Texas Instruments Q3 2007 Earnings Call Transcript

Texas Instruments Inc. (TXN)

Q3 2007 Earnings Call

October 22, 2007 5:30 pm ET

Executives

Ron Slaymaker - VP of IR

Kevin March - CFO

Analysts

Cody Acree - Stifel Nicolaus

Glen Yeung - Citigroup

Uche Orgi - UBS New York

Jim Covello - Goldman Sachs

John Lau - Jefferies & Company

David Wu - Global Crown Capital

John Dryden - Charter Equity Research

Chris Danely - JP Morgan

John Pitzer - Credit Suisse

Ross Seymore - Deutsche Bank

Daniel Berenbaum - Carris & Company

Tim Luke- Lehman Brothers

Sumit Dhanda - Banc of America Securities

Doug Freedman - AmTech Research

Srini Pajjuri-Merrill Lynch

Steve Smigie - Raymond James

Tristan Gerra - Robert Baird

David Wong - Wachovia

Amit Kapur - Piper Jaffray

Krishna Shankar - JMP Security

Gurinder Kalra - Bear Stearns

Allan Mishan - CIBC World Markets

Presentation

Operator

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

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

Ron Slaymaker

Good afternoon. Thank you for joining our third quarter 2007 Earnings 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 involve 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 December 10th. We expect to narrow or to 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.

TI's third quarter results were in the upper half of our range of expectations. The strong margin expansion demonstrates continued progress toward our financial goals of 55% gross margin and 30% operating margin. It also underscores the importance of our focus on Analog to achieve these goals. As growth in Analog continues to drive a better product portfolio and lower capital requirements, margins have expanded and cash flow has increased.

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

TI revenue increased 7% sequentially on strong demand for analog semiconductors. Back-to-school demand for graphing calculators was also a contributor. TI revenue declined 3% from the year ago quarter when customers were building inventory.

In our semiconductor segment, sequential growth of 6% was largely driven by strong growth in analog which was up 10%. DSP revenue was up about 6% sequentially.

The analog product revenue grew to $1.40 billion led by strength in high-performance analog. High performance analog revenue grew 13% sequentially and grew 10% from the year ago quarter. Outside of high performance analog, sequential growth also occurred across most analog product lines, although, with strongness in product sold into storage as well as printer applications.

Total analog revenue grew 2% from a year ago. The 6% sequential increase in DSP product revenue was driven by demand for DSPs and cell phone applications. We are also encouraged by the very strong sequential growth rate we had in some emerging areas, specifically digital HD radio and digital video applications, such as security and video conferencing, although these were for much smaller bases.

DSP revenue was down 4% from the year-ago quarter, primarily due to weaker wireless revenue, especially wireless infrastructure. Revenue from wireless applications grew 5% sequentially. As we said in the mid-quarter update last month, our wireless results were mixed by customer with demand from some customers significantly stronger than from others. This was a bigger factor in our wireless revenue trend this quarter than the dynamics of any particular market segment, although, shipments in the quarter were skewed toward into entry products due to strength in emerging markets.

The 7% decline in wireless revenue from a year ago mostly represented broad base declines across handset customers with the exception of a single customer, where we had solid growth.

In wireless infrastructure, revenue declined about 5% sequentially, and over 25% from a year ago. This primarily reflects a continued stall in 3G network deployments. The remainder of our semiconductor revenue was about even with that of the second quarter.

Microcontrollers, standard logic, royalties and RISC microprocessors grew while the DLP revenue declined a couple of percent. From a year ago, this revenue declined 10% with declines in DLP, RISC microprocessor and standard logic revenue, more than offsetting growth in microcontrollers and royalties.

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

Kevin March

Thanks Ron, and good afternoon, everyone. Once again, profitability gains this quarter and continues to reflect a potential that we believe is a head for TI, as analog becomes a more important part of our product mix.

TI's third quarter gross profit was $1.98 billion and gross margin was 54.2% of revenue. The gross profit grew $200 million in the second quarter as a result of the $239 million of revenue growth and included $39 million from the gain on the sale of our DSL customer-premises equipment product line in the quarter.

Total operating expenses of $971 million were about even sequentially. A slight increase in SG&A was offset by a small reduction in R&D. Operating profit for the quarter was $1.01 billion or 27.6% of revenue. Operating profit increased to $204 million from the prior quarter as all the higher gross profit felt through to the bottom line. Operating margin increased by 400 basis points in the quarter. About a quarter of this increase in margin was attributable to the gain on the sale of the DSL product line.

Other income and expense was $53 million, down $3 million compared to the prior quarter. Income from continued operations was $758 million or $0.52 per share. This was $0.10 increase from the prior quarter compared with a year ago earnings per share were up $0.07 despite lower revenue.

It might help if I summarize the third quarter's earnings per share transition from the $0.42 in the second quarter. About $0.06 of the $0.10 increase was attributable to higher revenue. About $0.01 of the increase was from higher margins. The results were $0.01 increase associated with our lower share count this quarter and finally $0.02 were from the gain on the sales of our DSL CPE product line.

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 $1.53 billion in the quarter, and we ended the quarter with $3.67 billion in total cash. We also continued our share repurchases using $1.41 billion of cash to repurchase 40 million shares of TI common stock.

Inventory of $1.45 billion at the end of the quarter increased $26 million although the days of inventory were the same as last quarter. Depreciation of $262 million in the quarter increased $6 million from the prior quarter and was $4 million below the year ago level. As we had maintained a tight discipline on capital expenditures throughout the year, we have concluded that our pace of expenditures is appropriate for the remainder of the year. As a result we have lowered our forecast for total capital expenditures this year to about $700 million from the prior forecast of about $900 million.

TI orders in the quarter were $3.55 billion, an increase of 3% sequentially. Semiconductor orders grew 6%. Our semiconductor book-to-bill ratio was 0.99 in the quarter.

Turning to our outlook for the fourth quarter, we expect total TI revenue in the range of $3.40 billion to $3.68 billion. Semiconductor revenue should be in the range of $3.33 billion to $3.59 billion. Education Technology should decline seasonally following the end of the back-to-school period to a range of $70 million to $90 million.

