Q3 2025 Texas Instruments Inc Earnings Call

Speaker #1: Welcome to the Texas Instruments third Quarter 2020 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 Lizardi .

Mike Beckman: Welcome to the Texas Instruments Q3 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 Lizardi. For any of you who missed the release, you can find it on our website at ti.com/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. This call will include forward-looking statements that involve risks and uncertainties that could cause TI's results to differ materially from management's current expectations. We encourage you to review the notice regarding forward-looking statements contained in the earnings release published today, as well as TI's most recent SEC filings for a more complete description.

Speaker #1: For any of you who missed the release , you can find it on our website at t-complex . This call is being broadcast live over the web and can be accessed through our website .

Speaker #1: In addition, today's call is being recorded and will be available via replay on our website. This call will include forward-looking statements that involve risks and uncertainties that could cause these results to differ materially from management's current expectations.

Speaker #1: We encourage you to review the notes regarding forward-looking statements contained in the earnings release published today, as well as its most recent SEC filings.

Speaker #1: For a more complete description you likely saw last week, we announced that the Board of Directors has elected Haviv Ilan as Chairman of the Board, beginning January 2026.

Mike Beckman: You likely saw last week we announced that the Board of Directors has elected Haviv Ilan Chairman of the Board beginning January 2026. Haviv succeeds Rich Templeton, who will retire as Chairman after a 45-year career with TI. I'm sure you will join me in congratulating them both. Today, we'll provide the following updates. First, Haviv will start with a quick overview of the quarter. Next, he'll provide insight into Q3 revenue results with some details on what we are seeing with respect to our end markets. Lastly, Rafael will cover the financial results, give an update on capital management, as well as share the guidance for Q4 2025. With that, let me turn it over to Haviv.

Speaker #1: Aviv succeeds Rich Templeton, who will retire as chairman after a 45-year career with T.I. I'm sure you will join me in congratulating them.

Speaker #1: Today we'll provide the following updates . First , Harvey will start with a quick overview of the quarter . Next , he'll provide insight into third quarter revenue results with some details on what we are seeing with respect to our end markets .

Speaker #1: Lastly, Rafael will cover the financial results, give an update on capital management, as well as share the guidance for fourth quarter 2025.

Speaker #1: With that, let me turn it over to Harvey.

Speaker #2: Thanks, Mike. I'll start with a quick overview of our performance in Q3.

Rafael Lizardi: Thanks, Mike. I'll start with a quick overview of the third quarter. Revenue came in about as expected at $4.7 billion, an increase of 7% sequentially and an increase of 14% year-over-year. Analog and embedded both grew year-on-year and sequentially. Analog revenue grew 16% year-over-year, and embedded processing grew 9%. Our other segment grew 11% from the year-ago quarter. Let me provide a few comments about the current market environment. The overall semiconductor market recovery is continuing, though at a slower pace than prior upturns, likely related to the broader macroeconomic dynamics and overall uncertainty. That said, customer inventories remain at low levels, and their inventory depletion appears to be behind us. We are well positioned with capacity and inventory and have flexibility to support a range of scenarios. Now, I'll share some additional insights into Q3 revenue by end market.

Speaker #2: Overview of the third quarter: revenue came in about as expected at $4.7 billion, an increase of 7% sequentially and an increase of 14% year over year.

Speaker #2: Analog and embedded both grew year over year and sequentially. Analog revenue grew 16% year over year, and embedded processing grew 9%.

Speaker #2: Our other segment grew 11% from the year ago quarter . Let me provide a few comments about the current market environment . The overall semiconductor market recovery is continuing , though at a slower pace than prior Upturns likely related to the broader macro dynamics and overall uncertainty .

Speaker #2: That said, customer inventories remain at low levels, and their inventory depletion appears to be behind us. We are well positioned with capacity and inventory, and have the flexibility to support a range of scenarios.

Speaker #2: Now I'll share some additional insights into third quarter revenue by end market. First, the industrial market increased about 25% year on year and was up low.

Rafael Lizardi: First, the industrial market increased about 25% year-on-year and was up low single digits sequentially, following a strong result in the second quarter. The automotive market increased upper single digits year-on-year and around 10% sequentially, with growth across all regions. Personal electronics grew low single digits year-on-year and grew upper single digits sequentially. Enterprise systems grew about 35% year-on-year and grew about 20% sequentially. Lastly, communications equipment grew about 45% year-on-year and was up about 10% sequentially. With that, let me turn it over to Rafael to review profitability and capital management.

Speaker #2: Single digits sequentially following a strong result in the second quarter. The automotive market increased upper single digits year on year and around 10% sequentially, with growth across all regions.

Speaker #2: Personal electronics grew low single digits year on year and grew upper single digits sequentially. Enterprise systems grew about 35% year on year.

Speaker #2: And grew about 20% sequentially . And lastly , communications equipment grew about 45% year on year and was up about 10% sequentially . With that , let me turn it over to Rafael to review profitability and capital management .

Speaker #3: Thanks and good afternoon , everyone . As I've mentioned , third quarter revenue was $4.7 billion . Gross profit in the quarter was $2.7 billion , or 57% of revenue sequentially .

Mike Beckman: Thanks, Haviv, and good afternoon, everyone. As Haviv mentioned, Q3 revenue was $4.7 billion. Gross profit in the quarter was $2.7 billion, or 57% of revenue. Sequentially, gross profit margin decreased 50 basis points. Operating expenses in the quarter were $975 million, up 6% from a year ago and about as expected. On a trailing 12-month basis, operating expenses were $3.9 billion, or 23% of revenue. Operating profit was $1.7 billion in the quarter, or 35% of revenue, and was up 7% from the year-ago quarter. Net income in the quarter was $1.4 billion, or $1.48 per share. EPS included a $0.10 reduction not in our original guidance. This includes $0.08 of restructuring charges related to efforts to drive operational efficiencies to support our long-term strategy, including the planned closures of our last 150mm fabs. Let me now comment on our capital management results, starting with our cash generation.

Speaker #3: Gross profit margin increased by 50 basis points. Operating expenses in the quarter were $975 million, up 6% from a year ago, and about as expected on a trailing 12-month basis.

Speaker #3: Operating expenses were $3.9 billion , or 23% of revenue . Operating profit was $1.7 billion in the quarter , or 35% of revenue , and was up 7% from the year ago quarter .

Speaker #3: Net income in the quarter was $1.4 billion , or $1.48 per share . Earnings per share included a ten cent reduction . Not in our original guidance .

Speaker #3: This includes $0.08 of restructuring charges related to efforts to drive operational efficiencies to support our long-term strategy, including the planned closures of our last 250mm fabs.

Speaker #3: Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $2.2 billion in the quarter and $6.9 billion on a trailing 12-month basis.

Mike Beckman: Cash flow from operations was $2.2 billion in the quarter and $6.9 billion on a trailing 12-month basis. Capital expenditures were $1.2 billion in the quarter and $4.8 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $2.4 billion. This includes $637 million of CHIPS Act incentives, including a $75 million payment received in the third quarter related to the direct funding agreement. In the quarter, we paid $1.2 billion in dividends and repurchased $119 million of our stock. In September, we announced we would increase our dividend by 4%, marking our 22nd consecutive year of dividend increases. This reflects our continued commitment to return free cash flow to our owners over time. In total, we returned $6.6 billion to our owners in the past 12 months.

