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Texas Instruments Inc. (NASDAQ: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 EquityResearch

Chris Danely - JP Morgan

John Pitzer - Credit Suisse

Ross Seymore - Deutsche Bank

Daniel Berenbaum - Carris &Company

Tim Luke- Lehman Brothers

Sumit Dhanda - Banc of AmericaSecurities

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

Operator

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

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

Ron Slaymaker

Good afternoon. Thank you forjoining our third quarter 2007 Earnings Call. Kevin March, TI's Chief FinancialOfficer is with me today. For any of you who missed the release, you can findit on our website at ti.com/ir. This call is being broadcast live over the weband can be accessed through TI's website. A replay will be available throughthe web.

This call will includeforward-looking statements that involve risk factors that could cause TI'sresults to differ materially from management's current expectations. Weencourage you to review the Safe Harbor statement contained in the earningsrelease published today as well as TI's most recent SEC filings for a completedescription.

Our mid-quarter update to ouroutlook is scheduled this quarter for December 10th. We expect to narrow or toadjust the revenue and earnings guidance ranges as appropriate, with thisupdate.

In this call, all of ourfinancial results will be described for continuing operations, includinghistorical comparisons, unless otherwise indicated.

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

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

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

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

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

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

DSP revenue was down 4% from theyear-ago quarter, primarily due to weaker wireless revenue, especially wirelessinfrastructure. Revenue from wireless applications grew 5% sequentially. As wesaid in the mid-quarter update last month, our wireless results were mixed bycustomer with demand from some customers significantly stronger than fromothers. This was a bigger factor in our wireless revenue trend this quarterthan the dynamics of any particular market segment, although, shipments in thequarter were skewed toward into entry products due to strength in emergingmarkets.

The 7% decline in wirelessrevenue from a year ago mostly represented broad base declines across handsetcustomers 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. Thisprimarily reflects a continued stall in 3G network deployments. The remainderof 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 coupleof percent. From a year ago, this revenue declined 10% with declines in DLP,RISC microprocessor and standard logic revenue, more than offsetting growth inmicrocontrollers and royalties.

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

Kevin March

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

TI's third quarter gross profitwas $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 revenuegrowth and included $39 million from the gain on the sale of our DSLcustomer-premises equipment product line in the quarter.

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

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

It might help if I summarize thethird quarter's earnings per share transition from the $0.42 in the secondquarter. 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 $0.01increase associated with our lower share count this quarter and finally $0.02were from the gain on the sales of our DSL CPE product line.

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

Cash flow from operations was$1.53 billion in the quarter, and we ended the quarter with $3.67 billion intotal cash. We also continued our share repurchases using $1.41 billion of cashto repurchase 40 million shares of TI common stock.

Inventory of $1.45 billion at theend of the quarter increased $26 million although the days of inventory werethe 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 theyear, we have concluded that our pace of expenditures is appropriate for theremainder of the year. As a result we have lowered our forecast for totalcapital expenditures this year to about $700 million from the prior forecast ofabout $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 thefourth 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 endof the back-to-school period to a range of $70 million to $90 million.

Earnings per share are expectedto be in the range of $0.48 to $0.54 in the fourth quarter. Over the next twoyears we'll be taking new actions to further improve efficiencies in our analogmanufacturing operations by consolidating production from our TucsonArizona wafer fabrication facility into anexisting 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 completingby the end of 2009.

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

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

With that let me turn it back toRon.

Ron Slaymaker

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

Question-and-Answer Session

Operator

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

Cody Acree - Stifel Nicolaus

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

Kevin March

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

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

And this quarter is when we arebeginning to see those shipments pickup by that competitor. And so, we will besharing that revenue with that competitor during the quarter. So, you put thosetogether and we are expecting wireless revenue actually to be about even withthe quarter. If you take a look over the last eight quarters, and see what theaverage growth rate is for wireless, now it has averaged about 8% growth ratein the fourth quarter. That would be with a wide variability, a low with minus15%, as high as 28%. So, lot of variability inside there. But that's probablythe main difference that we see in the fourth quarter.

