from a year ago and about as expected.
Rafael Lizardi: On a 12-month basis, operating expenses were $3.8 billion, or 24% of revenue.
Rafael Lizardi: Operating profit was 1.4 billion dollars in the quarter or 34% of revenue.
and profit was down 10% from a year ago quarter.
Rafael Lizardi: Earnings per share included a two cent benefit for items that were not in our original guidance.
Rafael Lizardi: Let me now comment on our capital management results, starting with our cash generation.
Rafael Lizardi: Cash flow from operations was $2 billion in the quarter. Capital expenditures were $1.2 billion in the quarter.
Rafael Lizardi: In the quarter, we paid $1.2 billion in dividends and repurchased $537 million of our stock.
Rafael Lizardi: We also increased our dividend per share by 5% in the fourth quarter, marking our 21st consecutive year of dividend increases.
Rafael Lizardi: In total, we have returned $5.7 billion in the past 12 months to owners.
Rafael Lizardi: Our balance sheet remains strong with $7.6 billion of cash and short-term investments at the end of the fourth quarter.
Rafael Lizardi: Total debt outstanding was $13.7 billion dollars with a weighted average coupon of 3.79%.
For more information, visit www.FEMA.gov
Rafael Lizardi: Inventory at the end of the quarter was $4.5 billion, up $231 million from the prior quarter, and days were 241, up 10 days sequentially.
Rafael Lizardi: Now let's look at some of these results for the year.
Rafael Lizardi: In 2024, cash flow from operations was $6.3 billion and capital expenditures were $4.8 billion, as expected.
Rafael Lizardi: We are nearly 70% through a 6-year elevated CAPEX cycle that, once complete, will uniquely position TI to deliver dependable, low-cost, 300mm capacity at scale to meet customer demand.
Rafael Lizardi: Free cash flow for 2024 was 1.5 billion dollars or 10% of revenue.
Rafael Lizardi: Our free cash flow reflects the strength of our business model, as well as our decisions to invest in 300mm manufacturing assets and inventory to support our overall objective to maximize long-term free cash flow per share.
which we believe is the primary driver of long-term value.
Rafael Lizardi: Turning to our outlook for the first quarter, we expect TI revenue in the range of $3.74 billion to $4.06 billion and earnings per share to be in the range of $0.94 to $1.16.
Rafael Lizardi: Based on current tax law, we now expect our effective tax rate for 2025 to be about 12%.
Rafael Lizardi: 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, a broad product portfolio, reach of our channels, and diverse and long-lived positions.
Rafael Lizardi: We will continue to strengthen these advantages through discipline, capital, allocation, and by focusing on the best opportunities, which we believe will enable us to continue to deliver free cash flow per share growth over the long term.
Rafael Lizardi: With that, let me turn it back to Dave. Thanks, Rafael. Operator, you can now open the lines for questions. In order to provide as many of you as possible an opportunity to ask your questions, please limit yourself to a single question.
Rafael Lizardi: After our response, we'll provide you an opportunity for an additional follow-up. Operator?
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Rafael Lizardi: A confirmation tone will indicate your line is in the question queue. You may press star to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys. One moment please while we poll for questions.
Speaker Change: Our first question comes from the line of Toshia Harry with Golden Sacks. Please proceed with your question.
Toshia Harry: Hi, good afternoon. Thank you so much for taking the question.
Speaker Change: First one for Haviv, you're guiding Q1 revenue down, I think, 2% to 3% sequentially. I was hoping you could maybe provide some color by end market, what you're seeing on a sequential basis. You guys were quite helpful last quarter, diving deep into automotive, what you're seeing in China, etc., etc. So any color, any standouts to the upside or downside relative to what's typical seasonality would be very helpful. Thank you.
For more information visit www.FEMA.gov
Speaker Change: Okay, thanks Ashiat. So again, for Q1, as you said, about 3%, I think, sequential, which is, I would describe it as a seasonal decline for Q1.
Speaker Change: I will say that typically in Q1 what we do see is the personal electronics market would usually show quite a significant decline, just seasonality.
Speaker Change: And we did have a pretty decent Q4 for PE, so I think that's what we expect there.
Speaker Change: and typically also if you look at the markets like automotive industrial the decline should be less pronounced there so that's kind of my expectation and nothing specific
Speaker Change: that I would add on markets. I will provide a little bit more color on Q4, and especially on our two main markets, industrial and automotive.
Speaker Change: I think, again, they behave similarly, like the overall company in Q4, and also similar to what we've seen in Q3, but maybe with some little bit small changes. So if I start with the industrial market.
Speaker Change: As I described, I think, during the last call, most of the sectors that are kind of hovering at the bottom, maybe found the bottom.
Speaker Change: and then there are a couple of sectors that are still showing larger declines especially industrial automation
Speaker Change: and the energy infrastructure market that is still not found, I believe, at the bottom. We'll have to see what the first half of 2025 has planned for that. And on the automotive market, similar to Q3,
Speaker Change: We did see a pretty significant weakness, maybe outside of China. It declined about mid-single digit, about 5% sequentially.
Speaker Change: But China did grow, but not enough to offset the declines in Europe, the U.S., and Japan.
Speaker Change: which is very, it was kind of similar to what we've seen in Q3, but maybe the growth in China was less pronounced and the decline outside of China was more pronounced. That would be my high-level summary for Q4 and a little bit for Q1.
