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Texas Instruments Inc. (NASDAQ:TXN)

Q2 2007 Earnings Call

July 23, 2007 5:30 pm ET

Executives

Ron Slaymaker - VP of IR

Kevin March - CFO

Analysts

Cody Acree - Stifel Nicolaus

Glen Yeung - Citigroup

Michael Masdea - Credit Suisse

Tim Luke - Lehman Brothers

Jim Covello - Goldman Sachs

Ross Seymore - Deutsche Bank

David Wu - Global Crown Capital

Chris Danely - JP Morgan

John Lau - Jefferies & Company

Uche Orji - UBS

Manish Goyal - Cref Investments

Joseph Osha - Merrill Lynch

Joanne Feeney - FTN Midwest

Doug Freedman - AmTech Research

Sumit Dhanda - Banc of America Securities

Louis Gerhardy - Morgan Stanley

Presentation

Operator

Good afternoon. My name is Mary, and I will be your conference operator today. At this time, I would like to welcome everyone to the Texas Instruments' Second Quarter 2007 Earnings Call. All lines have been place on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). Thank you.

It is now my pleasure to turn the floor over to your host, Ron Slaymaker. Sir, you may begin.

Ron Slaymaker

Good afternoon. And thank you for joining our second quarter 2007 earnings conference call. Kevin March, TI's Chief Financial Officer is with me today. 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 TI's website. A replay will be available through the web.

This call will include forward-looking statements that include risk factors that could cause TI's results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release published today as well as TI's most recent SEC filings for a complete description.

Our mid-quarter update to our outlook is scheduled this quarter for September 11. We expect to narrow or adjust the revenue and earnings guidance ranges as appropriate, with this update.

In this call, all of our financial results will be described for continuing operations, including historical comparisons, unless otherwise indicated.

The second quarter results were very close to our expectations and demonstrated important progress at TI. Revenue of $3.42 billion was in the middle of our guidance range. Semiconductor revenue grew 5% sequentially from the cyclical trough in the first quarter. At the same time, gross margins moved up 80 basis points to 52.1%, a new high for TI.

Operating margins moved up even faster or 230 basis points to 23.6%. These increases indicate good progress towards the new goals that we set earlier in the quarter for the company to achieve 55% gross margins and 30% operating margins within the next few years.

In today's call, I'll review our highlights of revenue performance and then Kevin will discuss profit performance and the third quarter outlook. We will keep our remarks short saving time for us to respond to your questions.

TI revenue increased 7% sequentially, although declined 7% from a year ago. In addition to the solid semiconductor sequential growth that I have previously mentioned, education technology revenue more than doubled as retailers began to stock calculators for the back-to-school period.

The decline from year ago reflects a combination of items.

First, in the second quarter of 2007, the semiconductor market was still in the early stage of recovery from an inventory correction. In contrast, in the year ago quarter, our customers were building inventory. Second, in the year ago quarter, we received $70 million in revenue from a royalty settlement. Finally, our calculated revenue was down about $25 million or 13% from the year ago quarter.

As we discussed at mid-quarter update, we expect this was a timing shift by some major retailers to move their inventory build closer to the start of school, and this revenue should be recovered in the third quarter.

The sequential growth in semiconductor revenue was broad based with almost all product areas increasing. Analog product revenue of $1.27 billion was up 2% and DSP product revenue of $1.24 billion was up 7%. The growth in the analog product revenue was driven by strength and high-performance analog revenue. High-performance analog revenue grew 6% sequentially and grew 11% from the year ago quarter. Total analog revenue declined 3% from year ago. The increase in DSP product revenue was driven by demand for DSPs in cell phone applications.

Revenue from wireless applications grew 6% sequentially and declined 8% from year ago. The sequential growth was driven mostly by products sold into 3G high-end cell phones. The decline from year ago was due to lower sales of OMAP applications processors in the Japan market where a significant customer inventory overbuild was underway in the year ago quarter.

Wireless infrastructure revenue declined slightly sequentially, although grew from a year ago. The sequential decline primarily reflected continued inventory reductions in the 3G infrastructure markets.

As we've said before, we remain confident in the strength of TI's positions in the cell phone market. As evidenced, today Ericsson and TI announced a significant expansion of our long-standing relationship. In short, the two companies are forming a strategic technology engagement to combine 3G modem technology from Ericsson Mobile Platform with TI’s OMAP applications processors.

Solutions from the engagement will include OMAP, custom-based brands and connectivity technologies including Bluetooth, GPS and wireless LAN. These solutions are targeted the smartphone market specifically 3G handsets with open high-level operating systems such as Windows Mobile, Symbian or Linux. We expect that handsets using these solutions will be available on the market in the second half of 2008 and the revenue will ramp overtime.

Nonetheless, we anticipate the wireless market will undoubtedly remain noisy in the months ahead, as OEM’s continue to diversify their chip suppliers. However, in the end, we believe that TI offers a combination of technologies and customer focus that is unmatched and will unable us to continue to thrive in the wireless market as our renewed engagement with Ericsson demonstrates.

The remainder of our semiconductor revenue grew 5% sequentially and declined 17% from a year ago. The biggest factor in the sequential growth was the gain DLP revenue. The biggest factors in the decline from year ago, were RISC microprocessors, as well as, the royalty settlement in the year ago quarter.

At this point, I will ask Kevin to review profitability and our outlook. Kevin?

Kevin March

Thanks Ron and good afternoon everyone. As Ron said previously, profitability gains this quarter reflect some of the potential that we believe is ahead for TI, as analog, especially high performance analog, becomes a more important part of our product mix.

TI's second quarter gross profit was $1.78 billion and gross margin was 52.1% of revenue. Gross profit grew $147 million from the first quarter as a result of the $233 million of revenue growth, resulting in an 80 basis point expansion in gross margin.

Operating margin grew even faster at 230 basis points, as we kept operating expense growth below the level of revenue growth. Total operating expenses of $975 million increased $18 million, sequentially. We held R&D above even, while SG&A grew 5%.

Operating profit for the quarter was $809 million or 23.6% of revenue. Operating profit increased $129 million from the prior quarter. Other income and expense was $56 million, up $16 million sequentially, primarily due to an impairment of an investment in the prior quarter.

Income from continuing operations was $614 million or $0.42 per share. This was a $0.07 increase from the prior quarter and a $0.05 decline from the year-ago quarter.

Let me remind you that the year-ago quarter included the $0.03 EPS benefit from the sales tax refund and a $0.02 benefit from the royalty settlement.

