Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Texas Instruments Inc. (TXN)

February 27, 2013 1:15 pm ET

Executives

R. Gregory Delagi - Senior Vice President and General Manager of Embedded Processing

Brandon Hodge

Analysts

Joseph Moore - Morgan Stanley, Research Division

Joseph Moore - Morgan Stanley, Research Division

We're going to have to start the next session so if we could [indiscernible]. Thank you very much. Great. Well, thank you very much. Good morning, everybody. I'm Joe Moore. I'm the lead semiconductor analyst at Morgan Stanley. I'm very happy to have, from Texas Instruments today, Greg Delagi, who runs the Embedded Processing unit, and Brandon Hodge to speak to a lot of corporate issues.

So I think we're going to start out with Greg giving us a bit of an overview of the business that he runs and then we'll go into the Q&A from there.

R. Gregory Delagi

Okay. Great. Thank you, Joe. My name is Greg Delagi. I run the Embedded Processing business at TI. I guess, just as a little bit of a backdrop in terms of where we are, where we're going as a company. You've seen us intensify our focus in a very significant way on 2 segments of the market: Analog and Embedded Processing. It's really become the core focus of the company in the last several years. You kind of look back over 2012 and you look at the culmination of that with some of the decisions that we made to move away from investments and segments like the Wireless segment. We're in a position at the end of 2012 with 70% of our business focused on Analog and Embedded Processing. We believe both of those opportunities are very unique.

In the semiconductor market, we think there are very high-quality opportunities, and we think we are uniquely positioned to take advantage of those. If you look at the analog market in total, it's a $35 billion market. We've got -- with 17% of share, I think, is our round numbers, closer to 18% share in that market, and you've seen us do things to strengthen that position with the acquisition of National Semi, which was fundamentally important to our strategy there.

And on Embedded Processing, we talk about that as an $18 billion market. We have 11.5 percentage share. So both of the markets are great. They're big. We've got lots of room to grow in both of those segments.

One of the things that's important when we talk about these segments is the kind of the business model that we think we can drive to in terms of sustainability and profitability. And I think you saw some announcements from us late last week on our capital management strategy. I think that really is meant to underscore our confidence in these models and where we can take the company over time. With that, those businesses being 70% of our revenue today and continuing to expand that footprint as we grow and succeed in those markets. We believe we're in a just an unequal position in the semiconductor market to deliver very consistent returns, and we have a bias towards returning those -- returning that to our shareholders. So we can certainly answer any questions as we go into the Q&A session about that. But I do want to try to spend some time talking about Embedded Processing today.

So just this won't be too long, Joe, bear with me. The Embedded Processing, it basically breaks down into 3 different product areas we talk about. One is our microcontroller business; the second is our processor business; and the third is the connectivity technologies. When you think about connectivity technologies, wireless LAN, Bluetooth, GPS, near-field communication. Again, as we vector those investments toward the embedded space, we see great opportunities. Microcontroller is probably the biggest TAM opportunity we have. We have a relatively small position in that market place today at about 6% share. It's an investment market that we've been investing in dramatically, and I'm very excited about the opportunities there. Just with the new products that we have, the landscape of the -- competitive landscape that we have with a lot of those competitors being weaker, in combination with the sales footprint we have, I think, put us in an unparalleled position to have that business grow and be a great foundation of elements out of our Embedded Processing business.

Our processor business has been a great asset to us. You've seen in cases like Wireless Infrastructure where that's been a very strong area for us. Our DSP franchise is very important. We see great opportunities across an increasing number of spaces there.

And then lastly, on the Connectivity front, this is a smaller business for us today, but we're in this world where everything is getting connected either through a wireless network or WiFi network in your home or through your smartphone as a hub to the Internet or in terms of other kinds of mesh networks with things like ZigBee to do things like building control and automation, this technology is going into every corner of the market and is very closely coupled with what we're doing in our microcontroller business and our broad market opportunity we have.