Do you have a follow-up, Tashia?
I do, Dave. Thanks so much.
Speaker Change: a 2 to 3 percent decline in revenue. I was hoping you could kind of provide some context there. Is it, you know, primarily gross margin and behind that, is it continued underloadings, increase in depreciation, some of the same dynamics we saw over the past 12 months or is it higher OPEX, anything below the line, any sort of additional color on sort of the drop off in EPS for Q4 to Q1, that would be helpful. Thank you.
Rafael Lizardi: I think I covered revenue Rafael, maybe you covered the other parts. Yeah, happy to. Okay, so maybe let me start with GPM, and then I'll go to OPEX, and then I'll go to the other income line, which is...
relevant this time. So on gross margins...
Keep in mind that depreciation is increasing, first of all.
Rafael Lizardi: Second, well, revenue is decreasing, that has an impact, then depreciation is increasing.
Rafael Lizardi: And then we are, in order to manage inventory, we are reducing factory loadings.
Rafael Lizardi: We reduced some of that in fourth quarter, but we're going to reduce those further in first quarter. So, I do expect GPM percent to decrease probably a few hundred basis points fourth quarter to first quarter.
Then let me comment on OPEX. OPEX,
Rafael Lizardi: will increase three to five percent fourth to first and that's a kind of normal seasonal increases that happen in first quarter on OPEX in addition to the overall increases in investments that we're making.
Rafael Lizardi: Beyond that, this time it's relevant that interest income is decreasing by about $50 million.
Rafael Lizardi: The reason that is happening is short-term interest rates are decreasing and that's where we invest our cash.
Rafael Lizardi: and our cash on the balance sheet, cash levels are also decreasing. So a combination of lower interest rates and lower cash gives you a significant drop in other income. So that's in this case about $50 million less for going to first quarter.
Great. Thank you. We'll go to the next caller, please
Speaker Change: Thank you. Our next question comes from the line of Chris Castle with Wolf Research. Please proceed with your question.
Chris Castle: Yes, thank you. I guess the first question would be with regard to the embedded business, and we're seeing
Chris Castle: a sharp divergence there between those two businesses, particularly on the margin side. Can you give some explanation of what's going on between the analog and the embedded businesses and the reason for the decline in the embedded margins?
Haviv Ilan: So Chris, let me just say a few words on the revenue side and I'll let Rafael talk about the margins over there. So again, embedded and analog a little bit are...
Chris Castle: You know, like many of the phenomena we see regarding markets, geographies, we are seeing a synchronous behavior between these two markets.
Rafael Lizardi: As you remember, our embedded business grew in 2023, while our analog business in 2023 declined double digits. So we saw a later peak, about a year later, on embedded. That's the reason we see...
Rafael Lizardi: a sharper decline in embedded right now while analog and Q4 actually grew.
Rafael Lizardi: So I think analog is about a year maybe ahead on embedded in terms of the cyclical behavior.
Rafael Lizardi: Regarding profitability, Rafael, I'm sure it's related to Alpha, but you go first. That's absolutely right. Yeah, so the profitability embedded first is revenue. If revenue drops, you know, that clearly has an impact on profitability.
Rafael Lizardi: The second part that is different than analog is that embedded is taking a disproportionate
impact due to LFAB, the Lehigh factory in Utah.
Rafael Lizardi: because that factory, while it's going to serve both embedded and it's serving both embedded...
Rafael Lizardi: and analog, but it disproportionately serves embedded. And since it's underutilized right now, it takes that hit from that underutilization. In fact, reloading affects embedded disproportionately.
Do you have a follow-on, Chris?
Chris Castle: Yeah, got it. That's helpful. I guess the follow-up question would ...
Speaker Change: The some update on you know what's going on in China right now You had spoken about you know, I guess the auto business Again is stronger there. Perhaps you could talk about
Speaker Change: The rest of the business that you're seeing in China, the industrial business, for example. And, we know that you've been taking some actions to take back some of the share that you may have lost when your lead times were longer. Could you give us an update on that and how that may be affecting some numbers in the near term?
Speaker Change: Sure, so first, high level, our China business in Q4 did grow, both
Speaker Change: sequentially but also year over year I think it was mid-teens or that area.
Rafael Lizardi: Rafael Lizardi, Haviv Ilan, Rafael Lizardi, Rafael Lizardi, Rafael Lizardi, Rafael Lizardi,
We had some supply limitations during the upcycling in China
Speaker Change: Personal electronics market was one of the main markets that, you know, suffered when we were short.
Rafael Lizardi: We are seeing this market growing in China. It grew sequentially, again, nicely in the Q3, but also year over year that market grew significantly.
Rafael Lizardi: in China and also in the U.S. These are the main markets where we have our personal and electronic businesses. So overall, again, overall business in China right now is healthy. You asked about industrial. We haven't seen yet the start of the cyclical growth again in industrial across all of our geographies. So China here is not an outlier.
Rafael Lizardi: The strength is coming mainly from, I would say, automotive and from...
Personal electronics
Yeah, let me let me just add a little color.
US, China, and really the rest of Asia.
Rafael Lizardi: It's really more flat. Describe it sequentially, Europe and Japan were down low, low double digits.
