Texas Instruments Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
October 25, 2021

There are 13 speakers on the call.

Operator

Good day, and welcome to the Texas Instruments Q3 2021 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dave Paul. Please go ahead.

Speaker 1

Good afternoon, and thank you for joining our 3rd 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. A replay will be available through the web. 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. Our Chief Financial Officer, Rafael Lizardi is with me today and will provide the following updates.

Speaker 1

First, I'll start with a quick overview of the quarter. Next, I'll provide insight into 3rd quarter revenue results with some details of what we're seeing in respect to the customers and markets, and I'll also provide details by end market, including some sequential performance as we have the last few quarters. As sequential data begins to be less insightful, We'll move back to reporting only year over year per our normal practice. And lastly, Rafael will cover the financial results, An update of our capacity expansion plans and our guidance for Q4 2021. Starting with a quick overview of the quarter.

Speaker 1

Revenue in the quarter was $4,600,000,000 An increase of 1% sequentially and 22% year over year, driven by demand in industrial, automotive and personal electronics. On a sequential basis, analog grew 2% and embedded processing declined 5%. On a year over year basis, analog revenue grew 24% and embedded processing grew 13%. Our other segment grew 19% from the year ago quarter. Now let me comment on the current environment to provide Some context of what we're seeing with our customers and markets.

Speaker 1

Overall, the quarter came in generally as we expected across product segments, End markets and geographies. Lead times for the majority of our products remain stable, but hotspots continue to exist. However, customers are becoming more selective in their expedite requests, focusing on products that complete a matched set Rather than expediting products across the board, this behavior is not specific to any product family, end market or geography. Discussions with customers confirm a high level interest in our commitment to expanding our internal manufacturing capacity roadmap, Including 300 millimeter wafer fabs, RFAB II and Lehigh are what we call L fab and the associated assembly test expansions. These investments to strengthen our manufacturing and technology competitive advantage We'll provide lower costs and greater control of our supply chain.

Speaker 1

And while there is a growing recognition That the near term supply demand imbalance will end at some point, the secular growth of semiconductor content per system will continue to grow Moving on, I'll provide some insight into our 3rd quarter revenue by end market. First, the industrial market was down mid single digits sequentially and up about 40% from the year ago. The changes both sequentially and from the year ago were generally consistent across the diverse set of sectors. The automotive market again grew sequentially and was up more than 20% from the year ago. When comparing to pre pandemic levels of Q4 2019, revenue is up almost 30%.

Speaker 1

Personal Electronics grew low double digits sequentially and was up low double digits compared to a year ago. The strength sequentially and the year ago was due to mobile phones, PC notebooks and tablets. Next, communications equipment was down mid single digits sequentially and was down upper teens from a year ago. Enterprise Systems grew sequentially and from the year ago

Speaker 2

quarter. Rafael will now review profitability, Capital Management and our outlook. Thanks, Dave, and good afternoon, everyone. As Dave mentioned, 3rd quarter revenue was 4 $6,000,000,000 up 22% from a year ago. Gross profit in the quarter was $3,200,000,000 or 68 percent of revenue.

Speaker 2

From a year ago, gross profit margin increased 3 60 basis points. Operating expenses in the quarter were $800,000,000 Up 1% from a year ago and about as expected. On a trailing 12 month basis, operating expenses were 18% of revenue. Over the last 12 months, we have invested $1,600,000,000 in R and D. Acquisition charges and non cash expense $2,300,000,000 in the quarter or 50 percent of revenue.

Speaker 2

Operating profit was up 43% from the year ago quarter. Net income in the Q3 was $1,900,000,000 or $2.07 per share. Let me now comment on our capital management results, Starting with our cash generation. Cash flow from operations was $2,400,000,000 in the quarter. Capital expenditures were $486,000,000 in Free cash flow on a trailing 12 month basis was $7,100,000,000 In September, we announced we would increase our dividend by 13% effective this month, marking our 18th consecutive year of dividend increases.