Speaker #3: Capital expenditures were $1.2 billion in the quarter and $4.8 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $2.4 billion.

Speaker #3: This includes $637 million of CHIPS Act incentives, including a $75 million payment received in the third quarter related to the direct funding agreement.

Speaker #3: In the quarter . We paid $1.2 billion in dividends and repurchased $119 million of our stock . In September , we announced we would increase our dividend by 4% , marking our 22nd consecutive year of dividend increases .

Speaker #3: This reflects our continued commitment to return free cash flow to our owners over time. In total, we returned $6.6 billion to our owners in the past 12 months.

Speaker #3: Our balance sheet remains strong , with $5.2 billion of cash and short term investments . At the end of the third quarter . Total debt outstanding is $14 billion , with a weighted average coupon of 4% .

Mike Beckman: Our balance sheet remains strong with $5.2 billion of cash and short-term investments at the end of the third quarter. Total debt outstanding is $14 billion, with a weighted average coupon of 4%. Inventory at the end of the quarter was $4.8 billion, up $17 million from the prior quarter, and days were 215, down 16 days sequentially. We have executed well on building an inventory position which we believe will allow us to consistently deliver high levels of customer service. Turning to our outlook for the fourth quarter, we expect Texas Instruments' revenue in the range of $4.22 to $4.58 billion and EPS to be in the range of $1.13 to $1.39. Our fourth quarter outlook includes changes related to the new U.S. tax legislation and now assumes an effective tax rate of about 13%.

Speaker #3: Inventory at the end of the quarter was $4.8 billion, up $17 million from the prior quarter, and days were 215, down 16 days sequentially.

Speaker #3: We have executed well on building an inventory position, which we believe will allow us to consistently deliver high levels of customer service.

Speaker #3: Turning to our outlook for the fourth quarter, we expect revenue in the range of $4.22 to $4.58 billion and earnings per share to be in the range of $1.13 to $1.39.

Speaker #3: Our fourth-quarter outlook includes changes related to the new U.S. tax legislation and now assumes an effective tax rate of about 13%.

Speaker #3: In addition, we expect our effective tax rate in 2026 to be about 13% to 14%. In closing, we will stay focused on the areas that add value in the long term.

Mike Beckman: In addition, we expect our effective tax rate in 2026 to be about 13% to 14%. 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. We will continue to strengthen these advantages through disciplined 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. Thanks, Rafael. 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.

Speaker #3: We continue to invest in our competitive advantages, which are manufacturing and technology, a broad product portfolio, the reach of our channels, and diverse and long-lived positions.

Speaker #3: We will continue to strengthen these advantages through disciplined 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.

Speaker #3: With that, let me turn it back to Mike.

Speaker #1: Thanks , Rafael . 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 .

Speaker #1: After our response, we'll provide you an opportunity for an additional follow-up. Operator.

Mike Beckman: After our response, we'll provide you an opportunity for an additional follow-up. Operator?

Speaker #4: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.

Speaker #4: A confirmation tone will indicate your line is in the question queue. You may press *2 to remove yourself from the queue.

Speaker #4: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the start keys. One moment please, while we pull for questions.

Speaker #4: Our first question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.

Speaker #5: Thanks a lot . Javier , I'm wondering if you can talk about the linearity of bookings through the quarter . I know in the June quarter , things had softened up throughout the quarter , but this quarter it seemed like things got a little better as you moved through the quarter .

[Analyst]: Thanks a lot. Haviv, I'm wondering if you can talk about the linearity of bookings through the quarter. I know, in the June quarter, things had softened throughout the quarter, but this quarter, it seemed like things got a little better as you moved through the quarter. Can you talk about that as you head into Q4?

Speaker #5: So can you talk about that as you're sort of heading into Q4?

Speaker #2: Yes , I'll give some high level comments . And , Mike , please add anything with more details . Yeah . This quarter was a kind of came in as expected , and nothing not similar to what we saw in Q2 .

Rafael Lizardi: Yes. I'll give some high-level comments, and Mike, please add anything with more details. Yeah, this quarter kind of came in as expected, and nothing, not similar to what we saw in Q2. It was a little bit hectic with the tensions related to trade and tariffs. We saw a lot of change through the quarter. This was more of an as-expected quarter through the quarter in July, August, and September. Mike, anything to add on that one?

Speaker #2: It was a little bit hectic with, you know, the tensions related to trade and tariffs. We saw a lot of change through the quarter.

Speaker #2: This was more of a as expected quarter through the quarter in July , August and September . And Mike , anything to add on that one .

Speaker #1: We had talked about, you know, the turns portion of the business had kind of started out strong at the beginning of Q2 and had moderated near the end.

[Analyst]: We had talked about, you know, the turns portion of the business had kind of started out strong at the beginning of second and had moderated near the end. We didn't see that same behavior again in third. It really, you know, that portion kind of followed what you'd expect to see in a kind of a cyclical recovery that we saw in third. Do you have a follow-up? I do. Yeah. Rafael, I wanted to ask about loadings that are assumed in the fourth quarter. I know you usually come in at the high end, but if we assume the midpoint of the guidance, and I assume that depreciation grows like it has the past few quarters, gross margin, if I exclude the depreciation, so on a cash basis, it's down like sub-67%.

Speaker #1: We didn't see that same behavior again in third . It really that portion kind of followed what you expect to see in a kind of a cyclical recovery that we're saw in third .

Speaker #1: Do you have a follow up ?

Speaker #5: I do , yeah . Raphael , I wanted to ask about loadings that are assumed in the fourth quarter . I know you usually come in at the high end , but if we assume the midpoint of the guidance and I assume that depreciation grows like it has the past few quarters .

Speaker #5: Gross margin , if I exclude the depreciation . So on a cash basis , it's down like to sub 67 . So it hasn't been that low in like ten years .

[Analyst]: It hasn't been that low in like 10 years, and you are already sitting on a lot of inventory. I don't think you want to build more. What is the path to get cash margins on a better path here? I mean, it's below where it was seven to eight quarters ago when revenue was $600 million to $700 million, lower than where it is today. Thanks.

Speaker #5: And you are already sitting on a lot of inventory; I don't think you want to build more. So, sort of what's the path to get cash margins on a better path here?

Speaker #5: I mean, it's below where it was seven or eight quarters ago when revenue was $600 to $700 million lower than where it is today.

Speaker #5: Thanks .

Speaker #3: Yeah . Let me try to try to answer that . There were several questions there . So let me see if I can if I can hit most of them .

Rafael Lizardi: Let me try to answer that. There were several questions there, so let me see if I can hit most of them. First, your question is maybe fundamentally on inventory. Let me start there. We're very pleased with our current inventory position. The objective for inventory is to support customers, to keep lead times short, and have just great customer delivery and customer satisfaction. That we are achieving, and we're pleased with where the inventory is. Now, given the midpoint of our revenue, in order to continue to maintain those levels of inventory and where we want to be on inventory, we're adjusting the loadings down into fourth quarter. We did some of that in third quarter, and we're going to do some more into fourth quarter.

Speaker #3: First. Your question is maybe fundamentally on inventory. So let me start there. We're very pleased with our current inventory position.

Speaker #3: That objective for inventory is to support customers , to keep lead times short , and have just great customer delivery and customer satisfaction so that that we are achieving .

Speaker #3: And we're pleased with where the inventory is now given our revenue, the midpoint of our revenue in order to continue to maintain those levels of inventory and where we want to be on inventory.