Haviv Ilan: As Haviv mentioned, if you look year-on-year, you see the U.S. and China up 12-14% in that range, and that growth was offset overall by declines in the other regions.
Yeah.
Haviv Ilan: Great. Okay. Thank you, Chris. And we'll go to the next caller, please.
Speaker Change: Thank you. Our next question comes from the line of Ross Seymour with Deutsche Bank. Please proceed with your question.
Ross Seymour: Hi guys, thanks for letting me ask a question. I wanted to ask about the pricing environment in general. You didn't mention that, Rafael or Haviv, in any of your discussions about gross margin or the competitive environment or any of the sequential weakness.
Speaker Change: Just wondered if that has changed in any meaningful way, either analog versus embedded or in certain geographies. Just any update on that front will be helpful.
Speaker Change: Yes, in high level the pricing environment is not we've not seen any change in Q4 versus what we've seen in 2024 I think we've
Speaker Change: We've expected, I think we said in the beginning of 24, that pricing will go back to previous behavior, pre-COVID, where pricing would decline, you know.
Speaker Change: low single-digit life-for-life part per year and that's more or less what he did in 2024 as the year ended.
Speaker Change: Of course, I think I did provide some color on revenue by market.
Speaker Change: The mix has changed, right? So the selling price, if you will, has changed because industrial in 23 was 40% of revenue. It declined to 34% in 24.
Speaker Change: The PE market grew from 15% in 2023 to 20% in 2024, and that is a big change of mix, if you will. And that's what we have seen. But the like-for-like part has behaved as expected, and I'm not expecting that to be different.
Speaker Change: in 2025, and that's a comment to go across all geographies. Do you have a follow-on, Ross?
Ross Seymour: Yeah, I do. A little bit of a longer-term question maybe for Haviv. Historically, the company's talked about share gains and losses in your markets being measured in basis points. I think, you know, 15, 20, 25 basis points a year given the fragmented nature of it was kind of what you would aspire to.
Ross Seymour: It can, of course, go down or up, I guess, for kind of EDO reasons, supply shocks, those sorts of things. But now that you have the supply, it seems like the world has plenty of supply. Is there any reason that that historical share gain pace would be any different going forward?
Ross Seymour: Again, when we talk about share down or up, I think the only way to really measure it is over the long term. That's always been our approach. That's the way we run the company. That's the way we behave, right? So TI, yes, there was a lot of, I would say, a shock wave almost during COVID. It was not only supply-demand mismatch, but
Ross Seymour: behavior of customers and almost anxiety of needing parts so I think inventory was built and I think it's still playing out I wouldn't say that that this asynchronous behavior across markets
Ross Seymour: is done. We see it still across sectors in industrial, we see it differently between geographies, we even see it internally between our embedded business and analog business.
Ross Seymour: It's one of these things, and I kind of hate to say it, but time will tell where we are. I am excited about the fact that now we have the right inventory level, the right...
Ross Seymour: I'm encouraged about our progress in the analog market. As I mentioned in our previous remarks, we did grow the analog business from a year-over-year perspective in Q4. It was a couple of points of growth, but after about eight quarters of decline,
Ross Seymour: And I think we, I look forward to continue to grow that business, especially when you think about the longer term.
Ross Seymour: And most importantly, the secular growth in the market that we've mentioned, industrial and automotive, I'm convinced that it's there.
Ross Seymour: I will continue to compete for market share and grow it.
Speaker Change: Great. Thank you. Thank you, Ross. We'll go to the next caller, please.
Speaker Change: Thank you. Our next question comes from the line of Chris Daly with Citi. Please proceed with your question.
Hey, thanks guys.
Chris Daly: Hey Haviv, I guess just a little bit of a drill down on the end markets.
play out this year, maybe talk about
Chris Daly: strength by the end markets, and have you seen, would you say you've seen any change in business conditions over the last three months, like better, worse, or not really?
Yeah, you know...
Speaker Change: Chris, as I think I told you last time we met, we call it when we see it, meaning I can tell you what happened, it's very hard for us to tell you exactly what will happen even for this quarter, I think I mentioned even during the last call.
Speaker Change: Lead times are short, customers are coming real-time for demand. Our turn business, or what we call aging, is running high, you know, right now, simply because...
Speaker Change: customers are almost waiting for the last second before they make the order and we fulfilled it because we do have the right level of inventory and of course uh capacity to support further growth. I will say that I think that some of the markets and I we've seen it through 2024
Speaker Change: They are already on the cyclical upturn. We saw it in PE, then Enterprise, really driven by data center joint, and we are seeing nice growth over there. And even the communication business, I would say that I think it found the bottom. We saw it somewhere in, I think, Q1 of 24.
Speaker Change: grew sequentially since then and even returned to year-over-year growth in Q4.
I think they are on the upturn.
Speaker Change: major changes to continue into 2025. The big question for us is also 75% of our business, or 70% of our business.
in 2024 is industrial and automotive, and here...
Speaker Change: We haven't seen the bottom yet. Let's be very clear about that. We're seeing points.
Speaker Change: points of strength I've given China as an example But we'll have to see how the year play out. I do believe that this on the industrial side that there is
Speaker Change: Kind of, as I said last time, kind of this hovering at the low level is a great position to grow from, but we'll just have to wait and see when it wants to do it, Chris. And of course, when we see it, we'll say.