Earnings per share are expected to be in the range of $0.48 to $0.54 in the fourth quarter. Over the next two years we'll be taking new actions to further improve efficiencies in our analog manufacturing operations by consolidating production from our TucsonArizona wafer fabrication facility into an existing factory in Texas. This change will result in more efficient usage of our manufacturing capacity. The consolidation will be done in phases beginning this quarter and completing by the end of 2009.

When fully implemented, manufacturing operations in Tucson will cease, although engineering development work will continue there. We will incur a total restructuring charges of about $35 million distributed across the consolidation period and we expect to achieve annualized savings of about $20 million when completed.

To summarize, we believe our investments in analog over the past decade and our increasing focus on the analog market are now beginning to substantially shape the financial results for our company. We believe the fragmentation in this market today opens the door for continued market share gain opportunities for TI. As a result we believe analog will continue to be a driver of TI revenue growth in the years ahead. When combined with analog's profitability and low capital intensity we believe we will continue to show attractive earnings and cash-flow results. As our profitability and cash-flow has expanded we have continued to increase our returns to shareholders as evidenced by our September authorization for an additional $5 billion of share repurchases and a 25% increase in our dividend.

With that let me turn it back to Ron.

Ron Slaymaker

Thanks Kevin. At this time I'll ask the operator to open the 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 you an opportunity for an additional follow-up. Operator?

Question-and-Answer Session

Operator

Certainly, sir. And our first question comes from Cody Acree from Stifel Nicolaus. Please go ahead.

Cody Acree - Stifel Nicolaus

Thanks guys. Can you talk a little bit about your guidance for the semiconductor side? Obviously, orders are up a bit, and your book-to-bill is kind of around one. But seasonally, is there something going on towards your seeing a little bit of softness seasonally, especially coming off the last week's earnings calls, where PCs were seeing such a strong outlook. And now we are seeing guidance for kind of generally flat, usually semis would be typically up a bit. Can you maybe give a little more color there?

Kevin March

Yeah. Cody, what we are looking at there is that the kind of growth that we've seen for most of this year and with the normal seasonality across most of our products. We are expecting that to pretty much play its course in the fourth quarter. The main area that we are expecting a little bit different than perhaps you may have seen in the past is in the wireless area. In wireless, we are expecting that revenue is going to be about even with the third quarter.

And actually, it's being driven by two elements. One, we believe that our customers will probably repeat what we saw them do a year ago. And that is, they pull back on component deliveries in December, as they keep their inventories quite tight. And the second is the addition, the shipments now beginning for a second supplier to Ericsson. This was a supplier announcement that was made by Ericsson about a year ago last December.

And this quarter is when we are beginning to see those shipments pickup by that competitor. And so, we will be sharing that revenue with that competitor during the quarter. So, you put those together and we are expecting wireless revenue actually to be about even with the quarter. If you take a look over the last eight quarters, and see what the average growth rate is for wireless, now it has averaged about 8% growth rate in the fourth quarter. That would be with a wide variability, a low with minus 15%, as high as 28%. So, lot of variability inside there. But that's probably the main difference that we see in the fourth quarter.

Ron Slaymaker

Cody, let me also just remind that. Even though that competitor coming on board Ericsson will likely pressure our revenue over the course of the next several quarters there. Also recall that in July, we announced that, we had reengaged with Ericsson both on the custom digital base band, which has what's being affected now.

But also on new design wins at Ericsson for OMAP applications processors and OMAP, we previously had not had engagements at Ericsson before. Nonetheless on those new programs, it will probably be second half '08 before we start to see any revenue that's a result of that recent engagement again. Hey Cody, did you have a follow up.

Cody Acree - Stifel Nicolaus

Yeah. If I can use a follow-up maybe to just expand a little bit on that topic, the wireless market share trends. Seeing Ericsson have some noticeable impact in Q4 versus all the things that happened seasonally, and then going into next year having other OEMs that are starting to use other second sources, how does this all play out? How should we look out '08 as a market share year for you given, what you are doing with LoCosto and higher dollar contents, and picking up some sockets at one guy and loosing sockets at another? How does it all shake out?

Ron Slaymaker

Okay. I think of course that's a popular question over the last probably three quarters that investors and analysts ask of TI. I think one of things that you have to look at going forward is, you are, right, there are other customers that are similar to Ericsson, I would say, implementing what I'll call, what we commonly call, supply diversification strategy. Yet at the same time, I think in many cases that represents opportunity as well as some risk for TI. So, if your look at just kind of the ins and outs for 2008, we have talked about Ericsson already.

At the same we have other customers where we will have revenue, new programs that are ramping, for example, Motorola. Motorola will start to engage the program that we announced, I believe it was in January this year, we'll start too, we have historically been engaged there on the low-end and with low cost up. Motorola will begin ramping with TI I'd call it mid '08, on some of the EDGE products. And then lately, Ericsson will have the custom 3G product that we're developing for them in the initial stages of ramp as well.

I think it has certainly got a lot of attention that Nokia has also announced some prior diversification efforts. I think they have described that the earliest of those, which will be at the low-end of the product line will have some initial production starting in first half of '08. The mid-range or EDGE products, I don't know if they publicly stated when that will ramp in to production, but I think it's generally believed to start it later and will ramp in to production later. And then, on the 3G side, where, again that's been a big driver of our revenue and I think lot of Nokia's success in recent years. There are additional suppliers that they will bring on. There will be, I think they stated it as 2010 for the very initial production ramp there, as well. So again those are the ins and outs. I understand the interest in how it nets out, but I don't have a net answer for you at this point. But again that's what we view as the ins and outs over the course of the next couple of years. Okay, Cody, thank you and let's move on to our next caller, please.

Operator

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

Glen Yeung - Citigroup

Thanks. Ron, may be just one last on the last answer you gave. Do you think that in the first half of 2008, you can return back to normal seasonal growth patterns in wireless?

Ron Slaymaker

Glen, we are not really not trying to forecast first half '08. I mean as you are well aware of our practices to just take it a quarter a time, in terms of the guidance that we would give. So other than the statements I provided on ins and outs, I don't want to at this point try to guide for what kind of wireless pattern we might have in first half '08.

Glen Yeung - Citigroup

Okay. Ron, and then just stepping back a little bit and looking at your broader book of business, what's your sense as to how much of an impact all of the issues we are seeing in the macro is having on what you are seeing in your business?

