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Texas Instruments Inc. (NASDAQ:TXN)

February 13, 2013 4:15 pm ET

Executives

Richard K. Templeton - Chairman, Chief Executive Officer, President and Member of Special Committee

Analysts

James Covello - Goldman Sachs Group Inc., Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Good afternoon, everyone. I appreciate everyone being here this afternoon. I'm Jim Covello from Goldman Sachs and it's my pleasure to welcome Rich Templeton from Texas Instruments, Texas Instruments' long-standing CEO. Rich, thank you so much for being here with us this afternoon.

Richard K. Templeton

Great to be here.

Question-and-Answer Session

James Covello - Goldman Sachs Group Inc., Research Division

Yes, absolutely. I thought maybe we'd start off with some kind of big picture things and then kind of drill into some of the Texas Instruments specific things. But obviously one question on a lot of folks' mind that you being one of the biggest and broadest companies in the industry can bring some perspective to is kind of where your thoughts are on where we are in the semi cycle as we stand today, and then we'll kind of break it down from there.

Richard K. Templeton

Yes, Jim, I've had a chance for the past couple of weeks talked to investors, and I think you end up on almost 2 themes inside of that. First one we had [indiscernible] coming up. I think the January earnings call all felt about the same. I think companies used slightly different terms. But we all watched third and fourth quarter of '12 being down, but you watched December being better and even when we reported in January, we talked about January to that point being better. And then I go to kind of the second part of that thing is we've now gone 8 quarters, where after what some people would call a classic semiconductor cycle in late '08, early 2009 and then 6 strong quarters, we've been down 2, up 2, down 2, up 2, down 2, a pattern I haven't seen in all my years. And my modified view on that is starting to be it's not what have the past 2 years been like but that's much more what's it been like since 2007. And I think we just basically had somewhat a flat nondirectional macro economy. And yes, we have an over adjustment in early '09, and it reacted the other way, but then a indifferent kind of purposing of the demand since then. So as a result of that, people were like, "Geez, is the semi cycle gone forever?" I doubt it, humans are still humans. But the good news at TI is we're prepared however this thing wants to play out. So that's kind of where we see it right now and where things are.

James Covello - Goldman Sachs Group Inc., Research Division

And you mentioned during the January earnings call different companies kind of put some different wrappers around it but at the end of the day, there was a reasonably broad-based view that there was an improvement in December that continued into January and then some of the companies that have reported even in since February have said that, that's continued, and certainly we've heard that here at the conference. Different companies have cited different reasons for that. Some people have cited removal of the overhang on the macro, with the fiscal cliff issues at least being temporarily resolved. Other people have attributed it to a more traditional supply side driven pick up. Where do you come out on? What might be the possible causes of this early move we've seen off the bottom?

Richard K. Templeton

Jim, I'm -- and you've heard this from me many times when I get asked what's the best leading indicator of the market. Well, the best leading indicator of the market is orders.

James Covello - Goldman Sachs Group Inc., Research Division

Yes.

Richard K. Templeton

And people are like, "No, it can't be that simple," well, it is. Because I actually believe when you start to look inside of that -- and Ron and Kevin described it on our call. If you look at third and fourth quarter, we saw a general breadth of decline, and it wasn't any one area. And I think you saw inventory decline. And I think we see right now is inventories are very low. You can look at that in some of the public company announcements the distributors and what they're carrying. And as a result, I'm going to guess you're going to have a combination of macro economy hangover less and people just being a lot lighter in terms of where their supply is. To me, what becomes interesting is okay, let's now wind this thing out another 5 and 6 months, and I think that is going to have more to do with does that macro economy want to keep staying constructive versus just where the semiconductor industry is. But low inventories have typically been a pretty good correlation though.

James Covello - Goldman Sachs Group Inc., Research Division

And one of the things that you guys have talked about in recent analyst meetings and presentations is that kind of concept of where we're shipping versus the long-term demand trends and the longer you ship below that trend, the more likely it is that we're going to see some improvement in the industry. I mean, as we hopefully get through the bottom of this and into a better stage, I mean, does that framework seem to make sense to you still?