Speaker #3: We're adjusting the loadings down into the fourth quarter. We did some of that in the third quarter, and we're going to do some more into the fourth quarter.

Speaker #3: So as we do that . And as you pointed out , when you look at fourth quarter , you have lower revenue . You have higher depreciation .

Rafael Lizardi: As we do that, and as you pointed out, when you look at fourth quarter, you have lower revenue, you have higher depreciation, you have the hit on the lower loadings. That's how you get to the EPS range that we have listed.

Speaker #3: You have the hit on the lower loadings . So that's how you get to the to the EPs range that we have , that we have listed .

Speaker #1: All right. We'll move on to the next caller.

Mike Beckman: All right, we'll move on to the next caller.

Speaker #4: Thank you. Our next question comes from the line of Chris Donnelly with Citibank. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Chris Danley with Citibank. Please proceed with your question.

Speaker #6: Thanks , guys . And thanks for pronouncing my last name correctly . Operator . Hey , guys , could you just talk a little bit more about the restructuring , maybe what was the catalyst for it ?

[Analyst]: Thanks, guys, and thanks for pronouncing my last name correctly, Operator. Could you just talk a little bit more about the restructuring? Maybe what was the catalyst for it, and then any benefits to expenses, either gross margins or OpEx, going forward?

Speaker #6: And then, are there any benefits to expenses, either gross margins or OPEX, going forward?

Speaker #2: High level . It's related to actually two things . First . I think we announced several years back that we are winding down our six inch fabs , or 150 millimeter fabs .

Rafael Lizardi: At a very high level, it's related to actually two things. First, I think we announced several years back that we are winding down our 150mm fabs. We have one in Sherman, the old site, the old fab in the site, and one in Dallas. Both of them have actually started the last wafer this month. We will see a gradual reduction in cost related to these two factories through, I think, the first half of 2026. We're just taking the hit on the restructuring costs in Q3 as we had predictability, and the amount was clear to us in terms of the size of it. Regarding the other part of it, this is an ongoing work that we are doing. We always look at the efficiency gains.

Speaker #2: We have one in Sherman, the old site, the old fab in the site, and one in Dallas. Both of them have actually started the last wafer this month.

Speaker #2: And we will see a gradual reduction in in cost related to this to to these two factories through , I think the first half of 26 , we're just taking the heat on on the restructuring costs in Q3 , as we had predictability and the amount was was clear to us in terms of the the size of it .

Speaker #2: Regarding the other part of it , this is an ongoing work that we're doing . We always look at the efficiency gains . We had some areas where we felt that our R&D machine is not generating the returns that we would expect on the long term , and we decided to consolidate some sites .

Rafael Lizardi: We had some areas where we felt that our R&D machine is not generating the returns that we would expect on the long term, and we decided to consolidate some sites. That is also going to take place in the next couple of quarters for the company.

Speaker #2: That is also going to take place in the next couple of quarters for the company.

Speaker #1: Do you have a follow up ?

Mike Beckman: Do you have a follow-up, Chris?

Speaker #2: Press ? And Rafael, is there anything just on the OpEx side that you want to mention? Rafael, on this?

Rafael Lizardi: Rafael, is there anything that just on the OpEx side that you want to mention, Rafael, on this one? No, I would just say, tactically, for fourth quarter, expect OpEx to be about flat through third quarter. As Haviv alluded to, the benefits from the restructuring, they don't all come in immediately. It just takes a little while for that to happen, and there will be benefits in both COR as well as OpEx.

Speaker #3: No, I would just say, tactically for the fourth quarter, expect opex to be about flat to third quarter. And that's what Aviva alluded to regarding the benefit from the restructuring.

Speaker #3: They don't all come in immediately, so it just takes a little while for that to happen. And there will be benefits in both core as well as OPEX.

Speaker #1: I have a follow up , Chris .

Mike Beckman: Do you have a follow-up, Chris?

Speaker #6: Yeah . Hey . Thanks , Mike . I think you guys said industrial was up low single digits sequentially and auto was up .

[Analyst]: Yeah. Hey, thanks, Mike. I think you guys said industrial was up low single digits sequentially, and auto was up, I think it was high singles or something like that sequentially. That sounds like a bit of a change from what you said last quarter and intraquarter. Is that true? You know, why do you think industrial is slowing down and auto is a little better than expected?

Speaker #6: I think it was high singles or something like that sequentially . That sounds like a bit of a a bit of a change from what you said last quarter .

Speaker #6: And intra-quarter. Is that true? And then why do you think industrials are slowing down in autos a little better than expected?

Speaker #2: Let me take a first , Chris , as you remember , we we only guide for the at the company level . We don't guide by market .

Rafael Lizardi: Let me take a first, Chris. As you remember, we only guide at the company level. We don't guide by market. We did say, I think, on the industrial side that we had a very strong Q2, so kind of indicated that we assume Q3 will taper off, right? Actually, to me, that low single-digit growth sequentially was good. I'm pleased with the result. Remember, a very strong growth in the second quarter. On the automotive side, I would say, look, automotive is kind of sequentially up and down and up and down, but all in a very similar level, right? The recovery in automotive, at least for Texas Instruments, was very—the trough was shallow. Now, you know, it's kind of back to where it used to be. I would not read too much into it. You know, it came in more or less as expected.

Speaker #2: We did say, I think, on the industrial side that we had a very strong Q2. So, we kind of indicated that we assume Q3 will taper off.

Speaker #2: Right . And actually , to me , that low single digit growth sequentially was good . I'm pleased with the result . Remember , very strong growth in the second quarter .

Speaker #2: On the automotive side , I would say , look , automotive was kind of sequentially up and down and up and down . But all in a in a very similar level .

Speaker #2: Right . The the recovery in automotive , at least for T , was was very the trough was shallow and now , you know , it's kind of back to where it used to be .

Speaker #2: So I would not read too much into it . You know , it came in more or less as expected . And I think Mike , it grew across the regions in automotive .

Rafael Lizardi: I think, Mike, it grew across the regions in automotive?

Speaker #1: It did, yeah. It sequentially across all the regions.

Mike Beckman: It did, yeah. It grew sequentially across all the regions.

Speaker #2: All the regions, so no surprises there, Chris. From our perspective, at least.

Rafael Lizardi: All the regions, so no surprises there, Chris, from our perspective at least.

Speaker #1: Yeah , and just . within and adjusted with industrial second to third transition usually actually down . If you look across the averages over history , it's actually down a little bit .

[Analyst]: Yeah, I'd just add within a second to third transition, usually, actually down. If you look across the averages over history, it's actually down a little bit. An up low single digit is actually not an unusual result if you're in a recovery. All right. I'll move on to the next caller. Thanks, Chris.

Speaker #1: So, a low single digit is actually not an unusual result if you're in a recovery. All right, I'll move on to the next caller.

Speaker #1: Thanks , Chris .

Speaker #4: Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.

Speaker #7: Great. Thank you. I guess I continue to get a lot of questions about pricing for you guys. Anything unusual happening there?

[Analyst]: Great. Thank you. I guess I continue to get a lot of questions about pricing for you guys. Anything unusual happening there? I think you alluded to kind of an ongoing learning curve, kind of price declines, but anything happening where any markets are sort of different on the pricing side?