Kevin March

Glen, I'll go ahead and give you an answer on that one there. Right now, we can't really point at anything but we will suggest you that it would become intangible to a point that it's affecting our business. Like everybody else we are watching it very closely. But it is important to keep in mind that about more than 80% of our revenues come from outside of the United States.

And so, we happen to be pretty diverse when it comes to a customer base that we actually ship into and therefore the economies that affect our overall revenue profile. Albeit, some of those products in Asia for example, when they are finished and they get shipped back into the US ultimately, but still a considerable portion of the macro for us is the whole world economy not just the US economy. Anyway, kind of, a long answer for you but we really don't see anything that we can point to right now. We are paying close attention but we can't point to anything that gives us any cause for a reason to indicate this change to a consumer behavior.

Ron Slaymaker

I think, the specific number is over 85% of our revenue shipped to regions outside of the United States. So that's just a specific. Glen, thank you for your questions and let's move to the next caller please.

Operator

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

Uche Orgi - UBS New York

Thank you very much. Ron, can I just ask you about analog business demand you had a significant growth in HPA. And the next question I want to ask is how much of that do you think is just share gain within this quarter? How much of that is an element of pull-in from Q4? How should we think about this trend do you see in HPA and (inaudible)?

Ron Slaymaker

Uche, I don't we think we completely know when you talk about Q4 pull-in. Probably the best indication there would be what we see in distribution. And what I would say is, first of all, if you look at sequential growth, it was 13%. And about a third of that went to rebuilding inventory toward targeted levels in the distribution channel.

So, you'll recall that back in July, I think we described in the conference call that distributors in our mind were low in certain areas, are lean in certain areas on their inventory. So, we have put in place a program to rebuild some of that during the third quarter. We achieved some of that. But I don't know that I would characterize that as pull-in per se, but certainly about a third of that HPA revenue growth in the third quarter went toward rebuilding that distributor inventory level. Do you have a follow on, Uche?

Uche Orgi - UBS New York

Yes. I do. If you just give me a few metrics like where lead times stands there now in analog and HPA and also in terms of utilization rates just for me to clip with that answer where lead times --?

Ron Slaymaker

Okay. Again, given just the breath and diversity of our product line, there was no single lead-time. I would say in general, lead times have remained stable in the quarter. On the utilization question, again, we down break up specific utilization levels. But I would say that utilization was up in the third quarter compared to the second quarter. Most of the increase as you might expect was on the analog side, given that with our foundry strategy, we generally have been able to maintain the digital side, the advanced CMOS side of our capacity pretty well fully utilized through the course of the year.

Okay. And with that, Uche, thank you for your question. Let's move to the next caller.

Operator

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

Jim Covello - Goldman Sachs

Great, Ron. Thanks so much. Quick questions on the inventory for Q4; What was your goal exiting Q4 inventory be, up, down or flat?

Kevin March

Jim, we don't forecast what inventories are going to be. We stage it for what we think the following quarter's demand is going to be. But we would just say is that we will adjust that according to what our outlook is for the following quarter and I'll just leave it at that for now.

Jim Covello - Goldman Sachs

Thanks. If I can ask you a quick follow up. In terms of the Q4 guidance, if I just kind of plug all the numbers into the model, the way that I get down to the EPS would be much lower share count. I guess that the one way to get there. I am thinking about that the right way?

Kevin March

Again, Jim, we're not forecasting anything beyond just the top line revenue and the bottom line EPS. But you do know that we just mentioned that we had repurchased about $1.4 billion or about 40 million shares in this quarter in a course to the extent that it remains accretive and the right kind of thing to do, we'll continue to buy shares in the future. But share count, that winds up to be, it's too far or too early in time for me to be able to tell you right now.

Ron Slaymaker

Okay. Thank you Jim and let's move to the next caller please.

Operator

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

John Lau - Jefferies & Company

Yes great Ron, I was wondering, if you can also clarify the quantity or the magnitude for an apples-to-apples comparison for the DSL business that you had sold for Q3 and Q4?

Ron Slaymaker

Okay. In Q3, we had $80 million of DSL CPE revenue during the month of July. And again we sold it -- that sale closed on July 31st, so $80 million is what was in our financials during the third quarter. And again that will not be there during the forth quarter, as you've noted. And then the other consideration is that was generally operating at a breakeven level in recent quarters. So, there is some revenue there but not much profit to go along with it. Do you have a follow-up John?

John Lau - Jefferies & Company

Yeah. And so, for the full quarter you are talking about you have $54 million run rate, but in the specific comparison for September to December it's about an $80 million step-down?

Ron Slaymaker

That is correct.

John Lau - Jefferies & Company

Great. Thank you very much.

Ron Slaymaker

Okay. John, thank you. 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 two quick questions. The first one really is got to do with the analog business. At this point would you say that historically the HPAL as a percentage total was about one third of the total of the analog business has it now gone to half the business now?

Kevin March

David I think we have described that is probably closer to 40% of the total analog business and total analog is now about 40% of the --

David Wu - Global Crown Capital

Of the total company?

Ron Slaymaker

Total of CE, yes.

David Wu - Global Crown Capital

Great. Kevin while you were answering your question, a simple one. If the tax rate is going to be 29% for the full year what does it mean for Q4 and do you have any idea about -- give some idea about '08 on the tax rate front?

Kevin March

Yeah, I would expect both the full year and the fourth quarter tax rate to be about 29% David and then for next year as it would become more profitable and the good news is we are making more money. The bad news is we get to pay more taxes. So I would expect that tax rate would continue to outline gradually as we become more profitable. We don't have a specific forecast for 2008 just yet.

Ron Slaymaker

Well the statutory tax rate is about 35% so as a first approximation whatever your model would imply for incremental profit you probably can assume that incremental profit is taxing at 35% until we come out with more specific guidance. Is that fair Kevin?

Kevin March

Yes.

Ron Slaymaker

Okay, thank you David. Let's move to the next caller please.

Operator

Our next question comes from John Dryden from Charter Equity Research. Please go ahead.

John Dryden - Charter Equity Research

Yes. Thanks for taking my questions. With respect to HPAL growth below total analog, but still above the growth in total semiconductor, can you define the strength as just PCs or other areas of goodness versus your expectations in July? And you expect HPAL to continue in December?