Richard K. Templeton

Jim, I know you do the plot and you believe the plot and I do as well. And I say that just because we've got well over 20 years of history. And any way you cut it, that's the 7%, 8%, 9% unit growth curve take pricing out. And that's probably about twice the rate of the economic growth because we have more chips in our lives. I don't know if you've updated, but I've looked -- I think we're probably 8 quarters under trend, something in that range. You've done the work and that's longer under the trend than any time. That is not a prediction of a quarter that it gets better or any of that. But what we try to look at running the company is this world has gone back to that curve. And on behalf of our customers, we better be prepared that if it tries to, can we do that? And what I love about where we sit today is that I think, out of learning and out of experience, we are in a position to go back to that curve, when or if it wants to, and we're in a position to do that with very low capital spending. So we ended last year a little under 4%. We can easily get back on that curve and not dent the 4% number as well. That is a great place to be relative to the semiconductor industry.

James Covello - Goldman Sachs Group Inc., Research Division

I definitely want to get into some of the bold things that you've done in terms of adding capacity and things along those lines. But before we go there let's go back to the inventory for a second. You commented about how low it is. In your time looking at the industry, where do you think we stand relative to previous historical if we indeed have seen the trough, where are inventories today relative to previous trough?

Richard K. Templeton

Lower than ever, and the only thing I'm careful about on that is I think that this industry gets secularly better at how to operate with less inventory. You see it coming upstream, go do a plot of 10, 15 years of distributors' inventory that show up on their balance sheet. And it's a clear trend over time. And I'm actually okay with that. I don't mind that inventory being on our books because we can see it, we can manage it. We know how to do that pretty well. So it's down on a long-term basis, but this is even lower when you try to take a look at that curve. So you will have some ability for that to come back. But I don't believe you go back against 10 years of trend line. I think we do keep getting more efficient as an industry.

James Covello - Goldman Sachs Group Inc., Research Division

Now, I certainly am a believer in the trend line. You guys are believers in the trend line. When I talk to clients, one of the pushbacks we get is "Listen, the trend line has changed." And on one hand, we deal with that every cycle. Every time we're above or below the trend line, there's the argument that the trend line has changed. On the other hand, it's never really failed to predict over the long term what the cycles would look like. What would your argument be for the trend line not having changed?

Richard K. Templeton

The greatest thing is, I just look at innovation, and I look at, the simplest word to think of it is, number of chips in our lives. And while this world tends to be highly focused on smartphones and tablets, and they've been a wonderful business for us and a wonderful boom for technology and the base stations that support it, and all the things that I think can still happen. I also look over to broader markets like the industrial market that in many ways have depended on electro-mechanical solutions for the past 80, 90 years, and you see a level of innovation starting to take place out in those areas that when I count up the number of chips that are going to be in homes and around us, it's going up. Air-conditioners with wireless Connectivity and not because I want to program it but because the service office can tell when that compressor is wearing out and what part they'd have to bring out for a service call. You look at automotive applications and not only are the number of cars growing, but look at safety systems, driver assist systems, entertainment systems and you just see a broader set of categories than we've seen in a long time. And we, of course, love that because when you then look in some of the applications that I've just described, these things absolutely center up on Embedded Processing, analog and the components like that. And it's where we've got the company focused.

James Covello - Goldman Sachs Group Inc., Research Division

I think the temptation is for people to focus on the issues in PCs where you have very little exposure causing a declining slope of the overall trend line, but I think the view is that there's as much silicon content in the tablet that's cannibalizing the PC and you do have content there although that's a market that which we'll get into that you're de-emphasizing a little bit at least on the application processor aside.

Richard K. Templeton

No, I think those tend to get a lot of attention because they move the needle in their term, but I don't think they move that trend line when it's all done.

