Texas Instruments Incorporated (TXN) CEO Presents at 2019 Deutsche Bank Technology Conference

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About: Texas Instruments Incorporated (TXN)
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Texas Instruments Incorporated (NASDAQ:TXN) 2019 Deutsche Bank Technology Conference September 11, 2019 11:00 AM ET

Company Representatives

Rich Templeton - Chairman, President, Chief Executive Officer

Conference Call Participants

Ross Seymore - Deutsche Bank

[No Presentation for this event]

Question-and-Answer Session

Q - Ross Seymore

Alright, good morning everybody. Welcome to the second day of the Deutsche Bank Technology Conference. I’m Ross Seymore, Head of the Semiconductor Research here in the U.S.

Today, we are fortunate to kick it off with the Chairman, President and CEO of Texas Instruments, Mr. Rich Templeton. As always, if you have questions, raise your hand, we’ll get a mic to you towards the end because there are people on the webcast.

And with that Rich, thank you for kicking it off this morning. At the risk of you not commenting a bunch on it, I’ll start the same way I've started with a bunch of other companies, the macro environment and the trade environment has clearly had an impact on the semiconductor industry as a whole. So with TI being the largest analog player in the world, I just wanted to get a read from you on how you are viewing the macro situation today versus say at the beginning of the year.

Rich Templeton

Yeah Ross, as [inaudible] we’re really getting going this morning. Really no different than what you heard from Dave and Rafael on the July earnings call. We came off a strong ‘17 and ’18, you saw things slow in a different part of ’18, so you've got a semiconductor, pretty classic semiconductor cycle working its way through in a pretty orderly fashion, and then put on top of that, the uncertainty due to trade and the good news is we are going to make a forecast [indiscernible], so we are prepared to deal with whatever 2020 wants to deliver on that front.

Ross Seymore

And what you guys think of the duration of the downturn. Dave on all the calls has been, and Rafael have been very consistent saying historically a typical downturn is four to five quarters of negative comps and you guys have been saying that since the beginning of this one. Another way to look at it is the shape of the recovery and some of the definition of the downturn is not just year-over-year being down, but also kind of sub-seasonality. When we come out of this, how do you judge what the shape is likely to be and what sort of strategic steps the TI makes to prepare for either the bonanza side of things or something that's a little more muted.

Rich Templeton

Yeah, you know I’m on – I think this now you know of cycle 10 and almost for 40 years in the business and there is no predictable pattern of what will it look like and so you know you have watched us over the years as well. When you see things slow, get the operating plans right, you know get the inventories right, make sure replenishing, and make sure you can handle any combinations that you know could show up, be it slow or drawn out, because there's a macro issue on top or if people have over compensated, ‘09 was probably the best example. They turned down so hard, it was really a strong snap back, but clearly this one is deeper than ‘14 and ‘15, but nowhere near the deficits we saw back in ’09, which is a great expectation. So we’ll just make sure that we’re able to handle whatever they want it to be.

Ross Seymore

And the last question on a macro side, somewhat as more on the trade side with Huawei. You guys I think in your last call talked about adhering to all the rules of course, stopping shipping and then restarting it. Talk a little bit about how you are able to ship, just because we've heard from so many different companies that have given us so many different answers on who can ship and why. So what allows TI to be able to ship its products?

Rich Templeton

Yeah, you know I think it's very much and you said it well. We make sure – I think many of the companies, all make sure that you are abiding by the letter of the law and make sure you understand what the terms are and then once you get done looking at that versus the products, okay you could move forward. And so you know we did that through look and were able to make those dispositions and resumed, I forget if it was three or four weeks after you know that May cut-off on that front.

And I think you've heard when I just listened to other company, you know both the earnings and in general, I think everybody's you know followed it pretty much at the same way. So I think it will depend on your product mix more than anything.

Ross Seymore

Really had for some companies a temporary disruption in the demand patterns, but it also has had some differing impacts on the supply side of things. Have you noticed any difference in the amount of channel inventory people are holding for fear of that, and has that adjusted anything as far as how you guys are addressing this, [shrinking part] of your business that goes to the channel?

Rich Templeton

Yeah, I'm careful and I think you've heard this again from Dave for many years, no one will ever say they've seen inventories built up until the day demand is not as high and then they say oops, you know inventories are built up. We don't see anything that stands out on that, but I am also careful of back to that first comment of thinking you have that much insight into it.