It might help if I summarize the second quarter's earnings per share transition from the $0.35 in the first quarter. All of the $0.07 increase was directly attributable to the higher revenue and result in utilization benefit.

A penny or below the line expense increase was offset by a plenty of other income and expense benefit.

I'll leave most of the cash flow and balance sheet items for you to review in the release. However, let me make just a few comments.

Cash flow from operations was $898 million in the quarter, and we ended the quarter with $3.58 billion in total cash. Both of these increased sequentially reflecting of reduced need for cash to meet working capital requirements, such as the payment of annual profit sharing and bonus that was made in the prior quarter. Higher net income also contributed to these increases.

In the second quarter, we continued our share repurchases using $742 million of cash to repurchase 21 million shares of TI common stock.

Inventory of $1.42 billion at the end of the quarter increased $15 million. All of the increase was due to our calculator inventory build in preparation for the back-to-school season.

Depreciation of $256 million in the quarter, dipped to 7% of revenue and capital expenditure of $174 million moved down to 5% of revenue in the quarter.

TI orders in the quarter were $3.45 billion, an increase of 8% sequentially. Semiconductor orders grew 6%. Our semiconductor book-to-bill ratio was 1.0 up slightly from 0.99 in the prior quarter.

Turning to our outlook for the third quarter, we expect total TI revenue in the range of $3.49 billion to $3.79 billion.

Semiconductor revenue should be in the range of $3.29 billion to $3.57 billion. These ranges are equivalent to sequential growth of 2% to 11% for TI, and 1% to 10% for the semiconductor segment.

Education Technology should be in the range of $200 million to $220 million as retailers would be in the peak of the back-to-school season.

Earnings per share are expected to be in the range of $0.46 to $0.52 in the third quarter.

As you likely noticed from Infineon's announcement in late June, we agreed to sell our DSL Customer Premises Equipment product line to Infineon. This move is consistent with our strategies to keep the companies resources focused on the best opportunities that will help us continue to progress toward our financial goals.

These products had revenue last year of about $225 million and have recently been running at about break-even.

In the outlook that we just provided, we assume that the sale will close at the end of July. In addition, the earnings per share estimate does not include the expected gain on the sale. We should have more detail on that impact at our mid quarter update.

To summarize, we believe our markets are regaining momentum as the market inventory correction continues to move behind us. TI's broad DSP and analogue portfolio uniquely positions the company across many of the highest potential electronics products in the market. As revenue grows and as analogue becomes a more important part of our mix, we expect further progress toward attaining our financial goals of 55% gross margin and 30% operating margin.

With that, let me turn it back to Ron.

Ron Slaymaker

Thanks Kevin. At this point, I'll ask the operator to open lines up for your questions. In order to provide as many of you as possible an opportunity to ask your questions, please limit yourself to a single question. After our response, we will provide an opportunity for an additional follow-up. Operator?

Question-and-Answer Session

Operator

Certainly, sir. (Operator Instructions). Our first question comes from Cody Acree from Stifel Nicolaus. Please go ahead.

Cody Acree - Stifel Nicolaus

Hey, guys. Thanks for getting me in here. First, Ron or Kevin, can you talk about your inventories within the channel obviously building a little bit for the calculator business, but what are you seeing your customers doing? Have we seen any changes in lead times? Orders are up nicely, but perhaps may be, even if you can't quantify could you qualify what the tone has been from the customers as far as orders?

Kevin March

Yeah, Cody, I think at the highest level, we say that inventories are probably in pretty good shape as evidenced by the fact that we saw our sales or our new orders increase by 6% quarter-over-quarter. As it relates to lead times, they are really quite stable, and we continue to see some improvements in some of those lines that we've been constrained on in the past. If we take a look at some of the channels, the distributor inventory looks to be okay. In fact, our sell-in was less but in their sell-outs, that inventory has decreased. And our calculation shows their turns now are about eight.

Our EDI OEMs seem to be okay, although, of course, we can't see into their channels. And as far as everybody else is concerned and again, based upon the order pattern, the indications are that the inventory seems to be in reasonably good shape.

Cody Acree - Stifel Nicolaus

All right, great. Thanks. And then a follow-up, if I may?

Ron Slaymaker

Sure.

Cody Acree - Stifel Nicolaus

With regards to wireless, at the mid-quarter update it sounded like things were a little surprisingly strong in the 3G sector that may be that was one place that have been weaken, was coming back. With the benefit of hindsight now, do you have any more visibility as to maybe why that was, has that continued? Can you put in more color into what's going on there low-end versus high-end at wireless?

Ron Slaymaker

Sure, Cody. I think you have it right in terms of what we've described at mid-quarter, and basically that carried forward in through the rest of the quarter. Basically, 3G maintained double-digit sequential growth, and I said maintain because that was actually the second consecutive quarter where growth in 3G was greater than and the double-digit range. So, probably, a little stronger than we had expected when we first came into the quarter, but welcome nonetheless.

I would say that wasn't the only area of growth. We had growth outside of 3G. In fact, the net of what was outside of 3G grew as well in the quarter but not as robustly, of course, as 3G. I would say the very low-end actually was probably more mixed results, and I would characterize that mix just based upon specific customers. We had one customer, I think, even on their earnings conference call last week, they characterized that they had become more selective during the quarter where they chose to engage at low-end basically opting to trade off some share for higher prices at their handset level and certainly, that pressured our unit shipments as well at the low-end. So again, good growth I would say, probably, if you look at the wireless growth overall, it's probably a little better than the average seasonal second quarter and certainly that was driven by strength in 3G handsets.

Okay, Cody, thank you, and I think Kevin had a quick addition to make.

Kevin March

Yeah, Cody, I think I chose an incorrect word. I mentioned that just the inventories were turning eight times, I meant to say, there were about eight weeks of inventory, and I just spoke incorrectly there.

Ron Slaymaker

Okay. Thanks Kevin.

Cody Acree - Stifel Nicolaus

Thank you.

Ron Slaymaker

All right. Lets move to the next caller please, operator.

Operator

Our next question comes from Glen Yeung from Citi. Please go ahead.

Glen Yeung - Citigroup

Thanks. Before I start, can I just clarify that your guidance for Q3 does not include revenues from the DSL business you are selling?

Kevin March

Glen, actually they includes probably about a months worth of revenue.

Glen Yeung - Citigroup

Okay.

Kevin March

And that business is operating about breakeven. It does not include any gain that we expect from the sale.

Glen Yeung - Citigroup

Okay, that's helpful. Thank you. All right. So, my first question really talks about analog linearity. I wondered if you could just give us a sense is to how analog progressed through the quarter and how the third quarter has started in that business?

