Q2 2025 Texas Instruments Inc Earnings Call

Mike Beckman: Investing Conference Call. I'm Mike Beckman, Head of Investor Relations, and I'm joined by our Chief Executive Officer, Haviv Ilan, and our Chief Financial Officer, Rafael Lizardi.

Mike Beckman: 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.

Welcome to the Texas Instruments. Second quarter 2025 earnings conference call. I'm Mike Beckman head of investor relations and I'm joined by our chief executive officer haviv Ilan and our Chief Financial Officer Rafael lazzari.

For any of you who missed the release, you can find it on our website at ti.com.

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

Mike Beckman: 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 Today we will provide the following updates.

In addition to today's call is being recorded and will be available via replay on our website.

This call will include 4 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 tis. Most recent SEC filings for a more complete description.

Haviv Ilan: First, Haviv will start with a quick overview of the quarter. Next, he will provide insight into second quarter revenue results with some details of what we are seeing with respect to our end market.

Haviv Ilan: Lastly, Rafael will cover financial results, give an update on capital management, as well as share the guidance for third quarter 2025.

Quarter Revenue results with some details of what we are seeing with respect to our end markets.

Haviv Ilan: With that, let me turn it over to Haviv. Thanks Mike, let me start with a quick overview of the second quarter. Revenue came in, about as expected, at $4.4 billion, an increase of 9% sequentially, and an increase of 16% year-over-year. Both analog and embedded grew year-on-year and sequentially. Analog Revenue grew 18% year-over-year and Embedded Processing grew 10%. Our other segment grew 14% from the year ago.

Lastly, Rafael will cover Financial results. Give an update on Capital Management as well as share the guidance for third quarter, 2025

Haviv: with that, let me turn it over to haviv.

Thanks Mike. Let me start with a quick overview of the second quarter.

Haviv: Revenue came in about as expected at 4.4 billion and increase of 9% sequentially, and an increase of 16% year-over-year.

And embedded, grew year-on-year and sequentially.

Haviv: Analog Revenue. Grew, 18% year-over-year and embedded processing. Grew. 10%.

Haviv: Our other segments grew 14% from the year ago quarter.

Haviv Ilan: Let me provide some comments on the current environment and what we saw in the second quarter. We continue to see two distinct dynamics at play. First, tariffs and geopolitics are disrupting and reshaping global supply chains. As we work closely with our customers, we are leveraging our global manufacturing capabilities to support their needs. We have flexibility and are prepared to navigate as things evolve.

Haviv: Let me provide some comments on the current environment and what we saw in the second quarter.

Haviv: We continue to see 2 distinct Dynamics at play.

Haviv: First tariffs and geopolitics are disrupting and reshaping Global Supply chains.

Haviv: As we work closely with our customers, we are leveraging our Global manufacturing capabilities to support their needs.

Haviv Ilan: Second, the semiconductor cycle is playing out. Cyclical recovery is continuing while customer inventories remain at low level. In times like this, it is important to have capacity and inventory, and we are well positioned.

Haviv: We have flexibility in our prepared to navigate as things evolve.

Second, the semiconductor cycle is playing out.

Haviv: Cyclical recovery is continuing while customer inventories remain at low levels.

Haviv Ilan: Now I'll share some additional insights into second quarter revenue by end market. First, the industrial market increased upper teens year-on-year and mid-teens sequentially, with recovery across all sectors. The automotive market increased mid-single digits year-on-year and decreased low-single-digits sequentially. Personal electronics grew around 25% year-on-year and grew up per single digit sequentially. Enterprise systems grew about 40% year-on-year and grew about 10% sequentially.

Haviv: in times like this, it is important to have capacity and inventory and we are well positioned

Haviv: Now, I'll share some additional insights into second quarter Revenue by End Market.

Haviv: First, the industrial Market increased upper teens year on year and mid teens sequentially with recovery across all sectors.

Haviv: The automotive Market increased mid single digits year on year and decreased low, single digits sequentially.

Haviv: Personal electronics grew around, 25% year on year, and grew upper single digits sequentially.

Haviv Ilan: And lastly, communications equipment grew more than 50% year-on-year and was up about 10% sequentially.

Haviv: Enterprise systems grew about 40% year on year and grew about 10% sequentially.

Rafael Lizardi: With that, let me turn it over to Rafael to review profitability and capital management. Thanks, Haviv, and good afternoon, everyone. As Haviv mentioned, second quarter revenue was $4.4 billion. Gross profit in the quarter was $2.6 billion or 58% Sequentially, Gross Profit Margin Increased 110% Operating expenses in the quarter were $1 billion, up 5% from a year ago and about a Trailing 12-month basis, operating expenses were $3.9 billion or 23% of revenue. Operating profit was $1.6 billion in the quarter, or 35% of revenue, and was up 25% from the year ago. Net income in the quarter was $1.3 billion, or $1.41 per cent.

Haviv: And lastly, Communications equipment grew more than 50% year on year and was up about 10% sequentially.

With that, let me turn it over to Rafael to review, profitability and Capital Management.

Rafael: Thanks Aviv and good afternoon everyone. As I've been mentioned, second quarter Revenue was 4.4 billion.

Rafael: Gross profit in the quarter. Was 2.6 billion or 58% of Revenue.

Sequentially gross profit margin increased 110, basis points.

Operating expenses in the quarter were 1 billion dollars up 5% from a year ago. And about, as expected on a trailing 12-month basis, operating expenses were 3.9 billion or 23% of Revenue.

Rafael: Operating profit was 1.6 billion dollars in the quarter or 35% of Revenue and was up 25% from the year ago quarter.

Rafael Lizardi: Earnings per share included a 2 cent benefit not in our original They may now comment on our capital management results, starting with our cash generation. Cash flow from operations was $1.9 billion in the quarter and $6.4 billion on a trading 12-month period. Capital expenditures were $1.3 billion in the quarter and $4.9 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $1.8 billion. In the quarter, we paid $1.2 billion in dividends and repurchased $302 million of our assets. In total, we returned $6.7 billion to our owners in the past 12 months.

Rafael: Net income in the quarter was 1.3 billion or a dollar 41 per share.

Rafael: Earnings per share included at 2 cent benefit not in our original guidance.

Rafael: Let me now comment on our Capital Management results starting with our cash generation.

Rafael: Cash flow from operations was 1.9 billion dollars in the quarter and 6.4 billion dollars on a trading 12-month basis. Capital expenditures were 1.3 billion in the quarter and 4.9 billion dollars over the last 12 months.

Free cash flow on a trailing 12 months days, it was 1.8 billion dollars.

Rafael: In the quarter, we paid 1.2 billion dollars in dividends and repurchased 302 million of our stock.

Rafael Lizardi: Our balance sheet remains strong with $5.4 billion of cash and short-term investments at the end of the In the quarter, we issued $1.2 billion of debt. Total debt outstanding is $14.15 billion with a weighted average coupon of $4.5 billion. Inventory at the end of the quarter was $4.8 billion, up $125 million from the prior quarter.

Rafael: In total, we returned 6.7 billion dollars to our owners in the past 12 months.

Rafael: Our balance sheet remains strong, with 5.4 billion of cash and short-term Investments, at the end of the second quarter.

Rafael: In the quarter, we issued 1.2 billion dollars of debt, total debt outstanding is 14.15 billion. With a weighted average coupon of 4%

Rafael Lizardi: And days were 231, down nine days.

Rafael: Inventory. At the end of the quarter was 4.8 billion up 125 million from the prior quarter and days were 231 down 9 days sequentially.

Rafael Lizardi: Turning to our Outlook for the third We expect TA's revenue in the range of $4.45 to $4.80 billion. Earnings Per Share to be in the range of $1.36 to $1.50. earnings per share outlook does not include changes related to recently enacted U.S. tax legislation. assumes an effective tax rate of about 12 to 13 percent.

Rafael: Turning to our outlook for the third quarter. We expect tozz Revenue in the range of 4.45 to 4.80 billion and earnings per share to be in the range of 1.36 to 1.60.

Rafael: Our earnings per share Outlook does not include changes related to recently, enacted us tax legislation and assumes an effective tax rate of about 12 to 13%.

Rafael Lizardi: Transition into the second half of 2025 and going into 2026.

Rafael Lizardi: prepare for a range of We are, and will remain, flexible to navigate, especially in the stay focused in the areas that add value in the long 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-living markets. We will continue to strengthen these advantages through disciplined capital allocation and by focusing on the best support.