Speaker #7: I think you alluded to kind of an ongoing learning curve , kind of price declines , but anything happening where any , any markets are sort of different .

Speaker #7: On the pricing side .

Speaker #2: Short answer is no . And again , for the year , I think our assumption coming into the year was kind of a low single digit decline .

Rafael Lizardi: Short answer is no. For the year, I think our assumption coming into the year was kind of a low single-digit decline, like for like on the pricing side. I think that's how we are trending here today. I expect the year to end at that low single-digit price reduction in 2025.

Speaker #2: Like for like on the pricing side and I think that's how we're trending . Year to date . So I expect the year to to end at that low single digit price reduction in 2025 .

Speaker #1: Year follow-up. Joe.

Mike Beckman: Do you have a follow-up, Jim?

Speaker #7: Yeah. And just your any comment on lead times? Are you still in the range that you've talked about? Any areas where lead times are getting longer?

[Analyst]: Yeah, any comment on lead times? Are you still in the range that you've talked about? Any areas where lead times are getting longer?

Speaker #1: I'd say across the portfolio, it is very consistent with what it was the quarter prior. So, not much of a change in that.

Mike Beckman: I'd say across the portfolio, very consistent with what it was the quarter prior. Not much of a change in that. Our lead times right now are competitive. We worked very hard to make sure that our inventory position could allow us to do that. We're happy with the lead time position that we have. Not a lot of change on a sequential basis.

Speaker #1: And our lead times right now are competitive. We worked very hard to make sure that our inventory position could allow us to do that.

Speaker #1: And we're happy with the lead time position that we have. Yeah, not a lot of change on a sequential basis.

Speaker #2: And Joe , just a little bit more color on the on the lead times , I think , you know , we always talk about inventory part by part .

Rafael Lizardi: Joe, just a little bit more color on the lead times. I think, you know, we always talk about inventory part by part, the technology by technology, package type by package type. I think, as Rafael mentioned, the third quarter was a very good quarter for us because we reached our milestone of, you know, that's where we need to be. We had a few areas where we were still catching up. That's now behind us. We are now prepared to any scenario. As Mike said, we are serving our customers through a growth issue of meetings with no issues. Very strong support from Texas Instruments. We are hitting our metrics and exceeding them even. Customer service is continuing to be very high for the company, which explains some of the low visibility we are seeing in terms of turns business, as Mike mentioned before.

Speaker #2: The technology by technology package type by package type . I think as Rafael mentioned , it's the third quarter was a very good quarter for us because we reached our milestone of , you know , that's where we need to be .

Speaker #2: We had a few areas where we were still catching up, so that's now behind us. And we are now prepared to do any scenario.

Speaker #2: As Mike said, we are serving our customers through, you know, growth of mid-teens with no issues. So, very strong support from T.I.

Speaker #2: we are hitting our metrics and exceeding them . Even . And customer service is is continuing to be very high for the company , which explains some of the low visibility we are seeing in terms of turns business .

Speaker #2: As Mike mentioned before .

Speaker #1: All right . Thanks , Joe . Move on to our next caller , please .

Mike Beckman: All right. Thanks, Joe.

[Analyst]: Thank you.

Mike Beckman: Move on to our next caller, please.

Speaker #4: Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question.

Speaker #8: Hi , guys . Thanks for taking my questions . For my first one , I just wanted to dial in on the gross margin expectations explicitly for for Q4 .

[Analyst]: Hi, guys. Thanks for taking my questions. For my first one, I just wanted to dial in on the gross margin expectations explicitly for Q4. You talked about loadings and everything else. You talked about the tax rate coming up. It seems to me you're guiding it down, I don't know, maybe 250 bps, something in the ballpark of 55%. I just want to know, is that the right number to think about? Given that baseline, how much cost should I be expecting comes out of the model due to the 150mm fab closures in the first half?

Speaker #8: So, you talked about loadings and everything. You mentioned the tax rate coming up. It seems to me you're guiding it down.

Speaker #8: I don't know, maybe 250, something in the ballpark of 55%. I just want to know, is that the right number to think about?

Speaker #8: And then, given that baseline, how much cost should I be expecting as it comes out of the model due to the six-inch fab closures in the first half?

Speaker #3: Yeah . So Stacy . High level , you're in the ballpark . You know , we let the EPs guide speak for itself .

Rafael Lizardi: Yeah. Stacy, high level, you're in the ballpark. We let the EPS guide speak for itself. You have lower revenue, you fall that through, you have increases in depreciation. For the year, it's $1.8 to $2 billion. It should be an increase second to third, similar to third to fourth, should be similar to second to third. You do that, and you have higher levels of depreciation. As Haviv said, we're very pleased with our inventory levels. They're doing what they're supposed to. We are moderating those wafer starts, those loadings. As those come down, we get the impact on gross margins. Let me just also step back and stress that we run the company with a mindset of a long-term owner and the objective to grow free cash flow per share over the long term. That is gaining momentum.

Speaker #3: But you know you have lower revenue. You follow that through. You have increases in depreciation for the year, from $11.8 billion to $2 billion.

Speaker #3: So you know but it should be an increase second to third . Similar to third to fourth should be similar to second to third .

Speaker #3: So, so you do that and you have higher levels of depreciation. Then Savage said, "We're very pleased with our inventory levels."

Speaker #3: They're doing what they're supposed to . So now we are moderating those wafer stars , those loadings . And as those comes down , we get the the impact on on gross margins .

Speaker #3: Let me just step back and stress that we run the company with the mindset of a long-term owner and the objective to grow free cash flow per share over the long term.

Speaker #3: And that is gaining momentum on a trailing 12 month basis . Our free cash flow is up 65% from last year , and it has the potential to accelerate and grow even faster next year , as we have outlined in our framework back in the capital management .

Rafael Lizardi: On a trailing 12-month basis, our free cash flow is up 65% from last year. It has the potential to accelerate and grow even faster next year as we have outlined in our framework back in the capital management.

Speaker #1: You have a follow-up, Stacy.

Mike Beckman: Do you have a follow-up, Stacy?

Speaker #8: I do, thanks. So your Q4 guide is down about 7% sequentially off of the slightly higher than expected Q3 base. My math suggests that down 7% or so is pretty much seasonal.

[Analyst]: I do, thanks. Your Q4 guide is down about 7% sequentially off the slightly higher than expected Q3 base. My message is that down 7% or so is pretty much seasonal, like on a pre-COVID basis. I know post-COVID seasonality has been all over the place, but pre-COVID, it typically was down, call it like high single digits. You seem to be on a seasonal trend now, and maybe that's consistent with customers no longer draining inventory. How do I think about normal seasonality, like pre-COVID levels for Q1? My feeling is that it's typically down sequentially. What is, I'm not asking you to guide it, but just what is normal for Q1, at least on a pre-COVID basis, if we're running more of a seasonal pattern from here?

Speaker #8: Like on like on on a pre-COVID basis . I know post-Covid seasonality has been over the place , all over the but pre-COVID , it typically was down like high single digits .

Speaker #8: So you seem to be on a seasonal trend now , and maybe that's consistent with customers no longer draining inventory . What how do I should I think about normal seasonality like pre-COVID levels for Q1 ?

Speaker #8: My my feeling is that typically down sequentially , like what is I'm not asking you to guide it , but just like what is normal for Q1 , at least on a on a pre-COVID basis , if we're running more of a seasonal pattern from here .