Speaker 2

In the quarter, we paid $942,000,000 in dividends and repurchased $139,000,000 of our stock. In total, we have returned $4,200,000,000 in the past 12 months. Over the same period, our dividend represented 53% of free cash flow underscoring its sustainability. Our balance sheet remains strong with $9,800,000,000 of cash and short term investments at the end of the 3rd quarter. In the quarter, we've issued $1,500,000,000 of debt in 3 tranches of $500,000,000 each.

Speaker 2

The first has a coupon of 1.125%, which is due in 5 years. The second, a 1.9 percent due in 10 years and the last, a 2.7% due in 30 years. This resulted in total debt of $7,800,000,000 with a weighted average coupon of 2.6%. Regarding inventory, TI inventory dollars were up $7,000,000 from the prior quarter and days were 112, Up one day sequentially, but still below desired levels. For the Q4, we expect TI revenue in the range of 4.22 to $4,580,000,000 and earnings per share to be in the range of $1.83 to $2.07 The Lehigh acquisition closed last Friday, but the costs are not included in our guidance.

Speaker 2

We will provide those details when we report 4th quarter results. Just as a reminder, the purchase price was about $900,000,000 We continue to expect our annual operating tax rate for 2021 to be about 14% and our effective tax rate to be about 13%. As you are looking at your models for 2022, without any changes to tax law, we would expect our annual operating and effective tax rates In closing, we continue to invest to strengthen our competitive advantages and in making our business stronger. Our investments in our long term roadmap for capacity expansion both in L fab and RFAB 2 are great examples. As a reminder, our CapEx will be higher on an absolute level as well as a percentage of revenue as we strengthen this advantage.

Speaker 2

We are working through detailed plans of our long term roadmap and we'll have specifics of timing and CapEx spending in our capital management call in February.

Speaker 1

Thanks, Rafael. Operator, you can now open the lines up for questions. In order to provide as many of you as possible an opportunity to ask a question,

Operator

And we will go first to John Pitzer of Credit Suisse.

Speaker 3

Yes, good afternoon guys. Thanks for letting me ask a question. Dave, I know in this sort of environment seasonality doesn't make a lot of sense. But when you look at the September quarter, I'm just kind of curious. The June quarter came in well above your guidance range.

Speaker 3

September was well above the midpoint, but still within the guidance range. We're hearing Of logistical constraints and supply constraints across the economy, I'm kind of curious when you look at sort of the lower level of upside in the December quarter versus the June quarter, to what extent might have been supply constraints outside of your control? To what extent do you think its customers Just being more selective about what they're pulling from you, any color there would be helpful.

Speaker 1

Sure, John. And thanks for the question. Yes. I really think it depends on the customer's bill of material. I think that there are supply constraints that are widely reported Crossed different components.

Speaker 1

And as we mentioned in our prepared remarks, The behavior that we're seeing that's different, our customers are showing up and requesting, we have meetings with them Rather than showing up with long list of devices that they're asking us to expedite, they're really just short list. So they're looking for Particular parts that complete those match sets so that they can complete those builds for them. So It is a different behavior that we're seeing this quarter versus the prior quarters. So do you have a follow on?

Speaker 3

Yes. Just as a follow on, I know you're going to give us more color about L FAB expenses and RFAB expenses as we get into next year. But I'm wondering if you could just help us Set the stage a little bit. Next year is obviously going to be kind of a capacity build out year for you. And I guess all else being equal, should we think about the gross margin impact on calendar year 2022 as you layer in these investments?

Speaker 2

Yes. I'll take that one. First, as you know and you noticed for a long time, we don't manage the business to gross margins. We managed for the long term growth of free cash flow per share, and that starts with driving the top line. And that's why we're making these investments, right, to support Revenue growth and as we do that is extending our low cost manufacturing advantage that gives us that great structural Cost advantage with 300 millimeter.

Speaker 2

And in addition to that, we're controlling the supply chain. And specifically on your question, Take R5.2 all in, that's about a $6,000,000,000 expense, about $1,000,000,000 of that is a building, which depreciates over 30 years or so. The balance of the rest is equipment, and we're going to be putting in that equipment starting next year and over the coming years. With L fab, obviously, a $900,000,000 purchase price and that some of that is build some of that is equipment. And then on top of that, we'll put about $3,000,000,000 of CapEx over a number of years as we ramp that up.