One final comment I'll make is when we think about the Analog, when we think about Analog and EP and strategies at Texas Instruments, I think they are very, very synergistic. When you look at our Analog customer base today, we would describe that as about 90,000 customers worldwide. If you take that apart a little bit and look at how many of those customers buy some kind of embedded processor in those systems, it's probably on the order of 60,000. So it's that kind of a ratio that are using embedded processors. Our broadest footprint is in microcontroller with about 25,000 customers. So I think the opportunity there is we've got customers where we're selling them something today in an analog context. We have a dramatic opportunity to expand that as we build out our product portfolios and expand that market. And I think we could easily double the size of this business inside of the relationships we already have with customers today. So again, great opportunity, very synergistic, very, very, just a great opportunity for the company in total.

So Joe, I'll hand it back to you.

Joseph Moore - Morgan Stanley, Research Division

Okay, great, thank you. As people in our audience know, over the last few days I've been steadily losing my voice, so long answers are actually a good thing. The -- can you talk a little bit about some of the decisions you alluded to from last year, the decision to get out of the wireless portion of the OMAP and Connectivity businesses? It's kind of a funny thing because we're in this year where the smartphone business is kind of the one predicable demand driver that people are enthusiastic about and yet these have proven to be pretty tough profit drivers and clearly, the market really likes your decision. Can you just talk about what it is about those businesses? Somebody who spent your career in the wireless part of the business, what is about those businesses that makes them a little bit less attractive at this point and that makes you want to focus more in even better opportunities?

R. Gregory Delagi

And so just one embellishment, I've been actually running the Wireless business for the last 6 years before the change. For the 10 years prior to that, I ran our DSP business so my history and legacy is actually in the, really, the hard-core embedded piece of that business, the nature of the business I'm managing right now. But if you look at what happened in smartphones, I mean, it was -- it really is a function of the fact that, that market has changed in a pretty significant way. And it's changed because there were a couple of customers who vertically integrated and then pretty much everybody else inside of that segment was in a weaker position and didn't really have the ability to be able to make the investments on top of the platform that were required. There were 2 people that were investing on top of the platform, those platforms being vertically integrated, and everybody else not really having the capability to do that. The fundamental of Embedded Processing, the embedded kinds of plays is that customers write software on top of the platform. Whether we're talking about microcontrollers, wireless infrastructure, automotive, any of these segments, this business is always grounded in we want to work with customers that are writing software on top of the platforms. That is the core of the focus of the business. And we care about that for a couple of different reasons. Once a customer does that, then they have a propensity to have an investment on the platform and they want to stick with it, and you probably have the first right to engage in the next-generation platform, and there's some inherent switching barrier that comes from that relationship. When we can form a multiyear kind of engagement, you can track that back with things like what happened on the wireless side where you'd see people literally switching platforms every 6 months or 9 months. I mean, you think of a smartphone engagement with 20 million units and it lasts for 9 months. Contrast that with more of an embedded model where I think the thinking needs to be more around the lines of I've got a 2 million unit per year engagement with a customer that lasts for 10 years. And so the shift is because the belief is that, that can lead us to a much more stable and predictable business in terms of what we're doing. So the smartphone market was important to us, but it shifted and it changed, I believe, indelibly, and we just made decisions that we're going to shift our roadmap and focus more on these embedded spaces. And with every passing day, I feel better and better about that decision just because I'm more and more excited about the opportunities embedded in the kind of business it'll be.

Joseph Moore - Morgan Stanley, Research Division

That's great. And I think looking at the decision to re-profile the businesses as opposed to divesting in the market and selling the businesses, was that a function of wanting to keep the ability to retain these embedded opportunities within the...

R. Gregory Delagi

Yes, absolutely. Again, the OMAP position and what that adds to our portfolio of processors when we talk about our embedded line, there are some unbelievably great things about OMAP. It was just vectored at a market that we -- had changed and was less attractive. Those technologies being repurposed into areas like automotive, we've introduced some products at CES this year, which talked about the next generation of that OMAP technology, but tuned specifically for a market like automotive going in and doing things like infotainment systems in cars, which is an explosive area where so many of the assets that we have developed over the years with a wireless focus come to bear. The connectivity technology is very, very similar. The product implementations that we do for the embedded space are different, but the nature of those technology elements are very, very strong. And again, we have to tune our product portfolios to focus on the embedded market, whereas in the smartphone, you might have tried to collapse all those technologies onto a single chip. When you start to go out into the embedded market, if there are hundreds or thousands of customers that want to add wireless LAN capability to the devices, the kinds of technology challenges we have is to have that be easier for those companies to implement because as I like to say a lot of those smaller companies, they can't spell RF. So if we can make these technologies easier for them to use, if they can very quickly add Bluetooth or GPS or WiFi or ZigBee capability to their systems, it's tremendous advantage to us because of the footprint momentum we've got with our greater Embedded Processing strategy and again dovetailing in all things we're doing with Analog.