We are advantaged as you know quite well and you talked about it. Because we've been aggressive with the consignment, because we keep a lot of that in our hands or on our books and you watch the days that we actually have in the channel be lower than, say any of our competitors. Even if it's up, it’s not going to be something that mixes us up too badly.

Ross Seymore

So you mentioned about the consignment side of things. So why don’t we pivot to a more TI specific comment and topic. I think you’ve said about two-thirds of your revenue runs through consignment these days and two-thirds of the – if the revenue goes through. Why did you make the original decision to change more to consignment?

Rich Templeton

So I think the – it's probably more helpful to back up as opposed to a consignment or distribution only, go back and think about the commentary you hear from us of really trying to build a business model centered on four competitive advantages: manufacturing, technology, breadth of our products, reach of our channel and diversity and longevity. And we're very, very consistent on that. We either want to be building those advantages stronger or leveraging.

And so if you think about the reach that we have in terms of the channel, we have always had a long term belief that building closer direct relationships with our customers really was going to be a helpful thing for the long term. So think about the things that you've watched: consignment inventory, changes in distribution registration programs, whatever it was five, six, seven years ago, continuing to build our strength in our sales force, building mass market sales teams, investments in TI.com, many of the things you’ve talked about for years when you visited and we’ve got together, and so to me this is all part of just to continuum of evolving forward and it’s just very logical.

We are going to be better served of inventories in one place and we are going to be better served when we can truly see the demand of the true end customer.

And that way you eliminate the buffering or the buffering of buffering, a lack of visibility of what true demand is, and it's going to let us run the business better and I think do a better job for our customers in the long term.

So to me the consignment efforts, the latest phase that we are working through now, are just part of that, you know evolution of us getting closer to our customers and it's going to have a lot of advantages long term.

Ross Seymore

Were there any negatives on the revenue side, in making that transition?

Rich Templeton

Sure. I think Rafael talked about it in the last call that you know when you bring down, recognize revenue that’s an inventory outlet channel and you are moving it internal, you will have a temporary, okay its actually in some ways you would say permanent that you are bringing that revenue down. But you know to me it just gets closer to what the consumption is and that's always a good thing as well.

Ross Seymore

Do you believe any of the reach benefits that the distribution partners would claim as a strategic advantage of using them as something that you sacrifice or is TI scale a unique offset to that?

Rich Templeton

You know look at the – you know when you narrated some of the debate, I think back five and six years ago when we stopped the design registration, we said they just don’t have influence and look at what our market share has done and especially mass markets like industrial and its only gone in one direction since then.

And so -- and we're uniquely, that's not a statement for everybody in the semiconductor industry, we have it because we plan for that, built out a sales force, we build out an applications team, we've built our capabilities on TI.com and as a result of that we can do a better job taking care of our customers directly.

In the end customers just want the work done efficiently and cost effectively, and when it comes to selecting components and getting them into production, ramping them, they'd rather do that directly with the suppliers and we are in a position to build and do that.

Ross Seymore

Would you believe aggregate inventory, what we see on your books and what you see as in the channel has really changed much during this evolution or is it just more internal, less external and it’s the same overall.

A - Rich Templeton

Probably hasn't changed that much. I'm careful because I haven't done, got some calculations on that, but I think the more interesting question longer term is when we get to the other side of all these transitions, is it going to let us be even more efficient, because we have things in one place that we can support customers throughout the world from that, you know one centralized area meeting. They will give great lead-times, great availability, you know great service so we can react to customers. I've got a feeling we can be pretty efficient doing that, but it’s a little early to make a projection on that.

Ross Seymore

And when you get to the other side, is the other side defined by that final third of the business, being consignment as well. So there is really no channel so to speak or is there some balance between the two at the end stage.

Rich Templeton

No, I think there is always, you know when it comes to channels, customers are the ones that need to be able to make decisions on what they want to do. We just want to make sure they have a really good option of – if they can do business directly with us, it will be something we support and they'll see advantages in it and if they choose to do that, then that’s how we’ll support them long term.

Ross Seymore

And do you think, especially in the analog market, that products have very long life cycles, obsolete capability of risk. Is there such a thing as caring too much inventory?

Rich Templeton

No. If you look at – you know and we’ve seen it and I don’t care if it’s the TI product lines, you can go back to the Burr-Brown acquisitions, the UNITRD acquisitions, both the products from National, you do great analog parts. These things are around for 10, 15, 20, 25 years and so that ability to be very calculated on how you manage inventory internally when you've got standard products that many customers use, you know what five years of run rate of consumption looks like, it lets you actually be very thoughtful in terms of some combination of die-bank/finished goods, produce great service metrics, but also have very low risk of obsolescence.