Speaker 2

So we'll give you additional details on that and the bigger longer term picture Of how we're going to support the longer term growth, we'll give you those details in February at the Capital Management call. Okay.

Speaker 1

Thank you, John. And we'll go to the next caller, please.

Operator

And we'll go next to Timothy Arcuri of UBS.

Speaker 4

Hi, thanks. Rafael, I was wondering if you can talk about pricing. Obviously, you're seeing some increases in your Input costs, can you talk about whether you're passing those on to customers and sort of how ubiquitous any price increases on your side might be?

Speaker 2

Yes. What I would tell you, our strategy on pricing has not changed. We regularly monitor that and our goal is to be competitive And it's really, frankly, independent of the input cost to the largest degree. But our goal is to be competitive. And if prices move higher, we adjust those over time, and we have been adjusting those over time.

Speaker 1

Yes. Follow-up Tim?

Speaker 4

I did, Dave. Thanks. And I guess I'll ask the same question that I've asked the last, I think, 3 calls about share repo. It was pretty low again. I guess, is there sort of can you help us think through maybe what the triggers might be for you to start to buy back More stock, is there a target cash level where maybe you'd say that the balance sheet is getting a little bit over capitalized and you'd start to buy back more stock?

Speaker 4

I'm just kind of Obviously, you're not buying back much, but I'm just kind of wondering if you can talk us through what triggers you might be looking forward to start that back again? Thanks.

Speaker 2

Yes. Stepping back and just to remind everybody how we think about returns, our objective is to return all free cash flow to the owners of the company Over the long term, and we do that through dividends and buybacks. You look at our 18 year history on that and it's really consistent. In fact, we've Many years, most years, we've averaged well over 100% of return. During that time, we have I would remind you, we have The proportion of the return that comes into dividends.

Speaker 2

So that also plays into that. But as long as we think The buybacks are accretive to our long term owners. We're going to have some buybacks. And as you have seen, as you pointed out, the last three quarters, we have In fact, I don't think there's been a single quarter in the last 18 years or so that we have not purchased return It's cash to the owners through buybacks in one form or another.

Speaker 1

Okay. Thank you, Tim. And we'll go to the next caller, please.

Operator

We'll go next to Harlan Sur of JPMorgan.

Speaker 5

Good afternoon. Thanks for taking my question. On finished goods inventory, most of which I Sumit, sitting at customer consignment hubs. This has come down faster than overall inventories, right? Finished goods dropped 8% sequentially in Q3, Dropped 9% in Q2.

Speaker 5

They're down 25% from the beginning of this year and down 33% Pre COVID-nineteen, I assume due to the strong demand profile from your direct customers. So how far below normal are consignment inventories Relative to your customers' target levels, and is part of the muted Q4 outlook to replenish these very low inventories? Or does the demand profile backlog and forecast actually reflect a sequential decline here in the Q4?

Speaker 2

Yes. So I'll start and Dave, you want to chime in after that. But I think where you're going with that let me maybe step back. Yes, Obviously, inventory levels are below desired levels, right? We are at 112 days.

Speaker 2

Our target is 130 to 190 days. So clearly, we're well below Where we want to be. And inside of that, as you pointed out, finished goods all finished goods, whether it's in consignment or at our product distribution centers, Are the ones that are decreasing most. In fact, even though inventory total inventory level stayed above flat, slightly up 2nd to 3rd quarter finished goods decreased and then WIP and raw materials increased a little bit to offset that. So our goal, as soon as capacity increases or there's an adjustment in demand, we will build those inventory levels back up To be at more healthy levels and given our business model, it's just a great bet, just given The low obsolescence of our inventory, the diversity of positions, diversity of products that we can afford, not only we can afford, it For us to build that inventory, have it ready for the secular growth that we're confident will happen beyond that.