Ron Slaymaker

Glen, I would have to say, as you see from -- and when you are talking about analog, there is lot different pieces in analog. Are you specifically talking about high-performance analog or…?

Glen Yeung - Citigroup

Yeah, kind of, I mean, I would love hear a bit of both to be honest with you.

Ron Slaymaker

Okay. Well, I don't know that I am going to have any data for you on analog linearity, I can talk about linearity for the semiconductor revenue shipments overall.

Glen Yeung - Citigroup

Okay.

Ron Slaymaker

But not want to get down into individual product areas. I would say certainly, just as you see from the high-performance analog number that we are reporting, certainly, that strength continues if you look outside of high-performance analog, I would say, we certainly recognize that the other analog is contributing very solidly from a profitability perspective, but growth is probably a little less than what we would have like to have seen, and we are certainly taking actions there to try to accelerate that growth, but as based upon the numbers we are reporting, certainly, we see that the growth that we've seen was driven by HPA.

Offsetting that growth would be some areas, for example, in wireless, and again I would characterize that as custom product, that we saw decline in and again, would be characterize as customer specific. And then also will decline in some of the analog products that we sell into the broadband areas, specifically DSL and wireless LAN. But again, I don't have specific linearity as applied to analog revenue.

Glen Yeung - Citigroup

Okay. So, my second question is, both, Ron, yourself and Kevin referred to this idea of a cyclical bottom in the first quarter. And if we think about the sort of cycles we've seen over the last two to four years, they were largely inventory driven, and I wonder if you could address, as we look into the future, are you doing anything differently to manage your inventories than you did over the last two or four years, when we did see these cyclical moves?

Kevin March

Yeah. Glen, we actually commented on that, I believe that may be on last quarter or the quarter before, but we try to lessons learned from the past. One other things we are trying to do is stage our inventory a little bit differently, and if you take a look on even on most recent balance sheet you can see some of that but we are trying to position our inventory but the finished goods level such that we can meet very short lead times and then at the chip stock level that work in process, so that we can actually hit certain peaks or spikes in demand that may occur in short order. By doing that, we are hoping to keep our lead time stable and fairly reasonable which in turn should allow our customer's to avoid having to overstock inventory and prevent us from getting behind on deliveries. So overall, what that says is our inventory levels on average will be higher in the future than they were in the past, as we execute on that kind of strategies.

Glen Yeung - Citigroup

Kevin it's helpful. Thanks.

Ron Slaymaker

Okay. Thank you Glen, and let’s move to the next caller please, operator?

Operator

Our next question comes from Michael Masdea from Credit Suisse. Please go ahead.

Michael Masdea - Credit Suisse

Yeah, thanks a lot. Ron, as you mentioned the diversification of some of these OEMs, the supplier base, not obviously new news but, can you give us an idea of what’s the equation rent of that, and also you have shown your potential, that holds your market share there, but what's the profitability looking like when you look in the next couple of quarter, is there any impact from that, from these competitors showing up?

Ron Slaymaker

Okay. I would say it’s hard for us to understand exactly where we are in terms of what stage. I think just as you have seen with Ericsson, they've certainly diversified their supplier base, you know, even if you look at announcements over the last year and yeah at the same time, we are very encouraged that with today’s announcement, we've re-engaged and we've re-engaged probably stronger than we've ever been in terms of a much broader relationship with that customer that will now encompass OMAP where it didn’t previously. And will also encompass connectivity solution.

So, you know, some of these will come and go in terms of where the customers are in their particular supplier strategies. At the same time, I think just listening to the noise that’s been out there for some time amongst investor base, you know, there’s probably still diversification taking place at various OEMs and we’ll just wait and see how that plays out overtime. But what I would say and reiterate is just what we said in the prepared remarks which is it comes down to attention to customers and those customers needs, as well as the breath of technologies that a semiconductor vendor bring to these wireless handset customers and we feel very confident that we will continue to maintain a position of strength in the wireless market going forward.

Profitability and the impact of profitability of I think what you are characterizing as an increasingly competitive wireless market, did I capture that right? I would say -- and the wireless market has always been profitable. I think what you've seen and you've heard us talk about this before, that historically it was their diversity was across functions in the cell phone, so they would have a baseband supplier, they would have may be a power management supplier, an RF supplier and as that has now basically integrated into a single chip solution from TI and other vendors, they are seeking new ways to maintain diversity which basically is to take that function and divide it across multiple suppliers, but even though, for example, the strength we've had in basebands historically by no means do that mean it wasn’t a highly competitive market and I would say going forward, we would not expect what I would call this supplier diversification strategy by the OEMs to detrimentally impact the margins that we engage within the wireless market.

Michael Masdea - Credit Suisse

Yeah, quick follow up on low cost.

Ron Slaymaker

Sure.

Michael Masdea - Credit Suisse

It seems like a structurally more concentrated market, correct me if I am wrong. But, does that causing any more volatility in terms of transitioning from one platform to another or any customer concentration issues at all relative to the mid and high end?

Ron Slaymaker

I am sorry, was that an eCosto question?

Michael Masdea - Credit Suisse

Well forget of LoCosto or eCosto as you find them and maybe especially for LoCosto.

Ron Slaymaker

And you are saying more concentration from the customer -- the handset vendor perspective?

Michael Masdea - Credit Suisse

From the fact that you have more of your revenue coming from fewer handset models is what I mean. Do you find -- first of all, is that true and do you find that that causes any more volatility of that revenue lines for you guys?

Ron Slaymaker

I wouldn't necessarily agree with that. I think we've always had a handful of wireless customers and a handful of -- in any one-time models, they have lots of different models, but for us, they are a much smaller number of platforms that drive that revenue. And when I look at the low-end, if anything, it's a positive because historically, we only had probably over the last seven years up until the last couple, there was this trend only towards more and more features in higher and higher-end handsets. What low-cost and the low-end segment of the market really was to add a new vector in terms of wireless growth that frankly is quite uncorrelated to the trend toward the high-end. So, if anything, it maybe volatile enough itself somewhat, but in terms of what it does for the growth of our business overall in wireless, I would say probably is a positive and from a stability perspective, it would be positive because of that non-correlation to the high-end growth.

Michael Masdea - Credit Suisse

Okay. Thank you.

Ron Slaymaker

Okay. All right, Michael, and let's move on to the next caller, please.

Operator

Our next question comes from Tim Luke from Lehman Brother. Please go ahead.