Now that’s different than if you're in you know big customer, big vertical, custom market where you know a device is built for only one customer, that’s a very different you know world you have to play around. This one we're going towards I think it’s going to be a very good one.

Ross Seymore

If we looked at TI down the road, the consignment is probably higher in the mix of those more fragmented customers would be higher, larger customers lower and that the whole industrial automotive focus is better.

Another key part of this is manufacturing side. I guess we are one of the first to go to the – if not the first, to go to 300 millimeter. Right now you look like you are moving to the next phase of that. Talk a little bit about the next move to 300 millimeters. I think you've talked about within the next few years was the discussion you signed to do that expansion down in Texas and then it seems like it's not going to be this year, it'll be sometime after. Has anything changed in the timing of that due to demand or is it just this is the progression it takes to roll out with taxes, all the sorts of jurisdictions.

Rich Templeton

Ross you have seen us in the past and think about prior generations away for fed. You know we qualified our FAB 1 clean room. I think it was 2007 and we didn’t tool it and ramp it up until late 2009, 2010. And you know the clean room is not cheap, but it actually is compared to when you put all the capital and people in it and so that flexibility, you’re not being worried about having a clean room a few years early is just not something that has bothered me and it won’t bother me for the cycle and you go back to even DMOS6 back in 1996 with we put that one in.

But you know we’ll be in a position and I'm going to guess that if we have to ramp that thing by 2021 or the end of 2021 we’ll be a position to do that. You know you can apply any growth what if scenarios to where we are and figure out, do we need to buy 2121 or 2024, that's all close enough as far as I'm concerned.

I do like the fact and I think you can appreciate this, that by having it next to an existing facility, the granularity of the capacity additions and the staffing additions put us in a position to be very responsive to demand, where if you go build at a Greenfield site, you will essentially have to tool with a third of that factory to get it even running.

Well, if it’s sitting right next to an existing one, you can add critical tools for that new facility and deal with your capacity and the incremental cost is actually very proportionate to the revenue. So I think it also puts us in a position to be very responsive with fixed costs as we bring that thing online.

Ross Seymore

One aspect of the fixed cost that you guys have been very opportunistic on with the fab years past is selling used equipment and downturns have been useful in that regard.

Rich Templeton

You have to enjoy life.

Ross Seymore

Exactly! Is that occurring right now or is the equipment still free, because it seems like everything is still too tight.

Rich Templeton

You know it’s one of these things that you know when you get asked questions of will there be excess equipment? Yes, there will be. You know the investors will probably be in a lousier mood when that time comes, but that's okay, we'll take advantage of it.

So – and there's still some out there, there is just nowhere near what we saw back in 2009, 2010 and 2011 when we would pick it up from older equipment and do fab, you know a bunch from around the world, we can still do some now. But you know even I think it was at last year's Capital Management Call, Rafael basically said we're assuming a higher percent of new equipment for this next round and that doesn't mean it has to be that, it means we're assuming that. And if we can find used equipment because things soften up, then that's great, we'll bring it in.

But the beauty behind this is we could have every dollar spent on new equipment and the incremental margin and pay back on 300 millimeter is stunning. The real impact economically is getting that way for diameter leverage.

Ross Seymore

The last question on that manufacturing side of things, when you think of the 300 millimeter side, do you think the first benefit has been more to TI’s margins or market share?

Rich Templeton

You know to keep life simple, it’s a margin answer, because you know in the end when you can get the dye costs down as you've seen the calculations by at least 40% and you’ve watched our fall-through on incremental revenue over the past four and five years and I think it’s reflected, the advantage of having that. So the majority of that is just the margin you can operate it at.

Are there technical benefits of lithography and precision and speed and different parameters in the process, yes but it's at the margin. A little easier answer to that is, it’s a gross margin benefit.

Ross Seymore

And actually, I missed out one last one on this. Some other companies have tried to obtained the 300 millimeter benefit often times with foundry. Have you noticed any change in the competitive environment, and as of that more pricing pressure from the competition or is it still a performance centric market.

Rich Templeton

Its performance centric and I think more importantly as last time I checked, the Foundries aren’t terrible operations in terms of what they sell the wafers to folks that. So you look at the profitability of the foundry suppliers and you know – and that's the beauty of our model, is we press you know Kyle Flessner and his tem, we want you as cost effective or better than the foundries and then you've got the benefit of that plus no market, and it's a wonderful thing.