Speaker 2

And I think maybe tactically where you're going on consignment Dore, frankly, those tend to be pretty lean to begin with. That's how that process is designed to just keep a couple of weeks. So I wouldn't expect that by itself to build significantly purely consignment. What I would expect the build to happen is more at our product And that gives us more flexibility to then ship where the demand is most needed.

Speaker 1

Yes.

Speaker 6

Do you have I think that's well said. I think

Speaker 1

it's just tactically where we whether we keep it in our hubs where we would prefer it or If we push it out to a consignment center, that will just be reflective of our expectation that a customer will pull it. So That's just a tactical decision. I'd also point out that as you said, Rafael, we do plan to bring on more incrementally as we have each quarter through this year and through The middle of next year and in the back half of twenty twenty two, our fab 2 will come online and then that will be followed by Lfab. As Rafael pointed out, we did close On that factory on Friday of last week. And so that is on target to come online in Early 2023 to support growth in the future.

Speaker 1

So did you have a follow on Harlan?

Speaker 5

Yes, thanks. I appreciate the insightful answer. So exiting last year, the direct business, which includes consignment, that was about 65% of revenues. Where does that mix roughly sit today? And did the team drive a positive book to bill ratio in Q3, if you could maybe quantify?

Speaker 2

So on the book to bill, we don't think that's relevant. Frankly, I admit you haven't disclosed that in a while, And we're not disclosing that anymore. On your first question on percent, I think you asked percent of our revenue from Yes,

Speaker 7

that's the first one.

Speaker 1

Yes, could you just repeat it, Harlan, so we got make sure we got it right, what you're asking on the first question?

Speaker 2

Arvind, are you there?

Speaker 5

Yes. Just percentage of the overall direct business.

Speaker 1

Direct business. Yes. So yes, so we left last year with about 2 thirds of our revenues direct. So we expect that that percentage will increase over time. We'll provide an update of what we've done with that This year in our February call, cap management call in February of actually what that looks like.

Speaker 1

But Just to say over time that we do expect that that will move up slightly over time. So and just the other color with Rafael talking about book to bill. As we've got A lot of our revenue on consignment, we've got ti.com. The actual backlog isn't quite as meaningful as what it used to be. So As he said, it's just about a number that we look at or measure or we've talked about in some time.

Speaker 1

So it isn't quite as helpful as what it used to be. So thank you, Harlan. And we'll go to the next caller, please.

Operator

And we'll go next to Stacy Raskin of Bernstein Research. Hi, guys. Thanks for taking my questions.

Speaker 8

So the first one, I wanted to ask about the near term, Micron impact. I know you said $75,000,000 in cost impacting the model Those costs don't go away, right? That's $75,000,000 a quarter is people, correct? And does it include depreciates or anything else? Is it How do you think about that like that incremental cost long term?

Speaker 2

Very good, Stacy. Good direct question. So yes, That $75,000,000 is mainly people and direct costs, not depreciation. Depreciation will not Until about Q1 2023 when we start production, just the way the rules work on that front. And that 75,000,000 We're still working through the details, but we currently believe that the most likely scenario is that most of that cost will go through the restructuring Chargesother line until we start production, right?

Speaker 2

And then at that point, the majority of the cost would go to the COR line. Now The costs actually do increase over time as we increase production, right? But I think where you're going is that as that happens and those costs are then absorbed By revenue, right? Now how quickly those are absorbed beyond underutilization, etcetera, that just depends how quickly We ramped that factory, right? Clearly, at the beginning, there won't be 100% absorption, and we'll get to that At some point, but we're not going to that's in 2023, so we'll get to that at some point to give you some details.

Speaker 2

And in February of the capital management call, I think we'll frame it kind of the bigger picture of that along with our other CapEx investments and you get a better sense of how that's going

Speaker 1

to play out. A follow on, Stacy?

Operator

And it looks like Stacy has disconnected.

Speaker 5

Okay.

Speaker 6

Okay. If you have a follow on, let

Speaker 1

us know, Stacy. We'll go to the next caller, please.

Operator

And we'll go next to Ross Seymore of Deutsche Bank.

Speaker 7

Hey guys, thanks for letting me ask a question.