Speaker #2: Before we talk about Q1, let me just add a little bit more color on Q4. As you said, I look at it as a roughly seasonal guide.

Rafael Lizardi: Stacy, before we talk about Q1, let me just add a little bit more color on Q4. As you said, I look at it as a roughly seasonal guide, as you said. The reason is there is a recovery, but it's a very moderate pace, right? That's what guides our, call it, seasonal view into Q4. I also mentioned, that's what we're seeing. This is part of the way we do business these days. More customers are direct. More customers are on consignment. Customer inventories are low, and I think they've gone through this depletion process. That's behind us. We are going to be just seeing it real time as it comes, and hence our guidance. Now, regarding Q1, Mike, you can comment if you want.

Speaker #2: As you said , and the reason is there is a recovery , but it's a very in a moderate pace . Right ? So , you know , that's what guides our call it seasonal view into Q4 .

Speaker #2: I also mentioned, and that's what we're seeing. This is part of the way we do business these days. More customers are direct, and more customers are on consignment.

Speaker #2: Customer inventories are low, and I think they've gone through this depletion process that's behind us. So we are going to be just seeing it in real time as it comes.

Speaker #2: And hence our guidance . Now regarding Q1 , I Mike , you could comment if you want .

Speaker #1: Yeah, yeah. It's not unusual to see fourth to first. Just historically, this is not a guide for what we're going to see.

Mike Beckman: Yeah, yeah, it's not unusual to see fourth to first. Just historically, this is not a guide for what we're going to see, but what historically is done is typically down just slightly sequentially. It's not unusual to see. All right, Stacy, thank you for the questions.

Speaker #1: But historically, what has been done is typically down just slightly sequentially. It's not unusual to see. All right, Stacy, thank you for the questions.

Speaker #1: We'll move on to the next caller, please.

Rafael Lizardi: Thank you, guys.

Mike Beckman: Move on to the next caller, please.

Speaker #4: Thank you. Our next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Speaker #9: Hi , guys . Thanks for my ask a couple questions , Aviv . Congratulations on the chairman role as well . I wanted to go back to the gross margin side .

[Analyst]: Hi, guys. Thanks for asking a couple of questions. Haviv, congratulations on the Chairman role as well. I wanted to go back to the gross margin side. Rafael, you talked about all the reasons it was going to drop and the rough range from the prior question. Just wondered, how does that flow through into next year from the perspective of depreciation? Is there any change to the range you gave before? If you're flat to slightly down in the first quarter, does that flow through in the utilization dynamic? Does that have to flow through inventory, etc., in leading to a headwind as we go into the first half of next year as well?

Speaker #9: Raphael , you talked about all the reasons it was going to drop and the rough range from the prior question . Just wondered , how does that flow through into next year from the perspective of depreciation , is there any change to the range you gave before ?

Speaker #9: And if you're flat to slightly down in the first quarter, does that flow through and the utilization dynamic? Does that have to flow through inventory, etc.

Speaker #9: In leading to a headwind as we go into the first half of next year as well?

Speaker #3: Yeah . So a couple of things . First , on depreciation . No change to our guidance . 1.8 to 2 for this year .

Rafael Lizardi: Yeah, so a couple of things. First, on depreciation, no change to our guidance. $1.8 to $2 billion for this year. You come back into the fourth quarter, as I answered to Stacy a second ago. For next year, we've set $2.3 to $2.7 billion, but to be on the lower end of that range. That should give you enough to model that. Beyond that, we'll forecast one quarter at a time. It's going to depend on revenue and demand. By lowering the loadings now, this puts us in a good position to have the level of inventory that we think is required. I think that's going to put us in a good position going into 2026.

Speaker #3: So you can back into Q4 as I answered a second ago. And for next year, we've said $2.3 to $2.7 billion.

Speaker #3: But to be on the lower end of the of that range . So that should give you enough to to model that , you know , beyond that , we'll go we'll forecast one quarter at a time .

Speaker #3: It's going to depend on revenue and demand . So this by by lowering the loadings now puts us in a good position to have the , the level of inventory that we think is required .

Speaker #3: And I think that's going to put us in a good position going into 2026.

Speaker #2: And Ross , the only color I'll add . And Raphael touched upon it , we we do think and that's the way we run the place on free cash flow per share .

Rafael Lizardi: Ross, the only color I'll add, and Rafael touched upon it, we do think, and that's the way we run the place on free cash flow per share, we have made excellent progress on ramping and qualifying our Sherman new site. We are winding down two six-inch fabs. Our investments in Utah, in Lehi 2, are continuing as planned. Our eyes are on free cash flow per share growth, and start with free cash flow, right? When you get to the right level of inventory, when you execute on your expansion plans, I think we are now well prepared for any scenario. As you remember, we have framed 2026 not on gross profit margin, but on free cash flow. That's where our sight is on. Okay?

Speaker #2: We have made an excellent progress on on ramping and qualifying our Sherman new site . We are winding down to a six inch fabs .

Speaker #2: Our investments in Utah , in Lehi , two are continuing as planned . So our eyes on on free cash flow per share growth and free cash flow .

Speaker #2: Right . So when you get to the right level of inventory , when you execute on your on your expansion plans , I think we are now well prepared for any scenario .

Speaker #2: And as you remember , we have framed 2026 not on GPM but on free cash flow . And that's where our that's where our site is on .

Speaker #2: Okay ,

Speaker #1: Give a follow up Ross .

Mike Beckman: Do you have a follow-up, Ross?

Speaker #9: Yeah I do I just wanted to also talk about margins , but on the opex side , clarification first , then the question , the clarification for Raphael , you talked about opex being flat in the fourth quarter .

[Analyst]: Yeah, I do. I just wanted to also talk about margins, but on the OpEx side, clarification first, then the question. The clarification for Rafael, you talked about OpEx being flat in the fourth quarter. I assume that's excluding the charge in the third quarter. As you look forward, in the past, you've had years that OpEx is flat YoY. You just took some restructuring. You're consolidating R&D sites, you said. How should we think just generally about OpEx, whether it's relative to revenue or absolute levels? Do you plan to grow at low single digits? Is it something higher than that, like this year? Any sort of color about how you're approaching OpEx as you look into next year?

Speaker #9: I assume that's excluding the charge in the third quarter. And then, as you look forward in the past, you've had years where operating expenses are flat year over year.

Speaker #9: You just took some restructuring . Your consolidating R&D sites . You said , how should we think just generally about opex , whether it's relative to revenue or absolute levels ?

Speaker #9: Do you plan to grow at low single digits? Is it something higher than that, like this year? Any sort of color about how you're approaching Opex as you look into next year?

Speaker #3: Yeah . So a couple of things . First , on the first part of your question , when I think about opex , I do not include restructuring in that .

Rafael Lizardi: Yeah, so a couple of things. First, on the first part of your question, when I think about OpEx, I do not include restructuring in that. That is a separate line. So that $85 million, of course, that's not going to repeat. Put that out. The OpEx, the regular OpEx, I expect it to be about flat third to fourth quarter. Beyond that, on R&D and SG&A strategy, more broadly speaking, we have a disciplined process of allocating R&D and SG&A to the best opportunities and the best investments. That's both primarily on the R&D space, but even in the SG&A strategies such as ti.com to strengthen our competitive advantages. On the R&D side, Ross, today I'd like to talk about, and we are seeing, the data center market becoming a larger opportunity over the last several years. I think that continues into the future.