James Covello - Goldman Sachs Group Inc., Research Division

Okay. If we focus on the auto market for a second. This is something we've had in discussion in a lot of different sessions about. It's obviously something people have been talking about for a long time. Do you think the growth in silicon content in automotive is more about new features that we're all going to have in cars that we don't have even in the high-end cars today or is the silicon opportunity more about what we have in the high-end cars today go into the mainstream car because price declines?

Richard K. Templeton

It's really going to be a combination, and your guys will have the data, even more specific than I remember it. I think we're at 80 million, 85 million cars, trucks on a global basis this year. It's not too hard to find numbers of 110, 120 million units, 4, 5, 6 years out, which to me is accurate enough to have a sense of what the underlying volume curve of the chassis is, but to me where the real leverage is, is the content per car. And in the U.S., you tend to get very fascinated because you see a lot of high-end cars, a lot of European high-end cars coming in and you look at forward collision. And these are really great systems. I think they're going to improve safety. I think we're going to see that go across in many, many platforms. Entertainment systems, kids growing up with iPhones and iPods are not going to go backwards. They expect to be able to get their entertainment, their music the way they want it. And that's going to end up having an influence. But the thing that we see from spending a lot of time over in China is that this equipment doesn't remain just in high-end Mercedes or Audi. This is going down across a very broad set of cars. And as a result, I see that content story really around the world. So I think we've got opportunities on a global basis and not just high-end cars but really down to some entry-level vehicles picking up more and more electronics.

James Covello - Goldman Sachs Group Inc., Research Division

I wasn't going to ask this now but you just mentioned China and some of the improvement in the macro data in China is commensurate with this pick up that we've seen in semis. And frankly, in the middle of last year, some of the problems that we saw in the semiconductor sector coincided with some of the problems we saw in the macro data in general. How much of the recent improvement in semi activity you think is kind of directly attributable to the pickup we've seen in the industrial economy?

Richard K. Templeton

Yes, I would -- Jim, I would really partition it. I think we all read the same thing of the general trend and the general mood and what the leading indicators are. We see it, you kind of sense it. But I'll go back to that kind of December, and January we're kind of seeing it across the board, and that's not a -- I want to just be very careful in the same spirit that Kevin and Ron were. It's not a go crazy number. It's just you see it happening in multiple locations. So I would not assign that or get too specific on that being just China.

James Covello - Goldman Sachs Group Inc., Research Division

Good, okay. I want to get back into some of the segments and see these [ph] opportunities in those segments later but before we do that yes, you've done a lot of bold things as CEO.

Richard K. Templeton

I hope you're right.

James Covello - Goldman Sachs Group Inc., Research Division

We'll call them bold for now and then we'll just -- we'll go through that and see. You go back to getting out of the DRAM business, which obviously, was a terrific decision. You and I were talking a little bit beforehand about the decision to get out of CMOS development, and then you look at what CMOS development costs today and what companies have to spend to continue on that trend. And getting out of baseband even though you have the by far lion's share of the market. Now getting out of the OMAP and Connectivity business for smartphones and tablets. Buying a company that you acknowledged was losing share, and talking about that at the time you did the acquisition. Can you talk about some of those things, and you tend to do things ahead of time and they tend to be controversial and which ones of those do you feel obviously very good about retrospectively? And then how do you think, how would you mark yourself to market on the ones that were still ongoing?