The following, Chris? Sure, just quickly on embedded.
Speaker Change: So it looks like you guys have the lowest margins there in, I think, over a decade or something like that.
Speaker Change: You know, does something need to be changed or restructured there to get embedded back to an adequate level of margins or maybe talk about what needs to be done to get it to, you know, some sort of an appreciable level of margin?
Speaker Change: Yeah, let me take a quick high-level answer Chris and Rafael will give a little bit more what's going on there I think I'm seeing a business in transition Chris. I am I'm getting I'm growing more excited about Embedded every quarter I think
Our portfolio is strengthening and we are winning business.
Speaker Change: We are going through a transition, especially on the manufacturing side, and that puts pressure on the margins. But we are convinced that strategically embedded is going to be a great contributor to free cash flow per share. So the short answer to your question about restructuring or anything, the answer is no.
Speaker Change: Rafael, maybe you can provide some more color of what's going on there. Yeah, I'll just add, similar to what I said in a few questions ago, one is the revenue is the main factor.
As Haviv talked about earlier in the call,
Speaker Change: Embedded has seen a sharp decline because it took longer to
Speaker Change: to get into the downturn than Analog did. But if you look at pick to drop, they're about the same place Analog and Embedded.
Speaker Change: And then the other reason is LFAB, right? So Embedded is taking a disproportionate amount of the impact from having LFAB underutilized. But let me stress, just like that takes away, it gives it to you on the other end. So when we ramp up, as we ramp LFAB, and as we move.
Haviv Ilan: from external to internal, you're really gonna like the fall through both to GPM, but even better to FreeCasco as we do that. So embedded is, as Haviv said, is in transition, and when we're on the other side, we're gonna like the results.
Thank you, Chris, and go to the next caller, please.
Speaker Change: Thank you. Our next question comes from the line of Harlan Sir with JP Morgan. Please proceed with your question.
Harlan Sir: Good afternoon. Thanks for taking my question. You know, one of the metrics we look at to gauge the health of the cycle is the number of
Speaker Change: Customer pushouts, cancellations, rescheduling of the backlog relative to prior quarters, or maybe big changes, right, on customer forecast.
Speaker Change: inside of the quarter. Has this level activity remained at kind of normalized levels? And then maybe on another metric, we look at is turns orders. And I know, Haviv, you said it's at high levels, but is that coming in about as expected as well?
Speaker Change: Yeah, let me start with the second part of the question. I'll let Dave comment about the first part so
Speaker Change: Look, we came in queue for the higher side of the range, close to the top of the range. That all came from what we call the Terence business, so we didn't see that clock in the beginning of the quarter and it came in real time.
Speaker Change: So, you know, we need to see that that continues into the beginning of next year of this year Of course, there is Chinese New Year right now and and we just have to see that it's not
Speaker Change: But it's a trend rather than anything that is, you know, a one-quarter phenomena But the terms business looked very very good in Q4. Yeah, and when you look at those other
Speaker Change: indicators, like you brought up cancellations. We had seen those drop several quarters ago and they continue to be at very low levels.
Speaker Change: You know, if you look at things like revenue linearity, you know, revenue increase through the quarter, that's very typical for us to see that.
And Haviv mentioned earlier, you know, lead times are...
Speaker Change: remain short. We have availability of essentially all of our products that we sell via the web available for immediate shipment, so customers can behave and have that confidence that they can get the product that we've got.
You have a follow-on?
Speaker Change: Yeah, thank you. So right before the capital management update back in August, I remember
You had just received your preliminary CHIPSAC grant allocation.
Speaker Change: $1.6 billion, you know, that number was solidified, I think, in December and this was not contemplated in your free cash flow per share calculation.
Speaker Change: In the Chips Act press release, you guys articulated some of the milestones attached to those grant dollars, and it looks like actually many of those milestones are going to be executed, you know, in or before 2026. And that's, you know, $1.6 billion in grant dollars. That drives
an incremental $1.75 of free cash flow per share versus
Speaker Change: sort of what you potentially laid out in your 2026 scenario analysis. So, have you mapped out that $1.6 billion in CHIPSAC grants over 2025, 2026, and maybe have an updated view on the potential better free cash flow per share profile for Texas Instruments?
Speaker Change: So let me let me try to answer that question first kind of bigger picture as you alluded to the Department of Commerce awarded us
Speaker Change: up to $1.6 billion in CHIPS Act funding. This will help support three of our new 300-millimeter wafer fabs under construction in Texas and Utah.
Speaker Change: This direct funding, coupled with the ITC, will help us provide a geopolitically dependable supply of analog and embedded processing chips for years to come.
Speaker Change: Over the life of the, maybe the most important point is over the life of the program, between the ITC and the direct funding, we expect to receive seven and a half to nine and a half billion dollars in total.
Speaker Change: We've received some of that already in 2024 and expect 2025 and beyond to continue. We don't have any specific details to share at this point on the cash payments related to the direct funding.
But as those happen, we will share those.
Speaker Change: I would just add that the math is not incorrect, but the timing is the problem, right? So I think, as you said, there is... And we talked about free cash flow, so it also depends when we get the cash.