Ron Slaymaker

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

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

Cody Acree - Stifel Nicolaus

Yeah. If I can use a follow-up maybeto 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 thathappened seasonally, and then going into next year having other OEMs that arestarting to use other second sources, how does this all play out? How should welook out '08 as a market share year for you given, what you are doing withLoCosto and higher dollar contents, and picking up some sockets at one guy andloosing sockets at another? How does it all shake out?

Ron Slaymaker

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

At the same we have othercustomers where we will have revenue, new programs that are ramping, forexample, 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 historicallybeen engaged there on the low-end and with low cost up. Motorola will beginramping with TI I'd call it mid '08, on some of the EDGE products. And thenlately, Ericsson will have the custom 3G product that we're developing for themin the initial stages of ramp as well.

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

Operator

Our next question comes from GlenYeung from Citigroup. Please go ahead.

Glen Yeung - Citigroup

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

Ron Slaymaker

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

Glen Yeung - Citigroup

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

Kevin March

Glen, I'll go ahead and give youan answer on that one there. Right now, we can't really point at anything butwe will suggest you that it would become intangible to a point that it'saffecting 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 revenuescome from outside of the United States.

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

Ron Slaymaker

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

Operator

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

Uche Orgi - UBS New York

Thank you very much. Ron, can Ijust 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 justshare gain within this quarter? How much of that is an element of pull-in fromQ4? How should we think about this trend do you see in HPA and (inaudible)?

Ron Slaymaker

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

So, you'll recall that back inJuly, I think we described in the conference call that distributors in our mindwere low in certain areas, are lean in certain areas on their inventory. So, wehave 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 aspull-in per se, but certainly about a third of that HPA revenue growth in thethird quarter went toward rebuilding that distributor inventory level. Do youhave a follow on, Uche?

Uche Orgi - UBS New York

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

Ron Slaymaker

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

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

Operator

Our next question comes from JimCovello from Goldman Sachs. Please go ahead.

Jim Covello - Goldman Sachs

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

Kevin March

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

Jim Covello - Goldman Sachs

Thanks. If I can ask you a quickfollow up. In terms of the Q4 guidance, if I just kind of plug all the numbersinto the model, the way that I get down to the EPS would be much lower sharecount. I guess that the one way to get there. I am thinking about that theright way?

Kevin March

Again, Jim, we're not forecastinganything beyond just the top line revenue and the bottom line EPS. But you doknow that we just mentioned that we had repurchased about $1.4 billion or about40 million shares in this quarter in a course to the extent that it remainsaccretive and the right kind of thing to do, we'll continue to buy shares inthe future. But share count, that winds up to be, it's too far or too early intime for me to be able to tell you right now.

Ron Slaymaker

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

Operator

Our next question comes from JohnLau 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-applescomparison for the DSL business that you had sold for Q3 and Q4?

Ron Slaymaker

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

John Lau - Jefferies & Company

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

Ron Slaymaker

That is correct.

John Lau - Jefferies & Company

Great. Thank you very much.

Ron Slaymaker

Okay. John, thank you. Nextcaller please.

Operator

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

David Wu - Global Crown Capital

Yes two quick questions. Thefirst one really is got to do with the analog business. At this point would yousay that historically the HPAL as a percentage total was about one third of thetotal of the analog business has it now gone to half the business now?

Kevin March

David I think we have describedthat is probably closer to 40% of the total analog business and total analog isnow 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 wereanswering your question, a simple one. If the tax rate is going to be 29% forthe full year what does it mean for Q4 and do you have any idea about -- givesome idea about '08 on the tax rate front?

Kevin March

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

Ron Slaymaker

Well the statutory tax rate isabout 35% so as a first approximation whatever your model would imply forincremental profit you probably can assume that incremental profit is taxing at35% until we come out with more specific guidance. Is that fair Kevin?

Kevin March

Yes.