Rafael: We are and will remain flexible to navigate, especially in the immediate term.

Rafael: 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 Live positions.

Rafael Lizardi: We believe will enable us to continue to deliver free cash flow per share growth over With that, let me turn it back. Thanks, Rafael.

Mike Beckman: Operator, you can now open the line 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. After our response, we'll provide you an opportunity for an additional follow-up.

Rafael: We will continue to strengthen this 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 with that. Let me turn it back to Mike.

Unknown Executive: Operator? Thank you.

Mike: Thanks. Raphael operator. You can now open the line for questions in order to provide as many of you as possible and opportunity to ask your questions. Please let me yourself to a single question. After our response, we'll provide you an opportunity for an additional follow-up operator.

Unknown Executive: We will now be conducting a question and answer session. Please press star 1 on your telephone. Confirmation Tone will indicate your line is in the question queue.

Unknown Executive: It may be necessary to pick up the handset before pressing the start keys. One moment please while we pull for questions.

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, a confirmation total will indicate your line is in the question queue. You may press start to to remove yourself from the queue for participants using speaker equipment, and may be necessary to pick up the handset before pressing the star keys.

Mike: 1 moment, please while we pull for questions.

Unknown Executive: Our first question is, Hi guys, thanks for taking my questions. Um, first, you know, if I think how your tone sounded last quarter, and frankly, even how you sounded kind of mid quarter, seemed really confident. that the cyclical recovery was here and we were kind of off to the races.

Speaker Change: Our first question comes from the line of Stacy rasgon with Bernstein research, please proceed with your question.

Stacy Rasgon: Hi guys. Thanks for

um, first, you know, if I think, uh, how your tone sounded last quarter, and frankly, even how you sounded kind of mid-quarter,

Stacy Rasgon: you seemed really confident.

Stacy Rasgon: And now now I'm hearing you kind of saying you're staying flexible, like to go after a range of scenarios. And like even in the quarter, like auto was down sequentially. I guess like what's going on? Like, how is your, I guess, outlook and feeling about where things are? How's that changed? Like over the last three months? Because it you sound I guess, just based on tone and everything else, it doesn't sound maybe quite as exuberant as maybe sounded a few months ago, like what's going on?

Stacy Rasgon: that the cyclical recovery was here and we were kind of Off to the Races and now now I'm hearing you kind of saying you're

Stacy Rasgon: staying flexible like to to go after a range of scenarios and like even in the quarter like Otto was down sequentially.

Stacy Rasgon: I guess like what what's going on like how is your I guess Outlook and feeling about where things are? How's that changed like over the last 3 months? Because it you sound I guess just based on tone and everything else it doesn't sound maybe classic. Exuberance is maybe sounded a few months ago like what's going on?

Haviv Ilan: Hey Stacy, I'll take this one. So first, as we, as I said, in my prepared remarks, we are seeing two dynamics at play. And one of them is the cyclical recovery. I think we talked through it in the second quarter call back in April. And the discussion was all about, you know, industrial is joining the pack, we are now one more quarter in. And this is the third quarter that we see a signal of industrial recovering. It's actually accelerated. So I can say we support five markets. We now have, it started with PE, then enterprise and comp joined and industrial is already in.

Stacy Rasgon: Hey, Stacey. I I'll take this 1. So first, as we, as I said, in my prepared remarks, we are seeing a 2 Dynamic at play and uh, 1 of them is the cyclical recovery. Uh, I think we talked through it in the second quarter, uh, called back in April. Uh, and the uh, discussion was all about um, you know, industrial is joining the pack. We are now 1, small quarter in and this is the the third quarter that we see a signal of of industrial, uh, recovering it's actually accelerated. So I I can say we we support 5 markets, we now have

Haviv Ilan: We have four out of five markets recovering in a nice pace. And this is part of the reason we've added commentary on year-over-year performance to just show the dynamics over there. In terms of automotive, to your question, look, automotive, let's just remember that it's kind of a year delayed versus industrial, right? Industrial picked, for us at least, in the third quarter of 2022. Automotive picked one year later, in the third quarter of 2023. So one could expect automotive to be joining last. The automotive recovery has been shallow, meaning we are running, you know, single digits versus the peak.

Stacy Rasgon: It started with PE then Enterprise and coms, join and Industrial is already in. So we have 4 out of 5 markets um recovering in a in a nice space.

Stacy Rasgon: And this is part of the reason we've added um commentary on year-over-year performance to, to just show the Dynamics over there in terms of Automotive to your question. Uh, look Automotive, uh let's let's just remember that. It's, it's kind of a year delayed versus industrial right. Industrial picked for us, at least in the third quarter of of 2022. Automotive picked 1 year later in the third quarter of 2023. So 1 could expect Automotive to be joining last

Haviv Ilan: We are running year-over-year. We are actually having some growth in second quarter from a year-over-year perspective, but at a very low level. So I will say that automotive is not recovered yet. But because of, you know, content growth, I think the cycle here is going to be less pronounced and more shallow.

Stacy Rasgon: Uh, the automotive recovery has been shallow. Meaning we are running, you know, uh, single digits versus the pick. Uh, we are running year over year. We are actually having some growth in second quarter, uh, from a neuro perspective, but at a very low level. So I, I will say that Automotive is not recovered yet.

Haviv Ilan: The second point related to getting ready, look, we had some taste of it in the beginning of the second quarter, and we talked through it a lot during the call. But I think all the situation of tariffs and geopolitics disrupting supply chains, I think that's not over, right? It's true that we've paused right now on the semiconductor tariffs, both in the US and in China. But, you know, we have to be prepared for what the future may hold. So we want to make sure, and this is also the message to our customers, that we'll remain flexible and we'll know how to support our customers, whatever the environment is moving forward.

Stacy Rasgon: But because of, you know, content growth, I think the, the, uh, the cycle here is going to be less pronounced and more shallow. The second Point related to getting ready. Look, we had some taste of it in um, in the beginning of the second quarter and we talked through it a lot during the call. But I think all these situation of of the tariffs and geopolitics disrupting, uh, uh, Supply chains, I think that's, that's not over right? Uh, it's true that there is paused right now on the semiconductor tariffs, both in the US and in China

But you know, we we have to be prepared for what the future may hold. So we want to make sure and this is also the message to our customers uh that will remain flexible and we'll know how to support our customers. Uh whatever. Uh, the environment is moving forward.

Stacy Rasgon: You have a follow up, Jason? I do. Thanks.

Speaker Change: You have a follow.

Unknown Executive: Maybe just to follow up on.

Stacy Rasgon: I I, I

Stacy Rasgon: Actually, I think I want to ask you about gross margins. We'll go there. If I get back into the guidance for next quarter, it seems like you're guiding gross margins probably down sequentially, implicitly on revenue growth. I guess, is that the case? And like, what is that? Is that just depreciation? I know depreciation went up in the quarter. Is it just depreciation going up further? Or is something else going on on the gross margin line or what?

actually, I think I want to ask

Rafael Lizardi: Yeah, Stacy, so I'll take that.

Something else going on on the gross margin line? Or, or what?

Rafael Lizardi: So to help you and everyone with their models, where you should be, where you should be landing, given our guidance is GPM percent about flat, despite the higher depreciation that we're going to have going into third quarter. I'll pick about flat, and then what you're probably missing is the net of other income and expense and interest expense. That's going to be unfavorable, about $20 million as we have lower cash levels, interest is lower, while debt, interest expense has continued to increase. So that's the part that's probably missing to round out your model. All right. Thanks, Stacy.

Stacy Rasgon: Yes, basically, so I'll take that. Um so to help you and everyone with their mom with their models, uh, what you should be, what you should be landing giving. Our guidance is GPM percent about flat despite the higher, uh, depreciation that we're going to have, uh, going into third quarter, Opex about flat. And then you're what you're probably missing is the net of other income and expense and interest expense that's going to be in favor of all about 20 million dollars. As we have lower cash levels, interest is lower while debt interest expense has continued to increase, so that's the part, that's probably missing to uh to round out the uh, your model.

Unknown Executive: That's helpful.

Stacy Rasgon: All right. Thanks Stacy, that's helpful. Thank you.

Unknown Executive: We'll move on to our next caller. Thank you.

1 move on to our next call.

Harlan Sur: Our next question comes from the line of Harlan Sur. Good afternoon. Thanks for taking my question. You know, one of the signs of cyclical recovery is improvement in your terms business. Did the team see terms business grow sequentially in Q2, both in dollars and percent of revenues? And was it broad based across both your industrial and auto business?

