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Texas Instruments Inc. (NASDAQ:TXN)

2012 Annual Meeting of Stockholders

April 19, 2012 11:00 am ET

Executives

Joseph F. Hubach - Chief Compliance Officer, Senior Vice President, General Counsel and Secretary

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

Joseph F. Hubach

Ladies and gentlemen -- excuse me, ladies and gentlemen. We'll get started as soon as we're seated. I'd like to point out that in the event of an emergency, we have 3 emergency exits. One is to my right, across from the podium, and 2 along the back wall. Thank you. Mr. Chairman?

Richard K. Templeton

Joe, thank you. Good morning, everybody. The 2012 annual meeting of stockholders for Texas Instruments Incorporated is hereby called to order. I'm Rich Templeton, Chairman, President and Chief Executive Officer, and it is my pleasure to welcome you to this year's annual meeting.

First on our agenda today is the election of directors followed by the consideration of 2 proposals, an advisory vote on executive compensation, or as it is more commonly known, say-on-pay, and the ratification of independent auditors. While the polls are open for voting on the directors and these proposals, I will review our strategic direction. The secretary's report on voting will then follow, after which questions or comments from the floor will be in order. If you would, please hold your questions or comments until that time as they may be covered during the course of the meeting.

But before we begin, I want to introduce some special guests that are with us here today. First is Margaret McDermott and Mary McDermott Cook, wife and daughter of TI founder Eugene McDermott. Margaret and Mary, would you please either stand or wave to the audience, Margaret?

We're also pleased to have former President, CEO and Director of TI, Fred Bucy. Fred, would you please stand?

We're also pleased to have with us a former Director of TI, Jim Adams. Jim, would you please stand?

And finally, Haley Harris [ph] , wife of former TI Director, Buddy Harris. Haley, would you please stand or wave to the audience?

Joe Hubach, Secretary of the company, will act as secretary of this meeting. The Board of Directors has appointed an independent inspector to conduct the vote of this meeting. Joe has advised me that holders of more than 88% of the outstanding common stock are represented at the meeting by proxy or in person. This constitutes a quorum.

At this time, I'm pleased to introduce the nominees for election to the TI board. All were elected at last year's annual meeting. As I introduce the nominees, I ask that they please stand and remain standing. In addition to myself, the nominees are Ralph Babb, Dan Carp, Carrie Cox, Pam Patsley, Robert Sanchez, Wayne Sanders, Ruth Simmons and Christie Whitman. Each of these nominations and their qualifications as directors are listed in our proxy statement. TI's bylaws require advance notice of proposed nomination. Since no notice of other nominations have been submitted in accordance with the bylaws, the nominations are closed. Thank you.

We will now consider the 2 board proposals. The Board of Directors recommends that stockholders cast an advisory vote for the proposal, approving executive compensation for 2001, as disclosed in our proxy statement, and that stockholders ratify the appointment of Ernst & Young as the company's independent registered public accounting firm for 2012. The text and related discussion of the board proposals are in our proxy statement, so I won't take additional time to describe the proposals. This would be an appropriate time for comment on the nominations and the board proposals. Please limit your comments to a total of 3 minutes if you have them.

We will now open the polls and take the vote on the election of directors and the board proposals. The polls will remain open for 10 minutes. The votes of the 401(k) participants and those of you who have sent in a proxy or used the telephone or Internet voting procedures have already been counted. If any shareholder of record has not submitted a proxy or voted by telephone or Internet and wishes to submit a ballot, you may do so now. The right to vote directly at this meeting is limited to stockholders of record and proxy holders. Also, if you have previously submitted a proxy or voted by telephone or Internet, you may change your vote by submitting a ballot. Please raise your hand if you need a ballot.

[Voting]

After voting, please return your ballot. While the votes are being tabulated, I will take a few moments to share my thoughts with you about our strategic direction, as well as the progress that we're making.