Ron Slaymaker

John, I would say it a good point you are making that our analog growth this quarter was very broad based. HPA led it as you noted. But when we look inside the high volume areas we saw multiple product areas that also contributed growth above the corporate average. Also as you noted and we said in the mid quarter update some of the computing areas or peripherals areas were probably the strongest and were areas that had upsided from our initial expectations in the quarter and those specifically would be storage and printers. But, I would describe the strength that we saw in high volume analog as broader than computing, although, those were notable areas. Do you have a follow on, John?

Unidentified Analyst

Yes. A follow up for Kevin, please. Expense controls resulted in flat OpEx dollars this year. How much of that is attributable to the digital CMOS development outsourcing? And can we still expect the $200 million savings next year?

Kevin March

In fact, in the quarter, John, we've mentioned back during the beginning of the year is that we would be taking around $55 million worth of restructuring charges attributable to that, and those charges would be about even throughout the year. So, those are pretty much offsetting. Many of the savings that we are seeing were actually begin by transition right now. We'll begin to see those savings come in through over the next few quarters and we do still expect to see $200 million a year for the total restructuring. Both the impact of the closure of our all-digital fab here in Dallas, called KFAB, and also the outsourcing of the silicon process development.

Ron Slaymaker

Okay. John, thank you for your question and we will move on to the next caller.

Operator

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

Chris Danely - JP Morgan

Hey, thanks guys. So, it looks there is about $100 million shortfall in DSP. Can you quantify how big of the $100 million was due to the Sony Ericsson share loss? And do you expect that to go even lower in Q1?

Kevin March

Hi. Chris, when you are saying $100 million shortfall in DSP, first of all, which time period and compared to what?

Chris Danely - JP Morgan

Sure. You said it is usually up about 8% sequentially in Q4 and its flat. So, that's about $100 million.

Kevin March

Okay. So, versus called a normal seasonal pattern or an average seasonal pattern in Q4. Chris, I would describe it -- actually I am not going to try to break it out across various customers. I would say the biggest seasonal nominally is wireless. Ericsson certainly will have continued impact in Q4. But, I guess, I would say that a flattish type of outlook is what we are seeing from a broader base of wireless customers as well.

And as Kevin said, I mean what we saw last year was in the month of December, a pretty sharp downtick in their demand as they basically have completed their holiday bills and were pulling back on the inventory for the end of the year. We are expecting that same type of pattern and that goes broader than just Ericsson. Do you have a follow on, Chris?

Chris Danely - JP Morgan

Yeah. And so that leads me to follow on. Since it sounds like some of the decrease is in December, should we also expect wireless to be impacted in Q1?

Ron Slaymaker

I am not sure what you mean. It's in the month of December, again as they are managing their year-end inventory levels. But beyond that comment, as I said before, we are not trying to give any kind of guidance or outlook toward Q1.

So, thanks Chris, for your questions. And we will move on to next caller.

Operator

Our next question comes from John Pitzer from Credit Suisse. Please go ahead.

John Pitzer - Credit Suisse

Yeah. Thanks for taking my question, guys. First question, are you expecting the analog business to be flat sequentially in Q4? And if you are, what's kind of normal seasonal and how should we think about flat relative to sort of share gains versus just the inventory?

Kevin March

Yeah. I would say that we are not really forecasting detail below what we have already talked about. And we take a look at total semiconductor. It's usually up 4% to 5% in Q4 and inside that, you usually got wireless up about 8%. So, you can back up from that as to how the rest of the business usually shakes up. Beyond that, I think the rest of the business actually -- the forecast that we have in place actually is a kind of a normal seasonal pattern that we've seen over a multiple time periods and anticipate the kind of growth that we've seen overall this year.

Ron Slaymaker

Hey John I should explain it. Our normal practice on guidance, to really just keep our commentary, at the semiconductor level, this quarter because of the anomaly we're seeing in wireless, we provided some wireless specific comments just to help you understand the context of the overall guidance, but we are not going to take the remainder of that revenue or the revenue guidance and break it down product line by product line. Do you have a follow-on John?

John Pitzer – Credit Suisse

Yeah I do. When you look at the counter third quarter the handset vendor saw some ASP mix issues lower-end phones being sold, I am kind of curious as to how that impacted sort of your revenue growth in Q3 in your wireless business or you expected sort of lack of growth in Q4, is that all?

Kevin March

Yeah that's a good observation John. What you heard from the handset vendors was evident in our revenue as well. We did see a shift toward lower-end products in our revenue mix and there is no doubt that it takes a lot more units of low-end handsets to make up the same amount of revenue that a 3G handset would provide for TI, so on a blended ASP for total handset that would tend to average us down, but at the same time we'll take -- first at the low-end, we have a very strong position in low-end handsets, at the same time we have a strong position in 3G handsets and we'll take the revenue growth wherever it comes from, but in this quarter, in this third quarter it did represent a shift toward low-end.

Ron Slaymaker

Okay, John, thank you for questions. We'll move to next caller.

Operator

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

Ross Seymore - Deutsche Bank

Thanks guys, kind of dove tail of that last question rather than a blended ASP dictated by the mix Ron, when do you have these markets share shifts typically people will get a little more aggressive on pricing apples-to-apples are you seeing that in this entire wireless space?

Ron Slaymaker

We didn't see any abnormal pricing trends in the quarter. What we saw in the third quarter, is whether you look at on sequential basis or versus a year ago was pretty much a normal trend on wireless pricing, blended ASP trends were not impacted by competitive pressures they were impacted by mixed between low-end and high-end. Does that answer the question, Ross?

Ross Seymore - Deutsche Bank

Pretty much.

Ron Slaymaker

Okay.

Ross Seymore - Deutsche Bank

And then the follow-up is just like you guys gave average seasonality as we looked in to the fourth quarter what's the average seasonality in the DSP side in the first quarter?

Ron Slaymaker

I have wireless I don't know that I had DSP, but normally in our first quarter we would see wireless and I should say normally because as Kevin pointed out the ranges are huge here. On an average basis, I think this is an eight year average our wireless revenue has been down 6% sequentially in the first quarter with the range of minus 30 to plus nine, so you figure out how much value is in that minus six number. Okay Ross, thank you for your question and we will move to the next caller.

Operator

Our next question comes from Daniel Berenbaum from Carris & Company. Please go ahead.

Daniel Berenbaum - Carris & Company

Hi, thanks for taking my call. So CapEx has been heading down pretty rapidly, can you give us an idea what maintenance CapEx is? And then also what sort of capital intensity do you need just to maintain the share growth that you have been seeing in high performance analog?