Tim Luke - Lehman Brothers

Thanks so much. Just sort of clarification. Ron, it seems that the catalog, analog business was a little lower or lower as you close the quarter made up for by strength in the high-end wireless among in other areas. So, I was wondering, if you could just clarify that. And then, with respect to that with a book-to-bill of around 1.0, then your revenue guidance is obviously up fairly heavily for the third quarter. How should we think about reconciling the book-to-bill and the revenue up seasonally? And is it fair to say that seasonally you would usually end the third quarter with a book-to-bill that would be somewhat above the one level as you go into a reasonably strong fourth quarter or how should we think about that in terms of revenue and bookings?

Ron Slaymaker

Okay. I will take the first question related to catalog, analog and then I’ll let Kevin address the book-to-bill part.

Tim Luke - Lehman Brothers

Thank you.

Ron Slaymaker

First, actually that's inaccurate, versus as your point or your assumption that catalog or high-performance analog slowed late in the quarter and --

Tim Luke - Lehman Brothers

Not, high-performance, perhaps just the broader analog, the 60% is in high-performance. May be -- yeah, sorry, correct, correct.

Ron Slaymaker

No, okay. And so, with that clarification, I would still say I disagree. In general, from the mid-quarter update things came in very close to what we had expected at that point. If you go back to the expectations at the very beginning of the quarter, I would say the main areas that we're different from, and again our April expectations would have been handsets were a little stronger, our infrastructure was little weaker and then there were some areas such as, in the DSP video arena that may have been a little weaker and that was really just drive by delayed ramp of a new customer program. But the variances to our forecast, especially at the mid-quarter were pretty minimal.

Kevin, do you want to answer the questions related to book-to-bill?

Kevin March

Yeah, on the book-to-bill, I think what's probably a little bit more relevant, Tim, that we take a look at is the trend of the book-to-bill. So, for example, last quarter, the semi book-to-bill was 0.99, which means we were draining inventory. This quarter it's 1.0.

We actually had sales come in and as new orders coming faster, 6% quarter-over-quarter versus revenue growing at 5%, so we are in effect building backlog. SKUs are a bit more confidential and plus the trend is moving up and that tends to be more meaningful from a directional standpoint than what the absolute number is.

Beyond that we also have very good visibility in to our EDI customers, and we can see what their factory requirements are. So, you put all those together and it gives us a pretty high degree of confidence on the revenue range that we've suggested and in fact, we'll all see revenue grow going into third quarter.

Ron Slaymaker

Yeah. Just as a reminder, I mean, if you just look at our second quarter, we grew revenue 5% sequentially on a book-to-bill back in the first quarter of 0.99. So, you don't always need a book-to-bill well above 1 to grow at the rate that we are growing now.

Tim Luke - Lehman Brothers

Right. And how does one expect that trend to continue while the orders may exceed the revenue?

Kevin March

Well, on the thesis that it does appear that we are coming out of the correction cycle, and we are at the early stages of the correction that would tend to suggest that we'd see continuing growth as we go in to the second half. I mean, so naturally orders will have to leave their ground, so I think that's a fairly reasonable assumption. And what that actual ratio comes out to, Tim, that's pretty hard to call, we must know that.

Tim Luke - Lehman Brothers

Thanks. With respect to my follow-up, and if I may, just to clarify on with respect to DLP, if you had any color on that's done? Thank you so much.

Ron Slaymaker

Okay. DLP was up over 20% sequentially, really reflecting the clearing out of excess projector inventory that was there in the first quarter as well as growth on the TV front. So again, DLP came in very close with our expectations growth over 20% sequentially.

Okay, Tim thank you for your questions. Let’s move to the next caller please?

Operator

Our next question comes from Jim Covello from Goldman Sachs. Please go ahead.

Jim Covello - Goldman Sachs

Good afternoon guys, thanks so much. This is a little bit of a follow-up to Tim's question but, relative to the cycle having bottomed in your opinion in the first quarter and the book-to-bill being improving, but not significantly above one. Do you think that’s a function of the way you guys kind of manage the inventory and started wafers a little earlier so your customers don’t have the same incentive the double order, so the way you manage this or is this an indictment of what kind of upturn we are having here?

Kevin March

Jim, I think you've probably have hit a pretty good point there, that in fact we do have a lot more inventory station ready for relatively short lead times for our customers, that they don’t need to be put in extended orders on as well as in time which is what typically does cause your book-to-bill to move well over one. So, I think you've got a very good point there, and then beyond that we are probably in early stages that I mentioned a while ago, there is another point I think where you end to it, as well.

Ron Slaymaker

And we would agree with what you described as to what we are actually seeing. We are not seeing customers place extended backlog to the most part, they are giving us just a level of visibility that is required by the lead time on the products. That's type of consistent with what we see in the month ago, as well. So, do you have follow on Jim?

Jim Covello - Goldman Sachs

Yeah. So I guess, I mean, the idea there would be maybe the slope is in the same as previous cycles, but you are not going to have the same kind of impact when things get a little bit softer ultimately.

Kevin March

I’m not really quite sure I am following Jim what you are trying to get to on the slope, you mean that the rate of increase that we receive?

Jim Covello - Goldman Sachs

Well, right. Because if customers were double-booking then obviously the slope of your revenue growth, your book-to-bill may be a little bit higher, but then you obviously going to pay the price for that at the end. So theoretically, we keep going to an upturn, but we never see that kind of slope in terms of the revenue growth or, you know, improvement in the book-to-bill but you don’t have to pay the price to the same extent when you get to the softer part of the next cycle.

Kevin March

I like the picture, you are describing.

Jim Covello - Goldman Sachs

Okay. And then maybe my final question. Just on the analog side, you guys are obviously doing a terrific job picking up share. You talked at the Analyst Meeting in very clear terms about the strategy for doing that and a lot of the share gain is kind of coming from that third bucket you described at the Analyst Meeting, the smaller customers where you have the scale and mask to you need to go after customers that maybe your competitors don’t have the same scale and mask to go after. What kind of competitive response are you expecting from the rest of the analog industry, as they try and stop you guys on your continued share gain impact? Thanks a lot.

Kevin March

Jim I guess, I would comment on that, we have already been seeing competitive response but I think the difficulty for our competitors again has to do with scale, that is we have a sales force that is such that we can just simply touch a lot more customers than any of our competitors can touch at a one point in time. We added to that the breath of our total product offering that we have and we can literally solve almost any problem that a customer may have on a particular Board that they're may be designing, which allows them to really solve their problem fairly quickly with solutions that we have as opposed to having multiple vendors in. Those are probably two elements of the position that we enjoy today and we'll enjoy in the future that we would expect to be quite difficult for our competitors to really be able to overcome, so we remained confident that our objectives to growing our positions in analog are really pretty solid and within our reach.