Richard K. Templeton

Some ways I think the greatest thing that I've learned and it's kind of in the memory bank, and I think the team in general has is it really does pay to get to and focus on the best opportunities. And sometimes that can hurt in the short term, but I've never seen it not pay in the long term. It's that if you don't think the movie's going to end well, don't stick around, okay, because it's probably not if you've got that confidence. Memory was addition by subtraction back in the '90s and it was a great thing. I think it really helped accelerate us forward. I think some of the analog acquisitions we made back in 2000, and '99, they were great to really build us the franchise we have. To me CMOS back in '07 was a no-brainer, and it was a no-brainer not because of the cost that was going up but the differentiation that you could get was going down. And you couldn't get more speed and you couldn't get lower power, you couldn't get lower cost. Things were going in a different direction and so why have a business model built around something that can't provide that differentiation? I think we're going to turn around and find that the move on National was really a great one because just take a look at 40, 50 years of history in semiconductors. Good analog, good catalog analog, an industrial bias as you know, long-life products. And those applications generate great value, and we thought in National we had a great team of people, and we had a great set of products. And they just -- they could be directed better over the coming years, and we think we're on the path of being able to go do that. The capacity buildout that's back to a belief. This world usually has gone back to that growth curve around that demand level, and I've lived in worlds where we've spent $2 billion, $2.5 billion a year, and we've had to then deal with depreciation builds that went through the roof and that's just lousy work. And so this whole combination of having an analog and embedded business model where you get very long asset lives and then saying you know what, 300-millimeter makes sense but boy, it really makes sense when you can go buy it for deeply discounted original acquisition costs. Don't be afraid to go do it because that equipment is going to be used for 25, 30 years, and it'll pay back. And I think in many ways, we've now set ourselves up to have a tech company that can be one of the strongest generators of cash, but more importantly, a strong returner of cash, okay, because of things we've done on tax and some of those we can really connect those together and make it matter for investors on that front. So we've got a lot of work to still do to really get that translated. The good news is we've, you look back over the past 4 and 5 years, you see the reasonable indication of where we're going. Free cash flow as a percent of revenue has been growing from the upper teens into the low 20s. And I think we returned over 100% of free cash flow the past 4 or 5 years, and I think those are things we can keep doing on a sustainable basis, meaning we can be competitive. We can invest. We can be growing the business and yet do it with a very low capital build.

James Covello - Goldman Sachs Group Inc., Research Division

You had the chance to buy more discounted 300-millimeter capacity today even though obviously we're in a down part of the cycle, and we're underutilized in that it is dragging down the short-term margins. Would you do another deal if it came up?

Richard K. Templeton

Yes, and that's not a flip or a reckless casual comment. It's -- there was one rumor that you saw even a couple of weeks ago in terms of that and Kevin Ritchie and Kevin Marsh and our team sat down and take a really simple look of okay, what are the limiting equipments to build out our 300-millimeter facility at Renner RFAB, and okay, what's the smartest way to be able to go get that capacity online? And if you can get it at a low enough percent of original acquisition cost, it becomes really a no-brainer in terms of cash flow in terms of what you're going to do. So with all those rumors you saw a couple of weeks ago, it'll all fit well within any capital budget that we talked about for this year. I think we guided at $500 million, and it will be a very small piece of that. So to me, it remains good smart business.

James Covello - Goldman Sachs Group Inc., Research Division

When you made the decision to get out of the wireless baseband business even though you have the leading share of the market, which obviously, in retrospect is certainly a great decision. You said at the time when people are pushing you about OMAP you said "listen, one day, it will be commoditized and when it is, I'll get out of it. But until then I'm going to participate in the market, and it's a good cash flow generator." Now we've reached the point where earlier -- late last year you guys announced for the smartphone and tablet market getting out of the OMAP and Connectivity business for that market in particular. Can you talk a little bit about that? And then can you talk a little bit about are there any other parts of the portfolio today that may be necessary to prune?