Speaker Change: Thank you. All right, next question comes from the line of Arland Sir with JP Morgan. Please proceed with your question.

Arland Sir: Hey good afternoon, thanks for taking my question. You know, 1 of the signs of cyclical recovery is Improvement. In your turns business did did the team see?

Arland Sir: Turns business growth sequentially in Q2, both in dollars and percent of revenues and was it broad-based across across both your industrial and auto businesses.

Haviv Ilan: Yeah, let me start and maybe Mike, you can comment right after. So I think, yeah, from a terms perspective, we see a continuation of that, you know, dynamic. We saw, again, acceleration in the second quarter. Our, you know, we continue to invest in our inventory. Our lead times are at the lowest level. Customer inventories are very low. So we've seen that continuing.

Mike Beckman: And Mike, maybe you want to provide some more color here?

Mike Beckman: Yeah, I think it was, we've talked about in previous quarters, you know, that's something that, you know, late last year and in the first quarter, you know, began to build. We continue to see that.

Yeah, let me start uh and uh maybe Mike you can comment uh right after so I think yeah, for my terms perspective, we see a continuation of of that, you know. Uh Dynamic. We we saw again acceleration in the, in the second quarter. Uh our, you know, we continue to invest in our inventory, our lead times the lowest level. Uh customer inventories are very low so we we've seen that continuing in Mike. Maybe you want to provide some more color here? Yeah I think it was we've talked about in previous quarters, you know that's something that you know late last year and in the first quarter you know began to build. We continue to see that into the second quarter as well.

Harlan Sur: Perfect. And then for my follow-up question, you know, good to see the continued sequential and year-over-year recovery in the industrial segment. It's quite diverse, right? Ten subsegments, but the largest subsegment, industrial automation, which is tied to manufacturing activity, is pretty sensitive to trade and tariff.

Haviv Ilan: So just wondering if this segment is relatively weaker due to tariff concerns, or are you seeing shipment and order recovery here as well, especially among your China-based industrial customers?

Haviv Ilan: Yeah, maybe I'll take that one.

Speaker Change: Perfect. And then for my follow-up question, you know, good to see the continued sequential and year of your recovery and the industrial segment. It's quite diverse, write 10 sub segments. But the largest sub segments Industrial Automation, which is tied to manufacturing. Activity is pretty sensitive to trade and tasks. So just wondering if this segment is relatively weaker, due to tariff, concerns, or are you seeing shipment in order recovery here as well? Especially among your China based industrial customers.

Haviv Ilan: And what we actually saw in industrial was recovery was broad, and it was across all sectors. So say that yeah, it's continuation of the recovery we saw in first quarter. And that's that's where we are.

Unknown Executive: So let me move on to the next caller.

Unknown Executive: Thank you.

Speaker Change: Yeah, I'll maybe I'll take that 1. Uh, and and what we actually saw in in industrial was recovery, was Broad, and it was across all sectors. So, um, I'd say that, yeah, it's a continuation of the recovery. We saw in first quarter, um, and that's, that's where we are. So, but maybe I'll move on to the next caller. Thank you.

Ross Seymore: Our next question comes from the line of Ross Seymour with Deutsche Bank.

Speaker Change: Thank you. All right, next question comes from the line of Ross Seymour with Deutsche Bank. Please proceed with your question.

Ross Seymore: Hi guys, thanks for having me ask a question. Haviv, kind of going back to the first question, just in kind of the tone, and seems like a little bit of a tone change on our side, maybe not so much to you, but maybe I'll try to ask it a different way. You highlighted the uncertainties about the tariff side of things, but then endorsed the cycle was coming. Last quarter, you got significantly above normal season. You seemed to lean in on the cycle side and didn't really say that tariffs were doing much.

Ross Seymore: So, did something change on either the strength of the cycle or the uncertainty around the tariff to lead you to guide to more of a typical seasonal quarter for 3Q?

Haviv Ilan: Yeah, let me put some more color into it, Rod. I think it's a great question.

Ross Seymour: Okay, thanks for letting me. Ask question. Uh, have you kind of going back to the first question just in kind of the tone and seems like a little bit of a tone changed on our side. Maybe not so much to you, but maybe I'll try to ask it a different way. You highlighted, the uncertainties about the Tariff side of things, but then endorsed the cycle was coming. Last quarter, you guys significantly above normal seasonality. Uh, you seem to lean in on the cycle side and and didn't really say that tariffs were doing much, so, did something change. I needed to the strength of the cycle or the uncertainty around the Tariff to lead you to guide to more of a a typical seasonal quarter for 3Q.

Haviv Ilan: So remember, when we met here in April, you know, we dealt with reciprocal tariffs on both sides. US was exempting semis, but China had a 125% tariff rate on semis during the call, right? So just a different situation versus where we are now. Now tariffs are put on hold, so a little bit of a different environment. I will say that, you know, And I think I mentioned it also during the last call. When there is a change of dynamics, like tariffs are being added, and I go back to April, customers are sitting on very low inventories.

Ross Seymour: Yeah, let me, let me put some more color into it, right? I think it's, it's a great question. So remember, when we met here in in April, you know, we dealt with with, with reciprocal tariffs on both sides. Uh, us was exempting semis. But China, had a 125% uh, Terry Freight uh, on semi is doing the call, right? So, just the different situation where versus where we are now? Now tariffs are put on hold. Uh, so a little bit of a different environment. I will say that, you know,

Haviv Ilan: I think it's a good assumption to make that customers will want to have a little bit more inventory. And we did see that phenomenon. We did see that in the early part of the quarter, there was an acceleration of demand. And as expected, when customers are sitting on low inventories, and there is a lot of noise around tariffs, that has normalized through the quarter.

Ross Seymour: We and I think I mentioned it also in the, during the last call, when there is a change of Dynamics like like, terrorists are being added. And I go back to April, customers are sitting on very low inventories. I, I think it's, it's a good assumption to make.

Ross Seymour: Uh, that customers will want to have a little bit more inventory. And, and we did see that phenomena we did see that in the early part of the quarter, there was an acceleration of of of demand

And uh, as expected when, you know, customers are sitting on know inventories and there is a lot of noise around tariffs that has normalized.

Haviv Ilan: And we are kind of back to right now what drives our day-to-day is just a cyclical recovery. Now, as we forecast into Q3, and given the fact that we have a lot of real-time turns business that we have to kind of assess for the future, I think it's prudent to have a little bit of or to remember that what we saw in Q2 is probably a combination of customers wanting to have a little bit more inventory because of tariffs and also the cyclical recovery. When customers make orders, they don't tell us why they want more parts.

Haviv Ilan: And I would assume that some of it was for, you know, building a little bit of inventory on their shelves to protect themselves from tariffs, if you will. So that is my assumption. Again, I don't know how the third quarter will play out, but that's part of the way we are forecasting Q3.

Or to remember that, uh, what we saw in Q2 is probably a combination of customers wanting to have a little bit more inventory because of tariffs and also the cyclical recovery. When customers make orders, they don't tell us, uh, why they want more parts. And I would assume that some of it was for, you know, building a little bit of, uh,

Ross Seymore: Ross, do you have a follow-up? I do.

Ross Seymour: Of inventory on their shelves uh to um to uh, protect themselves from from tariffs if you will. So that is my assumption. Again. I I don't know how the third quarter will play out, uh but that's part of the way we are forecasting. Q3

Ross Seymour: Roast, you have a follow-up.

Rafael Lizardi: Switching over to Rafael, just kind of on the CapEx side of things, how should we think, or is there any update on the CapEx and depreciation framework that you've given us for the annual numbers for this year and next year, especially given where you are in Phase 2, maybe going to Phase 3 on the CapEx side? Just wanted to see if there's any incremental color there. Yeah, no, happy to do that. The bottom line is there's no change. But let me go through those so that everybody has those. On CapEx for this year 2025, we continue to expect to spend $5 billion.

Speaker Change: I do uh, switching over to Rafael just kind of on the uh, capex side of things. How should we think or or is there any update on the capex and depreciation framework that you've given us? Uh, uh, for the annual numbers for this year and next year, especially given where you are in Phase 2. Maybe going to phase 3 on the capex side, just want to see if there's any incremental color there.