Ron Slaymaker

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

Operator

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

John Dryden - Charter Equity Research

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

Ron Slaymaker

John, I would say it a good pointyou are making that our analog growth this quarter was very broad based. HPA ledit as you noted. But when we look inside the high volume areas we saw multipleproduct areas that also contributed growth above the corporate average. Also asyou noted and we said in the mid quarter update some of the computing areas orperipherals areas were probably the strongest and were areas that had upsidedfrom our initial expectations in the quarter and those specifically would bestorage and printers. But, I would describe the strength that we saw in highvolume analog as broader than computing, although, those were notable areas. Doyou 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 ofthat is attributable to the digital CMOS development outsourcing? And can westill 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 betaking around $55 million worth of restructuring charges attributable to that,and those charges would be about even throughout the year. So, those are prettymuch offsetting. Many of the savings that we are seeing were actually begin bytransition right now. We'll begin to see those savings come in through over thenext few quarters and we do still expect to see $200 million a year for the totalrestructuring. Both the impact of the closure of our all-digital fab here inDallas, called KFAB, and also the outsourcing of the silicon processdevelopment.

Ron Slaymaker

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

Operator

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

Chris Danely - JP Morgan

Hey, thanks guys. So, it looksthere 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 togo 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 towhat?

Chris Danely - JP Morgan

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

Kevin March

Okay. So, versus called a normalseasonal pattern or an average seasonal pattern in Q4. Chris, I would describeit -- 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 willhave continued impact in Q4. But, I guess, I would say that a flattish type ofoutlook is what we are seeing from a broader base of wireless customers aswell.

And as Kevin said, I mean what wesaw last year was in the month of December, a pretty sharp downtick in theirdemand as they basically have completed their holiday bills and were pullingback on the inventory for the end of the year. We are expecting that same typeof 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 tofollow on. Since it sounds like some of the decrease is in December, should wealso expect wireless to be impacted in Q1?

Ron Slaymaker

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

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

Operator

Our next question comes from JohnPitzer from Credit Suisse. Please go ahead.

John Pitzer - Credit Suisse

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

Kevin March

Yeah. I would say that we are notreally forecasting detail below what we have already talked about. And we takea 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 howthe rest of the business usually shakes up. Beyond that, I think the rest ofthe business actually -- the forecast that we have in place actually is a kindof a normal seasonal pattern that we've seen over a multiple time periods andanticipate the kind of growth that we've seen overall this year.

Ron Slaymaker

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

John Pitzer – Credit Suisse

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

Kevin March

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

Ron Slaymaker

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

Operator

Our next question comes from RossSeymore from Deutsche Bank. Please go ahead.

Ross Seymore - Deutsche Bank

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

Ron Slaymaker

We didn't see any abnormalpricing trends in the quarter. What we saw in the third quarter, is whether youlook at on sequential basis or versus a year ago was pretty much a normal trendon wireless pricing, blended ASP trends were not impacted by competitivepressures they were impacted by mixed between low-end and high-end. Does thatanswer the question, Ross?

Ross Seymore - Deutsche Bank

Pretty much.

Ron Slaymaker

Okay.

Ross Seymore - Deutsche Bank

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

Ron Slaymaker

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

Operator

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

Daniel Berenbaum - Carris & Company

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

Ron Slaymaker

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

Daniel Berenbaum - Carris & Company

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

Ron Slaymaker

Well, it may fluctuate a bitovertime, depending upon timing of equipment install or fact rebuilds and soon. But I think overtime, we would expect to see that in mid-to-uppersingle-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 anymacro weakness, but obviously it seems like we bottomed out of the semi-cycle acouple of quarters ago or may be a quarter and half ago, we haven't seen arapid lift up of the cyclical bottom. So, in your perspective, help usunderstand, what's changed out there, if there is not any macro weakness what'sdifferent about this cycle than what we have seen before?

Ron Slaymaker

You are thinking Dan in terms ofa snapback like we often times we have been guessing. I think the thing that wewould probably describe is a bit different this time as one we have beensuccessful 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 morestable and so therefore gives our customers more confidence that we will beable to meet their demands and not cause them a shortage. They don't have torestock their inventory.

In addition, we are also findingas 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 theamount of inventory that they are carrying and so consequently they are notbuilding up the inventory in that channel, as well. So, we think those twocombined or what's making this cycle a little bit different than what we'veseen in the year's past.