Speaker #3: That is a separate line . So that 85 million , of course , that's not going to repeat . So that , you know , put that out .

Speaker #3: And the OpEx the the the regular opex , I expect it to be about flat third to fourth quarter . Beyond that , on R&D and SG&A strategy , broader , more broadly speaking , we have a disciplined process of allocating R&D to the best opportunities and the best investments that both primarily on the R&D space .

Speaker #3: But even in a strategy such as T-com, we aim to strengthen our competitive advantages.

Speaker #2: Yeah . And on the arm East Ross , look , today I'd like to talk about and we are seeing , you know , the data center market becoming a larger opportunity over the last several years .

Speaker #2: And I think that continues into the future. So, when I think about the industrial automotive data center, the amount of opportunity to expand our portfolio is high; we have a lot of good investments to make there.

Rafael Lizardi: When I think about industrial, automotive, data center, the amount of opportunity to expand our portfolio is high. We have a lot of good investments to make there. We plan to continue to grow our portfolio in these three areas. We care about all markets, all five markets, but these three will have a really long-term growth opportunity ahead of them. Texas Instruments can do more to sell these markets. I expect to see that in 2026 and beyond.

Speaker #2: And we plan to continue to grow our portfolio in these three areas. We care about all markets, all five markets.

Speaker #2: But but these three will have really long term growth opportunity ahead of them . And I can do more to serve these markets .

Speaker #2: So I expect to see that in 26 and beyond.

Speaker #1: Thank you, Ross. Move on to our next caller, please.

Mike Beckman: Thank you, Ross.

Rafael Lizardi: Thank you.

Mike Beckman: Move on to our next caller, please.

Speaker #4: Thank you. Our next question comes from the line of Jim Snyder with Goldman Sachs. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Jim Snyder with Goldman Sachs. Please proceed with your question.

Speaker #10: Good afternoon. Thanks for taking my question. I was wondering if you could maybe give us a little bit of color on what you're seeing in China.

[Analyst]: Good afternoon. Thanks for taking my question. I was wondering if you could maybe give us a little bit of color in China and what you're seeing there. I think last quarter you called out some pull-in activity. I'm curious whether you saw a reversion there in terms of orders or whether orders ended up better than you expected, and sort of what you're seeing on a real-time basis heading into Q4.

Speaker #10: I think last quarter you called out some pull in activity . I'm curious whether you saw a reversion there in terms of orders or whether orders were ending up , ended up better than you expected , and sort of what you're seeing on a real time basis heading into Q4 .

Speaker #2: High level in Q3 , China came back to normal , and I expect that to continue into Q4 . Mike , anything specific on the China business ?

Rafael Lizardi: High level in Q3. China came back to normal, and I expect that to continue into Q4. Mike, anything specific on the China business in Q3?

Speaker #2: Yeah .

Speaker #1: Maybe add , as we probably talked about last quarter , there was potential for pull forward in second . And if you look at industrial in China , that was the only market that didn't grow sequentially .

Mike Beckman: Yeah, maybe add, as we probably talked about last quarter, there was potential for pull forward in second. If you look at industrial in China, that was one of the only markets that didn't grow sequentially. If you look on a year-on-year, still up about 40%. I think you're looking at where it essentially didn't repeat. We didn't see that same level of pull forward, at least evidence of it. I can't confirm that with certainty, but it doesn't appear that that same pull forward trend repeated itself in third just based on that. We'll have to see how it plays through. That's the only thing I would add.

Speaker #1: But if you look on a year-on-year basis, it's still up about 40%. However, I think you're looking at where it essentially didn't repeat.

Speaker #1: We didn't see that same level of pull forward , at least evidence of it and can't confirm that with certainty . But it doesn't appear that same pull forward trend repeated itself in third , just based on that .

Speaker #1: But we'll have to see how it plays through. But that's the only thing I would add. Okay, okay.

Rafael Lizardi: Okay. Okay. Nothing special to report there, Jim. Okay?

Speaker #2: So, nothing special to report there, Jim. Okay.

Speaker #1: Do you have a follow up ?

Mike Beckman: Do you have a follow-up?

Speaker #10: Yes, please. I know when you get to the beginning of next year, you'll give us an update on the Capital Management Day.

[Analyst]: Yes, please. I know when you get to the beginning of next year, you'll give us an update on the capital management day. I'm just sort of curious, as we sit here today, in light of the slower recovery you seem to be talking about right now or you're seeing right now, can you maybe give us a sense about whether you expect that your CapEx for next year will be toward the lower end of the range you outlined at the beginning of this year?

Speaker #10: But I'm just sort of curious , you know , as we sit here today , you know , in light of the slower recovery , you seem to be talking about right now , are you seeing right now can maybe give us a sense about whether you expect that your CapEx for next year will be toward the lower end of the range ?

Speaker #10: You sort of outlined at the beginning of this year?

Speaker #2: Yeah , we gave you the framework , Jim . And again , we gave you a 20 to 26 framework there . But of course it can be higher or lower .

Rafael Lizardi: Yeah, we gave you the framework, Jim. We gave you a $20 to $26 billion framework there, but of course, it can be higher or lower. I think the probability of being lower is probably more probable than higher than $26 billion, right? At the end of the day, we'll see what it wants to do. This recovery has been moderate. We haven't seen even the market goes back to trend line, not to mention going above trend line and customers building inventory. We just haven't seen it. It could still happen in this cycle. It could not. The good news from a Texas Instruments perspective is that we are ready for any scenario. If it wants to grow quickly, we will be able to serve it.

Speaker #2: I think the probability of being lower is probably more probable than being higher than $26 billion. Right? So at the end of the day, we'll see what it wants to do.

Speaker #2: This recovery has been moderate, so we haven't seen even the market go back to the trend line, not to mention going above the trend line.

Speaker #2: And customers building inventory , we just haven't seen it . It could still happen in this cycle . It could not . The good news from from a perspective that we are ready for any scenario if it wants to grow quickly , we will be able to serve it .

Speaker #2: But if it wants to continue in that moderate recovery , moderate recovery , of course we will be at the lower end of the CapEx and free cash flow will grow as indicated in our in our framework , we provided in capital management and as February comes in , we'll have some more information .

Rafael Lizardi: If it wants to continue in that moderate recovery, we will be at the lower end of the CapEx and free cash flow will grow, as indicated in our framework that we provided in capital management. As February comes in, we'll have some more information. We'll have Q4 behind us, and we'll provide more color on that, Jim.

Speaker #2: We'll have Q4 behind us, and we'll provide more color on that. Jim.

Speaker #1: Thanks, Jim. Thank you. Please.

Mike Beckman: Thanks, Jim.

[Analyst]: Thank you.

Mike Beckman: Move on to the next caller, please.

Speaker #4: Thank you. Our next question comes from the line of Chris Caso with Wolfe Research. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Chris Castle with Wolfe Research. Please proceed with your question.

Speaker #11: Yes . Thank you . I guess first question is with regard to general conditions and the recovery , and I think the words you said were the recovery was continuing at a at a slower pace .

[Analyst]: Yes, thank you. I guess first question is with regard to general conditions and the recovery. I think the words you said were that the recovery was continuing at a slower pace. Can you talk about what's changed in your mind since the last earnings call? I think earlier in the year, you know, perhaps you were more optimistic that, you know, this would follow lines of a more typical recovery, which would be stronger by now. What sort of changed in the part of your customers and such, as compared to the last earnings call?