Speaker 9

Dave and Rafael, I

Speaker 7

Talk about the quarter you reported and get into some of the supply demand dynamics. It was the smallest Beat to your original revenue guidance you guys have had in a year and I realize that it's been exceedingly volatile in the last year. But I wondered was that the demand The demand profile changing from those investors, that selectivity changing that you're talking about? Or did supply play a role in that where you just couldn't meet up To the demand, just trying to get what really changed versus whatever level of conservatism you had built into the prior quarters when you beat by bigger deltas?

Speaker 1

Yes. I think you said demand from investors. I think you meant to say demand from customers, right Ron?

Speaker 7

Yes. Sorry about that.

Speaker 1

Yes. No, that's okay. Certainly, if any investors want to buy semiconductors from us, we'll be happy to sell them. Yes. So I'd just say that overall the quarter came in as we expected it to, right?

Speaker 1

And that's a statement as we said in the prepared remarks and we looked across geographies and products and Product groups and end markets, those types of cuts. So there wasn't like one area that was Underperformed or outperformed what we were expecting. But again, the main thing of what was different this quarter versus last quarter Was really where customers were coming in and requesting expedites and upsides from us. And those upsides were much, much more narrow And focus just on few products. So that was really what the difference was.

Speaker 1

If you're looking for what was different this quarter versus last quarter and those Types of things. That's what I would point to say what's changed in the last 90 days.

Speaker 7

Thanks for the help on that. And I guess as my follow-up, a similarly toned question. You mentioned that lead times remain extended but are stable and then you talked about that whole selectivity dynamic. What would you imagine, it would change What would you imagine would change the lead times? Is it going to be your supply incrementally rising or more so with Lehigh?

Speaker 7

Or is the selectivity something as you guys look back and are students of cycles, is the demand side and that selectivity So I'd more likely to impact the lead times going forward?

Speaker 1

Well, as you know, you've been through many cycles with us, right? It's always a combination of both. And we will and continue to add incremental capacity As we have planned for some time, and certainly as we go out in time as we get the bigger Tranches of capacity coming on with RFAB 2 and then L fab, we'll be able to make more progress on that front. And at some point, we know that things will change from a demand standpoint. And So we don't spend time trying to predict that, but we'll be ready for it.

Speaker 1

We know what we'll want to do. And as Rafael talked about, one of the top things there We'll want to rebuild inventory to prepare for the next time that the demand strengthens. So we have a long list of things that we're doing to invest in the company to it stronger. So we won't control the timing of that, but we'll be ready for it for sure.

Speaker 2

And just to emphasize that point, right, when that adjustment happens, Whenever that is, we will continue investing in R and D, focused on the areas, auto and industrial, For the secular long term growth, we'll continue to invest on CapEx and to set up the company for the next 10 to 15 years We have a great long term road map, and we will build inventory. That's what as Dave mentioned, range is 130 days to 190 days. Franco will probably end up being Higher end of that range just because we feel so good about the business model and how good that inventory will be and how it sets us up for the next Up turn on the other side, given the long lived nature of that inventory.

Speaker 1

That's right. Okay. Thank you, Ross. And we'll go to the next caller, please.

Operator

We'll go next to Vivek Arya of Bank of America.

Speaker 10

Thanks for taking my question. I just want to get the supply So you're right. Are customers not ordering as much from you because they don't have enough from you on the component side or they don't have enough from others that they need to complete their bill of materials?

Speaker 1

It's both, Vivek. There are instances of both of those. And sometimes it's not even semiconductors, right? It's maybe other components that they may be missing. So yes, it's a combination of those things.

Speaker 1

Supply chains are complex, depends on the bill of materials and the systems That they're building. So it depends.

Speaker 2

Yes. And Vivek, the nuance changes 90 days ago, 180 days ago, they were Everything almost regardless of match the set position. Now they're more selective in what they're expediting, right?

Speaker 1

May I follow on with that?

Speaker 10

Yes. Thank you. Could you talk specifically to the automotive market? This year, it's clear the production has not been right that strong, but auto semiconductor sales have been pretty strong. So as it applies to TI, what do you think has been kind of the interplay between content and mix?