Joseph Moore - Morgan Stanley, Research Division

Okay. Great. And looking at your business, the Embedded Processing business that you're focused on going forward, it did decline last year similar to what we saw in the Analog business, was not immune to the macro pressures that everybody saw. Can you talk a little bit about what the drivers were? I think you were down 7%. What the decline -- what drivers were that decline? And if you want to predict when it's going to get better and when it's going to hit bottom, that will be great.

R. Gregory Delagi

I'm not sure I have a perfect prediction for you, Joe. I think if you stand back and look at the performance in total, there are a couple of dimensions to look at. The first thing is that the greatest part about this market is also a challenge in this market. When you think about markets like microcontroller and I've talked about the significance of the investments we've been making over the last several years, the profile of a lot of those engagements may be -- are relatively long and some of this is I've got to have great products and I've got to wait for that opportunity to open up in that customer that customer has to redesign that system. And those customers don't redesign those systems every 6 months. Those customers may redesign those systems every 2 or 3 years. And so we've got to wait for some of that entry points. So the investments related to new technology, it's about winning designs and then you got to intercept the customers in those cycles. So the growth wasn't as dramatic as we wanted it to be. I'm very encouraged by the acceptance of the new products and what we're seeing from the design and momentum. But I understand that it's all about turning it into revenue and profit. The single biggest issue that we had in terms of the growth performance of the business last year, I would point to the wireless infrastructure space. I mean the CapEx expenditures from the operators were down year-on-year and that resulted in a performance level that wasn't where we wanted it to be in wireless infrastructure. The good part of that is that I believe our position in wireless infrastructure is as strong as it's ever been. This is -- the weakness that we saw there was because operators weren't spending money on new networks. It wasn't a function of the fact that we had lost any designs. In fact, I'd tell you that our design position is stronger with the operators and with the OEMs than it's ever been. And I think if you start to look at how that market is changing, moving forward to solve some of the capital things, the movement, things like small cell, we feel like we're in an even stronger position in terms of the initial design momentum in segments like that. And that will provide growth even if the operators aren't spending more on CapEx because small cell is a more efficient way for them to deploy network. So long term, do I believe that the wireless infrastructure business is a great business and will continue to grow and do well for us? I do, but it was a difficult year in 2012 just based on CapEx expenditures.

Joseph Moore - Morgan Stanley, Research Division

Yes, and I felt like over the course of the last year that -- very optimistic about what's going to happen right around the corner for that business and it keeps not happening. And I still sit here today and with a fair amount of optimism about the potential deployments in the back half of the year.

R. Gregory Delagi

Lots of press releases.

Joseph Moore - Morgan Stanley, Research Division

Yes, lots of -- but legitimate reasons to be enthusiastic, I think, and yet it seems like we're still not seeing it. Any thoughts as to when that might actually hit your business?

R. Gregory Delagi

Well, I think I'm encouraged by the press releases and the things that you see in the press release -- you see in the media about networks needing to be added to or additional investments and so on. I think that's encouraging. You have to turn into purchase orders and you have to turn into shippable products for us. So -- and it is difficult to try to predict some of that with any great fidelity. If you look at that market in time, the visibility has always been relatively limited, and it's been -- when it comes back, it tends to come back with vigor. And what we're really trying to focus on is do we have the right products from a next-generation product standpoint on the things and the systems that customers are deploying? Are we positioned the way we want to be in inventory and lead times so that we can respond to that demand? Kind of accepting the fact that, that doesn't have a proven track record of doing a good job of being able to forecast when the demand is going to come, but we've got to be in a position to support it when it does. And that's really been our focus.