Ron Slaymaker

We think that we've seen our CapEx fall below 10% of revenue now. In fact, we think that sustainable over a longer period of time is probably in the mid-to-upper single-digit as a percent of revenue.

Daniel Berenbaum - Carris & Company

So, we could actually see CapEx go back up a little bit as a percent of sale, is that a possibility?

Ron Slaymaker

Well, it may fluctuate a bit overtime, depending upon timing of equipment install or fact rebuilds and so on. But I think overtime, we would expect to see that in mid-to-upper single-digits.

Daniel Berenbaum - Carris & Company

And then, may be as a follow up, may be a step back and more broad question. You said, you are not seeing any macro weakness, but obviously it seems like we bottomed out of the semi-cycle a couple of quarters ago or may be a quarter and half ago, we haven't seen a rapid lift up of the cyclical bottom. So, in your perspective, help us understand, what's changed out there, if there is not any macro weakness what's different about this cycle than what we have seen before?

Ron Slaymaker

You are thinking Dan in terms of a snapback like we often times we have been guessing. I think the thing that we would probably describe is a bit different this time as one we have been successful ourselves in maintaining much richer mixes and levels of inventory, than we have in past cycles. That's allowed us to keep our lead times much more stable and so therefore gives our customers more confidence that we will be able to meet their demands and not cause them a shortage. They don't have to restock their inventory.

In addition, we are also finding as we've come through the course of this particular cycle versus past cycles. Our distributors, as a customer base overall, have become much leaner in the amount of inventory that they are carrying and so consequently they are not building up the inventory in that channel, as well. So, we think those two combined or what's making this cycle a little bit different than what we've seen in the year's past.

Ron Slaymaker

Okay. Now, let's move to next caller, thank you for your question, Dan.

Operator

Next question comes from Time Luke from Lehman Brothers. Please go ahead.

Tim Luke- Lehman Brothers

Thanks I was wondering Kevin if you could just clarify, some of the different elements in your expectations associated with gross margin. As you have seen more of an analog mix, how you see that trending? And whether also, you could just clarify whether the lead times were this quarter versus last?

Kevin March

Tim, what we have talked about back in May, Analyst Meeting of this year, is that we were looking to bring the margins of the company to about 55% gross and 30% operating over the next few years. We're beginning to make some steady progress against that objective. We're going to get there really the way we've been getting there. You've seen in this most recent quarter for example in the past couple of quarters, some nice analog growth that's a very profitable business mix and it falls through very nicely.

We would expect analog to continue to be an increasing mix of our revenue in the quarters and years to come. In addition to that within analog the high performance analog margins, which are already quite good still have room to continue to improve. And as I mentioned to Dan on the previous call our CapEx appetite is much more modest than it has been in years past and we expect that's probably going to be as I mentioned in the mid-to-upper single digits which translations on lower depreciation as a percent of revenue overtime. So, those things brought together are the sort of things that we believe will help us continue to drive to our 55 and 30 gross and operating margin goals.

Ron Slaymaker

Do you have a follow on, Tim?

Tim Luke- Lehman Brothers

Maybe on the lead times, but I will say just for Kevin. Why you see these fluctuations in wireless, for example, with Ericsson and this one is fourth and potentially the first quarter or the first half. Do you think that the gross margins in the DSP area remained broadly stable or would they fluctuate with the revenue?

Kevin March

Actually the shorter answer Tim is that, we have worked in to our expectation. These kinds of wireless fluctuations, they may cause quarter-to-quarter adjustment from time-to-time depending on how the exact mix shakes out, but overtime, over a longer periods of time, we have worked in the fact that wireless has a pricing environment like it does that changes overtime and along as much more stable in this pricing environment by the nature of those products. And so when we talk about 55% and 30% type of gross for the company, it has taken those realities into consideration.

On the lead time standpoint, I think we have mentioned earlier, the lead times will remain quite stable. As always, a few parts that may move in or move out, but generally speaking, across the broad portfolio, lead times are quite stable and we think that's been evidenced in our order pattern and our book-to-bill being firmly stabled around one.

Ron Slaymaker

On the lead, Tim, I would also say, when you look at DSP areas outside of wireless, catalog DSP products have gross margins that are much more similar to what you would see in, for example, high performance analog products than what you would see in wireless. So thank you for your question, Tim. We will move on to the next caller.

Operator

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

Sumit Dhanda - Banc of America Securities

Yes. Hi, Kevin. I just wanted a follow-up on the implied EPS guidance, again for Q4. I know you have given for the revenue and the EPS number per se. But is it fair to assume that there is at least some level of a reduction in G&A, given a flat R&D and perhaps the bump up to gross margins, given possibly a more favorable mix in Q4?

Kevin March

Yeah, Sumit. I mean I've said a lot during the earlier question on that, but we are beginning to see, we still have the restructuring charges recurring, pretty much evenly across the quarter. I happened to deal with those early-announced actions earlier this year, but the costs do begin to come out as we wind up the end of the year here, and so in fact that will benefit, begin to benefit us in fourth quarter and certainly begin to benefit us more fully as we move into next year.

Sumit Dhanda - Banc of America Securities

And that's more on costs or G&A, the benefit or evenly on both?

Kevin March

I'll just leave it at the overall cost and not try to get in more details and estimates.

Ron Slaymaker

Other than to remind, that one of the actions that we've talked about for the advanced CMOS development was an R&D action. And I'll also point out in the third quarter in our release we noted that, some of the lower R&D number that you saw in third quarter was also associated with that advanced CMOS, the implementation of our advanced CMOS strategy, whereby we worked more [cautiously] with vendors.

Kevin March

Okay, Sumit, did you have a follow-up question.

Sumit Dhanda - Banc of America Securities

Yeah, I did. Just longer term, as we are thinking about your core businesses here. The DSP segment, for the first time in six years is going to have a down year following 2001. DLP business seemed to be seeing a lift on any kind of a sustained basis. So, really, if you are thinking out longer term as you are doing strategic planning within TI, what sort of a secular growth rate you have ascribed to both these segments, specially within DSP, which is fairly seen a more competitive land?