Ron Slaymaker

And Jim, before we declare success and how TI managed its way through this upturn, let me just remind you that we are only one quarter up the bottom, so we still have ways to go before we can fully prove that thesis there, but we appreciate it nonetheless. Let's move to the next caller operator.

Operator

Our next question comes from Ross Seymore from Deutsche Bank. Please go ahead.

Ross Seymore - Deutsche Bank

Hi guys, just with respect to the high volume analog side of things. Ron, it sounds like you mentioned that you guys were looking for profitability improvements over growth in recent quarters. Is that something that’s going to occur for a while or how should we think about the balance between growth and profitability in that sub-segment?

Ron Slaymaker

No, actually we have not emphasized profitability over growth recently. What I was really trying to characterize is, if you look at where that business is operating and frankly where it has been operating over the last year. Profitability is not a challenge. That business is fully consistent with our objective for that business on a profitability perspective. And for example, I think what we've said is, we believe that type of business should be able to drive gross margins, maybe a little below the corporate average, but probably in the mid to upper 40's and then probably with below the line expenses may be somewhere in the 10 to 15 points there about. In any case, the operative level above 30 points. My point is, its running at that level, and it has been running at the level. So, profit is where we want it, what we'd really like to see is more revenue growth from it and that’s where we're going to probably put more emphasis. It's not about cost reduction, it's not about trying to improve true profitability, its accelerating the top-line is the clarification. Do you have follow on Ross?

Ross Seymore - Deutsche Bank

Yeah, I guess kind of too far one, if I can fill in there. What specifically can you do for the growth, there because as I look back its looks like, this is about the first, second quarter. This decade where that hasn’t growth. So, I wondered if there is something specific going on or something specific where you expect the growth to accelerate. And then margins in that HPA side would be follow-up. On that if they, last quarter you said that they were just sneaking up to the bottom end of your target range, I wondered if they got over that bottom end in this quarter?

Ron Slaymaker

Okay. I will take the first and let Kevin address the second.

In terms of what we can do, I would say combinations of even organizational structure where we are allocating resources, what opportunities we're allocating resources and again, specifically, what opportunities we are addressing. Beyond that, I probably don't want to go into detail. In terms of high-performance analog profitability, Kevin?

Kevin March

Yeah. The profitability in high-performance analog has been on a steady journey, improving over a number of years now, and in fact, continues to get stronger as we go through time and that's really on the gross margin line. It still has, while it's approaching, where we would say we want that at the lower-end, it still has some room to go. In other words, we are not satisfied with the low-end of that range. We want to move it up comfortably inside that. So, that's going to be a continuing effort as we continue to introduce new products as we have been doing 400 to 500 per year, and we see those products been accepted by the marketplace, and it become a bigger portion of our overall mix that slowly shifts that gross profit margin up and bring it up to the kind of performance we think that business is entitled to.

Ron Slaymaker

Okay. Thank you, Ross. And we will move on to next caller, please.

Operator

Our next question comes from the David Wu from Global Crown Capital. Please go ahead.

David Wu - Global Crown Capital

Yes. Can I ask the question on the gross margin? First, on the very simple thing, depreciation. Since you capital spending numbers coming down, what should we or how should we think about depreciation expense which is running at about $1 billion run rate in Q2? Would it be coming down in Q3 and Q4 and into calendar '08?

And if I could also follow-up quickly? At this point, I got the impression in the Analyst Meeting there is significant digital capacity available at TI and which presumably could be used for leveraging your gross margin further as the recovery take place, and I assume the same is true for your high-performance analog business? How much high can your margins go?

Kevin March

Well, David, the short answer is that, of course, we are shooting towards 55% gross margins, and we just turned in a quarter at 52. So, we are on our way there. And we mentioned that we should be able to achieve that in a couple of years. So, that's kind of, I guess, a short answer to that part of the question. Our depreciation plan for the year, we expect about $1 billion of depreciation this year, and as you pointed out, we are on a run rate to that. We haven't forecasted next year just yet, but clearly, with our capital expenditures moderating versus what we've seen in years past that bodes well for a relatively stable depreciation over the next few time periods.

On the capacity front, I think you mentioned that you thought, you had heard that we had open digital capacity. In fact, what we've really pointed to is we have open analog capacity. If you recall that we outsourced most of our digital -- excuse me -- offers the half of our advanced photography which is where our advanced digital capacity is at.

We outsourced that to foundries. So, when demand drops, that's the first place that we pullback on loadings, which generally allows us to keep our internal factories relatively loaded. It has some line balancing issues, but generally speaking, they are relatively fully loaded. It's on the analog where we have quite a bit of capacity, especially as we can convert that older digital capacity ages, we can convert that over into analog, which constantly gives us additional capacity as we through the time. That's where we see the leverage as we begin to continue to have top line growth, and we can spread that revenue across those relatively fixed assets that in turn gives us additional margin opportunity.

Ron Slaymaker

As well as just the fact that high-performance analogue tends to run higher gross margins on average anyway versus where the corporation runs. So, as growth is happening in that targeted area, that tends to blend up the corporate total on average.

David, thank your for your questions. And let's move to the next caller, please.

Operator

Our next question comes from Chris Danely from JP Morgan. Please go ahead.

Chris Danely - JP Morgan

Hey, thanks guys. Just a different gross margin question. It sounds like DLP and HPA were up pretty strongly in the quarter. Do you think that mix had anything to do with your gross margins going up or was it all utilization rates?

Kevin March

Chris, it's probably a combination of those. I mean, clearly just the fact that we saw 5% growth in revenue and kind of revenue outlook that we have given for second quarter that alone has increased in our utilization, especially on the analog side, a little bit. But in addition to that you are also getting some mix as you pointed out between DLP and HPA, but it's important to mention that we had a growth pretty much across the Board. DLP is a fairly small portion of our total revenues. Recall that Ron had mentioned earlier that wireless grew 6% quarter-over-quarter. It's a fairly sizable portion of our revenues. HPA grew 6%. DLP, as I mentioned, was about 20% or so growth quarter-over-quarter but a much small portion of our total revenues. So, I wouldn't really say that it was mix per say; it's a combination of the two, but utilization was clearly important as well.

Ron Slaymaker

Do you have follow-on?

Chris Danely - JP Morgan

Yeah, follow-on, yes. On the use of cash, you guys had a little bit of a buyback but your share count stay roughly flat. The dividend was roughly flat and your cash is starting to creep up towards $4 billion again. Can we expect more cash usage in the second half of the year, either dividend or buyback?