Ross Seymore

Let me pivot over to a little bit more in the competitive environment, but directly on to the M&A side of things. Back when I started following you guys 20 years ago, TI was one of the most active on M&A and the analog space. UNITRD and Burr-Brown and then a decade or so later you guys did national. But you really haven’t participated in this decade so much, choosing more to buy your own stock, instead of somebody else’s. So I guess a couple questions on that, has the competitive intensity changed as some of the scale has ramped up with some of the competition many years in ADIs of the world.

Rich Templeton

You know and it's not to avoid this specific nature of that, as I take it more to – I think the past 10 and 15 years have been destructive and meaning, if you are a well-run semiconductor company, more focused on what you do well, less dabbling, we’ve certainly done that, but a number of other companies have as well.

Is M&A part of that? I'd say yes it is, but in general and again, you followed the industry for 20 years; you’ve seen things from late 90s. You know low run companies have done a better job over the past 10 or 12 years, because it's a more constructive environment. It doesn't mean it's any less competitive, we’ve got good competitors, we go out and do battle with them on a daily basis, but the discipline in terms of R&D spending, in terms of capital spending, you just see a better disciplined industry compared to 20 years ago.

My guess is the environment is going to continue that way for probably the next 10 and M&A is just part of that, not the majority of that is my guess.

Ross Seymore

So you think it’s the natural maturing of the industry and people optimizing accordingly.

Rich Templeton

You know, and again you’ve lived it. You’ve watched you know most investors in many companies in denial from the late 90s for 10 years of when are we are going to go back to 10% and 15% growth. You know the fact is the growth is more 5% or 6% or whatever you know number you want to apply and once people, you know get adjusted to that, you know things have you know I think got a little better discipline.

Ross Seymore

Unless you talk about just, a year ago when people thought we're going to grow 10% or 15% then to.

Rich Templeton

The new norm.

Ross Seymore

Yeah, exactly. It hasn’t worked out so far for them, but… So do you think bigger is better in both analog and micro controllers? Is that scale – I know you believe it's a benefit to you, but others, you think it's one of the core tenets that you have, other people trying to emulate that, I would think, would something to competitive intensity. I know we just talked about it; it’s just a better behaved industry, but I'm surprised that you don't see it either microcontroller or the analog side or any different behavior.

Rich Templeton

Yeah I think, you know the industries behave a little differently, but it's not because the scale or that other thing.

Is bigger better? Yes to a degree, meaning you’ve got to get above certain minimums, okay. So if you think about the competitive advantages I mentioned earlier, the scale to be able to play a 300 millimeter internal game, it's hard to see even our largest analog competitors ever deciding to go back to that, so I'm going to guess they don't.

The breadth of our product portfolio, even with M&A our largest, nearest competitors still can't dent what we do. The affordability of building out a sales and applications channel and reach okay, it's just not something that people are probably likely to do any day soon. So as long as you are above that level, scale really matters, but you know internally we spent a lot of time talking about how you build the operation stronger, you aim it at the best markets and the outcome is being bigger, as opposed to let me go get bigger. It doesn't get you to stronger places, but you do have to be you know at critical sizes to be above that.

Part of the reason that we're so, you know I’m going to use the word confident in our competitive advantages is we've looked at greatly on how easy is it to replicate. And you know for somebody to really build out what we have built out, they probably got a goal to put two or three more companies together, let alone put together a wafer fab and an assembly test operation, let alone put together enterprise level processes that let them to operate that. That's a good backlog work to say the least.

So I think it's difficult to replicate and I think we've seen that and I think our free – you know to me the ultimate test of your competitive advantages is does your free cash flow per share grow faster than your best competitors over the long term. And you know we've been able to do that for the past 10 or 15 years, real test is can you go do it for another 10.

Ross Seymore

Only pivot off the M&A and the competition side of things and talk a little bit about the product strategy. Guys have narrowed things down over the years, big in analog and then microcontrollers as well. It seems like the microcontroller side you've decided to, but the analog commitment seems to be bigger than the MC and I might be over stating that. But talk about the relative importance of those two markets and why the growth rates seemingly have differed at times between the two.

Rich Templeton

So I think there’s you know a couple of pieces inside. The highest level would really and I know its dangerous analogy, but you know which of your children do you love more and the answer is all of them, okay, and it's not just out of love and support. Its they can all contribute to the long term growth of free cash flow.