Ron Slaymaker

Sumit in the DSP area, all the market reports that we see suggest that over the next three or four, five years, the expectations that will continue to grow in the mid-teens kind of range. DLP has a very attractive space and for projectors in a growing position in large venues like movie theaters. The TV space though has been very competitive and we will have to see how that unfolds over the next few years. But I would remind you it's a fairly small piece of both DLP and even smaller piece of TI. What's very attractive to us is the growth opportunity in analog, and especially the high performing analogs base. And we've been articulate in the last few quarters, the observation that not only is that market expected to grow in, call it 8% to 10% kind of range over the next few years its also very fragmented market.

And by that, what I mean is that, while we had number one market share in the analog space in 2006 that was of worth only 13% market share. And we have been successfully gaining share for each of the last few years. We believe that represents a tremendous opportunity, both from just the underlying growth of the market itself, plus our ability to continue to accelerate our own growth by acquiring more market share. So, we put it all together and we are really pretty enthused about what the future looks like for us, because that turns into some really nice margin opportunities and some great cash flow opportunities.

Ron Slaymaker

Yeah. That's a good point you made, Kevin. I want to underscore. I mean, if you look at, and I know everybody on this call is primarily interested in dissecting our growth rates and revenue for the third quarter and the outlook. But if you look for example, that 13% HPA growth in third quarter is nothing new. I mean, basically, we've been gaining share in high performance analog for every year since 2001 at this point. So, you saw it once again in third quarter. Okay. Sumit, thank you for your questions and we'll move on to next caller.

Operator

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

Doug Freedman - AmTech Research

Thanks for taking my questions. Ron, can you talk about the percentage of your business that you are presently doing on sort of a consignment sale? And if there has been any changes to any other revenue reorganization in a way which you are conducting your business?

Ron Slaymaker

I'll take that first part of that question and Kevin, if you'll handle later one. The consignment revenue in third quarter roughly for a total semiconductor is about 30% of our semiconductor revenue was in the form of consignment inventory programs at major customers. The most significant product area even though there are quite a few that participate any program that is in high volume and where the customers have the capabilities that their factory to run that type of system, we have a breadth of.

But in our wireless revenue, it is about 70% of our wireless revenue that runs on consignment. And just one consideration for you on consignment programs, is that those programs, do not run on typical order backlog. Basically orders come in about the same time revenue is recognized, which is when the customers are pulling, that particular component out of their consignment inventory, out of our consignment inventory. So in essence, all of that consignment revenue operates effectively on a one-to-one or 1.0 booked-to-bill type of program.

Kevin, regarding the revenue recognition…

Kevin March

Yeah Doug, I think that Ron kind of answered the question there on the consignment side. That is we've recognized the revenue when the consignment customer actually pulls that inventory from the bottom of the warehouse, which is at their location.

As relates to revenue recognition for other channels that we sell them to, no changes to report there. We recognize revenue and distribution on a [certain] basis with appropriate reserves. We are expecting returns and so on. And with all other customers, we are recognized that the point the title transfers.

Ron Slaymaker

Okay. Dough, thank you for you questions. And we will move on to the next caller.

Operator

Our next question comes from Srini Pajjuri from Merrill Lynch. Please go ahead.

Srini Pajjuri-Merrill Lynch

Thank you. Kevin, on the gross margin side, how much of the benefit would say is mix related versus utilization? And then as you move into the first half of next year, obviously your utilization is probably going to come down a bit. But it looks like the mix is going to improve. So, my question is, can the gross margin sustain at current levels as you head into the first half of '08?

Kevin March

Yeah. Srini, we need to kind of keep in mind what effects our gross margin kind of levels. Ron, mentioned a little earlier in the call that we have been able to keep our digital fabs pretty fully loaded for most of the year, and that's because we installed less capacity internally, than what our total demands are. And that's how we use the foundry to supplement our capacity.

That also happens to be the most expensive capacity and such are the extent that we keep that well utilized. It has a neutral affect on our gross margins. And so, we will continue to use that moderation of our load instant foundries to keep our internal factories loaded and keep the initial effect on gross margins.

As to the analog side those tend to be an older more fully depreciated factories. And to the extent of loadings fluctuate and those that have very relative or little impact on gross margins. Because they tend to be older, and more fully depreciated. So, it's a long way to say that we actually think that we put those together, and short of some dramatic changes, unexpected changes in revenue profiles we would see gross margins been fairly stable to what you have seen in the past year and continuing to improve over time, as we get analog to be a bigger piece of our mix.

Ron Slaymaker

Do you follow-up Srini.

Srini Pajjuri - Merrill Lynch

Yeah. Just quickly on Ericsson, Ron. Sorry to beat up a dead horse here, but I was wondering if you can give us a bit more color as to what exactly these supply, I mean there are lot of moving parts here 2G, 3G, baseband, app processor what exactly do you supply to Ericsson? And also as you look out to the next few quarters, how long do you think these share losses will continue for?

Ron Slaymaker

Okay. It's not a dead horse topic at all, in fact again let me reiterate, our expectations of our relationship with Ericsson and that revenue potential is very, very significant over the course of time. There will be several quarters of impact that is specifically in the 3G digital baseband area.

And as you are well aware there is a group within Ericsson called, Ericsson Mobile Platform that develops 3G chipset, we have historically provided the digital baseband as well as the analog baseband functionality in there. They have as of last December; their announcement was they were bringing on an additional digital baseband supplier.

We will continue to be the analog baseband supplier. And then, as I said earlier in July we announced that we had won that digital baseband back as well, as application processors. But all that discussion is specific to that 3G EMP chipset.

Sony Ericsson also uses a chipset, basically merchant solutions from TI in some other GSM, GPRS, EDGE space as well. So, that has been an expanding business, and we expect it to continue to be an expanding revenue stream for TI in those non-3G areas. But we will see some pressure for several quarters there in 3G digital baseband. Okay. Srini, thank you, for your questions. We will move to the next caller.

Operator

Next question comes from Steve Smigie from Raymond James. Please go ahead.

Steve Smigie - Raymond James

Great. Thank you, I was hoping if you can give us a little bit of color within analog. Whether it was power management or signal pass areas that you are softening your strength or whether it is just pretty much broad based?

Ron Slaymaker

It was broad based, although certainly power management was the strongest area of growth inside of microphones analog for us. But all of the major standard linear product areas grew for TI as well but certainly power management was most significant. Do you have follow-on Steve?