Joseph Moore - Morgan Stanley, Research Division

Okay. Great. And then on the microcontroller side, I mean, you guys are relatively small relative to your position in analog. But it seems like a market that is more prone to you guys picking up share than something like analog where -- I'm not saying anybody can or can't pick up share, but there are various entries that have lasted a long time. You have to win market share a very small portion at a time. Within microcontrollers, I feel like there's bigger decisions that you can make and bigger capital expenditures you can make that could maybe drive that faster. Can you talk about how you feel about that business over the next couple of years, like in terms of what you think the market share profile might look like?

R. Gregory Delagi

Yes, I mean, I think, again, the investments that we've been making over the last several years and we've done those across every dimension of the business, whether it comes to what we've done in our sales force and deploying field application engineers, people that are very deep technically on the use and application of microcontrollers to support customer design and activities, whether it's even far-reaching things like working with students and colleges to get them trained on our architectures before they graduate and go out to industry so there's that familiarity. But most importantly, it's about the new product investments that we're making. And that the -- we've announced our Wolverine, as an example, which is a next-generation of our MSP430 family, which is half of the power of any microcontroller in the marketplace. So -- and our history is when you do those things that are kind of discontinuities to the market, if you can cut power by half, it tends to mean really good things in terms of new applications and new designs, and the reaction we've seen to that family is very positive. We've got new solutions for control applications. We've got new solutions for safety applications. We've got new solutions in terms of the use of FeRAM, which we think is a significant discontinuity in the marketplace in terms of a lot of these applications. So the product portfolio, I think, is very, very strong. We got to turn that into revenue growth, and I feel very confident about our ability to do that based on the design win trends and the new technologies. I also think you have to put this against the backdrop of a weaker set of competitors. I mean, I think if you think about some of the traditional people who've got microcontrollers or Renesas, it's hard to imagine that they're going to be stronger over the next 3 or 4 years. As you think about people like ST and some of the challenges that they face, hard to see that they're going to be strong over the next several years. Now we can't bank on that completely, but I do think that all the signs are there to say that we've got an opportunity to really extend what we're doing. New products, the installed base of customers that we've got from analog, the fact that our sales guys are incented to sell whatever they can because they're only compensated on total revenue. And as those sockets become available, I feel very confident in our ability to capitalize on that opportunity.

Joseph Moore - Morgan Stanley, Research Division

Okay. And can you talk about ARM in that space? I know you guys have both proprietary architectures and ARM-based architectures. But is that a change? Is that something where you can sort of have these protective enclaves of microcontroller families and now you have something that's going to standardize across companies. Is that a change for you? Or is just a lot of value-add that you put around it that actually ends up being the driver...

R. Gregory Delagi

Yes, I mean, the differentiation in the microcontroller space probably comes from things like the peripherals, what you can do from an analog integration, and to a lesser extent, what you do on the memory side, flash versus SRAM versus FeRAM and some of those technologies. But the platform that people are writing to isn't just the instruction set, whether ARM or proprietary-based. They're actually writing to what that device capability is, and we again are getting very, very aggressive with the integration of the analog technologies inside of that portfolio. We have a -- just an incredible ability to be able to take and leverage some of the advanced analog capabilities we have, integrate those into our microcontroller families to differentiate for different opportunities. So we do -- we are taking an agnostic approach. We have some incredibly strong proprietary architectures. There are segments in the market that are shifting and moving a little bit more to an ARM base. My strategy is just very simply to be agnostic. And as those markets change, if there are dynamics that push them in that direction, then we will follow the market. I don't believe it is good to be 100% one way or the other. I think you have to maintain your objectivity and look at it market by market.

Joseph Moore - Morgan Stanley, Research Division

Okay. Great. And then on the DSP side, obviously, you have a bigger presence. What can you do to drive that market growth from here? What are the elements that you're working on and the forward-looking projects you have?