Rafael Lizardi: And for 2026, it's going to be between $2 billion and $5 billion, depending on revenue and growth expectations at that time. And we will update you on those, on narrowing that CapEx window, most likely later this year. OK. On depreciation, switching to depreciation, for 2025, we continue to expect $1.8 to $2 billion.

Speaker Change: Yeah, no happy to do that. Uh, the bottom line is, there's no change but let me go through those so that everybody has those uh on capex for this year 2025, we continue to expect to spend 5 billion dollars

Rafael Lizardi: And for 2026, we continue to expect $2.3 to $2.7 billion, and likely to be at the lower side of that range.

And for, uh, 2026, it's going to be between 2 billion and 5 billion, depending on revenue and growth expectations, uh, at that time and we will update you on those, uh, on on narrowing that capex window most likely later this year, okay? On depreciation, switching to the appreciation for 2025, we continue to expect 1.8 to 2 to 2 billion dollars and for 2026, we continue to expect 2.3 to 2.7 billion and likely to be at the lower side of that range.

Unknown Executive: We'll move on to our next call.

Speaker Change: We'll move on to our next caller.

Unknown Executive: Our next question comes from the line.

Unknown Executive: Arya with Bank of America, please.

Thank you. Our next question comes from the line of VC area with Bank of America. Please proceed with your question.

Vivek Arya: Thanks for doing my question. Haviv, sorry to go back to this tone change, because it's not just from the last earnings call. It's at the end of a conference.

Vivek Arya: At the end of May, I think you had suggested that every remaining quarter of 25 will accelerate from the first half up 13 percent, but your Q3 sales gap is up only 11 percent. So my question is that versus that reference point, which end market has softened? Is it that the industrial normalization is done? Is it that auto was a little weaker? Or is that just extra conservatism on TI's part?

Haviv Ilan: Because the tone changes, as I mentioned, not just from earnings, but from the end of May. Yeah, and again, I don't control probably tone level, but that's you guys are hearing. But you quantified it, Haviv. You quantified it, it wasn't just tone. Sorry, directly to your question, Vivek, I would say that in the second quarter, we have seen industrial, in my opinion, running very hot, right? What were the numbers sequentially, Mike? Mid-teens, I think. Upper teens, yeah. And it grew significantly year over year in the second quarter, close to 20%, right? In that sense, I do believe it ran a little hot.

Speaker Change: Uh, thanks for taking my question, uh, haviv. Sorry to, you know, go back to the stone change because it's not just from the last earnings call. It's at the end of a conference at the end of May, I think you had suggested that every remaining quarter of 25 will Accelerate from the first half of 13%, but your Q3 sales guide is up only 11%. So, my question is that versus that reference point which and Market has a softened? Is it that the industrial normalization is is, you know, done is it that, you know, Auto, uh, right, uh, was a little weaker or is that just, you know, extra conservatism on on TI as part because the, the tone changes, you know, as I mentioned, not just from earnings, but from the end of May,

Mike Beckman: This is where I want to be a little bit more cautious into Q3. We also saw, and I let Mike comment about geographies, we also saw a little bit of higher pull from China in the second quarter.

Mike Beckman: We will have it in the queue when it comes out, but Mike, maybe you can give a little bit of China by region, maybe, not only China, behavior in Q3.

Mike Beckman: Sure, yeah. So China, it was up about 19% sequentially, grew about 32% year over year. And all end markets grew there with the exception of automotive. And auto was pretty consistent with our overall results there. And industrial did lead to growth.

Yeah, and again, I I don't control probably tone level, but that's you guys are, are, are hearing to quantify that. Have we you quantify it, it wasn't the stone. Sorry, directly to your question V. I would say that on the, on, in the second quarter, we have still Industrial in my opinion running very hot, right? Uh, what were the numbers sequentially up meetings? I think upper teens and it grew significantly year over year in the second quarter, close to 20%, right? So in that sense I do believe it ran a little hot. This is where I want to be a little bit more cautious into Q3 and we also saw and I let them my comment about geographies. We also saw a little bit of um higher uh pools from China in the second quarter. Uh we will have it in the in the queue when it comes out. But Mike, maybe you can give a little bit of a China. Uh, sure. But you know, by region, maybe not only China behavior in

Haviv Ilan: And just as a reminder, our China headquarter customers. And Vivek, that information gives you a little bit of why I want to be cautious for Q3, right? We have seen China running again a little bit hot in Q2. It was not across all markets, meaning on the automotive side, it behaved very similarly to the rest of the world, but it was not across the board. So we give you the data that it's hard to decipher what exactly or to decouple what was related to quote-unquote pull-ins or what was related to cyclical recovery. I think both are happening, and that's the data we have right now, and that's what guides our third quarter as we plan for Q3.

Mike: Sure. Yeah, so China, it was up about 19% sequentially, it grew about 32% year-over-year, uh, and all end markets grew there with the exception of Automotive. Uh, and and Ottawa is pretty consistent with our overall results there and Industrial did lead the growth there in China. Um, and just the, just a reminder, our China head corporate customers represent about 20% of our overall Revenue.

Mike: And we back that that information gives you a little bit of why I want to be cautious for Q3 right, we have seen China running again, a little bit hot in Q2, it was not across all markets, meaning, on the automotive side, it behaved very similarly, to the rest of the world. So it was not across the board.

Vivek Arya: Do you have a follow-up, Vivek? Yes, thank you, Mike.

Mike: So we give you the data that it's how to decipher. What, exactly or to decouple what was related to quote unquote pool lines or what was related to cyclical recovery, I think both are happening and that's what uh that's the data we have right now and that's what guides our our third quarter, as we plan for Q3. Do you have a follow-up to that?

Vivek Arya: For my, you know, follow-up, given everything we have heard, Haviv, I know, you know, you typically don't guide a quarter out, but how would you advise us to start thinking about Q4, that, you know, should we assume a similar conservative tone and assume something that is, you know, usually your seasonality is, I think, down sequentially or flat sequentially, if you could remind us of that, in Q4. And given everything we have heard, how should we just conceptually think about the move into Q4? Thank you.

Haviv Ilan: Vivek, as you know, we are a one quarter of the time company on specifically on guidance. So I will just say let's let's let the third quarter play out.

Mike: How would you advise us to start thinking about a Q4 that, you know, should be assumed a similar, conservative tone and assume something that is you know usually your seasonality is I think down sequentially or flat sequentially. If you could remind us of that in Q4 and given everything we have heard how should we just conceptually think about the move into Q4? Thank you.

Mike Beckman: Mike, do you Yeah, I mean, you want to comment about seasonality? Yeah, but historically, second and third are typically stronger quarters for University of Texas A&M University Engineering and we'll have to let third quarter play out.

Speaker Change: As you know, we are a 1 quarter of the time company on on specifically on guidance. So I I will just say let's let's let the the third quarter play out. Mike, do you? Yeah, I mean do you want to comment about seasonality? Yeah. So historically, um, second and third are typically, stronger, quarters, fourth, and first are typically seasonally lower. Uh, but yeah, we'll have to let third quarter play out to, uh,

Unknown Executive: Anyway, we'll go on to move on to our next caller.

Unknown Executive: Thanks, Vivek.

Unknown Executive: Thank you. Our next question comes from the line at...

Speaker Change: What we're going to be ready to talk about forth so maybe we'll go on and move on to our next caller. Thanks VC. Thank you, bye. Thank you.

Unknown Executive: Yeah, good afternoon. Thank you for taking the question.

All right, next question comes from the line of CJ music with cancer. Please proceed with your question.

Unknown Executive: I was hoping to revisit gross margins. You indicated flat, roughly, sequentially, and I guess within that, could you speak to, you know, your plans for utilization? Are there any sort of changes in mix? And if we were to normalize to kind of your typical, more typical 80% kind of fall through, that would be an incremental maybe 25, 27 million dollars. So is the kind of the pause in gross margin uplift, you know, 100% due to that increase in depreciation? Or are there other factors that we should be thinking about? Yeah, no, just to give you a few more information there, as I said earlier and you've restated, we expect third quarter gross margin to be about flat to the second quarter.

Speaker Change: Yeah, good afternoon. Thank you for taking the question. I was hoping to revisit gross margins. You, uh, indicated flat roughly sequentially. Uh, and I guess within that, could you speak to, you know, your plans for utilization, are there any sort of changes in mix and and if, you know, we were in a normalized to kind of your, your typical more typical 80% kind of fall through, that would be an incremental, maybe 25, 27 million dollars. So, is the the kind of the the, the pause in growth?