Steve Smigie - Raymond James

Yeah just for the analog gross margin in general. I know one of you stated goals outside the high volume. Analog grew very quickly. Clearly that helps performance -- helps gross margin, but I was just curious how much of the negative impact or at least neutral impact high volume would have? And how you think about working on the growth of those different pieces of your business to ensure the gross margin continues to advance?

Kevin March

Steve, the high performance analog, as you pointed out, have the ability to operate at quite high gross margins. The high volume analog business tends to operate at lower gross margins, but also has a lower cost to get to market. In other words, its selling cost is quite a little bit lower. Its R&D costs are much more focused. So, the result is the operating margins for those two businesses deliver are actually quite similar. So, well, high volume will be below high performance analog, the operating margins for those two businesses will actually be quite similar overtime.

Ron Slaymaker

And Steve, what I would suggest is think of the high volume gross margins, pretty close to where we run corporate, meaning roughly 50% or so, in terms of gross margins. But as Kevin said operating margins, think both of those product lines in the 30. So, with that, thanks Steve. And we will move to next caller.

Operator

Our next question comes from Tristan Gerra from Robert Baird. Please go ahead.

Tristan Gerra - Robert Baird

Hi, guys. When do you see the (inaudible) for OEMs shifting demand for a single-chip baseband application processor outside of Japan? And at what point does the market for standalone processors like OMAP stop shrinking potentially?

Ron Slaymaker

Tristan, I don't think we have a definite point of view on which way the market will transition. I think there are certain areas, for example, e-cost of our single-chip product for [EDGE] is a single-chip product that includes both the baseband or the modem function and the application processor in a single chip. But there are very sound arguments for wise customers might also want to keep their application processor separate. And even inside of TI, you have different points of view as to which way the market will go.

I guess what I would say is, we are positioning to take advantage of whichever way the market drives. If it's a single-chip type of capability, whether it's a GSM, GPRSH, WCDMA, we have that modem capability, and certainly have the capability to integrate that with OMAP application processors.

But you know, if the customer base chooses to keep those discrete, then certainly, we are prepared to service that opportunity as well. But we don't simply know which way it will go. And even if it does shift towards a single chip, what the timing of that will look like. Did you have follow on, Tristan?

Tristan Gerra - Robert Baird.

Sure. A quick one regarding the Hollywood shift that perhaps was pushed out a bit, could you give us an update on your plan for the technology and when you expect to ramp for TV broadcasting in main three markets in cell phones?

Ron Slaymaker

Yeah, Tristan, I think the issue there is not so much of our chip. It's more when that market opportunity develops. We have had Hollywood and it's simply a matter of when that market opportunity takes off. And certainly versus a few years ago, it's taken longer than we and I think most of the players and analysts would have projected in that space.

But again that's not a question of when is the chip ready. It's simply matter of -- when the market deploys. And seeing how we didn't call it very well couple of years ago, we will probably just hold off and trying to call it at this point and when it happens we'll let you know.

Ron Slaymaker

Okay Tristan thank you. We'll move to the next caller please.

Operator

Our next caller is David Wong from Wachovia. Please go ahead.

David Wong - Wachovia

Thank you very much. Could you tell us a little bit about merchant 3G chips, and what your plans are there? What you are seeing in terms of business in the merchant's base?

Ron Slaymaker

And this is a 3G question is that right David?

David Wong - Wachovia

That's correct Ron and specifically baseband?

Ron Slaymaker

Okay. Well certainly I think as you are aware our initial shot out of the gate was for 3G was focused primarily on servicing the custom opportunities at our large OEM customers and that was a very simple strategy of basically following the money that's where the early market opportunity was and that's where we engaged. We will compliment that opportunity or the custom work we're doing with a -- in fact its in development a DRP based, let me just state that a little more clearly. A single-chip 3G product that includes both the modem or baseband function as well as the RF transceiver and that again will be a merchant solution, but if you look at where most of the revenue that we have in 3G today, which by the way is about 40% of our handset related revenue is in 3G thus far this year, that's really been driven by our strategy to pursue the custom opportunity.

Our view of the merchant solution really hasn't changed or the merchant opportunity really hasn't changed much over the last couple of quarters and if you look at the customers that are engaging 3G merchant chip solutions, they are really the players in Korea, and it's really limited to Korea, and at least today Qualcomm has been the incumbent in the net market place. So, again we will do it, but our priority certainly has been the custom side, which is a bigger opportunity, and by the way I should also point out that strategy focusing on customs what's driven TI to a market position where we hold over 50% share in 3G or W-CDMA based in modems today, so there was strategy and it played out well for us. Do you have follow on David?

David Wong - Wachovia

Yes, thanks Ron. Given the competitive shifts in the custom space, did this impact your R&D investment going forward for wireless chips, or did that remain pretty much as it's always been?

Kevin March

David I would say that the bigger impact on our R&D going forward is the change that we announced back in January having to do with the silicon development that we're now working with our foundries on. And we have talked about that would save us probably about $150 million on annualized basis starting next year, plus another $50 million for the closure of KFAB. As it relates to R&D on specific projects, we'll closely look at refocusing R&D dollars, and wireless is no exception. We do that across our portfolio. We invest in various areas and to the extent they play out. We continue to invest and if they don't, then we stop the redeploying that will be true here also. Beyond that there are no specific plans that I could tell you about inside wireless.

Ron Slaymaker

Okay, thank you David. Let's move to the next caller.

Operator

Our next question comes from Amit Kapur from Piper Jaffray. Please go ahead.

Amit Kapur - Piper Jaffray

Great, thanks a lot. You have given the importance of 3G to your handset revenue. Maybe you could talk about what your outlook for 3G is going into 2008?

Ron Slaymaker

You are saying for the industry overall?

Amit Kapur - Piper Jaffray

Yeah, exactly just when you are talking to your customers?

Ron Slaymaker

Yeah I think and again this is not a TI specific forecast. We keep that internally but where most of the marketing analysts are looking is that 3G or W-CDMA handsets next year are probably 190 million or 200 million, something like that. And if you look at this year, its probably more 170 million to 180 million, something in that range. So, it continues to grow.

Amit Kapur - Piper Jaffray

Great. Thanks. Maybe just a quick follow-up; Following up from your comments regarding analog share gains, what are some of the key drivers for continuing to gain analog share and where do you think that share can go in a longer run?