Kevin March

Yeah, I think, Chris, we used about $742 million as I recall, repurchasing shares in the quarter. And actually, our dividend was up quite a bit. We used a $115 million on dividends in the quarter versus roughly 60 million or so in last few quarters because we doubled our dividend in this past quarter. So, in fact, we are using more cash, so it means are returning to shareholders. The share count didn’t change all that much because part of what we repurchased we also have activity with employee exercises and so on and those two have to net-out and you have some of that activities just occurring is causing some Malaysian share count, as you go through the quarters.

Chris Danely - JP Morgan

So, we see cash continued to go up on the second half of the year?

Kevin March

Well, I won't forecast cash because that's going to be certainly a function of what rate we buyback and sell on but I would just point out that we do still have at the end of the quarter about $3.8 billion of remaining authorizations from the board to continue our repurchases and to the extent that we have been able to execute on that in the past, we plan to continue to do that in the future.

Chris Danely - JP Morgan

Okay. Thanks guys.

Ron Slaymaker

Thank you, Chris. Next caller please.

Operator

Our next question comes from John Lau from Jefferies & Company. Please go ahead.

John Lau - Jefferies & Company

Great. Thank you, Ron. I guess, I am going to circle back and state this quite bluntly. People are already starting to see the end of the semiconductor cycle already and I am wondering if you can come back and address a couple of things again. You mentioned that you are only one quarter off the bottom and we are still early in the cycle but just to refresh us and reemphasize that point, what do you see in terms of lead times and any double ordering? Thank you.

Ron Slaymaker

Lead times are stable from where they were last quarter, I would say pretty stable really from where they've been for some time, double ordering I mean, given what we just described in terms of our orders, the order rate, the lack of extended orders that customers are giving to us none of that sounds like double ordering to me that sounds like customers that are still coming for the period where they were reducing inventory. They are cautious about not moving back into an excessive inventory position. And they have lead times from their suppliers, TI as well as other suppliers in general, that doesn’t force down to place backlog out beyond what they can forecast their business. So, we would I guess, we would feel pretty strongly that we're still at that early stage of a cycle and we see no signs that this thing is going to turn back over again. Kevin, did you have any additional comments?

Kevin March

Yeah, the only other reminder I would put in there again is, when we take a look at areas where we can see inventory in the distribution channel, for example, it continues to be quietly at about 8 weeks or so and as I mentioned earlier. We actually saw their inventories reduced over quarter-over-quarter. So, it doesn’t feel to us like there is any buffer or excess inventory available out there that needs to burned-off and in fact that there is, much of an increase in demand versus our customers have laid in for their plans. They don't have to rely on the inventory that the component company such as TI are actually holding to trying to fill that gap. So, I think that we are well staged to deal with that and we really don’t see any signs of product to the observation you made John.

Ron Slaymaker

Do you have a follow-up question, John?

John Lau - Jefferies & Company

Yes, and in terms of support for any upturn -- unexpected upturn in demand. You mentioned that you have additional analog capacity that you can put in line. And is the manufacturing cycle time now changed over the last several years, so that your reaction time to these upside order is quicker?

Kevin March

The thing that we've done on that John, its not so much the manufacturing cycle time itself has changed. Its how we approach it logistically. We have stages, I mentioned earlier, more of that analog inventory, specialty catalog inventory into finished goods, as well as, more into what we call dye stock, which is really the completed dye just before it goes to assembly and test, that essentially allows us to pull the dye and within three to four weeks shipping out to customer, so between more finished goods inventory and a larger dye buffer we believe we are in a position to build a response, so there will be certain upturns, such as you described there and keep somewhat in lead times adjusting and therefore causing our customers to be alarmed.

John Lau - Jefferies & Company

Great, Thank you.

Ron Slaymaker

Thank you, John. Let’s move to next caller please?

Operator

Our next question comes from Uche Orji from UBS. Please go ahead.

Uche Orji - UBS

Thank you very much. Can I just go back to the guidance if I may please? Just to understand how much impact this first business had within the June quarter. Can you tell us how much of June quarter revenues was is the DSL business, so, the DSL business that was 14 million?

Kevin March

Last year it was about $225 million annual business, so you roughly say call around 50 million or so, maybe a little bit more than that. We figure about one months worth of that revenue will be in the quarter and that’s what we included inside our range, should we expect to close on that by the end of July?

Uche Orji - UBS

Okay.

Kevin March

Okay, so the balance will not be -- we did not the balance into our forecast and so you need to adjust your expectation for that.

Ron Slaymaker

And Uche that number is about where it has been running in first half of this year, so we didn’t see a dramatic change from that into 2007.

Uche Orji - UBS

Okay, that's clear. Ron, just maybe I misheard you but in your characterization of the wireless market it seems like you are saying the lower end is less robust than the higher end than a 3G, is that a correct statements of how the current prices to the market?

Ron Slaymaker

No, I think that’s fair characterization for what we saw in second quarter.

Uche Orji - UBS

Is that a statement for the entire market or is that a statement or a fact that's what your customers are walking away from [UNICEF] and placing more profit side and does that imply that you lost share in that segment of the market?

Ron Slaymaker

That's a comment specifically on TI. And at the same time, I would have to say that when it comes to the low-end of the market, I would say our customers represent the vast majority of that marketplace. So, what I think it really comes down to is maybe some quarter-by-quarter noise associated with a particular build plans from customers, inventory they may have in their channel they needed to work down, things like that.

I think the low-end segment of the market overall, and the importance of those emerging markets to TI going forward is unabated. But I think you've just seen some nose that would be more customer-specific noise over the course of, specifically in the second quarter.

Uche Orji - UBS

All right. In terms of your ability to address what I may characterize [you all see] as of the markets in places like China with a solution like LoCosto, how much progress are you seeing with customized sales side of it yet to the more two or three segments of your market? Is there any color you can give us to how successful you have been with those segments of the markets?

Ron Slaymaker

I think, I would say we have been successful with that product quite broadly. I think, of course, we and certainly investors focus on the largest customers, but at the same time, I think LoCosto we have engagements with 15 different customers at this point.

We have talked about our expectations by the end of 2007 that more than 50 phone models using LoCosto will be on the market. And today, we already have more than 20 hand set models that use LoCosto that are on the marketplace. And of course, that marketplace is still highly concentrated with a few of our customers representing the biggest volume, but our customer base actually is quite broad. So, if for some reason that were to shift and the Taiwanese manufacturers or the local China manufacturers became a much more significant factor going forward, we believe we are very well positioned with those handset vendors.

And with that, well, thank you for your call, Uche. And we'll move to the next caller.