So it's not – you know it’s for a very tangible reason. But I think the embedded business, which is a very different business than the analog business is one that can be successful and successful over the long term. Its financials will be different, look at margins and people ask well, are you going to – what does it take to get embedded up to analog margins. Well, we are not trying to press it, we are just trying to get it stronger each year and make sure it's growing and make sure it's contributing from a fall-through point of view.

In the nearer term, meeting the past year or you know change when you've seen revenue growth differences between analog and embedded, we’ve historically seen differences. It's hard to go explain them all, is it customer mix, is it you know things happening in the channel. But I also think and again, you look at all these companies closer than I do; competitive microcontroller companies have been a little softer from a revenue point of view as well and so I don't think it's TI specific embedded trends on that.

So my guess is, we keep track of that longer term, you know all these things will return to pretty parallel behaviors, because you know embedded was as you recall a great grower, late ’16, ’17 and ’18, heck it was growing better than analog during that timeframe for us, now it’s a little softer.

Ross Seymore

Let me pivot. Well, about 10 minutes left, so if anybody does have a question raise your hands at this point where I'll keep my eyes open, but because there is so many hands going up right now, I'll make sure to continue with my question.

So let’s pivot over to the end market side of things a bit. You for many, many years talked about the focus on the industrial analog market, but there's other high performance markets that people focus on that have been great drivers of growth and profitability and free cash flow etcetera, like the data center market and the common infrastructure market. How did you guys chose to do the industrial and auto versus things like the data center and comp side, when neither one has those kind of consumer behaviors that earlier you tend to avoid.

Rich Templeton

That’s fair, but you know I go back and just think of the industry over 40 odd years and again, you’ve watched a lot of us, you had mainframes and min-computers that drove a great deal of the unit growth and market growth in the 60s and 70s. You moved into, in some ways communications at a phase, but if you really look at it, personal electronics, you know where there were 20, 30, 40 million units in the early 90s, there is 2.5 billion units annually between Smartphones, Tablets, PC's and whatever.

But, you know you just have to sit back and say, over the next 20 years what's going to be the best secular growth opportunity and that doesn't mean we're not going to participate in com infrastructure, it’s an important market, it’s a good market, we're going to you know do better than our – you know hold our own on that, same in data center.

But you know the opportunities of industrial and automotive are just different and you're going to sit back I believe 10 years from now or 20 years now and people are going to say, if you weren't in, you couldn’t play and you couldn't compete long term. And it's all for a very simple reason of a content story and that is if you take these, the end equipments that are mostly mechanical or a combination of electro mechanical, and you work to make them smarter, use less power, be safer, be earlier to use, you know pick your variable, what are you going to put inside that equipment, and I’ll put semiconductors on them.

So I believe and I think the date is playing out that way even over the past five or six years for us. We are fortunately doing well in good markets and you know now our job is to make sure that you know we keep driving at that. The combination, I think industrial was up you know mid-30s, automotive up in low 20s, combination was above 55%, 56% last year and we keep pushing that up.

Ross Seymore

And that’s exactly where I was going to go next. If I looked at TI five years down the road, do you think industrial, let's split him for now, but you could answer to together if you wish, but you think that combination is bigger and which one of the two do you think is going to be bigger percentage of TI five years from now relative to today.

Rich Templeton

Oh! I think the industrial is the biggest business today and is going to be the biggest business five years and 10 years from now. I think automotive will keep pace, okay, but those will grow larger. But we are also careful internally. We do not go around with a percent of business mix as a goal. As you give engineers that and they've got two variables they could mess with and we don’t want them messing with the other one.

And so you know we want to hold our positions in personal electronics, we want to hold our positions in communications infrastructure and enterprise and then on top of that, we want to grow those absolute businesses in industrial and automotive. It’s what we’ve done for the past five years and is what we're challenging everybody internal to really double down on for the next five.

Ross Seymore

When you mentioned that why you've targeted the industrial and automotive side, I think the automotive side people get the content argument, pretty obvious.

Rich Templeton

Visible, yep.

Ross Seymore

My car has more content than today's car. On the industrial side, I think if you conceptually hit it, but it doesn't seem quite as [that’s] immediately to think about, but if you think about that trends like factory automation, more electronics, that whole content is dynamic. You think that takes the market that used to grow kind of mid-single digit-ish and accelerate that over the next 10 years that grows faster than the last 10 years.