Richard K. Templeton

Jim, in some ways, I think we talked even at the May 2012 analyst meeting. I said, okay, we've got the OMAP and Connectivity business, we saw the P&L. I said trust me, they're not exempt from, they need to be good quality businesses. And the day that we don't believe they can, we'll do something different. And we announced that back in the fall. And I think in many ways, when you saw the, in some ways, concentration of the top 2 suppliers, but then looked at the vertical integration trend, to me, that all adds up. And by the way, it's not just the top 2 that have got their eyes on trying to do that when you look at some other suppliers around the world, that's a bad movie in terms of where that thing is going to end. And so if it's going to destroy capital, don't put more in it. So that's really the background on why you do that. I would have obviously loved for them to work, but at the same time, I think we've taken those assets, and I think there's some pretty intriguing things Greg Delagi and their team can go do. So that's how you've got to look through those things and not be afraid of making that call. If you then ask "Okay, are there others?" Maybe the better way to think about that is, I look at it as, are there other concentrated revenue positions? And if you think about where things stop becoming highly valuable is too much revenue per socket, attracting too many competitors per socket with not enough barriers potentially ends up as not a great business in the long term. And you look inside the portfolio, we're in pretty good shape today on that equation. Wireless was really the last of the places we had that. And in some ways, you see that with our customer diversity. I think we've talked about that at a couple of the meetings where, when we were big in baseband, I think Nokia was over 20% of revs. We've got our largest customer down single digits, and that's a good thing because I think it's indicative of diversity of strength and of breadth. So we've got some concentrated positions. You can look at things like common infrastructure, those are big markets, 4 or 5 customers. We do well with our multi-core DSP. So I think there's enough growth when you look at small cell and where that industry can go. I don't think we're going to have to deal with that for -- at least not for some time. You could argue we still have some things in the storage business, but you're starting to get down to very small percentages of overall company revenue. So I think more importantly, where our time is being spent right now is, "Okay, let's look out over the next 5 years and let's make sure we're asking ourselves if the last 5 have been about building a great analog and embedded company, how can you now make that stronger?" And so we start to look at how do you take the percent of portfolio that addresses industrial and automotive up? How do you take your revenue that's across a broader set of customers, meaning greater than 10 or greater than 100, how do you increase that percentage? And really building the portfolio in a very strong way on the -- for the out years. So that's where the strategic time is essential [ph].

James Covello - Goldman Sachs Group Inc., Research Division

From a practical investment standpoint, the investors who were here this week have a choice. In large-cap semis, there's really 2 choices. If we put QUALCOMM into another bucket because that winds up as part of a different benchmark in a lot of people's portfolios. The 2 large-cap choices that investors have are taking very, very different approaches to the market. You guys are not worried about what your top line growth is, and you're very focused on free cash flow generation and even if it means divesting businesses where you actually have an okay position. The other choice people have is a company that's pursuing growth but that's coming at the expense of near-term cash flow. How would you like investors to think about that?

Richard K. Templeton

Yes. To me, the thing I'd modify only slightly is, growth is high, top line growth remains very high on our list. I think the asterisk is top line growth with quality positions, and I'm not trying to be cute. As you talked, right, we had some things we had to get cleaned up. And we've got OMAP and Connectivity will wind down pretty rapidly in 2013. You've now got 70% of the company focused on analog and embedded, and I think we're in a position to really grow those. We've been gaining share in both of those areas, you look over a 5, 6-year period on an incremental basis, and we'd like to keep doing that. And so I think growth is a critical element. Now that being said, I do think that you'll continue to hear us and continue to see us to be able to talk about the importance of free cash flow generation. And I say that in as much, and Jim, you've done some of this work, income statements are not always the best reflection of free cash flow. And that's just us saying, let's make sure we're paying attention to what really generates cash. Oh by the way, the nice thing is also to be able to return it. So that's where I get pretty excited about the product strategy, again, fitting together with the manufacturing, fitting together tax and down through that whole piece and what we can generate coming out the other end.

James Covello - Goldman Sachs Group Inc., Research Division

You mentioned the returning cash to shareholders. I was going to save that until later, but you mentioned it now. And obviously, you guys have been extremely aggressive returning cash to shareholders. You talked about over periods of time greater than 100%. The philosophy going forward, obviously, you're going to continue to do that because that's part of the company's overall strategy. How do you balance it between future acquisitions, buybacks and dividends?