Operator

Our next question comes from Manish Goyal from Cref Investments. Please go ahead.

Manish Goyal - Cref Investments

Yeah, hi. I have two topics, one on wireless and then one on Sun Microprocessor. Let me start with Sun. As you scale down your capital spending, what do you think will be the future of Sun business, what is the value you are providing to Sun as a foundry that they have to keep that business with you and they perhaps don't go directly to foundries? And then I have a follow-up on wireless.

Kevin March

Manish, what we have done shortly, and we will continue to with Sun is that we work very hard on delivering them high-performance process technology and actually ramping their products to volume on those advanced technologies. It's what we've done, is what we'll continue to do. And which factories which are running those through as for these changes is relatively irrelevant. It's more a question of actually bringing these things up with the velocity that Sun requires when here to study these devices. I would just point out we had to work hard to win that business everyday for many years now, and we'll continue to do that in the future. But we are quite confident that we can meet Sun's needs and we have taken all action that we can to make sure that we do meet their needs going forward. So, this change in how we go about developing our process technology, we do not believe will have any material impact on our relationship or on our ability to support Sun.

Ron Slaymaker

Manish, you said you had a wireless follow-up?

Manish Goyal - Cref Investments

Yes. Ron, I was wondering that today's press release with Ericsson, are these products likely to hit the market sometime, and I mean the semiconductor devices, sometime in late 2008 or early 2009 timeframe, is that the right way to think about this?

Ron Slaymaker

Well, I think, what we have said and what we said was that in second half '08 handsets will be on the market using those products. So, you might assume that earlier it's going to be more standard products, so for example it maybe a standard OMAP device that EMP is folding into Ericsson mobile platforms folded into a chipset some of the connectivity products or whatever. But then over time, certainly, the two companies will work aggressively to optimize the implementation and the integration of their base stand as well as our applications processor. So, we will get to the market relatively quickly, meaning second half '08. But again, integration and the revenue we would expect to continue to ramp over time beyond that.

Manish Goyal - Cref Investments

Sure. Just one last follow-up. You had a sole supplier relationship at Sony Ericsson, if I remember correctly, at EMP I should say. Do you think you will maintain sole supplier relationship for 3G based band shipping in 2008?

Ron Slaymaker

Actually, we have not been the sole supplier. I believe it was last December Ericsson had -- I don’t know if it was Ericsson or FT Micro, but basically, there was a release went out that FT would be providing base bands to Ericsson. So, we have not been the sole. I think you will find Ericsson continue to maintain diversity of suppliers but at the same time, we also feel very good that the work we're going to be doing with Ericsson through this joint engagement not only on OMAP but also on the baseband processor will allow our penetration to start moving back in the right direction on their baseband product so, again we'd not been to sell we hope that this will translate to increased penetration for TI at Ericsson going forward. And with that Manish, I will thank you for your questions and lets move to next caller please.

Operator

Our next question comes from Joseph Osha from Merrill Lynch, please go ahead.

Joseph Osha - Merrill Lynch

Thanks guys. Wasn’t that the share count has been dropping pretty consistently by about $100 million a year if you look over the past couple of years. Can we still think about you are maintaining that trajectory as we go forward?

Kevin March

Joe, what we've been doing as you pointed out, there is a pretty consistent type of repurchase and what we would describe as a measured approach to our repurchases that, we are doing over a period of time. We believe that has served us well and served us well in future and to the extent that we continue to have authorizations in the board, we will execute on that. They were lined-up being a $100 million net reduction per year or something different from that. I cant quite forecast that’s going to be a function of price and inventory exercises and host of other things. But, certainly our intent to continue repurchases when the prices are attractive and we continue to make accretive repurchases on the company.

Joseph Osha - Merrill Lynch

Well, okay. But we are modeling, is there a number, how is it $50 million, 25 not to be pathetic but neutralizing employee options, exercises is not a buyback in my eye so. What I am trying to understand is, if you are going to out buying back stock to what extent that's going to impact the share count?

Kevin March

So, I think if you take a look already for the first half of this year, our diluted share count is down about 30 million shares.

Joseph Osha - Merrill Lynch

Against the second and so we can at least think about that trajectory maintaining itself to some extent?

Kevin March

I think you can model something that affect you but again it’s kind of hard, I understand that the challenge you have trying to model that in but it’s the same that we have, it’s a function of price and volumes that we actually can purchase that in the future. But we intend to use the authorization of the board has given us to continue repurchases, ideally we’re bringing the share count down overtime as you see in the last couple of years.

Joseph Osha - Merrill Lynch

Okay. And may I ask a follow up?

Ron Slaymaker

Sure

Joseph Osha - Merrill Lynch

Can you talk in the aggregate about your utilizations that actually not in the aggregate on the EMOS side of business, wherever you are keeping internal facilities loaded but how is your manufacturing activity this quarter trended relative to last quarter if we just set the analog aside, and look at the leading CMOS, though?

Kevin March

Well our utilization levels have picked up actually on both sides, I mean coming out of the correction that we put back on loading starting in the fourth quarter and going to do adjust and slightly going up in the first quarter but affected all of the factor is but clearly as we have seen the revenue grow in second quarter and our outlook for third. We've continued to pick up our load in-out of our factories, a digital factors, as you mentioned are already very heavily loaded and the analog factor are picking up on utilization and continue to have quite a bit of available capacity for us to expand on.

Joseph Osha - Merrill Lynch

And again that was a second quarter statement; we won’t talk about utilization in third quarter, the current quarter until we complete the quarter.

Joseph Osha - Merrill Lynch

Yeah. Thank you.

Joseph Osha - Merrill Lynch

Okay, Joe. Thank you. Let’s move to next caller please.

Operator

Our next question comes from Joanne Feeney from FTN Midwest. Please go ahead.

Joanne Feeney - FTN Midwest

Hi, thanks. Question a little bit more on the wireless side. So, you remarked that there were some customer specific noise in the second quarter, and I guess, I am wondering where do you see that in the second half, is this really a function of the timing of model development and release for TI or is there something more fundamental about the market that you see developing at the low-end?

Ron Slaymaker

I think, again, its very customer specific. I think, just even thinking back on their conference call, they talked about model development, things that they needed to do to get to cost points that they wanted to be able to address that marketplace and then also just you know some decisions they are making on profitability and which areas they target their resources to drive the business model for their company, but again all that discussion is very customer specific. So I don't think at all it say statement about the broader market necessarily as much as a particular customer's strategy.

Do you have a follow-on, Joanne?