Speaker Change: We just don't have that visibility. The milestones are related, as you I think mentioned, to clean room construction and two installations in Sherman One, which we are
Speaker Change: We started installing tools in the summer of 2024 and it moved well.
Speaker Change: and the construction of SM2, the shell, which, you know, it's not done yet, but it's moving well. The other part is more in Utah, it's LFAB2. This is where we talk about clean room construction and tool installation for LFAB2.
Speaker Change: But we are now only now starting the, you know, the groundwork over there, right? So there is still quite a bit of execution in L2, and we will see how that timing works as we continue to move forward on that execution.
Let me add one more thing, just given that we
Speaker Change: have been officially awarded that $1.6 billion. We already booked that.
Speaker Change: on our balance sheet. So we have $1.6 billion receivable. You can see that on the balance sheet. The other side of that, $1 billion of that decreased our net PP&E.
Speaker Change: And because that's related to a factory that's already built, 0.6 of that is actually deferred liability because it's related to a factory that's not built.
Speaker Change: But the bottom line where I'm going is that this is already going to decrease our expected depreciation. So with that, let me give you an update to depreciation.
Speaker Change: The appreciation for 2025, now you should expect 1.8 to 2 billion dollars, that's slightly down from the previous expectation.
Speaker Change: And for 2026, we're keeping the range the same, 2.3 to 2.7, but I'll tell you that we expect to be on the lower half of that range. That's the 2026 depreciation expectation, 2.3 to 2.7, to be at the lower end of that range.
Speaker Change: Great. Thank you, Harlan. We'll go to the next caller, please.
Speaker Change: Thank you. Our next question comes from the line of C.J. Mews with Kansas Free Steroids. Please proceed with your question.
C.J. Mews: Good afternoon. Thank you for taking the question. I know you guys are loathe to talk out beyond a quarter, but was hoping you could give us a framework for thinking about gross margins.
C.J. Mews: beyond the March quarter. You just gave us the depreciation. So, that's very helpful. We'd love to hear kind of your thoughts on, you know, what's optimal inventory and, therefore, planned utilization beyond March. And, you know, is March quarter kind of low for gross margins, and we should start tracking higher? Any thoughts there would be very helpful.
C.J. Mews: Yeah, no, I'll be happy to do that. It's going to be very similar to what I've said before, but it all starts with revenue.
C.J. Mews: So, you know, revenue is the number one driver of gross margin, both dollars and percent going forward. You model your revenue, then you fold that through at 75 to 85 percent.
C.J. Mews: And then after you do that, then you have to adjust for depreciation increases. And I already gave you the depreciation numbers, so you can model that in the future. This works much better if you do full years.
C.J. Mews: Right now, as I mentioned, we expect a hit from that in first quarter, but that just says it.
C.J. Mews: It's a hit sometimes, it's a benefit when you go the other way, but that depends on revenue expectations. So, if revenue materializes...
C.J. Mews: in the future, and we expect that to continue, then we ramp up the factories, and that helps with the loadings, and that tends to take the 75 to 85 towards the high end of that range. If that doesn't happen, then you're looking at the lower end of that range.
Rafael Lizardi: Rafael is related to our execution, so of course revenue, we want to grow it and we want to do it faster than the market that's always our objective. But on the other hand is the L5 execution. We are executing our transition from our foundry business into
Rafael Lizardi: Lehigh, I expect that to have a step forward in 2025.
Rafael Lizardi: especially in our automotive business, we have a bunch of parts that are what we call Save and Save Safety differential stakes, that usually the call is a little bit more complex. That takes a bit longer.
Rafael Lizardi: But we are moving well on that execution. And again, my expectation from the team is to meet our commitment to our customers and get these parts.
Rafael Lizardi: and out of Lehigh as they prefer that dependable capacity. And for us, it's a way lower cost, and of course helps as a byproduct on the margins as well.
Do you have a follow-on, TJ?
Speaker Change: Just a quick one, Dave. Rafael, just to go back to kind of the loading question, if we do assume normal seasonal pattern for your top line into Q2, Q3, should we assume that loadings would move higher in Q2?
For more information visit www.FEMA.gov
Speaker Change: You know we forecast one quarter at a time so I'm gonna I'm gonna stick with that but I also say maybe as you're alluding to the more revenue we have then let me put it this way we're not planning 4.5 billion of inventory it's a healthy level of inventory and we would not want to be draining those levels at this point so maybe that that gives you enough to think about.
Thank you. We'll go to the next caller, please.
Speaker Change: Thank you. Our next question comes from the line of Joshua Buchalter with TD Cowan. Please proceed with your question.
Hey guys, thank you for taking my question.
Joshua Buchalter: I guess I wanted to follow up on the previous one you mentioned, not necessarily wanting to drain the inventory levels below the 4.5 billion levels. As we think about how you're thinking about 1Q, though, like, is this the level you're comfortable with and you're going to manage to the 4.5 billion? And I guess to ask more acutely, is there a near to medium term inventory target on a day's basis that we should be thinking about? Because I know that's obviously evolved through.
Joshua Buchalter: the last several years. I'd be curious how you're thinking about it now as we sort of are chipping down to closer to end demand.
Joshua Buchalter: Yeah, first, let me give you a big picture, and I'll give you some specifics, but big picture, you know, inventory, the goal here, the objective is to maintain high levels of customer service while we minimize the obsolescence of inventory.
target levels at the finished goods, at the chip level.