Ron Slaymaker

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

Operator

Next question comes from TimeLuke from Lehman Brothers. Please go ahead.

Tim Luke- Lehman Brothers

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

Kevin March

Tim, what we have talked aboutback in May, Analyst Meeting of this year, is that we were looking to bring themargins of the company to about 55% gross and 30% operating over the next fewyears. 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 seenin this most recent quarter for example in the past couple of quarters, somenice analog growth that's a very profitable business mix and it falls throughvery nicely.

We would expect analog tocontinue to be an increasing mix of our revenue in the quarters and years tocome. 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 Imentioned to Dan on the previous call our CapEx appetite is much more modestthan it has been in years past and we expect that's probably going to be as Imentioned in the mid-to-upper single digits which translations on lowerdepreciation as a percent of revenue overtime. So, those things broughttogether are the sort of things that we believe will help us continue to driveto 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 Iwill say just for Kevin. Why you see these fluctuations in wireless, forexample, with Ericsson and this one is fourth and potentially the first quarteror the first half. Do you think that the gross margins in the DSP area remainedbroadly stable or would they fluctuate with the revenue?

Kevin March

Actually the shorter answer Timis that, we have worked in to our expectation. These kinds of wirelessfluctuations, they may cause quarter-to-quarter adjustment from time-to-timedepending on how the exact mix shakes out, but overtime, over a longer periodsof time, we have worked in the fact that wireless has a pricing environmentlike it does that changes overtime and along as much more stable in thispricing environment by the nature of those products. And so when we talk about55% and 30% type of gross for the company, it has taken those realities intoconsideration.

On the lead time standpoint, Ithink we have mentioned earlier, the lead times will remain quite stable. Asalways, 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'sbeen evidenced in our order pattern and our book-to-bill being firmly stabledaround one.

Ron Slaymaker

On the lead, Tim, I would alsosay, when you look at DSP areas outside of wireless, catalog DSP products havegross 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 thankyou for your question, Tim. We will move on to the next caller.

Operator

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

Sumit Dhanda - Banc of America Securities

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

Kevin March

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

Sumit Dhanda - Banc of America Securities

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

Kevin March

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

Ron Slaymaker

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

Kevin March

Okay, Sumit, did you have afollow-up question.

Sumit Dhanda - Banc of America Securities

Yeah, I did. Just longer term, aswe are thinking about your core businesses here. The DSP segment, for the firsttime in six years is going to have a down year following 2001. DLP businessseemed to be seeing a lift on any kind of a sustained basis. So, really, if youare 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 themarket reports that we see suggest that over the next three or four, fiveyears, the expectations that will continue to grow in the mid-teens kind ofrange. DLP has a very attractive space and for projectors in a growing positionin large venues like movie theaters. The TV space though has been verycompetitive 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 smallerpiece 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 inthe last few quarters, the observation that not only is that market expected togrow in, call it 8% to 10% kind of range over the next few years its also veryfragmented market.

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

Ron Slaymaker

Yeah. That's a good point youmade, Kevin. I want to underscore. I mean, if you look at, and I know everybodyon this call is primarily interested in dissecting our growth rates and revenuefor the third quarter and the outlook. But if you look for example, that 13% HPAgrowth in third quarter is nothing new. I mean, basically, we've been gainingshare 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 yourquestions and we'll move on to next caller.

Operator

Our next question comes from DougFreedman 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 presentlydoing on sort of a consignment sale? And if there has been any changes to anyother revenue reorganization in a way which you are conducting your business?

Ron Slaymaker

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

But in our wireless revenue, itis about 70% of our wireless revenue that runs on consignment. And just oneconsideration for you on consignment programs, is that those programs, do notrun on typical order backlog. Basically orders come in about the same timerevenue is recognized, which is when the customers are pulling, that particularcomponent out of their consignment inventory, out of our consignment inventory.So in essence, all of that consignment revenue operates effectively on aone-to-one or 1.0 booked-to-bill type of program.