R. Gregory Delagi

Yes, I would -- I would talk about the fact that there are -- if you think about DSP and we've talked historically about DSP when I was running that, there was a little bit more of a single core kind of a product with some peripherals in the early days of DSP. DSP now has become really an ingredient technology across everything we're doing in the processor space. So whether you go in and you look at the details of the OMAP, architectures, implementations we have, there are DSPs as one of the ingredients inside of that, or whether you go to the wireless infrastructure or anywhere in between, you're seeing DSPs used to varying degrees across all of those solutions. The key to DSP is that it's about real-time control. So when you start to talk about the ability to do things in real time, DSPs become very, very important to that whole equation, and it's the core of what we're doing in wireless infrastructure. And again, that's macro small cell. But increasingly, as you start to talk about some of these new applications where DSPs can bring tremendous levels of performance at very low power versus things like x86 architectures, things like FPGAs, things like A6 inside of medical imaging and radar applications and just a whole host of new kinds of applications. Another great example of, I think, where you're seeing discontinuity is in signal processing, is if you look inside automotive and you look at the areas like advanced safety capabilities. When you look at the capabilities of what cars have today and where they're going, if you bought a new car recently, you start to see some of these features start to come available and you may know these things as parking assist. You may know of these things about lane departure where you'll get some kind of a warning. They're actually systems that will actually help you keep a lane and have a front-facing camera inside of that car, and that car is looking at the lines, and it will actually help try to keep you in the lines. It will take some control of what the car is doing. You see the back-up camera. You see the commercials on TV where the car stops automatically because you can't see the kid on the tricycle. You take that forward and start talking about collision avoidance and adaptive cruise control, and this thing is exploding in terms of the differentiation that auto manufacturers are trying to bring to the market in the next 5 to 10 years. And the signal processing intensity of those systems plays right to the sweet spot of what we're really good at with DSPs. So when we talk about that automotive market, those are just breathtaking opportunities. I see the role of electronics on automobiles is exploding.

Joseph Moore - Morgan Stanley, Research Division

And is that going to be -- so if you talk about this automotive opportunity, is that going to be a -- the kind of sale that you have in analog where you're selling them a part that they're using for these functions? Or are you going to have to go into the vertical and start tailoring stuff to exactly those collision avoidance semiconductor systems? Is that going to be -- get you more into a vertical type of mindset?

R. Gregory Delagi

Yes. I mean, I think you get a little bit of both, that products have to start to be tailored to those kinds of systems. Doesn't mean that they're so specific that they can only be used in the application, but the way you put those chips together, those systems together tends to be a little bit more application-specific. The key to me, I have no problem with vertical markets and sometimes people associate vertical markets with commoditization. I don't think you can make that association because there are vertical markets where customers really care about their ability to differentiate. And as long as there's that ability to differentiate, we can go back to the core value of what we're doing with the strategy. We want customers to write software on top of those systems. So one of the questions I get asked internally a lot and I get asked by analysts as well is what's the difference between what you're doing in automotive and what happened in the smartphones? The difference is very simple. In automotive, when you go into these systems, customers are writing a ton of software on top of these platforms because they're a unique experience. The BMW experience, the Mercedes experience, the GM experience, is going to be a function of the software that they write on top of that platform. So they are willing to make that investment. Very different than what happened in smartphones. Number two, you're talking about product life cycles that are 5 and 7 years. So as you go into those segments, you've got the stickiness of software being written on top of it and along product cycles that I think can be very, very attractive. So you talk about the safety systems and the kinds of chips we do, we believe, because of the software that's written on top of them. They can be very, very lucrative markets, very, very lucrative markets for us.

Joseph Moore - Morgan Stanley, Research Division

Okay. Great. And then the case for Connectivity in these markets is actually pretty clear. I mean, these devices are all talking to each other in lots of different ways. For me, OMAP is a little less clear in terms of -- from an embedded standpoint because what -- when is a 32-bit microcontroller not enough? And are the feature sets that you've sort of historically focused on for OMAP, things like video compression, smartphone-centric feature sets, are those still important to these markets as you start to, I guess, aim above the 32-bit microcontroller?