Joshua Buchalter: for the 80,000 parts that we sell in different end markets. And that is done in a very rigorous and disciplined way on a part-by-part basis.
Joshua Buchalter: So that's how we look at it, and the risk of celestins on this part is very, very low. This part lasts for a long time. They sell to many, many customers for many, many years in very long life cycles.
Joshua Buchalter: Now, to the specific that you asked, given how we're running the factories right now, I would expect a further increase of inventory levels going into first quarter, but probably in the $100 million, $100 million plus level, and then potentially stabilized at that point around that level.
No follow on, Josh.
Yeah, thank you for the color, Rafael.
Speaker Change: Yeah, to follow up, I wanted to ask about, you know, there were some earlier questions about competition, specifically in pricing. I guess I wanted to ask bigger picture, not necessarily pricing-related, but as some of your peers have sort of gotten through and lapped and are no longer shipping to NCNRs,
Speaker Change: or LTSAs, have you noticed a change in the competitive backdrop on, you know, the number of sockets that are open for competition? I'd be curious to hear about if there's any big change against the competitively over the last couple of quarters. Thank you.
Speaker Change: I haven't seen a significant change. It feels the same to me, kind of stable. I mean, we are in a down cycle, and I remember throughout my career, every time there is a down cycle, the market gets more competitive, and it feels the same now.
Speaker Change: and that's again across all markets all geographies but I haven't seen any significant change in the last couple of quarters your direct question
Speaker Change: All right. Thank you, Josh. We've got time for one last caller, please.
Speaker Change: Thank you. Our last question comes from the line of Thomas O'Malley with Barclays. Please proceed with your question.
Speaker Change: Hi, guys. Thanks for letting me ask a question. This is for Haviv or Rafael. At the capital management day, you guys highlighted different CAPEX ranges, depending on kind of different revenue categories. And I know the intention there wasn't to guide revenue, but you just updated us on depreciation in response to just ITC and some of the grants as well.
Speaker Change: Is the depreciation being at the lower end entirely a function, or the updated guide that you're giving today entirely a function of those tax credits and grants, or is that a function of potentially lower CapEx?
as well.
Speaker Change: It is not a function of lower CapEx. We continue to expect CapEx for 2025 to be $5 billion, and in 2026, as we said at the last call, between $2 to $5 billion, depending on further expectations, and we'll have more clarity on that in the second half of the year.
Speaker Change: Yeah, and again, I will add, this is not, I mean, as we said in August, our plan is still, we like the plan, we are going to be very disciplined executing it. We always look at the environment and what's going on, but...
Based on what I see right now...
Speaker Change: You shouldn't expect a plan to change in terms of our phase 1, phase 2, as I described, phase 1.
Speaker Change: is serving us very well. This is how we move revenue from external foundries into our lab and factory in Utah. Also on the analog side, we want most of our parts running on 300 other than, for example, six-inch part that we are shutting down, and that's going well. The phase two is very important for our future. We are going to complete the qualification line, Sherman 1, we are going to set
Speaker Change: and also build a shell in Lehigh, so it can give us this flexible capacity phase that we are so excited about, and so are the customers. Once they engage with us, they fully understand that it's not only
Speaker Change: They will have enough cleanroom capacity to grow into, but also the qualification is going to be behind them. So their parts are already running, for example, in Sherman or in Lehigh.
Speaker Change: And that gives them a very, very easy path to grow.
Speaker Change: Rafael Lizardi, Haviv Ilan, Rafael Lizardi, Rafael Lizardi, Rafael Lizardi, Rafael Lizardi,
Speaker Change: And as you said, the slides in August, and I will probably see a very similar story in a couple of weeks, is that we want to show you that we have a plan, but we do always have flexibility into the plan, especially in 2026 and 2027.
Great. Tom, you got a follow-up?
Tom: I do. Thanks for all the detail there. Last one of the call, so broader, and I hate to end it on this, but I just wanted to give you a chance to respond. So, articles out on a China statement talking about dumping product in that market. I think there's an ongoing debate just around the sustainability of China longer term. I guess part of this question is, can you just address what you've seen in the public there? And then kind of as a derivative of that, you're obviously growing year over year in China. You're seeing strength in China auto. You highlighted that. But outside of that,
Tom: Are you seeing any change in the dynamic there in terms of your ability to ship product competition just addressing the whole the whole debate?
Thank you.
Tom: 20% more or less of world GDP and you want to play in that market. By the way, our business in 2024 in China was at about 20%. So we are kind of not over or under penetrated in China, it's kind of just right at 20%.
Tom: And our commitment is to our customers. Our customers in China, they rely on our parts. They want to have the best products. They want to have the highest quality. They want to get the best service. And TI is...
He's a good supplier. And on top of it...
Tom: And in that sense, TI is a great supplier because we are a global player. We have a diverse footprint of manufacturing and support structure and that's a great fit.
Tom: for their needs. Now as you know and I think this is not news
Tom: The China in market has always been competitive and is continuing to be. We know that they are very capable, motivated, fast-moving competition, but I think the competitive advantages of TI
Tom: allows us to compete, whether it's our broad portfolio, the reach of the channel, and also our position in industrial and automotive. Customers value that.