Richard K. Templeton

Yes. I guess I'd separate it and first off, on acquisitions, I think you'll find us remaining on a bias towards analog. And then you can think inside of that, national is pretty instructive. We like catalog products, we like long life cycles, we like industrial, those are all good things when it comes to generating value, that's why we tend to favor that. And I say that, kind of as opposed to any acquisitions in embedded, because the financial dynamics of embedded are different. You want the most amount of software per instruction set, and buying things doesn't increase that leverage. It just gives you more instruction sets. So it'd be a bias on analog, and the other thing is that, it's got to not just meet those criteria, but it's got to be able to pay back. I think we're very clear when we announced National that this thing had to pay back in 3 to 4 years. And that tends to be a really important filter when you would look at that. So, and by the way, we're still pretty busy being able to grow National. So that's where our focus and attention is in the near term. If you look over the past, I don't know 4 or 5 years, as you said over 100% of our free cash flow back, I think 70% of it has been via buy back, 30% dividends. That dividend portion has been growing. I think we've increased dividends 10 years now and they're up pretty aggressively. But I think it's also an interesting time with the wireless portfolio changes now done that we do try to spend time understanding what's the smartest way to really have that return done. So it remains something that we're active with, we spend time with the board on.

James Covello - Goldman Sachs Group Inc., Research Division

When we think about acquisitions going forward, obviously, going back in 12, 13 years, there was the Burr-Brown and Unitrode acquisitions that really created the base of large part of the core of what Texas Instruments' great analog business is today. Then over the years, between then and the National acquisition, there was a series of smaller acquisitions and obviously, National now Silicon Valley Analog was another very significant acquisition. Going forward, is that how we should think about it, a big one and then, while that digestion is going on some smaller ones, or do you have an appetite for another big one in the nearer term?

Richard K. Templeton

My careful answer is far more, we're pretty focused right now just because I think it's important to do a really quality job, and let's not get distracted. So I then go on to not trying to characterize, would it be small or big, but stay focused in the near term with what we have. And as you know, and you've got good insight into a number of these companies, the number of things that really meet that spec of catalog of industrial with long life -- and by the way, they've got to be able to pay back, that tends to shorten that list down quite a bit because valuations are usually pretty good on companies doing that. You've heard me say that I think the National opportunity was really a once-in-a-lifetime chance even though there were questions about valuations paid at the time, just to be able to get that type of -- piece of property at the price we paid. And therefore, we can make a payback, but you just don't see those that often.

James Covello - Goldman Sachs Group Inc., Research Division

Is the payback the hardest criteria to meet so that better companies, just the ROI on the deal [indiscernible].

Richard K. Templeton

Well-run companies, they need to be valued.

James Covello - Goldman Sachs Group Inc., Research Division

So there are companies you would like to have but just the math doesn't work.

Richard K. Templeton

I'm careful with that. I'd like to have -- and just if stuff can't meet that spec -- you don't even need to speculate. It's just pretty mechanical.

James Covello - Goldman Sachs Group Inc., Research Division

So how about then on Silicon Valley? As you said the company was losing share. You talked about stabilizing that, and then turning that around. Where do you stand in that transition process, and how do you feel about it at this stage?

Richard K. Templeton

Yes, we described at the time somewhat a pretty logical flow, which is expect year 1, it would be below market; year 2, about market; year 3, above. And logically, it's clear, design in window or design in lead time usually takes that long to be able to have a different result. So why would you think it's going to magically get better in year 1? And it's falling about in line to what we expected on that. We certainly have the benefit in hindsight of some experience with Burr-Brown, experience with Unitrode. So leading indicators all feel good in terms of design wins, attention, energy of people, very pleased with what's happening on that. But I very quickly also remind the team internally, leading indicators are nice, results are what really count, and we're now getting into year 2. And so this will be an important year to start to see some of that show up.

James Covello - Goldman Sachs Group Inc., Research Division

You had talked specifically about some of the cross-selling opportunities, the complementary nature of their high voltage products and your portable products and across the data converter line. Are those specific opportunities where you want them to be at this point?