Speaker #11: Can you talk about what what's changed in your mind since the last earnings call ? I think earlier in the year , you know , perhaps you were more optimistic that , you know , this would follow the lines of a more typical recovery , which would be stronger by now .

Speaker #11: But what what what sort of changed in the part of your customers and such , you know , as compared to the last earnings call ?

Speaker #2: Yeah . Sir , I think that's related more to the first half of two . Q I think Mike mentioned that and we acknowledged that in the in the July call that it had a very rapid start .

Rafael Lizardi: Yeah, it's fair. I think that's related more to the first half of Q2. I think Mike mentioned that, and we acknowledged that in the July call that it had a very rapid start. We were thinking that we were sitting on a sharp slope. I think time taught us that it is not, I would not say it's just a moderate. We are seeing the market getting back towards trend line, but still below trend line. That's one of the more moderate recoveries that we've seen in the history. I think you have to go back many years to see similar behavior. It could still change. I cannot prove it, but I do see when I talk with customers, especially on the industrial side, and if you think about investing, building new factories, putting more CapEx, there is a bit of a wait-and-see mode with our customers.

Speaker #2: We were thinking that we are sitting on a , on a on a sharp slope . I think time taught us that it is not I would not say it's just a moderate .

Speaker #2: Okay . We are seeing the market getting back towards trend line , but still below trend line and you know that's one of the you know , more moderate recoveries that we've seen in the history .

Speaker #2: I think you have to go back many years to see similar behavior. It could still change my mind, and again, I don't have a way to prove it.

Speaker #2: But I do see when I talk with customers , especially on the industrial side . And if you think about investing , building new factories , putting more CapEx , there is a bit of a wait and see mode with our customers that are just hesitant to have clarity on what exactly are the final rules .

Rafael Lizardi: They're just hesitant to have clarity on what exactly are the final rules. Should I put my factory in this country or another one? Even in our domain, think about it. The rules are still not finalized in terms of the rates of tariffs, for example. Will they be or not? I do see this hesitancy at the customer base, and I see it mainly on the industrial side. On the automotive side, the secular growth is continuing. Just constant growth allows that market to go back to the level it picked before. The outlier is data center. Data center, again, not a large part of our revenue, but growing more than 50% for Texas Instruments year to date. That's where we see strong investment. That's the only place where we see a strong growth, where customers are investing and moving fast. Texas Instruments wants to do more there.

Speaker #2: Should I put my factory in this country or another one ? You know , even in our domain ? Think about it . The rules are still not finalized in terms of the rates of tariffs .

Speaker #2: For example , will they be or not ? So I do see this hesitancy . The customer base and I see it mainly on the industrial side , on the automotive side , it's the secular growth is is continuing .

Speaker #2: So just content growth allows that market to go back to the level it peaked before. And the outlier is data center.

Speaker #2: Data center is again not a large part of our revenue, but it is growing more than 50% for the year to date. That’s where we see strong investment.

Speaker #2: That's the only place where we see a strong growth , where customers are are investing and moving fast . And T.I. wants to do more there .

Speaker #2: And we are investing as well, but again, a smaller part of our revenue.

Rafael Lizardi: We are investing as well, but again, a smaller part of our revenue.

Speaker #1: You have a follow-up, Chris.

Mike Beckman: Do you have a follow-up, Chris?

Speaker #11: I do thank you . And as a follow up , if you could take us through your thought process with regard to the reduction in in wafer starts and utilization , I mean , is it a function of what you just said that that typically the recovery would be stronger at this point and it's not there .

[Analyst]: I do. Thank you. As a follow-up, if you could take us through your thought process with regard to the reduction in wafer starts and utilization. Is it a function of what you just said, that typically the recovery will be stronger at this point, and it's not there, so you need to moderate a bit? Take us through the thought process of that and for how long you would keep the loadings at a lower level, and what would you need to see to start raising those loadings again?

Speaker #11: So so you need to moderate a bit to take us through the thought process of that . And for how long you would , you know , keep the loadings at a lower level .

Speaker #11: And what would you need to see to start raising those loadings again?

Speaker #3: Yeah. So, you can think of it fairly mechanically, frankly. Think of revenue. It was $4.7 billion and change in the third quarter.

Rafael Lizardi: Yeah. It is, you can think of it fairly mechanically, frankly. Think of revenue was $4.7 billion and change in third quarter. Now the midpoint is $4.4 billion. If you run the factories the same way you were before with lower revenue, you just grow inventory and keep on growing inventory. We only grew $17 million in third quarter, so it was essentially flat. At a lower revenue, same loadings, you would grow inventory. You need to moderate that in order to keep inventory either flat or maybe slightly down as we go into fourth quarter. The second part of your question, it's going to depend on revenue, right? If the higher the revenue could be over the next 6, 9, 12 months going into 2026, then the faster we could increase the loadings back up, or we may leave them at that level if the revenue is more moderate.

Speaker #3: Now the midpoint is 4.4. If you run the factories the same way you were before, with lower revenue, you just grow inventory and keep on growing inventory.

Speaker #3: We only grew $17 million in the third quarter, so it was essentially flat, but at a lower revenue. Same loadings. You would grow inventory.

Speaker #3: So you need to moderate that in order to keep inventory there flat, or maybe slightly down, as we go into the second part of your question, which is going to depend on revenue, right?

Speaker #3: So . If the higher the revenue could be over the next six , nine , 12 months going into 2026 , then the faster we could increase the loadings back up or we may leave them at at that level .

Speaker #3: If the revenue is more moderate, it’s just going to depend on how our revenue comes in.

Rafael Lizardi: It is just going to depend on how revenue comes in.

Speaker #1: Yeah . Thanks , Chris . Moving on to the next caller , please .

Mike Beckman: Yeah, thanks, Chris. Moving on to the next caller, please.

Speaker #4: Thank you

Operator: Thank you. Our next question comes from the line of Blaine Curtis with Jefferies. Please proceed with your question.

Speaker #4: . Our next question comes from the line of Blayne Curtis with fourth quarter . Jefferies . Please proceed with your question .

Speaker #12: Hey , thanks , guys . I added two questions . I just wanted to follow back up on that loading comment . I mean , you said that you would keep it kind of flat in December .

[Analyst]: Hey, thanks, guys. I had two questions. I just want to follow back up on that loading comment. You said that you would keep it kind of flat in December. I guess, you know, you're not going to guide to March, but I'm just kind of curious. You've been growing, you know, inventory for many, many quarters. Is this now the way to think about it? You'll keep it flat until you see a more robust recovery on the top line?

Speaker #12: I mean , I guess , you know , you're not going to guide to March , but I'm just kind of curious . You've been growing , you know , inventory for many , many quarters .

Speaker #12: Is this now the way to think about it? You'll keep it flat until you see a more robust recovery on the top line.

Speaker #12: Yeah .

Speaker #3: And I think you're referring flat inventory levels . And I said flat to down . So we are comfortable with the $4.8 billion that we have that has very of inventory , that has very low obsolescence level .