Tom: and want to continue to do business with TI. And we want to compete, and that's really the fact that we own our manufacturing, own our technology. I think we have the right cost structure to compete across our entire portfolio.
Tom: ASSTs that are tailored for a specific application, we don't need to sub-select, we want to compete across our portfolio and our customers there appreciate that and I continue to see that.
Tom: Specifically to your question, you know, at this time we haven't been notified about an investigation and it's kind of business as usual between us and our customers in China.
Speaker Change: That's great. Thank you. Thank you for asking that question, Tom, and thank you, everyone else, for joining us tonight. We look forward to sharing our capital management call on Tuesday, February 4th at 10 a.m. Central Time. A replay of this call will be available shortly on our website. Good evening.
Speaker Change: Thank you and this concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
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Speaker Change: Welcome to the Texas Instruments fourth quarter 2024 earnings conference call. I'm Dave Pahl, Head of Investor Relations and I'm joined by our Chief Executive Officer Haviv Ilan and our Chief Financial Officer Rafael Lizardi.
Speaker Change: For any of you who missed the release, you can find it on our website at ti.com slash ir.
Speaker Change: This call is being broadcast live over the web and can be accessed through our website.
Speaker Change: In addition, today's call is being recorded and will be available via replay on our website.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: I would like to provide some information that's important to your calendars. On Tuesday, February 4th, at 10 a.m. Central Time, we will have our capital management call.
Speaker Change: Similar to what we've done in the past, Haviv, Rafael, and I will share our approach to capital allocation and summarize our progress as we prepare for the opportunity ahead.
Moving on, today we'll provide the following updates.
Speaker Change: First, Haviv will start with a quick overview of the quarter. Next, he'll provide insight into fourth quarter revenue results with some details of what we're seeing with respect to our end markets.
Speaker Change: Haviv will then provide the Annual Summary of Revenue Breakout by End Market.
Rafael Lizardi: And lastly, Rafael will cover the financial results and our guidance for the first quarter of 2025.
Haviv Ilan: With that, let me turn it over to Haviv. Thanks, Dave. Let me start with a quick overview of the fourth quarter.
Haviv Ilan: Revenue was $4 billion, a decrease of 3% sequentially, and 2% from the same quarter a year ago.
Analog revenue grew 2% year-over-year after eight quarters of decline.
Haviv Ilan: Embedded processing declined 18% and our other segment grew from the year-ago quarter.
Haviv Ilan: Now, I'll provide some insight into our fourth quarter revenue by end market.
Haviv Ilan: Our overall results reflect the performance from our two largest markets, industrial and automotive, which saw modest sequential declines.
Haviv Ilan: Similar to last quarter, I'll focus on sequential performance as it is more informative at this time.
First, the industrial market was down low single digits.
The automotive market was down mid-single digits.
Personal Electronics, Groomed Mid-Single Digits
Haviv Ilan: Next, enterprise systems declined low single digits. And lastly, communications equipment grew upper single digits.
Haviv Ilan: In addition, as we do at the end of each calendar year, I'll describe our revenue by end market.
As a percentage of revenue for 2024, industrial was 34%.
Automotive 35%
Personal Electronics 20%
Enterprise Systems 5%, Communication Equipment 4%, and Other was 2%.
Haviv Ilan: In 2024, industrial and automotive combined made up about 70% of TI's revenue.
up from 42% in 2013.
Haviv Ilan: We see good opportunities in all of our markets, but we place additional strategic emphasis on industrial and automotive.
Haviv Ilan: Our customers across all regions are increasingly turning to analog and embedded technology to make their end products more reliable, more affordable, and lower in power.
Haviv Ilan: This drives growing cheap content per application, or secular content growth, which will likely continue to drive faster growth in industrial and automotive.
Rafael will now review profitability, capital management, and our outlook.
Thanks, Haviv, and good afternoon, everyone.
As Haviv mentioned, fourth quarter revenue was $4 billion.
Haviv Ilan: Gross profit in the quarter was 2.3 billion dollars, or 58% of revenue.
Haviv Ilan: Sequentially, gross profit decreased primarily due to lower revenue, higher depreciation, and reduced factory loadings.
Gross Profit Margin decreased 190 basis points.
Haviv Ilan: Operating expenses in the quarter were $937 million, up 4% from a year ago and about as expected.
Haviv Ilan: Operating profit was 1.4 billion dollars in the quarter or 34% of revenue.
and profit was down 10% from a year ago quarter.
Haviv Ilan: Net income in the fourth quarter was 1.2 billion dollars, or $1.30 per share.
Haviv Ilan: Earnings per share included a 2 cent benefit for items that were not in our original guidance.
Haviv Ilan: Let me now comment on our capital management results, starting with our cash generation.
Haviv Ilan: Cash flow from operations was $2 billion in the quarter. Capital expenditures were $1.2 billion in the quarter.
Haviv Ilan: In the quarter, we paid $1.2 billion in dividends and repurchased $537 million of our stock.
Haviv Ilan: We also increased our dividend per share by 5% in the fourth quarter.
marking our 21st consecutive year of dividend increases.
Haviv Ilan: In total, we have returned $5.7 billion in the past 12 months to owners.
Haviv Ilan: Our balance sheet remains strong with $7.6 billion of cash and short-term investments at the end of the fourth quarter.