Speaker Change: Margin uplift, you know 100% due to that increase in depreciation or are there other factors that we should be thinking about?

Speaker Change: yeah, no, just to give you a few more uh,

Rafael Lizardi: That is with higher revenue, but also higher depreciation. In terms of loadings and inventory, we expect to run loadings about the same in third quarter as we did in second quarter, as we are well positioned with inventory to support a wide range of cyclical recovery scenarios. Inventory, I expect to grow, but at a slower rate than the growth we just had in second quarter. So, hopefully that gives you and then on the fall through, we guide 75 to 85%. That's over the long term. That's over a year, a year and not any one quarter, but we should be close to that fall through.

Rafael Lizardi: We'll speak more about that when we have actuals and we'll have better information to provide, but you should continue to think of 75 to 85% as a good number to use over the long term.

Uh, information there, as I said earlier, and use restated, we expect third quarter gross margin to be about flat to second quarter that is with higher Revenue, uh, but also higher depreciation, uh, on in terms of loading and inventory, uh, we, uh, expect to run, uh, loading about the same in third quarter, as we did in second quarter as we are, well, positioned with inventory, uh, to support a, a wide range of, uh, technical recovery. Scenarios inventory. I expect to grow, uh, but at a slower rate than the growth we just had in, uh, in second quarter. So, uh, so hopefully that gives you and then on the, on the fault through we guide, 75 to 85%, that's over the long term. That's over a year or year and not any 1 quarter. But we should be close to that, uh, to that, uh, fall through will will speak more about that when we have actuals. And we'll have, uh, uh better, you know, uh, information to, to provide, but you should continue to think of

Unknown Executive: Cedric, do you have a follow-up? I do, thank you.

Speaker Change: 75 to 85% is a good number to use uh uh over the long term.

Speaker Change: Do you have a follow-up?

Unknown Executive: With the ICC going from 25% to 35%, curious if you can comment on your thoughts on impact to your net capex into 26, 27.

Rafael Lizardi: And is there any sort of movement or thought process that we should have around the impact of depreciation? Thanks so much. OK, no, thanks for that question.

Speaker Change: I do thank you. Um with with the ICC going from 25 to 35% curious if you can comment on your thoughts uh on impact to your net capex, uh, into 2627. And, you know, is there any sort of movement or or, or thought process that we should have around the impact of depreciation? Thanks so much.

Rafael Lizardi: So let's talk about that legislation that just passed. First, we're very pleased with the changes resulting from the passage of the recently enacted US federal tax law. It includes expense of US R&D and eligible capital expenditures, an increase to the ICC from 25% to 35%, and changes to other tax provisions, such as making FDII permanent. We are, the effects of the new tax law are not reflected in the statement that we just released in the financials that we just released in the passage of that law happened in July. We are currently evaluating the changes in the legislation are going to have on future financial statements.

Okay. No thanks. Uh, thanks for that question. So let's, uh, let's talk about that legislation that just passed.

Speaker Change: Uh, first we're very pleased with the changes resulting from the passage of the recently. Enacted US federal tax law. It includes expensive of us, R&D and eligible, Capital expenditures, and increase to the ITC from 25 to 35% and change it to other tax tax Provisions such as the uh making fdii permanent.

Speaker Change: Um,

Rafael Lizardi: That's why in the guide that we gave, we did not incorporate it. We need additional time to do a full evaluation. However, I would tell you that based on our initial assessment what we expect, what would likely happen is our GAAP tax rate will increase in third quarter and 2025. However, it will decrease in 2026 and beyond. More importantly, the cash, from a cash flow standpoint, we expect significantly lower cash tax rates for the next several years.

We are uh the effects of the new tax law are not reflected in the statement that um, that we just released in the financials that we just released since the passage of that Law happened in July. Uh, we are currently evaluating the changes on the legislation are going to have on future financial statements. That's why uh in the guy that we gave we did not Incorporated we want we need additional time to to do a full evaluation

however, I would tell you that based on our initial assessment, what we expect, what would likely happen is

Speaker Change: our gaap tax rate will increase in third quarter and 2025. However, it will decrease in 2026 and Beyond.

Rafael Lizardi: So again, we're very pleased with that legislation.

Rafael Lizardi: Let me speak real quickly. You mentioned, you asked about CAPEX plans specifically. Our CAPEX plans remain consistent with what we shared in February and will depend on Revit.

Speaker Change: More importantly, the cash from a cash flow standpoint. We expect significantly lower cash, tax rates for the next several several years. So uh, again, we're very pleased with that legislation. Let me speak real quickly. You mentioned us about capex plan specifically our capex plans remain consistent with what we share in February and will depend on Revenue.

Unknown Executive: All right, we move on to our next caller.

Jim Snyder: Thank you.

Speaker Change: All right, we'll move on to our next caller.

Jim Snyder: This is Jim Snyder with Goldman Sachs. Good afternoon. Thanks for taking my question.

Speaker Change: Thank you. Our next question comes from the line of Jim Snider. We go over and sacks, please proceed with your question.

Haviv Ilan: Maybe following up on some of the other questions that were asked, can you maybe comment on some of the end markets, whether it be personal electronics or enterprise systems or otherwise, that you think may have gotten a little bit ahead of themselves or maybe run a little bit hotter into Q2 and which ones you think are sort of at risk of reverting a little bit in Q3 and Q4? Thank you.

And thanks for taking my question. Uh, maybe following up on some of the other questions that were asked, could maybe commentary, uh, comment on, uh, some of the end markets, whether it be personal electronics or Enterprise systems or otherwise. Do you think may have gotten a little bit ahead of themselves or maybe run a little bit hotter into Q2 and which ones, uh, you think are sort of at risk of reverting a little bit in Q3 and Q4? Thank you.

Haviv Ilan: Yeah, let me let me take that.

Haviv Ilan: Remember that when we talk about the PE market and also enterprise and CE, they're all they're all kind of running at different phases on their cyclical recovery. It started with really PE, then followed by enterprise and comms, and then industrial joined later. As I mentioned before, the automotive market, we again, very shallow cycle, but we haven't seen enough signs of true broad recovery over there.

Yeah, let me let me take that, uh, remember that when we talk about the PE market and also Enterprise and see the all the all kind of running a different phases on their technical recovery. Uh, it started with, uh, with really PE

Haviv Ilan: Now, regarding the, if you go back to second quarter, where we saw a little bit, I would say market that ran higher than expected was on the industrial. We did expect the cyclical recovery in industrial, but it did grow 15% sequentially, which is a little bit unnatural. When you add on top of it, the geography footprint, this is where I have a little bit of more cautious.

Haviv Ilan: I wouldn't mark anything else that behaved differently in the second quarter, Mike, would you agree? That's the right assessment. Yeah, that's a market where we saw a little bit of, you know, I think I wouldn't say anxiety, but customers just preferring to just have more parts, and we did see normalization through the quarter. So think about the front end of the quarter was running faster than the second half of the quarter. We think we left the quarter at a normal rate, but it's very hard to assess right now. So we keep watching it.

Speaker Change: Then followed by by, uh, Enterprise and comms, and, and then industrial joined later. As I mentioned before, the automotive Market, we again, very shallow, uh, you know, cycle but we haven't seen enough signs of through uh, broad recovery over there now regarding the, uh, if you go back to second quarter uh where we saw a little bit, um, uh, I would say, marketed when higher than expected was on the industrial we did expect the cyclical recovery in industrial with with, you know it did grow 15%, uh, sequentially, which is a little bit unnatural when you add on top of it. The geography footprint, this is where I have a little bit of a more cautiousness.

Uh I wouldn't Mark anything else uh that behave differently in second quarter. Mike, would you would you agree? That's the right?

Yeah, that's the right. That's the market that we saw a little bit of of, you know. I think I don't, I wouldn't say anxiety. But customers just preferring

Haviv Ilan: And that's the market where I want to be more cautious when I think about QC.

Speaker Change: Uh, to just have more uh, part and we did see normalization through the quarter. So think about the front end of the quarter was running a faster than the second half of the quarter. We think we left the quarter at a normal rate, but it's very hard to assess right now. So we keep watching it. And that's the market where I want to be more cautious when I think about Q3.

Unknown Executive: Relative to capital allocation, you mentioned about the cash tax benefits that you expect that will positively impact free cash flow next year and beyond.