Over the last year, we made some big decisions and we also made some big moves. We strengthened our position in Analog and industrial markets with the acquisition of National Semiconductor. We adjusted our Wireless strategy for a post-baseband era, which has long been anticipated and is finally fast approaching. We went all in on microcontrollers, betting big that ultra-low power will become an even more important differentiator of the future. We committed to extending our history of innovative disruptive technologies by funding R&D initiatives around the globe -- in Silicon Valley, in India and in Shanghai. We challenged our sales team, giving them more products to sell. We continued to pour more resources into the fastest-growing regions and markets, reallocating them from areas that did not hold similar promise and pruning the portfolio where it made sense.

We did all this despite a year that was marked by a steady drumbeat of challenges that literally spanned the year. Early in the year, we were impacted by a devastating earthquake and tsunami in Japan that crippled 10% of our manufacturing capacity, while disrupting electronics markets, customers and suppliers based in the region and dampening our revenue for the good part of the year.

Political and economic uncertainty simmered during the summer, causing the markets to hold their collective breath and in the process, unraveled a fledgling recovery. This uncertainty led to a no-mistaking-it in semiconductor downturn, as customers grew cautious, inventories were harvested, thus drying ship orders in the process.

Bottom line, a recovery that we have predicted in the second half of 2011 was not to be. And the year saw a top line revenue growth prove elusive despite share gains by TI in both Analog and Embedded Processing.

Despite these challenges, however, I've never been more excited by what's going on in our industry and by TI's prospects in a highly charged and changing market environment.

So let me explain just a little about that. We all know that chips are becoming more pervasive, touching lives in ways we could have only imagined as little as 10 years ago. That frankly has been the mantra of our industry since the inception by Jack Kilby of the first integrated circuit in 1958 at Texas Instruments, just about a quarter of a mile from where we're meeting today.

I am a firm believer that technology in general and our industry in particular, are in the midst of a major sea change. What's different today is how visible and integrated technology has become in our everyday lives and the sheer breadth of that accessible technology. No longer is it locked behind closed doors or in a windowed server -- in a no-window server room, or is it limited to white-collar workers at their desktops. No longer is a cell phone limited to just making phone calls.

Technology is on the move, it's becoming portable. It's becoming personal. It's becoming pervasive, and frankly, it's becoming addictive. We take it with us everywhere. We use it throughout the day. It's ingrained in our lifestyles. We monitor. We share. We find information. We do it on the fly. We do it with purpose, and we do it instantaneously.

Services that most of us couldn't imagine are flourishing. More than just unique hardware, many of today's innovators are delivering electronic services and solutions to make people's lives easier, more convenient, more efficient, more connected or just more fun. Increasingly, innovations are not based on a device that you hold, but also they start to use the cloud to deliver the product.

Our lives are in a constant state of acceleration as a result of technology. And I will not argue whether it's good or bad, but it is simply a fact. Technology enables us to access information 24/7 and form an opinion and act on it nearly instantaneously. By the time world events are printed in a newspaper or broadcast on the evening news, they are no longer news as most of us saw a tweet on our smartphone within minutes of the event. Where once people would unwind at the end of the day with a book, we unwind with an electronic book on a tablet. And more often than not, we are using the same device to interact with a vast number of friends from both our past as well as the present, and often from all over the world. And that role that social networks can play in this world order has never been more evident than we've seen in the past year as we witnessed the political unrest in North Africa or the Middle East. A decade ago, most of these products were not even conceived.

But technology creates change, and in the midst of all this change, you'll find Texas Instruments technology entrenched, embedded and enabling. It's who we are. It's what we do. And quite frankly, it's what we're pretty good at.

Stripped down to the basic components, our products are what make this world work. The behind-the-scenes algorithms that crunch numbers and control systems are embedded in our chips. The technology that enables tiny batteries to last for days and weeks are in our power management chips and in our microcontrollers.