R. Gregory Delagi

Yes, I think if you look at OMAP at CES this year, we introduced our Jacinto family, which is basically -- it is the culmination of what we've been talking about. It is the first OMAP device specifically targeted for automotive that builds off of our legacy with the Jacinto family in digital infotainment systems inside of cars. So it basically builds off of a lot of the same core building blocks that you've got in OMAP, but it brings in some things that are very specific for automotive applications. So the combination of elements that you've brought together inside of that system-on-a-chip, doing things like hand bus and things that are very specific to automotive, that's a great example that is the design-in rate. That we've got the customer acceptance rate of that family, in my mind, very quickly cements the fact that the capabilities of devices like OMAP taken into those applications are a great opportunity for us. Again, customers will write software on top of them, which will make it a different story. On the Connectivity front, I -- you could say it's a little bit more intuitive, and I agree with you. But I also don't think we're starting to imagine the full potential of what that business can be when you start to look at this concept of everything getting connected. I think all of us have had some experience. We use Bluetooth chips in our headsets and I connect to the car and I can see some of those things. But a couple of examples that I would offer that starts, I think, to build on the imagination of what can be. One is, if you look at NESLABs. I think people have seen the NESLAB's Thermostat. It's a great example of mine because, number one, I'm in love with the product. I use it in my house. I think it is just unbelievable. But there is a classic example of something that we've all known and used our entire life, where you've gone and then you've added additional functionality, you've gone from a microcontroller to a microprocessor and you've added wireless and the device has got a completely different feel, look, purpose in life. I can control it from any place I am in the world. And we see countless examples like that where wireless is changing the very nature of what those products are capable of doing. Another example is we're working with a customer who's designing in WiFi into a dishwasher. And you could say, "Well, why do I want WiFi in my dishwasher? It's really not that hard to load the dishwasher and press the button and have the thing work. Why would I ever want to know whether it's on or off remotely?" And the point is you don't want to know. You probably don't care. That's not what they're envisioning. What they're envisioning is, since we all have wireless networks in our home, when I buy that high-end dishwasher, I want to understand how you're using it. And Joe, you use the same wash cycle on your dishwasher every single time, why do I have 16 wash cycles? Why do I have 8 buttons? Why don't I figure out some way to tailor that product to cost reduce that product so I can take cost out of my system because no one's using the other 16 functions? If you think about that, how does an appliance guy do that today? They have a focus group where they'll get 5 or 6 people into a conference room and ask that. What happens with the power of having 20,000 installed dishwashers that do not understand how they're being used? How many times a day, what wash cycles, et cetera, et cetera. They take that forward and say, "I want to be able to do remote diagnostics when you've got a problem"; I can now do that. I want to be able to signal that the motor is about to go out and signal your local appliance guide to make a service call to try to replace it before it breaks. There's these whole new business models that are starting to emerge. Once these devices get connected, they can do completely different things. The last example I'll give you, and this is a personal one for Brandon, he was telling me a story, we're seeing things where insurance companies are approaching us to try to see how wireless could change the nature of some of the things that they do. An example, the wireless sensor by your hot water heater give you an incentive on terms of reduction in your premium to implement that system. Once you've got that system implemented, it tells you when the water heater is leaked so it could be a $100 repair as opposed to a $10,000 repair because it ran for 3 days and the water went through the entire house. So -- and I'm just scratching the surface of the kinds of things it can be. So those technologies, dovetailed in with we're doing across the greater EP in TI when we talk about analog, I think, are breathtaking opportunities.

Joseph Moore - Morgan Stanley, Research Division

Great. I just have one more question, then I'll open it to the audience. I know you have a mid-quarter next week so you're not going to -- no matter how hard I try, you wouldn't give me a preview of that. But the general notion that the business is in kind of a bottoming process here and we've been through a pretty tough 12 months and you guys talked about it on the earnings calls, so I'm not saying something that's different. But that -- this is a process where we've seen things bottom out. We've seen orders coming back generally and that the rest of the year looks better from here. Are you willing to comment on that?

R. Gregory Delagi

Yes, I guess, in general, I don't have anything. I knew you'd try, but I don't have anything else to add before the mid-quarter update. I'll just say that the posture that we're taking is that it's difficult to predict, and we just are -- we're watching every sign that we possibly can. And we're making sure that we're positioned from an inventory standpoint and a responsiveness standpoint that as it comes back, we're going to be in a great position to be able to serve our customers. That is the entire focus of the corporation.

Joseph Moore - Morgan Stanley, Research Division

Great. And I wanted to ask you also about the capital structure initiative that you made, but let's open it to the audience and see if there's any questions and then come back to that. Francois?

Unknown Analyst

Yes, I have a question about 300 millimeter manufacturing. It's been 4 years now that you've been the only one to do analog manufacturing on 300. Sounds like ST is planning to do it. Infineon is doing it for different products. I agree. Is there anything you would do differently or you would have done differently for 300 manufacturing? What is the capacity utilization today for those fabs?