Rafael Lizardi: You reiterated the CapEx guidance, but can you maybe kind of speak to the capital return portion of this? Obviously, if free cash flow is better, then what might you do differently or more on buybacks or dividends? Yeah, no, that's a good question. It's going to depend. And it's going to depend on a number of factors. For instance, right now, we're still in the middle of a high CAPEX environment. And we'll see how long that that lasts. As we said, next year, we do have a range of two to five. So that's still a, even at the low end, it's still a meaningful amount of CAPEX.

Speaker Change: Right. Do you have a follow? Thanks, yes, I do. Thank you relative to Capital allocation you. You mentioned about the uh, the cash tax benefits that you expect that will positively impact free cash flow, uh, next year and Beyond you reiterate the capex guidance, but can maybe kind of speak to the capital return portion of this. Obviously a free cash flow is better than you know, what might you do differently or more on BuyBacks or dividends

Rafael Lizardi: And we need to be ready, ready for that. And, you know, and there are other factors, cash on the balance sheet, the price of the stock price, that also of the stock that also plays into into our decision. So we'll take that into all into account.

Speaker Change: Yeah, no, that's a good question. It's going to depend, uh, and it's going to depend on a on a number of factors. Uh, for instance, right now, we're still, uh, in the middle of a high capex, uh, environment and we'll see how long that that lasts. Uh, as we said next year, we do have a range of 2 to 5. So uh, that's still uh even at the low end is still a meaningful amount of capex, and we need to be ready uh, ready for that. The

Rafael Lizardi: But at the end of the day, our objective remains the same when it comes to returning capital to owners, and that is to return all free cash flow through dividends and buybacks.

Jim Snyder: All right, thanks, Jim.

You know, and there are other factors cash on the balance sheet, the, the price of the stock price, the that also of, of the stock that also plays into, uh, into our decision. So, we'll take that into hold into account, but at the end of the day, our objective Remains the Same when it comes to returning Capital to owners, and that is to return, all free cash flow through, uh, dividends and BuyBacks.

Unknown Executive: Let's move on to our next caller.

Speaker Change: All right, thanks. Jim, let's move on to our next caller.

Thank you. All right, next question comes from the line of Chris Castle. With wolf research, please proceed with your question.

Unknown Executive: Yes, thank you.

Unknown Executive: Good afternoon.

Haviv Ilan: The question is about fab loading. And what your intentions are, you know, as we go through the back end of the year into next year? Or, you know, I guess, in light of some of the caution that you expressed, you know, any changes you're making to fab loading?

Haviv Ilan: And, you know, basically, where you want your your internal inventories to sit as you exit the air? Yeah, as I tell you, on an ideal, in an ideal world, what we would want to do, and of course, the world is not ideal, and we'll have to navigate through that. But in an ideal world, what we would do is hold, manage the operation so that the loadings are relatively stable, relatively flat over time. And what happens during a cyclical upturn, we actually drain some inventory. And then during a cyclical downturn, we actually build some inventory. And that's how you get the factory to run effectively constant over that time.

Speaker Change: Yes, thank you. Good afternoon. Um, the question is about, uh, Fab loading and, uh, what your intentions are, you know, as we go through, uh, the back end of the year into next year, uh, or or, you know, I guess in light of of some of the caution that you expressed, you know, any changes you're making to Fab loading, uh, and you know, basically where you want your, your internal inventory to sit as you exit the air.

Speaker Change: Yeah, so I tell you on on an Ideal in an Ideal World.

Speaker Change: What we would want to do, and of course, the world is not ideal and we'll have to navigate through that, but in an ideal world. But we would do is hold, uh, manage the, the operations so that the loadings are relatively stable, uh, relatively flat over time. And what happens during a cyclical, upturn, we actually drain some inventory. And then during a cyclical downturn, we actually build some inventory and that's how you get

Haviv Ilan: Of course, you know, it's not an ideal environment, you never quite know when you're at peak, when you're at trough. So we'll have to add some guardrails to that to make sure that we maximize the opportunity and maintain flexibility. But at a high level, that's how we would like to run the company.

Haviv Ilan: All right, you have a follow up, Chris? I do, thanks. And my follow up is I could dig into auto a little bit more deeply. And it sounds like what you're saying there is auto hasn't really changed, but but hasn't recovered yet. You know, that's a market where, you know, if you got a few customers that you speak to there, what what what's their tone? Right now, you know, given all the macro uncertainty, you know, what are they doing with inventory levels and preparing now? Is it just sort of in a holding pattern right now with regard to auto?

Speaker Change: The factory to run uh effectively uh constant. Uh, over that time, of course, you know, uh, it's not a, it's an ideal environment. You never quite know when you're at Peak, when you're at trough. Uh, so we'll have to add some, uh, uh, some guard rails to that, to make sure that, uh, that we maximize the opportunity and maintain a flexibility. But at a, at a high level. That's how we would like to, uh, to run the the company.

Speaker Change: All right. You have a follow-up, Chris.

Chris: I, I do thanks. And with my follow-up, I can dig into Auto a little bit more deeply, um, and, and it sounds like what you're saying there is auto hasn't really changed, but but hasn't recovered yet, um, you know, that's a market where, you know, if you got a few customers that you speak to their what, what what's their tone right now, you know, given all the macro uncertainty, you know, what are they doing with inventory levels? And, and and preparing, now is it just sort of in a holding pattern right now with regard to auto?

Haviv Ilan: Yeah, I think that's a good description. In a way, and again, I look at my graph here in front of me. So automotive, again, peak for us in the third quarter of 2023. And in the last, I would say sixth quarter, a little bit up, a little bit down, but hovering around a certain level of high single digits down versus that number. And think about the automotive customers, those who ship into the US, they have tariffs to deal with. So I don't think they want to, I think they're being cautious right now. And I think the orders we get is only when they really need it.

Yeah, I think that's the I think that's the good description uh in a way the and again I I look at my it's a graph here in front of me. So Automotive, again picked for us in the third quarter of 2023. And in the last I would say 6 quarter, you know, a little bit up a little bit down but hovering around a certain level of high, single digits down versus that versus that number. So

Haviv Ilan: I don't think there is any inventory replenishment there, not only at the OEMs, but also at the tier one level. So everything is almost real time. And we'll just, we have, our lead times are so low and most of our automotive customers are on consignment. So we just get it real time. So to your point, we haven't seen yet the recovery, but remember industrial peak in the third quarter of 22, and we saw the recovery starting in Q4 of 24. So you can argue that automotive could be maybe a year later if you just keep the same duration.

Chris: And think about the automotive customers, they they you know those who ship into the US they are they have tariffs to deal with. So I don't think they they want to, I think they're being cautious uh, right now and I think the orders we get is only when they really need it. I don't think there is any inventory replenishment there, not only at the oems but also at the Tier 1 levels. So everything is almost real time.

Chris: And we'll just, uh, we, we have, you know, our lead times are so low, and most of our Automotive customers are on on consignment. So we just get it real time. So, to your point, we haven't seen yet the recovery. But remember industrial picked in the third quarter of 22, and we saw the recovery starting in Q4 of 24.

Unknown Executive: So is it going to be sometime in the second half of the year? We'll just have to see real time.

Chris: Uh so you can you can argue that Automotive could be maybe a year later if you just keep the same, you know, duration. So you know uh is it going to be sometime in the second half of the year? We'll we'll just have to see real time.

Joshua Buchalter: Let's move on to the next caller. Our next question comes from the line of Joshua Buchalter with T.D.

Okay, Chris, thanks for the question. Let's move on to the next caller.

Joshua Buchalter: Cowan. Please proceed with your question.

Haviv Ilan: Hey guys, thank you for taking my question. Maybe following up on Chris's previous one. When you spoke about China, it was clear that that auto was sort of the outlier there and was down in line with your broader auto business. I mean, it seems like China auto trends have been positive year to date, including in 2Q. It doesn't sound like there's de-stocking going on. Can you maybe explain what's going on specifically in China auto? Is there any element? Share loss happening there or do you think it's more inventory dynamics?

Speaker Change: Thank you. Our next question comes from the line of Joshua buchalter with TD Cowen, please proceed with your question.

Haviv Ilan: Thank you. Yeah, I think it's a good question. I think it's more the latter, you know, automotive ran very hot last year in China. And there was enough news out there that, you know, there was a little bit of a caution coming or guidance, hey, slow down, you know, some of the price wars over there. So I think we saw some of the dynamics. I think automotive business in China is doing well. I think from a new over your perspective, it's, you know, we grew the automotive business in Q2, but China was ahead of the rest of the market, simply because again, first in first out.