Speaker 10

Or do you think that there is perhaps inventory stuck In the automotive supply chain somewhere that we should watch out for.

Speaker 1

Yes. I'll I'll comment on automotive. I think I'll even extend it into industrial. And those are 2 markets that we have long talked about We believe that there is content growth in those markets, content per system. It's easy to see in cars and Well reported on, I know Vivek in your reports that you've reported on that content growth.

Speaker 1

You can see it In automotive, it's happening in industrial across 13 different sectors, so harder to see. And we invest in all the markets, but We have a strategic focus on automotive and industrial. So you're beginning to see some of the benefits Of those that strategic bias that we have, our channel advantages, the breadth of our products advantages in those markets as well. So there's components of that. But that said, anytime that we have supply shortages in the industry, Customer behavior is always very consistent and that behavior is that they will want to build inventory to protect themselves.

Speaker 1

So whether they've already begun that or have already done that, they certainly will want to do that. And at some point, they'll have Too much product and that's what creates the cycles in our industry. So, it won't surprise us if the cycle comes to an end at some point. We'll be prepared for that and we'll know what we'll want to do at that point. So thank you for those Questions and we'll go to the next caller please.

Operator

We'll go to Joe Moore of Morgan Stanley.

Speaker 11

Great. Thank you. I wonder if you could talk to the hotspots. Is there any particular pattern that's Driving which products you have in short supply, I mean it seems like we see it most in areas like enterprise and some of the personal electronics Higher volume stuff, is that something that you guys would agree with? And do you think is it is there more foundry versus internal fabs?

Speaker 11

Like is there anything in particular Driving those hotspots.

Speaker 1

Yes, I wouldn't put it down on any one thing, Joe. Certainly, there's Reports of the tightness across boundaries. So obviously, we see that as well. So There's tightness in some lead frames. So we see that as well.

Speaker 1

Other input raw materials, mold compounds. We have testers, in some cases, some process technologies, some particular Products themselves that have a large number of customers. So, and those Hotspots move around as our operations teams will sometimes move capacity from one area to the other. So they're not always consistent or persistent. Sometimes they are, but sometimes they're not.

Speaker 1

And there's things that we can do To mitigate those or actually completely alleviate them. So and that's why as we describe them, it's not just one particular Product area or one particular product set that or even one particular market or even I'd say in one particular customer that would be impacted by that That you may say.

Speaker 2

And just to highlight something for many new listeners. They mentioned the foundries. Only about 20% of our wafers are come from foundries. The vast majority, 80%, and growing With our investments in 300 millimeter, our internal wafers, and that just gives us much better control Of our destiny and for all the reasons Dave mentioned and then the low cost structure of low cost that we get with 300 millimeter.

Speaker 1

Yes. I think that makes it especially clear why we believe that continues to be a strategic advantage for us in times like this. So you have a follow on, Joe?

Speaker 11

Yes. I wonder also with the hotspots, is it a situation where you can't respond to upside in demand and that's why it's Tite or are there actual areas where I know there's always a little bit of this, but on a broad scale where you're not meeting kind of commitments that you had made because of some of those things that are upstream from you?

Speaker 1

I think there's probably both of those that exist.

Speaker 2

I mean at 112 days of inventory, it is Harder to respond to upside than if we were at 150, 160, 190 days of course. Yes,

Speaker 1

for sure. Okay. Well, thank you, Joe. We'll go to the next caller, please. And

Operator

Our next question comes from Chris Dane Lee of Citi.

Speaker 12

Hey, thanks guys. So Dave and Rafael, you mentioned that The lead times haven't really changed, but expedites are getting better or less bad. Why do you think that is? Do you think that Your competitors are reducing lead times. Do you think that the supply chain has had a little bit of a chance to build some buffer inventory?

Speaker 12

Why do you think the situation is getting, I Either better or less bad?

Speaker 1

Yes. Chris, I think that's a great question. I don't know that we know the answer Specifically to that question, so I think we're trying to stick to the facts of we can observe that behavior change. I think you're offering Some good theories of why that behavior may be changing. But what we're trying to do is Stick to the facts of what's going on.