Rafael Lizardi: Yeah, and I think you're referring to flat inventory levels. I said flat to down. We are comfortable with the $4.8 billion that we have of inventory that has very low obsolescence level. We hardly ever scrap any of our inventory because it lasts a long time, both in finished goods and in chips, in chip form, in die bank, and in finished goods. We feel very comfortable with that level, but it's about sustainability, right? If you just keep on growing, it's just not a good allocation of your cash, of your capital for owners. It's better to moderate the loadings. That way, you're flat to down in the current environment. We feel that we can do that and continue to have very high levels of customer service and metrics supporting our customers.

Speaker #3: We hardly ever scrap any of our inventory because it lasts a long time, both in finished goods and in chips in chip form, in die bank and in finished goods.

Speaker #3: So , so we feel very comfortable with that level . But it's about sustainability , right . If you just keep on growing , it's not it's just not a good allocation of of your cash , of your capital for of owners .

Speaker #3: So it's better to moderate the loadings . That way . You you're flat to down in the current environment . And we feel that we we can do that .

Speaker #3: And continue to have very high levels of customer service and metrics supporting our customers.

Speaker #12: And then, I guess just a follow-up in terms of the lower loading in the December quarter, is that all reflected in the gross margin guidance, or does that kind of spill into March?

Mike Beckman: Do you have a follow-up, Chris?

[Analyst]: I guess just a follow-up. In terms of the lower loading in the December quarter, is that all reflected in the gross margin guidance, or does that kind of spill into March? Obviously, like I said, you're not going to guide to March, but just kind of thinking about the moving pieces, is there any kind of part of the December cut that spills into March in addition to whatever March is?

Speaker #12: Obviously , like I said , you're not going to guide to March , but just kind of thinking about the moving pieces . Is there any kind of part of the December cut that spills into March , in addition to whatever March is ?

Speaker #3: Yeah . So we're not guiding to March , as you pointed out , but the the lower loadings that I'm talking about , some of that happened in third quarter , there was a step down in third quarter , second to to third , and there's another step down into fourth .

Rafael Lizardi: Yeah, we're not guiding to March, as you pointed out. The lower loadings that I'm talking about, some of that happened in third quarter. There was a step down in third quarter, second to third, and there's another step down into fourth. That is, of course, embedded in the EPS guidance that we just gave.

Speaker #3: That is of course embedded in the guidance that we just gave .

Speaker #1: All right, thanks, Blaine. Move on to our next caller, please.

Mike Beckman: All right. Thanks, Blaine. Move on to our next caller, please.

Speaker #4: Thank you. Our next question comes from the line of Svanberg with Stifel. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Tore Svanberg with Stifel. Please proceed with your question.

Speaker #13: I .

Speaker #14: Yes , thank you . And congratulations . My first question is on the enterprise data and Communications business . I get the enterprise data that's obviously the type of data center , but I'm a little bit surprised to see the communications equipment being that strong .

[Analyst]: Yes, thank you. Congratulations, Haviv. My first question is on the enterprise data and communications business. I get the enterprise data. That's obviously tied to data center. I'm a little bit surprised to see the communications equipment being that strong. Is that also tied to data center and perhaps, you know, some of these cluster buildouts, or is there anything else going on there?

Speaker #14: Is that also tied to data centers and perhaps some of these cluster buildouts, or is there anything else going on there?

Speaker #2: Oh yes. I think it's a great question. And that's the reason I think we indicated before that we would provide more color in Q1.

Rafael Lizardi: Oh, yes, I think it's a great question. That's the reason I think we indicated before, and we'll provide more color in Q1. We are planning to break out the data center as a market for the company. Right now, our data center sits mainly in enterprise, in that compute and equipment, but also on the comms side. We have there the wire, the switches, and the wired comms in a rack and rack-to-rack. We also have the optical module business there in comms. They are really part of the data center market, if you will. The other part of the data center market for Texas Instruments sits today in industrial. Think about all this high-voltage power delivery, the PSUs, and all that. There is also a lot of architectural change there going to high-voltage DC and all that.

Speaker #2: We are planning to break out the data center as a market for the company. Right now, our data center sits mainly in enterprise in the compute and equipment.

Speaker #2: But also on the . Com side . We have there the wire , the switches and the wired comms on Interac and wreck to wreck .

Speaker #2: We also have the optical module business there in communications. So they are really part of the data center market, if you will.

Speaker #2: The other part of the data center market for to sits today in industrial . Think about all these high voltage power delivery . The the PSUs and all that .

Speaker #2: And you know there is also a lot of architectural change. They're going to high voltage DC and all that. So I think it's time that the guy calls out the data center at the top.

Rafael Lizardi: I think it's time that Texas Instruments calls out a data center at the top. We'll provide more color in Q1, but just for the year. We are in the midst of collecting all the bits and pieces. Texas Instruments is running more or less at a $1.2 billion run rate in 2025. That's what we're seeing right now. We'll provide more specifics in Q1. It's also a fastest growing market. It's growing year to date above 50% for the first three quarters. I see customers continuing to invest, as I alluded before. That's the one market that we see CapEx going into, and I'm not seeing any slowdown there, at least in the foreseeable future, related to our visibility, at least. Okay?

Speaker #2: We'll provide more color in in Q1 . But just for the year . And we are in the midst of collecting all the the bits and pieces .

Speaker #2: But TI is running more or less at a $1.2 billion run rate in 2025 . That's what we're seeing right now . And again , we'll provide more , more specifics in Q1 .

Speaker #2: But it's also our fastest growing market . It's growing year to date , about 50% for the first three quarters . And I see customers continuing to invest .

Speaker #2: As I alluded before , that's the one market that we see CapEx going into . And I'm not seeing any slowdown there in the at least in the foreseeable future .

Speaker #2: You know , related to our visibility , at least . Okay .

Speaker #1: Give a follow up story .

Mike Beckman: Do you have a follow-up, Tore?

Speaker #14: Yes , that was very helpful . Just a quick follow up . I know you typically don't guide by market for Q4 , but .

[Analyst]: Yes, that was very helpful. Just a quick follow-up. I know you typically don't guide by markets in Q4, but any sort of outliers one way or the other by your end markets into the December quarter, please?

Speaker #14: Any sort of outliers one way or the other by your end markets into the December quarter, please.

Speaker #1: I'd just say there's no specific outliers to call out . You know , as you look across our businesses , you know , some of our our end markets have higher sensitivity to seasonality than others .

Mike Beckman: I'd just say there's no specific outliers to call out. As you look across our businesses, some of our end markets have higher sensitivity to seasonality than others, personal electronics being probably the most sensitive to it. Overall, there's nothing specific that I'd call out about fourth quarter's transition. Tory, thank you for the question.

Speaker #1: Personal electronics are probably the most sensitive to it. But overall, there's nothing specific that I'd call out about the fourth quarter transition.

Speaker #1: So, Tory, thank you for the question. And I'll hand it back over to Harvey to wrap this up.

Rafael Lizardi: Thank you.

Mike Beckman: I'll hand it back over to Haviv to wrap this up.

Speaker #2: Thank you Mike . So let me wrap up with what we've said previously . At our core , we're engineers . Our technology is a foundation of our company .

Rafael Lizardi: Thank you, Mike. Let me wrap up with what we've said previously. At our core, we are engineers. Our technology is the foundation of our company. Ultimately, our objective is to, and the best metric to measure progress and generate value to our owners is the long-term growth of free cash flow per share. Thank you and have a good evening.

Speaker #2: But ultimately, our objective is to find the best metric to measure progress and generate value to our owners. It is the long-term growth of free cash flow per share.