Speaker Change: Hey guys, thank you for taking my question. Uh, maybe following up on Chris's previous 1, um, when you spoke about China, it was clear that that Otto was sort of the outlier there and and was down in line with your your broader auto business. I mean it seems like China Auto Trends have been positive year to date including in 2q. Um, yeah, it doesn't sound like there's, he's talking going on, can maybe explain explain what's going on specifically in China Auto. Is there any element of share loss happening there or or do you think it's more inventory Dynamics? Thank you.

Haviv Ilan: So we saw the recovery in China starting in 2024. I think it takes a little bit of a breather right now. But I think it's related to inventory correction on their side. And I'll just add, if you look across the major regions of Peresnada, US, Europe, China, they more or less perform pretty similarly on a sequential basis. I would say China and Asia ahead and then you go to Europe and Japan behind. Very coherent with what we've seen in other markets.

Speaker Change: Yeah, I I think it's a good question. I think it's more the latter, you know, Automotive ran very hard last year in, uh, in China. And there was enough news out there that, you know, there was a little bit of a caution coming or guidance, they slow down, uh, you know, some of the price force over there. So I think we saw some of the Dynamics, I think, Automotive business in in China is doing well, I think for many over a year perspective, it's a, it's, you know, we grew the automotive business in in Q2, but China was ahead of the rest of the market. Simply because, again, first, in first out, so we saw the recovery in China starting in 2024. Uh, I think it takes a little bit of a breather right now, but I think it's related to inventory correction on their side, you know, I just added. If you look across the the major regions for us in Auto us, Europe, China, they more or less performed. Pretty. Similarly, on a sequential basis, they were basically 1 stock out differently and the others. Now, when you look on a year and year that's for China now is, you know believe. Yeah, I would say China and Asia ahead and then you go to Europe and Japan.

Joshua Buchalter: Do you have a follow-up, Josh? Yes, please. Similarly, you know, when you talk about China, it sounds like there was some element of potential pollens that were impacting 2Q.

Josh: Behind uh very coherent with what we've seen in other other markets. All right. Do you have a follow-up, Josh?

Haviv Ilan: You guys have talked for a while about having geopolitically dependable supply for the West. Seeing that. customers outside of China at all? Or have they changed their behaviors?

Haviv Ilan: And when should we expect sort of the share gains that you expect because of your US-based manufacturing to start to flow through the model? Thank you.

Yes please. Um and so when similarly you know when you talked about China it sounds like there was some element of potential Poland that were impacting. The 2q, um, you guys had talked for a while about having geopolitically Dependable supply for the West. Um are you seeing that on your customers outside of China at all? Or are they changing their behaviors? And when would should we expect sort of

Josh: The share gains that you, you expect because of your us-based manufacturing to start to flow through the model. Thank you.

Haviv Ilan: Yeah, so let me start with just, you know, you mentioned the pooling. We don't know. I just want to repeat that point. We just have to make assumptions. Customers don't tell us why they order. We just go through the data and try to decipher it, right? So we just can't rule out the possibility. And we say there likely could have been some, you know, when you see such a strong behavior in Q2 versus Q1, you have to attribute some of it to the tariff environment. Also remember that in China, we have, you know, the automotive market is more like what we call a signed account.

Josh: Yes, so let let me start with just uh, you know, you mentioned, uh the pooling, we don't know. I just want to repeat that point. We just have to make assumptions. Customers. Don't tell us why they order. We we just go through the data and try to decipher it, right? So we just can't rule out the possibility and we say there was likely, could have been some, you know, when you, when you see such a strong Behavior,

Haviv Ilan: We talk to the customers. We can explain to them the options. We have many industrial customers. It's just hard to get to everyone at once. And I think it just takes longer to let customers know that TI is a diverse manufacturing footprint, and we've got their back. So I think that's part of what we've seen during the second quarter, plus the tariffs that took a breather after a month or so. Now, regarding the overall discussion on tariffs and, you know, our U.S. manufacturing footprint, I think that's an important point. We've spent a lot of time during the last call talking about the challenges maybe in China and how we're navigating it.

Josh: For me in Q2 versus q1, you have to attribute some of it to to the terms of environment. Also remember that in China we have, you know, the the automotive Market is more like what we call a signed account. We talked to the customers, we can explain to them the options, we have many industrial customers, just how to get to everyone at once.

Josh: let me just take longer to to let customers know that the diverse manufacturing, uh,

Haviv Ilan: But Remember, the environment is dynamic. Things are changing regularly and tariffs and geopolitics will continue to evolve. And as I said in the prepared remark, reshape the supply chain. I think some of it is going to be a little bit more permanent. So our customers are increasingly valuing our geopolitically dependable capacity. And in the US, I think first, let me say, our global manufacturing footprint is optimized to support all of our customers worldwide. I do believe that the U.S. will make SEMIs be, you know, U.S. SEMIs will be increasingly incentivized in the U.S. And we do have a unique position.

Uh, footprint and we've got their back. So I think that's part of what we've seen during the second quarter. Plus the the tariffs that took a breather after a month or so now regarding the, uh, the overall discussion on on on tariffs and, and, you know, our us manufacturing footprint. I think that's an important Point. Uh, we've spent a lot of time during the last call talking about the challenges, mainly, in China, and how we are, we are not navigating it but

Josh: Remember that the the the environment is dynamic. Um things are changing regularly and uh Terrace and geopolitics will continue to evolve. And as I said in the preferred remark reshape, the supply chain, I think some of it is is going to be a little bit more permanent. So our customers are increasingly valuing our geopolitically Dependable capacity and and in the US

Josh: I think the I I think first, let me say our Global manufacturing footprint is optimized to support all of our customers worldwide, but if you go into the US

Haviv Ilan: These are not investments that were made during the last quarter. We have been working on it for the past five years. Again, not because we foreseen tariffs. We just wanted to control our destiny and the best way for us or the best efficiency for us to build a manufacturing footprint was in the U.S. And I think that hasn't played out yet. We do have, you know, a few customers, you could probably count them on one hand, that are savvy and knowing, you know, what the plans, how the plans could evolve. And they're already shifting and getting closer to us.

Josh: H, I do believe that the US will make semis uh uh be you know us semis will be increasingly incentivized in the US uh and we do have a unique position. Uh these are not Investments that were made during the the last quarter we've been working on it for the past 5 years again. Not because we foreseen we we foreseen tariffs. We just wanted to control our destiny and the best way for

Josh: For us or the best efficiency for us to build a manufacturing footprint was in the US.

Haviv Ilan: But I think there is a lot of confusion at the broad customer base. People don't exactly understand the difference between reciprocal tariffs and sectoral tariffs and what's going to come and when. So there is a little bit of a wait and see. And by the way, we don't know as well how things will evolve in the second half of the year. I will say that I believe our opportunity is greater than our challenge. While we are well equipped and well, the diversity of our supply, of our manufacturing footprint and supply chain is high, and we've proven it to our customers in Asia, and specifically in China in the second quarter, I think TI is unique in the fact that we have a manufacturing footprint in the U.S.

Josh: Uh, and I think that hasn't played out yet. We do have, you know, a few customers. You could probably count them on 1 hand that are are Savvy and knowing, you know, what the plans, uh, how the plans could evolve, and they are already shifting, uh, and, and, uh, getting closer to us. But I think there is a lot of confusion.

Haviv Ilan: and if U.S. chips are indeed becoming incentivized in whatever ways they choose to do that, TI has a unique answer. Not only that we have the scale and the size of the required capacity, it's also very affordable, it's low cost, very competitive.

Josh: At the broad customer base. Uh, people don't exactly understand the difference between reciprocals and sectoral targets and what's going to come? And when so there is a little bit of a wait and see, uh, and by the way, we don't know as well, uh, how things will evolve, uh, in the second half of the year, I will say that that I believe our opportunity is, is greater than our challenge. Uh, while we are well, um, uh equipped and, uh, well, the diversity of our supply of, of our manufacturing footprint and supply chain is high and we've proven it to our customers in Asia and specifically in China in the second quarter. Uh, I think the I is unique in the fact that we have a manufacturing footprint in the US. And if you have Chiefs, are indeed becoming incentivized in in whatever ways they choose to do. That TI is has a unique answer. Uh, not only that we have the the scale and the size of the required.

Haviv Ilan: And again, that opportunity has not played out yet, but we are ready for whatever changes we are going to meet. in the second half of the year and beyond.