Speaker 1

There's multiple reasons why it might be changing and we'd rather not venture into Guessing or predicting or calling what's driving that behavior. So you have a follow on?

Speaker 12

Yes, I guess you can leave the guessing and predicting up to us sell ciders. Yes. Since you guys don't talk about Gross margin, but you did talk about free cash flow margin. I think you hit an all time high in free cash flow margin in Q3. And it looks like there's some headwinds coming down the pipe in the, I guess, near to medium term.

Speaker 12

Is there any reason For us to believe that you've seen your all time peak in free cash flow margin? Or eventually could it get back above where it was in the most recent quarter?

Speaker 2

Sure. I'll take that, Chris. And Chris, you know us very well. You've followed us for a long time. You know we do not manage to free cash flow margin percent, right?

Speaker 2

That is not what drives the long term value for the owners. It's the long term growth of free cash flow dollars, right? And to your point there, there are some headwinds on that with the CapEx That we're talking about to serve the company well for the future. But of course, we're only doing that because we think that is going to drive Even faster growth of the long term trend of free cash flow dollars. So we'll continue to focus on that because we think that That is what drives value for the Bank of America.

Speaker 1

Okay. Thank you, Chris. And we've got time for one more call.

Operator

And we'll go to Storoz Svanberg of Stifel.

Speaker 9

Yes. Thank you for squeezing me in. As far as the question on controlling the supply chain, you talked about 80% outsourced now. I believe that's kind of the more advanced nodes. But Should we assume that, that 80% is just going to grow and that you're going to rely less and less on foundries going forward?

Speaker 2

Yes. So you said 80 outsourced, it's 80 insource, just to make sure. 80%

Speaker 5

Sorry, Rafael. Yes. Sorry.

Speaker 2

Yes. So 80% are on wafers. And yes, that should grow over time as we continue to add this wafer fabs that we're Talking about all in 300 millimeter, which with the efficiency of 300 millimeter is huge, right, because 300 millimeter wafer accounts for almost 2.3 times a 200 millimeter wafer. And these are pretty large wafers for efficiency purposes. In fact, RFID II is going to be bigger than RFID I.

Speaker 2

So yes, it's reasonable to deduce that, that percent will increase over time.

Speaker 9

Very good. And as a follow-up, and I don't want to steal your thunder from February, but in the past, you talked about capacity of $22,000,000,000 Obviously, you're going to go through Capacity expansion here for the next 12 to 18 months. Would you share any new numbers with those, I don't know, 25, 28, anything at all?

Speaker 2

Yes. No, it's a great question. Thanks for the setup for February. We will talk about that in February. So until then, What I would tell you is you've heard us talk about DMOS 6 and RFAB I roughly that's a potential of about $8,000,000,000 Of annual revenue on 300 millimeter, then RFAB 2 and this is all dependent highly dependent on mix, right?

Speaker 2

So these are not exact numbers. But RFAB II with that caveat, RFAB II should add another $5,000,000,000 of annual revenue, again, when it's fully equipped, right? So obviously not on day 1. And Lehigh should add $3,000,000,000 to $4,000,000,000 of annual revenue. So we're thinking in terms of that, and we're thinking even beyond that, right, because As we look at the company's potential for growth into the next 10 15 years, then we're not Stop and just thinking in the next 4 or 5 years, we're thinking 10, 15 years.

Speaker 2

And we'll talk about that in February in more detail.

Speaker 1

Great. And I think we can go ahead and wrap up, Rafael, if you'd like.

Speaker 2

Okay. So Let me wrap up by reiterating what we have said previously. At our core, we're engineers and technology is the foundation of our company, But ultimately, our objective and the best metric to measure progress and generate long term value for owners is the growth of free cash flow per share. While we strive to achieve our objective, we will continue to pursue our 3 ambitions. We will act like owners who will own the company for decades.

Speaker 2

We will adapt and succeed in a world that's ever changing and we will be a company that we're personally proud to be a part of and would want as our neighbor.

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Earnings Conference Call
Texas Instruments Q3 2021
00:00 / 00:00
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