These products are not necessarily sexy, nor high profile or likely to be splashed on the cover of the latest business magazine, but they are absolutely essential to making this new world work. And it's good news for our company, and it's good news for our shareholders. If you look at the pieces of the puzzle that we have to work together to create and sustain this world on an on-the-go embedded technology, we can actually play in all of these key pieces, be it in the product itself or the form factor of the product itself, be it helping to make the power efficiency better to make it run or the interoperable networks and the cloud that you hear about to be able to host the services. The sheer breadth of our portfolio makes TI uniquely positioned to participate and to succeed.

So let's take a quick recap of our strategy and why we're convinced that it's the right one for this environment. Then we'll take a deeper look at what we did over the last year, why we did it and why we think these actions hold significant and strategic importance for the company and our role in this exciting new world.

Our focus, or our business model, is based on Analog and Embedded Processing, 2 solid businesses that have proven, long-term benefits that are both real as well as sustainable. Both represent big, fragmented markets with diverse customer bases. That translates into broad, horizontal markets with lots of places we can engage in and grow. The sheer numbers of markets and applications means we are not tied to the fate of only a few markets or customers, and consequently aren't subjected to the so many ups and downs of a high-volume, narrow vertical market. This market, profile more steady, stable growth is one of the outcomes that should result. Though we're #1 in Analog, with about 15% share last year, and we have about 12% share in Embedded Processing, there's still plenty room for us to grow.

Besides being in great markets, both Analog and Embedded Processing have long histories of profitability and low capital intensity. Because neither demands leading-edge manufacturing equipment, we are not forced into a constant churn of investing in advance capacity to stay at the top of the competitive heap, draining cash and diverting resources in the process. Instead, our in-house manufacturing capacity has shelf lives that are literally measured in decades. It allows us to harvest our profitability in more diverse ways. To fuel growth, we can use it to target portfolio investments, fund innovative R&D, expand capital expenditures or make targeted acquisitions to fuel growth or quickly fill a gap in our expertise. After we're invested in any of these growth strategies, we can then return money directly to our shareholders in the form of dividends and stock repurchases. We've done all these over the last few years.

So let's take a look at how the year has played out since we last met. While we've experienced setbacks during the year as a result of some natural disasters, we believe the year was marked by significant strategic progress.

First and foremost, we completed our acquisition of National Semiconductor, and we're well on our way to integrating the portfolio, the people and the customers as well, into the fabric of TI. National was a big acquisition for us, but we believe it holds big promise as well as big returns for our future. We added more than 12,000 complementary analog products to our portfolio. We can -- significantly increased our footprint in the important industrial markets overnight, gaining deeper access to this very diverse marketplace. We reinvigorated and invigorated our talent base with the addition of National's very large pool of analog design engineers, a valuable and scarce resource in our industry, and gave them access to more customers and more technology on which to unleash their talents. We gained more analog capacity with 2 more fabs and one assembly/test site that are capable of supporting an additional $2 billion of analog revenue.

The National integration is proceeding well on the customer front, where the reception has been outstanding. Customers have expressed an enthusiasm to engage now that National is part of TI. Together, we can offer customers an unparalleled suite of analog solutions, and we look forward to building on this customer enthusiasm.

Bottom line, this strategic acquisition accelerated the journey that we are already on to become a company strongly rooted in Analog. Today, half of Texas Instruments' revenue comes from this product line, and it will only become larger in the years ahead.

In Embedded Processing, we continue to focus resources on microcontrollers, a product line where we will have ample room to grow and whose ultra-low power capabilities make it an attractive solution to our customers. Since 2008, we've grown our microcontroller portfolio by a factor of 4. Meanwhile, we continue to leverage our expertise in DSPs, a technology we pioneered 30 years ago, as we gained share in this market.

Like Analog, Embedded Processing is broad, enabling customers to find the right level of power and performance that they need. So whatever their application, ranging from automotive advanced radar or infotainment systems, to robotics or mobile or connected computing, customers can find their answer at Texas Instruments.