Richard K. Templeton

Yes. Jim. The thing that -- and I'm sure the audience has heard this and you've seen this when you talk to other companies, acquisitions are always a little scary because you try to be very thorough in your analysis and your thesis of what you're going to get. And then there's, you open up the box, and you hope it's close to what you were counting on. And where I'm pleased is it's everything, and we really haven't had surprises in terms of "Oh, gosh, this was busted or rotten," or "we didn't have that" and I think that goes back to I think we're very thorough in what to expect and where things were so things like high-speed converters and high-speed amps, great complementary opportunities. Things on the power side, some of the capabilities of tools like WEBENCH that let designers design power systems online. These were all hope to be good and they really have turned out. And the quality of the people, that's something the only way you can judge that prior to the acquisition is you have to look at the quality of the parts and you guys say, well, if they're putting out the high-quality parts then there's got to be some good people inside doing it. And we've been pleased to find out that, that really did tie. And I think the team is pleased to be part of TI, and more importantly, I don't think it's to be part of TI, I think the team is pleased to have a chance to grow and win. That's what most designers want is, I want my parts to be successful. I want to be part of a winning team and I want to see when I design a chip I want to see customers putting it in their systems and ramping it up. That's why a lot of our people get into this business, and I think we've got that working.

James Covello - Goldman Sachs Group Inc., Research Division

And the retention of the engineers that you were focused on keeping?

Richard K. Templeton

Yes, it's worked out quite well so far, and I think the thing that you always have to remember is yes, you've got to be successful in that first year, that first 2 years. But then you've also got to make sure you're providing a great environment for the long term. It's not a 1-year, 2-year event, and that's where the focus is.

James Covello - Goldman Sachs Group Inc., Research Division

Great. So one end market that I wanted to come back to and focus a little bit was on the communications infrastructure market. And that's a market that's been a little bit weaker and not a little bit weaker, it's been weaker. And maybe a little bit frustrating for all of us over the last year or 2. If you take the bottom-up carrier CapEx estimates and kind of look at what that implies, that market should certainly inflect this year; you guys are well positioned there. So I was wondering if you could talk about that and then the small cell opportunity on top of the division of the broader market.

Richard K. Templeton

Yes, Jim, you just almost asked and answered it in many ways. And we've been very thorough on trying to make sure it's really easy for a group to say, "Yes, yes, yes, our revenue is down but trust me, we're not losing share," trust but verify. And you just triangulate across you see the data, you look into the FPGA guidance, which were pretty good indicators and that's common for structure space is just weak. And they've also historically been, again, as you know, their supply chains tend to run hot. And when they get them hot they tend also go to the other extreme. And so if you take most of the public statements and what carriers' plans are with CapEx, I agree with your translation that even though things look kind of bleak right now, it's probably going to be constructive as you move forward on that. And my confidence really is on 2 fronts. First is we're not moving fewer bits around this world, and you're going to go to advanced equipment because the only way to get data capacity up is to keep moving forward. So the carrier investments will go up on that front. And then go that to the last part of your question on small cell, I think that's an extension. The only way that the carriers are going to get the spectral efficiency or the data capacity with the limited spectrum that they've got is go to different architectures, primarily small cell. You'll find lots of speculation is it '13, is it '14, will the U.S. lead? When are other countries going to follow? I'm careful only because I lived through the 2G rollout, 2.5G, 3G, and we usually get a little too worked up before the rollout, but then it usually ends up happening in pretty large-scale. I think this one will probably do some of that, will look that same way. I don't know which quarter, I don't know which year, but there'll be more of that equipment shipped in the future than less.

James Covello - Goldman Sachs Group Inc., Research Division

Great. Well, we actually used up all the time even though we didn't get through all the questions. I really appreciate you being here again. Thank you so much and look forward to doing it again soon.

Richard K. Templeton

Jim, thanks and hopefully your long-term trend line is correct and [indiscernible].

James Covello - Goldman Sachs Group Inc., Research Division

Yes, you and me both hope that. Thanks.

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Source: Texas Instruments Inc. Presents at Goldman Sachs Technology & Internet Conference 2013, Feb-13-2013 01:15 PM
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