Haviv Ilan: Total debt outstanding was $13.7 billion dollars with a weighted average coupon of 3.79%.
Haviv Ilan: Inventory at the end of the quarter was $4.5 billion, up $231 million from the prior quarter, and days were 241, up 10 days sequentially.
For more information visit www.FEMA.gov
Haviv Ilan: Now let's look at some of these results for the year.
Haviv Ilan: In 2024, cash flow from operations was $6.3 billion and capital expenditures were $4.8 billion, as expected.
Haviv Ilan: We are nearly 70% through a 6-year elevated CAPEX cycle that, once complete, will uniquely position TI to deliver dependable, low-cost, 300mm capacity at scale to meet customer demand.
Haviv Ilan: Free cash flow for 2024 was $1.5 billion or 10% of revenue.
Haviv Ilan: Our free cash flow reflects the strength of our business model, as well as our decisions to invest in 300mm manufacturing assets and inventory to support our overall objective to maximize long-term free cash flow per share.
which we believe is the primary driver of long-term value.
Haviv Ilan: Turning to our outlook for the first quarter, we expect TI revenue in the range of $3.74 billion to $4.06 billion and earnings per share to be in the range of $0.94 to $1.16.
Haviv Ilan: Based on current tax law, we now expect our effective tax rate for 2025 to be about 12%.
Haviv Ilan: 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, a broad product portfolio, reach of our channels, and diverse and long-lived positions.
Haviv Ilan: We will continue to strengthen these advantages through discipline, capital allocation, and by focusing on the best opportunities, which we believe will enable us to continue to deliver free cash flow per share growth over the long term.
Haviv Ilan: With that, let me turn it back to Dave. Thanks, Rafael. Operator, you can now open the lines for questions. In order to provide as many of you as possible an opportunity to ask your questions, please limit yourself to a single question.
Speaker Change: After our response, we'll provide you an opportunity for an additional follow-up. Operator?
Speaker Change: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: Our first question comes from the line of Toshia Harry with Golden Sacks. Please proceed with your question.
Toshia Harry: Hi, good afternoon. Thank you so much for taking the question.
Speaker Change: First one for Haviv, you're guiding Q1 revenue down I think 2% to 3% sequentially. I was hoping you could maybe provide some color by end market what you're seeing on a sequential basis. You guys were quite helpful last quarter diving deep into automotive, what you're seeing in China, etc., etc. So any color, any standouts to the upside or downside relative to what's typical seasonality would be very helpful. Thank you.
Speaker Change: Okay, thanks Ashiat. So again, for Q1, as you said, about 3%, I think, sequential, which is, I would describe it as a seasonal decline for Q1.
Speaker Change: I will say that typically in Q1 what we do see is the personal electronics market would usually show quite a significant decline, just seasonality.
Speaker Change: And we did have a pretty decent Q4 for PE, so I think that's what we expect there.
Speaker Change: and typically also if you look at the markets like automotive industrial the decline should be less pronounced there so that's kind of my expectation and nothing specific
Speaker Change: that I would add on markets. I will provide a little bit more color on Q4 and especially on our two main markets, industrial and automotive.
Speaker Change: I think, again, they behave similarly, like the overall company in Q4, and also similar to what we've seen in Q3, but maybe with some little bit small changes. So if I start with the industrial market.
Speaker Change: As I described, I think, during the last call, most of the sectors that are kind of hovering at the bottom, maybe found the bottom.
Speaker Change: There are a couple of sectors that are still showing larger declines, especially industrial automation.
Speaker Change: and the energy infrastructure market that is still not found, I believe. At the bottom, we'll have to see what the first half of 25 has planned for that. And on the automotive market, similar to Q3,
Speaker Change: We did see a pretty significant weakness, maybe outside of China. It declined about mid-single digit, about 5% sequentially.
Speaker Change: But China did grow, but not enough to offset the declines in Europe, the U.S., and Japan.
Speaker Change: which is very, it was kind of similar to what we've seen in Q3, but maybe the growth in China was less pronounced and the decline outside of China was more pronounced. That would be my high-level summary for Q4 and a little bit for Q1.
Do you have a follow-up to share?
I do, Dave. Thanks so much.
Speaker Change: a 2 to 3 percent decline in revenue. I was hoping you could kind of provide some context there. Is it, you know, primarily gross margin and behind that, is it continued underloadings, increase in depreciation, some of the same dynamics we saw over the past 12 months or is it higher OPEX, anything below the line, any sort of additional color on sort of the drop off in EPS for Q4 to Q1, that would be helpful. Thank you.
Rafael Lizardi: I think I covered revenue Rafael, maybe you covered the other part. Yeah, happy to. Okay, so maybe let me start with GPM and then I'll go to OPEX and then I'll go to the other income line which is...
Rafael Lizardi: relevant this time. So on gross margins, keep in mind that depreciation is increasing, first of all.
Rafael Lizardi: Second, well, revenue is decreasing, that has an impact, then depreciation is increasing.
Rafael Lizardi: And then we are, in order to manage inventory, we are reducing factory loadings.
Rafael Lizardi: We reduced some of that in fourth quarter, but we're going to reduce those further in first quarter. So, I do expect GPM percent to decrease probably a few hundred basis points fourth quarter to first quarter.