Joanne Feeney - FTN Midwest

Yeah. Just a quick one. You remarked that you saw the dollar content in cell phones would rise even as your customers diversify their supplier base. Do you see that happening now or expect it continue?

Ron Slaymaker

Well, I think this announcement with Ericsson is a great example. Basically, historically, we've manufactured different parts of the modem for them. Functions like power management, at times the digital baseband and so, I think what you see in an announcement such as this is inclusion of product such as OMAP, inclusion of connectivity product, and I think that trend is very representative of what we're seeing on a much broader base across our handset OEM and again, it's no longer just manufacturing a custom digital base band for our customer, it's moving into some of these more far reaching areas that in general will tend to drive our content up.

So, yeah, we feel pretty optimistic about the opportunity there. And of course, when more and more of this functionality is integrating into fewer and fewer chips, the customers need to be looking at suppliers that they believe over the long term have all the various pieces and the technology to be able to integrate those various pieces together. And I think we feel good about our position and our ability to support those customers.

Okay. And with that Joanne, thank you for your questions. And let's move to the next caller, please.

Operator

Our next question comes from Doug Freedman from AmTech Research. Please go ahead.

Doug Freedman - AmTech Research

Hi, guys. Thanks for taking the time. Kevin, if I could start at a very high level, the new operating model target. Can you help us understand which you think you are going to achieve first, should we expect gross margins to get there first or is it the operating margin target?

Kevin March

Doug, I don't think I can really give you much more commentary on that having to say that we expect that those two go hand-in-hand on average over time, whether one arrives a quarter soon or the other that would be probably misleading to think I have that much precision in my forecasting capability.

Doug Freedman - AmTech Research

All right, I was just trying to figure out if one was more dependent upon the revenue growth than the other?

Kevin March

For the revenue growth, it's certainly important because it allows us to leverage the fixed assets that we have, and then you add to that just [AG mix] for these clients, but that's making analog a bigger portion of our total revenue over time. So, those two things are the biggest contributors to gross margins and that will fall through to operating margin.

Doug Freedman - AmTech Research

All right. And then If I could, my follow up, Motorola clearly struggling in the wireless base right now, very well known, many suppliers really missing numbers. You guys are a supplier to a couple of different channels. Can you talk about the impact that that has had on your business and then the outlook that you have for their business going forward? I know you have got a bunch of programs going on to actually increase your share there.

Ron Slaymaker

Well, certainly, Motorola is impacting business as we are hiring them or especially, in to the low-end a part of their handset segment, our outlook to that. Now, I could not comment other than, you've seen trends over time with handset manufacturers that anytime when they'll doing better than the other, we do not account any of them out, and I am seeing things now that Motorola going forward as well. So, beyond that we certainly wish I can comment.

So, thanks for questions, and let's move to the next caller, please.

Operator

Our next question comes from Sumit Dhanda from Banc of America. Please go ahead.

Sumit Dhanda - Banc of America Securities

Ron, first question I have to you back to the expanded Ericsson lines you highlighted today before your call. You talked about OMAP at Connectivity Solution. Anyway you can help us quantify other than whatever market growth that's been through Ericsson mobile. How much more growth do you think you can layer on top of that. Is that 10% more than you would have previously anticipated or you could help quantify, how much your dollar penetration in a handset would increase with Ericsson versus your previous expectations?

Ron Slaymaker

Sumit, I can't and the issue is that, for example, there is the core modem on that, we'll go into every handset that, although the depending upon the supplier strategy, we may not have a 100% of that, although certainly that's our objective. But at the same time, then you have the applications processor. But once you start getting out to the connectivity solutions, that highly dependent upon what the in-handset manufacturers choose to configure for a particular handset model, not every handset will require GPS not every handset will require wireless LAN, certainly a high percentage of handsets hopefully will elect to implement Bluetooth. But again, we are talking to couple of years out trying to understand that exact mix is difficult but what I can say is that we feel very good that this represents a significant content increase for TI, but exactly how significantly will probably able to characterize better once that time is passed. Did you have a follow on Sumit?

Sumit Dhanda - Banc of America Securities

Yes, I did actually. The benefits that you'd previously talked about to OpEx from your restructuring actions, have we seen any of that start to flow through yet, and you talked about it $200 million benefit on a normalized basis annually. But has that sort of trickle through yet, or is that mainly a late '07, early'08 phenomenon?

Kevin March

Sumit, that’s going to be pretty much an '08 phenomenon. But it will begin certainly, that it already is, but you really don’t see it because at the same time we will have to record restructuring charges along with it, which you are trying to net themselves out. As we actually complete those activities and wind those down here in the second half of this year. But we will see those coming through in a very nice fashion certainly as we move in 2008.

Sumit Dhanda - Banc of America Securities

Just to clarify then, Kevin, the restructuring charges that you are incurring, that's reflected in your operating expense guidance?

Kevin March

Yes, it is.

Ron Slaymaker

Okay, Sumit. Thank you for your questions. And operator, I think we have time for one more caller, one more question.

Operator

All right sir, our last question comes from Louis Gerhardy from Morgan Stanley. Please go ahead.

Ron Slaymaker

And Louis, I didn't mean to imply a rule, we will give you a follow-up.

Louis Gerhardy - Morgan Stanley

Just in terms of Ericsson. Is there any exclusivity in any way either, you know, time or otherwise and just who is going to manage the customer in this case?

Ron Slaymaker

I think in general, Louis the way to think about it is we are basically wining design position, especially with OMAP and EMP’s reference design and so, there -- in general, they will lead the marketing effort for getting that reference platform deploy to various handset manufactures and then we are viewing EMP of course as the design customer here, although when it actually comes to operating, support manufacturing, the ultimate handset manufacturer will be our customer as well, did that answer the question or do you have something else embedded in there, Louis?

Louis Gerhardy - Morgan Stanley

No, that answer to it and then might just follow-up would be, I think you said HPA was up around 6% sequentially, is that around 5 to 10 then with the balance of analog HPAL?

Ron Slaymaker

All right Louis, let see the -- yeah, its actually probably more and a little bit above that number but over 500 yeah, a little bit and I am sorry what was -- with the balance of what?

Louis Gerhardy - Morgan Stanley

The balance of analog would be HPAL is that right?

Ron Slaymaker

Yes. You know, that was up as well but certainly I would characterize that growth is flat to slightly up whereas HPA was the driver of growth in the quarter. Okay, Louis, thank you for your questions and with that we will wrap up the call. Let me remind you that the replay is available on our website. Thank you and good evening.

Operator: Thanks everyone. This concludes today’s conference line, you may disconnect your lines at this time and please have a wonderful day.

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