Josh: Capacity. Uh, it's also very affordable. It's it's it's low cost very competitive and again that opportunity is not laid out yet but we are we are ready uh, for whatever changes. Um uh we are going to meet

Josh: uh, in the second in the second half of the year and Beyond

Unknown Executive: Thanks, Josh.

Unknown Executive: We'll move on to our last caller.

Unknown Executive: Thank you.

Speaker Change: Right, thanks. Josh, we'll move on to our last caller.

Unknown Executive: Our last question.

Haviv Ilan: Great, thanks for taking my question. It's a variation on the theme that we've listened to tonight in in I think it was the past call. And if not, certainly during the quarter, Haviv, I think you characterize the environment as cyclical recovery is the signal, and that terrorists and geopolitics are more noise and that the signal to noise ratio is very high. And, you know, I think there was an expectation that the momentum that we saw in the first half of the year was going to extend. I think regarding Bill, what happened, a real story, what happened in Q2, I think we were very open about it.

Speaker Change: Thank you. Our last question comes from the line of William Stein with true security, please proceed with your question.

William Stein: Great. Thanks for taking my question. It's a um, variation on the theme that we've uh, listened to tonight in in um,

William Stein: I think it was the past call. And, and if not certainly, during the quarter Viv, I think you characterized the environment as

Cyclical recovery is the signal.

William Stein: And that terrorists and geopolitics are more noise and that the signal to noise ratio is very high. And, you know, I think there was an expectation that the the momentum that we saw in the first half of the year was going to extend.

and yet, you know, the the guidance to sort of confusing in light of that view uh specifically you just

William Stein: Delivered a plus 16 and a half percent result year-over-year and I think you're guiding to plus 11 and a half.

So how do I reconcile? This is this is the environment. Just much more noisy than what you would characterize the quarter ago, or did something did something else change is? Is there another way to describe what happened in the last quarter?

Haviv Ilan: I, as I said, we did see some dynamics within the quarter. It was more noisy, if you will, in the second half of the quarter.

No, I, I think regarding uh, Bill, what happened, uh, a real story, uh, what happened in Q2? I think we were very open about it. Uh, I, as I said, we did this within the quarter.

Haviv Ilan: And it's very hard for us to, as I said, to Vivek and others to quantify how much And when you make guidance into the third quarter with the data we see right now, we just want to take a responsible approach. That's the data we have right now. That's the way we call it. I think during the last call, everybody was pushing back, how could it be that TI will grow 7% sequentially? And I think we've upsided there, right? So I think right now, maybe the expectations were higher. But we are just calling the forecast the way we see it.

William Stein: And when you make guidance into the third quarter with the, with the data we see right now, we just want to take, um, you know, uh, responsible approach, that's the data we have right now. That's the way we call it.

Haviv Ilan: We have to let it play out. I will reiterate that I believe the cyclical recovery is strong, even if it's masked a little bit by this tariff environment. I think we now have four out of the five markets already in. I expect automotive to join. I just don't see it yet. And once we have all five markets pointing in the right direction, we'll be complete.

William Stein: I think in the, during the last call, everybody was pushing back. How could it be? That I will, will grow 7% sequentially. And I think we've we've upsized there, right? So I think right now, maybe the expectations were higher but we are just calling, you know, the focus, the way we see it.

William Stein: Uh, we have to let it play out. I will reiterate that I believe the the cyclical recovery is strong.

William Stein: Uh,

Even if it masks a little bit by this terrorist environment, I think we now have 4 out of the 5 5 markets already in. I expect Automotive uh to join. I just don't see it yet.

Haviv Ilan: This recovery is very, very different from any previous one. You can see it also at the slope of the recovery. When you look at the overall WSDS without memory trend, you can see a not very sharp return to trendline. We are still running 12% or 13%, I believe, below trendline. And there is a lot of, usually when a cycle establishes itself, you first have to get to trendline. And then you have to establish the next peak. We are still running double digits percentage-wise on units below trendline. So I think that's what we're seeing. We are not different than the rest of the market, I believe.

William Stein: And once we have all 5 markets, pointing in the right direction, we'll be complete. Uh, this uh, this recovery is very, very different from any, uh, previous 1. You can see it. Also at the slope of the recovery. When you look at the overall W STS, without memory Trend, you can see and not very sharp, um, return to, um, to trend line, we are still running, uh, 12 or 13%, I believe below trend line, and there is a lot of of, you know,

William Stein: Usually when a cycle establish itself, you first have to get a trend line and if you have to establish the next pick, we are still running.

Haviv Ilan: And we'll just have to continue to let it play out. So that would be my answer to your question, Will.

William Stein: Double digits percentage wise on units below trend lines. So I think, uh, that's what we're seeing. Uh, we are not different than the rest of the market I believe. And we'll just have to continue to let it play out. Uh, so that would be my

Haviv Ilan: Do you have a follow-up? Yeah, if I can follow up one area that I hope might be a little bit more optimistic. In enterprise, I think you had a good quarter. And I'm wondering if you can remind us or update us as to your current and maybe future anticipated exposure to the rapid growth AI markets. Thank you. Yeah, very well. Our enterprise market is mainly, I think the largest sector over there for us is data center, data center compute. But it's not only data center, we also have, for example, you know, large printers or enterprise printers over there and also projection devices.

William Stein: Uh, my answer to your question, will your follow up? Yeah, if I can solve 1 area that I hope might be a little bit more optimistic. Um, in Enterprise, I think you had a a good quarter and I'm wondering if you can remind us or update us as to your current and maybe future anticipated exposure to uh, the rapid growth. AI markets. Thank you.

Yeah, very well. Your, your Enterprise Market is mainly. I think the largest sector over there for us is data center. Then I send a compute.

William Stein: But it's not only data center. We also have for example, you know,

Haviv Ilan: So we probably want to clarify that over time. But if I just focus on data center, and it's mainly today inside the enterprise market for TI, but also a little bit of the optical communication inside the account. When I kind of cut out and I look at our data center story, that's behaving very well. And this year, it's growing very nicely. It's a very high level above that 50% that I've mentioned before. And the future has a large opportunity for TI because we are seeing ourselves playing in more sockets over time. Currently, our footprint on the data center side is more with our general purpose part, we have a large share over there.

large printers or Enterprise printers over there and also projecting devices. So we probably want to clarify that over time, but if I just focus on Data Center and it's mainly today, inside the Enterprise market for TI, but also a little bit of the, um, Optical communication inside the accounts when I kind of cut out. And I, I look at our data center story, uh, that's uh, behaving, uh, very well, uh, this year.

William Stein: Uh, it's growing very nicely. It's a very high level, uh, above that, 50% that uh uh uh, I've mentioned before and uh the

Haviv Ilan: But we're also working closely with some key customers to expand our positions there to more application specific opportunities. This is based on our new technology that is ramping right now in Sherman, Texas, we already have samples and we are competing to win share over there. That's more of a tailwind, a potential tailwind for us in 2026 and beyond.

William Stein: The future uh has a large opportunity for TI because we are seeing ourselves playing in more socket over time. Uh currently our footprint, on the data center side is more with our general purpose part. We have a, a large share over there, but we also working closely with some key customers to expand our positions there to more application specific opportunities.

Haviv Ilan: So that's our data center story.

Haviv Ilan: And thanks for that question. Thank you.

William Stein: Uh, this is based on our new technology that is ramping right now. In Sherman Texas, we already have samples and we are competing to win, share over there, that's more of a Tailwind, a potential Tailwind for us in 2026 and Beyond. So that's our data center story and um, thanks for that question. Uh, with

Haviv Ilan: Okay. So, let me wrap up with what we've said previously. At our core, we are engineers, and technology is the foundation of our company.

William Stein: Thank you.

Haviv Ilan: But ultimately, our objective and best metric to measure progress and generate value to owners is the long-term growth of free cash flow per share.

Haviv Ilan: With that, thank you, and have a good evening.

William Stein: Okay, so, uh, let me, uh, wrap up with what we've said. Previously at our core. We are engineers and technology is a foundation of our company, but ultimately our objective and best metric to measure progress and generate value to owners is a long-term growth of free cash flow per share with that. Thank you and have a good evening.

Unknown Executive: Thank you. This does conclude today's conference and you may disconnect your line.

Speaker Change: Thank you. And this does conclude today's conference and you may disconnect your lines at this time. Thank you for your participation.