R. Gregory Delagi

Yes, I don't have a breakdown on capacity utilization, specifically for the 300-millimeter RFAB. I'd tell you, we believe that it's a very important part of our overall strategy. You're not going to want to build everything in 300 millimeter, but there are clearly applications in an analog context where that brings some really significant value. So it's part of a continuum of manufacturing capability. With analog, they tend to be special recipes, special things that we do in terms of tweaking the process specifically for analog. And for certain high-volume applications, you've got an opportunity to leverage the distinct benefits that 300 millimeter bring you, but there's going to be enough volume behind it to do it. So I don't think we regret the decision. I think we think it is a very good decision. I think that imitation is the sincerest form of flattery, and I think the fact that others are now standing up and saying that they're going to do some of this stuff is -- I think that's an endorsement that we were on the right path when we set out on this journey a few years ago. But no comments specifically on what utilization levels look like.

Joseph Moore - Morgan Stanley, Research Division

Questions? So maybe you could touch on the announcement that significant dividend increase as well as a much larger buyback and talk about the willingness to fund that buyback through rolling some of the debt that's out there. Why are you making that decision now? I mean, the stock's actually moved up a lot. You've had this very good cash flow for a while. Why make the decision now to kind of say, okay, this is the time we need a much higher dividend and a much bigger buyback?

R. Gregory Delagi

Yes, I'll let Brandon provide some additional color around it. I'd tell you that I think, as we've talked about this internally and made the decision to do it is, if you look back at our history over the last several years and our ability to do this, we have been doing it looking back. And so if you're doing it looking back and you're confident about the nature of the businesses that we're pursuing and your ability to do this moving forward, what you see is a shift here to talk about this as a conscious part of the strategy and an expectation that we want our investors to have about our ability, number one, to run a model that allows us to generate the cash, and number two, that we have every intention of returning that to our shareholders. So I think that's really what's changed, and it's a proactive part of the strategy because we think we're in a unique position to do that versus most of our peers in the semiconductor industry.

Brandon Hodge

I think you covered it very well. I mean, it's the intent of we've got a business model that is going to continue to generate a lot of cash, and management is committed to then once that cash is generated, return it through dividends and buybacks. We've raised the dividend. This year will be the 10th year in a row that we've raised the dividend. And we've got outstanding authorizations with the new $5 billion in buyback authorizations to take us to another $8.4 billion outstanding that we can go and repurchase.

Joseph Moore - Morgan Stanley, Research Division

Okay. And what is the signal in terms of future uses of capital? I mean, you've done acquisitions before that were pretty large for cash. How do you -- is this saying that you basically are more interested in returning cash to shareholders than pursuing that type of growth? Or is this more you'll take those opportunities as they come?

Brandon Hodge

When you think about the business model, the focus on analog and embedded, you have great margins, first off, so that's going to generate cash at the beginning. Then we've got the -- a small CapEx bill. So we've gone off the last several years that have made opportunistic acquisitions of capacity. The great thing of doing it is you go out and you get distressed assets, you can get them for pennies on the dollar. And instead of waiting for when the assets are needed, you got to pay full price, we're able to go off and buy them for distressed values. Last year, our capital expenditures were less than 4% of revenue. And we should maintain that level, about 4% of revenue up to about $18 billion. We'll be 4% to 7% of revenue from $18 billion to $25 billion. And so that is going to lead to strong free cash flow generation. Now on the acquisition side, we did the National acquisition in 2011. There's still a lot of focus on working through, getting that acquisition integrated and making sure that everything works out there. That was the largest acquisition done in semiconductor. There's still a lot of focus there and that's going to be the continued focus going forward. As we look at acquisitions in the future, there's a bias towards analog acquisitions. There's a bias towards smaller acquisitions. We want to preclude anything else taking place but that's going to be where the bias will be going forward.

Joseph Moore - Morgan Stanley, Research Division

Great. Any other questions from the audience? All right, I guess we'll wrap it up there then. Thank you very much for your time.

R. Gregory Delagi

All right. Thanks, Joe.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Texas Instruments' Management Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript)
This Transcript
All Transcripts