Kevin, regarding the revenuerecognition…

Kevin March

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

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

Ron Slaymaker

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

Operator

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

Srini Pajjuri-Merrill Lynch

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

Kevin March

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

That also happens to be the mostexpensive capacity and such are the extent that we keep that well utilized. Ithas a neutral affect on our gross margins. And so, we will continue to use thatmoderation of our load instant foundries to keep our internal factories loadedand keep the initial effect on gross margins.

As to the analog side those tendto be an older more fully depreciated factories. And to the extent of loadingsfluctuate 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 wayto say that we actually think that we put those together, and short of somedramatic changes, unexpected changes in revenue profiles we would see grossmargins been fairly stable to what you have seen in the past year andcontinuing to improve over time, as we get analog to be a bigger piece of ourmix.

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 usa bit more color as to what exactly these supply, I mean there are lot ofmoving parts here 2G, 3G, baseband, app processor what exactly do you supply toEricsson? And also as you look out to the next few quarters, how long do youthink these share losses will continue for?

Ron Slaymaker

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

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

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

Sony Ericsson also uses achipset, basically merchant solutions from TI in some other GSM, GPRS, EDGEspace as well. So, that has been an expanding business, and we expect it tocontinue to be an expanding revenue stream for TI in those non-3G areas. But wewill 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 SteveSmigie from Raymond James. Please go ahead.

Steve Smigie - Raymond James

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

Ron Slaymaker

It was broad based, althoughcertainly power management was the strongest area of growth inside ofmicrophones analog for us. But all of the major standard linear product areasgrew for TI as well but certainly power management was most significant. Do youhave follow-on Steve?

Steve Smigie - Raymond James

Yeah just for the analog grossmargin 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 impacthigh volume would have? And how you think about working on the growth of thosedifferent pieces of your business to ensure the gross margin continues toadvance?

Kevin March

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

Ron Slaymaker

And Steve, what I would suggestis think of the high volume gross margins, pretty close to where we runcorporate, meaning roughly 50% or so, in terms of gross margins. But as Kevinsaid operating margins, think both of those product lines in the 30. So, withthat, thanks Steve. And we will move to next caller.

Operator

Our next question comes fromTristan 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 applicationprocessor outside of Japan? And at what point does the market for standaloneprocessors like OMAP stop shrinking potentially?

Ron Slaymaker

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

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

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

Tristan Gerra - Robert Baird.

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

Ron Slaymaker

Yeah, Tristan, I think the issuethere is not so much of our chip. It's more when that market opportunitydevelops. We have had Hollywood and it's simply a matter of when that marketopportunity takes off. And certainly versus a few years ago, it's taken longerthan we and I think most of the players and analysts would have projected inthat space.

But again that's not a questionof 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 willprobably just hold off and trying to call it at this point and when it happenswe'll let you know.

Ron Slaymaker

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

Operator

Our next caller is David Wongfrom Wachovia. Please go ahead.

David Wong - Wachovia

Thank you very much. Could youtell 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 thatright David?

David Wong - Wachovia

That's correct Ron andspecifically baseband?

Ron Slaymaker

Okay. Well certainly I think asyou are aware our initial shot out of the gate was for 3G was focused primarilyon servicing the custom opportunities at our large OEM customers and that was avery simple strategy of basically following the money that's where the earlymarket opportunity was and that's where we engaged. We will compliment thatopportunity or the custom work we're doing with a -- in fact its in developmenta DRP based, let me just state that a little more clearly. A single-chip 3Gproduct that includes both the modem or baseband function as well as the RFtransceiver and that again will be a merchant solution, but if you look atwhere most of the revenue that we have in 3G today, which by the way is about40% of our handset related revenue is in 3G thus far this year, that's reallybeen driven by our strategy to pursue the custom opportunity.

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

David Wong - Wachovia

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

Kevin March

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

Ron Slaymaker

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

Operator

Our next question comes from AmitKapur from Piper Jaffray. Please go ahead.

Amit Kapur - Piper Jaffray

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

Ron Slaymaker

You are saying for the industryoverall?

Amit Kapur - Piper Jaffray

Yeah, exactly just when you aretalking to your customers?