In addition to software and ecosystem that are part and parcel of the Embedded Processing and compatible across our generations of technology, meaning the customers invest in a TI solution and then tend to have a much longer-term strategic relationship with us.

In Wireless, 2 significant events occurred. First, as we enter 2012, our exit from the baseband market is nearing completion. Our baseband revenue is now only a couple of percent of our total revenue, and it no longer defines who we are in Wireless. While this product line was shrinking, we've been harvesting profit from this business and focusing our wireless resource on application processors and connectivity products, areas that we believe will provide the underpinnings of a wireless world that is increasingly portable, personal, connected and easy to use.

Today we see this world through the lens of the market, like smartphones and tablets. Tomorrow, we believe that wireless applications will become much more broader in scope and even more pervasive. To better intersect with that environment, we're expanding our reach and going after broader markets, where our sales footprint and broad distribution channels give us a benefit and as well as excellent access, where success is not determined by picking a single customer.

That broad access is something our more narrowly focused competitors don't have and cannot easily duplicate. We believe it will give us a competitive advantage as a wireless world becomes even more pervasive. As a result, over time, our OMAP application processor and our connectivity products will become more closely aligned and look much more like our Embedded Processing business instead of standalone smartphones and tablets and technologies.

I cannot wait to see what the rest of this decade will hold for our industry and for our company. To the TI people that are here today, as well as around the world, I offer my thanks for this past year. Your creativity, your commitment, they have been key to helping us outperform our competition and take TI to the next level. To our shareholders, we are committed to returning value to you, and that justifies your long-term support and belief in our company and its strategy. I have an unshakable belief that the best is yet to come as technology makes a better world, one that is more exciting, one that is more interactive, and it's more connected, more efficient, and with Texas Instruments, rooted deeply in analog and embedded processing. Thank you.

Mr. Secretary, have you received the results of the balloting?

Joseph F. Hubach

I have Mr. Chairman. I can report that according to the inspectors, the 9 persons nominated by the board have been elected. Over 96% of the shares cast were voted for the election of each of them. No more than 3% voted against, and approximately 1% abstained. On the advisory vote regarding executive compensation, approximately 95% of the shares cast were voted to approve executive compensation. 4% voted to disapprove; 1% abstained. And the board's proposal to ratify the appointment of Ernst & Young as the company's independent registered public accounting firm was approved by approximately 99% of the shares cast for voting in favor of the proposal and 1% against. That concludes my report.

Question-and-Answer Session

Richard K. Templeton

Joe, thank you. The floor is now open. At this time I would be pleased to take any questions or comments regarding TI's business from the floor. As a courtesy to all present or those that are listening via webcast, our rules call for comments to be limited to 5 minutes per person regardless of the number of topics you wish to address. If you have a question, please approach the microphone. Please state your name.

Unknown Shareholder

My name is Hugh Knowl [ph]. I would like to ask, is Ernst & Young present today and could you identify them?

Richard K. Templeton

Ernst & Young is present today, of course.

Unknown Shareholder

And could you identify their comptroller? Is he here today?

Richard K. Templeton

Could you repeat the question?

Unknown Shareholder

Could -- the Comptroller of Texas Instruments, Accounting Comptroller, is he here today?

Richard K. Templeton

The Chief Financial Officer is here, Kevin March.

Unknown Shareholder

I wanted to catch a word with the Comptroller.

Richard K. Templeton

Any other questions?

Unknown Shareholder

Yes, my name is Wilson Tadom [ph]. I'm a long-term shareholder. Do you have any skyboxes and sporting events or symphony, anything along that line?

Richard K. Templeton

The simple answer to things like skyboxes are no. Okay. There are no other questions. As I close the meeting, I want to emphasize that we are pleased, I mean pleased to have you as stockholders at Texas Instruments. We will stay focused on our markets. We'll stay focused on our customers, and we will work to make your investment in TI more valuable. I thank you for coming today. We are hereby adjourned.

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