Kevin March

On the analog share gain, Amit, I think what we are seeing is the advantage that we have over pretty much all of our competitors from an extremely large sales force, coupled with a large field applications for support of that sales force. So that, we not only have a lot of players, a lot of sales people on the ground, but then we couple that with a very large portfolio of part numbers from an analog standpoint as well as other parts that many customers typically need when they need analog parts, such as digital parts, microcontrollers, logic parts and so on.

We believe coupling that together makes TI an attractive vendor, when we show up at various customers. So, that service [fall in] the last couple of years. We are going to continue on that. Its broad based in to where it goes. Some areas where we are going to be focusing more on the custom analog side will be in wireless, where there is a lot more market there for us to go after. As well as continuing to expand our focus in the automotive section.

Ron Slaymaker

Amit, let me also go back and add some clarification. What I gave you before was just what I'll call baseline WCDMA. If you look at the HSDPA piece, that's actually going to see much more significant growth in 3G.

Our estimate there is that will about an additional 70 million units, to what I gave you before. So, the total cost baseline plus DPA market will be 260 million units and that's probably all the HSDPA piece of it this year is in 10 million to 15 million unit range. So, let me just provide that clarification.

Did you have follow-on? I guess that was your follow-on, Amit. So, let's move to next caller please.

Operator

Next question comes from Krishna Shankar from JMP Security. Please go ahead.

Krishna Shankar - JMP Security

Yes. Given that you say the analog market is quite fragmented and you are the largest player with 13% market share. What does it take for TI to accelerate your market share gains in terms of acquisition? Do you feel that, the analog property is out there? That you may be willing to acquire are richly valued? Or what does it take you from accelerating your market share gain through acquisitions?

Kevin March

Krishna, we have focused in the last few years and it serviced us well, really on making sure that we got a large sales force, large field application support, and a large broad catalog internally. But we have been supplementing that catalog with acquisitions and they serviced quite well. And that focus tends to be smaller-acquisition focused, on specific technology areas that we may lack internally. One other way we take a look at it is where does a -- market seem to be headed and do we think we will be able to intersect that organically.

If we don't think we can and then we will look forward to acquisition that might supplement our ability to intersect the market. And again our buyers have been, with the smaller acquisitions. Because quite frankly, they are a lot easier to actually successfully integrate and turn in to a successful strategy. Big acquisitions can be distractive and can be very time consuming. And so what we have been doing works well and we will continue to do that.

Ron Slaymaker

Do you have follow on, Krishna?

Krishna Shankar - JMP Security

Yeah. Also on the dividend side, given decreased CapEx requirements, it seems that there is lot of room there to increase relatively modest dividend, and that could I think improve the stability in your stock price. What are your thoughts on increasing your dividend?

Kevin March

Well, since the fourth quarter of 2004, we've actually increased our dividend five times to where it is now about $0.40 per share, per year. We would agree with your observation that the lower level of CapEx and the increased stability of our cash flow certainly supports us being able to return more cash to our shareholders overtime and the way we've been doing at the last few years, its been through a combination of stock repurchases, as well as dividend increases. So I won't predict too much about the future but I will certainly agree with your assessment that our stability and cash flow certainly bodes well for the future.

Ron Slaymaker

And Krishna, just some additional color, recall in April of this year, we doubled our dividend and then in September we just announced that we were taking it up an additional 25% so certainly, as Kevin said, the dividend has been increasing. Okay. Let's now move to our next caller. Thank you, Krishna.

Operator

Our next question comes from Gurinder Kalra from Bear Stearns. Please go ahead.

Gurinder Kalra - Bear Stearns

Thanks. Yeah, most of my questions have been answered. Just one question, what are the competitive pressures in the ASP issues you are seeing with your OMAP business and, does that change with the OMAP3?

Ron Slaymaker

I don't know that when you are talking about competitive pressures, there certainly are other application processor players in the marketplace but I believe in terms of market share, TI really stands head and shoulders above those other players. And so, I don't know that I would look at any single player and again I am not trying to minimize that those players certainly look at the opportunity as we do and realize the aggressive growth opportunity that's there, but I wouldn't say there is not really any single player that is particularly gaining tracks. Was there somebody specific that you had in mind going with that, maybe not addressing.

Gurinder Kalra - Bear Stearns

No, just talking about the undue pressure from, I guess the 3G vendors, as well as developing on application processors as well as the graphic companies developing application processors here?

Ron Slaymaker

Yeah. And again, I think there is no shortage of players that want to be engaged with this market. But again, as I would, as I described, I don't think there is any one that we view as having a significant traction at this point and therefore your point on ASPs, I wouldn't say there is any undue pressure on OMAP ASPs. I mean it's a competitive marketplace, but nothing out of the ordinary for a wireless market. Okay, Gurinder. Thanks for your question and operator, will we have time for one more caller?

Operator

Certainly, sir. Our last question is Allan Mishan from CIBC World Markets. Please go ahead.

Allan Mishan - CIBC World Markets

Hey, guys. A quick question on the PC related shrink that you saw. As you are looking at Q4, do you worry that perhaps things grew a little bit too quickly in Q3? And maybe that step has to take a breather? I'm not sure if that's something comprehended in your semiconductor guidance? I was curious to what your thoughts there?

Kevin March

Yeah. Allan we did give a pretty good range on our guidance and it certainly includes the possibility that if PC was stronger than it should have been in third quarter then that would still fall inside our guidance. But the fact is, we see a lot of other areas also, that it's a very broad set of customers we are selling into, and we see a lot of other opportunities for us to be able to achieve the revenue in our guidance.

Ron Slaymaker

Do you have a follow-up Allan?

Allan Mishan - CIBC World Markets

Have you had any specific comments from those customers so far regarding the PC business perhaps having shift a little bit too fast or at this point is it just a sort of speculation that goes into your normal range?

Kevin March

I think that we have seen some of the some speculation in the media that you might be talking about. Allan I would just also point out that we have been pretty successful in serving our customers in being able to secure good market positions and that certainly serves us well as well, independent of what's happening with the actual underlying growth rate or if the market was growing too fast last quarter.

Ron Slaymaker

Okay, thank you Allan and with that we'll wrap up this call. Let me remind you that the replay is available on our website. Thank you and good evening

Operator

Thank you everyone this concludes today's conference call. You may disconnect your lines at this time and please have a wonderful day.

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