Ron Slaymaker

Yeah I think and again this isnot a TI specific forecast. We keep that internally but where most of themarketing analysts are looking is that 3G or W-CDMA handsets next year areprobably 190 million or 200 million, something like that. And if you look atthis 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 quickfollow-up; Following up from your comments regarding analog share gains, whatare some of the key drivers for continuing to gain analog share and where doyou think that share can go in a longer run?

Kevin March

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

We believe coupling that togethermakes TI an attractive vendor, when we show up at various customers. So, thatservice [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 befocusing more on the custom analog side will be in wireless, where there is alot more market there for us to go after. As well as continuing to expand ourfocus in the automotive section.

Ron Slaymaker

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

Our estimate there is that willabout an additional 70 million units, to what I gave you before. So, the totalcost baseline plus DPA market will be 260 million units and that's probably allthe 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 guessthat was your follow-on, Amit. So, let's move to next caller please.

Operator

Next question comes from KrishnaShankar from JMP Security. Please go ahead.

Krishna Shankar - JMP Security

Yes. Given that you say theanalog 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 interms of acquisition? Do you feel that, the analog property is out there? Thatyou may be willing to acquire are richly valued? Or what does it take you fromaccelerating your market share gain through acquisitions?

Kevin March

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

If we don't think we can and thenwe will look forward to acquisition that might supplement our ability tointersect the market. And again our buyers have been, with the smalleracquisitions. Because quite frankly, they are a lot easier to actuallysuccessfully integrate and turn in to a successful strategy. Big acquisitionscan be distractive and can be very time consuming. And so what we have beendoing 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 toincrease relatively modest dividend, and that could I think improve thestability in your stock price. What are your thoughts on increasing your dividend?

Kevin March

Well, since the fourth quarter of2004, 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 lowerlevel of CapEx and the increased stability of our cash flow certainly supportsus being able to return more cash to our shareholders overtime and the waywe've been doing at the last few years, its been through a combination of stockrepurchases, as well as dividend increases. So I won't predict too much aboutthe future but I will certainly agree with your assessment that our stabilityand cash flow certainly bodes well for the future.

Ron Slaymaker

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

Operator

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

Gurinder Kalra - Bear Stearns

Thanks. Yeah, most of myquestions have been answered. Just one question, what are the competitivepressures in the ASP issues you are seeing with your OMAP business and, doesthat change with the OMAP3?

Ron Slaymaker

I don't know that when you aretalking about competitive pressures, there certainly are other applicationprocessor players in the marketplace but I believe in terms of market share, TIreally stands head and shoulders above those other players. And so, I don'tknow that I would look at any single player and again I am not trying tominimize that those players certainly look at the opportunity as we do andrealize the aggressive growth opportunity that's there, but I wouldn't saythere is not really any single player that is particularly gaining tracks. Wasthere somebody specific that you had in mind going with that, maybe notaddressing.

Gurinder Kalra - Bear Stearns

No, just talking about the unduepressure from, I guess the 3G vendors, as well as developing on applicationprocessors as well as the graphic companies developing application processorshere?

Ron Slaymaker

Yeah. And again, I think there isno shortage of players that want to be engaged with this market. But again, asI would, as I described, I don't think there is any one that we view as havinga significant traction at this point and therefore your point on ASPs, Iwouldn't say there is any undue pressure on OMAP ASPs. I mean it's acompetitive marketplace, but nothing out of the ordinary for a wireless market.Okay, Gurinder. Thanks for your question and operator, will we have time forone more caller?

Operator

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

Allan Mishan - CIBC World Markets

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

Kevin March

Yeah. Allan we did give a prettygood range on our guidance and it certainly includes the possibility that if PCwas stronger than it should have been in third quarter then that would stillfall 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 lotof other opportunities for us to be able to achieve the revenue in ourguidance.

Ron Slaymaker

Do you have a follow-up Allan?

Allan Mishan - CIBC World Markets

Have you had any specificcomments from those customers so far regarding the PC business perhaps havingshift a little bit too fast or at this point is it just a sort of speculationthat goes into your normal range?

Kevin March

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

Ron Slaymaker

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

Operator

Thank you everyone this concludestoday's conference call. You may disconnect your lines at this time and pleasehave a wonderful day.

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