Rich Templeton

So, first I think the characterization that you give is very accurate, that it's not as easy to touch or feel. It's also not as easy to analyze. You know think of your world of – let me try to get into equipments and break it down, because you know you have State House Industrial, these starts in what we’ve got 13 sectors and you’re like oh crap! You know where we are going now?

Well, and then inside of that its literally 100s if not 1000s of end equipments and so the ability to analyze that is hard. By the way, the ability to attack that takes very unique capabilities in terms of sales teams, TI.com and the systems to get to those, to that reach. But the beauty of it, also very difficult for your competitors to take if you've gotten there and so I think it has great dynamics.

In terms of the growth potential, let’s stay with the, is it 5% historically, I don't know the exact number. I think it's got the ability to at least maintain that level, meaning we could have a pretty modest GDP and content growth just puts a multiplier on top of that. So do you have a 5% or 6% or 7% you know industrial growth environment, I think that's quite likely. Even potentially maybe with a questionable global economy and I don't mean just 2020 or in the near term, but you know depending on your view longer term and then by the way can we do a little better than that.

And so those to me are encouraging opportunity and the good news is we don't have to establish credibility that we can do it. We're carrying a pretty good 5-year, 7-year track record in both industrial and in automotive that the things we’re doing are working and we're continuing to invest even more aggressively in those extended further.

Ross Seymore

Last end market question for you. You mentioned about kind of holding serve on the com infrastructure and the personal electronic side of things. In com infrastructure people often times ask me if TI is taking its focus off that business and is losing share for some reason or another. How are you guys attacking that market now and between the embedded and the analog side, what might be different in your approach today versus say 3G, 4G transition.

Rich Templeton

Yeah, so you know we've been very clear and I think we said at the starting, I forget, five or six ago, where we said look, when you look at the macro trend, secular CapEx expenditures by operators is not going to keep going up. Just go look at their budgets and their capital expenditures and so it's just to me the classic disciplined mistake of well, the market's going to stop growing, let me double down and try to make up for it with market share, which is usually when people do very bad things.

But what we said is very clear and that is we're going to bring down the investment on the embedded side, because that baseband portion of the business is not going to grow. But we're going to take up the analog investment, because what they will do is try to get more capacity, more spectral efficiency across the spectrum they have and so we love what's going on with 5G. It’s growing and our analog participation in it is wonderful. You actually see that in the numbers, okay.

When you try to understand a little bit of why is embedded weaker and analog growing stronger, that’s not all, but it's certainly one factor and so I think we're going to continue to do very well on the analog portion of that com infrastructure business, and so I think it’s going to be an important business for a long time for us.

Ross Seymore

Then the last topic I want to hit on in the time we have is, it gets us all the way down to the free cash flow side of things is kind of the key tenant and the TI story.

A - Rich Templeton

The easiest thing to understand.

Q - Ross Seymore

You guys have done – if I think about the metric that gets you down to free cash flow, obviously the revenue side, margin, FX, those sorts of things, you kind of hit on all of them except for the margin side. Operating expenses you guys run as tight as anyone, that if 20 years ago somebody told me that TI could run with 10% of sales an R&D guy would have said ‘No Way,’ but you guys have proven that is very sustainable.

If I'm thinking the next five or 10 years going forward, what do you think the biggest driver of gross margin contributor to free cash flow and not just we know revenues, we know fall through rates, but any other sort of levers that you think your unique to TI and is driving that metric north.

Rich Templeton

Yes, so I won't surprise you with you know the answer. I still think if you’re trying to put round numbers on it, 70% to 75% fall through on the way in or on the way out is a good number to use.

Yes, we understand that the past five years have probably been over on the fall through on the way in, but I think you see the advantages of that 300 millimeter product mix in the number of things you’ve touched on and you know it very well. And then on either the absolute gross margin or the absolute free cash flow margin, you've heard us say it and I’ll repeat it here. We do not spend time riveted on that. I care far more about free cash flow per share of growth rate over the long term.

Now, if margin can increase at the same time that revenue is growing, we're not going to stop the gross margin or the free cash flow margin going up, but we spent no time trying to maximize those. What owners really want is – and you give us great free cash flow per share of growth over five years and 10 years; that's what generates rewards for the owners.

So that's very much where that focus is. We've made good progress on the margins and the absolute free cash flow per share growth rate and you know we’ll stay focused on that going forward.

Ross Seymore

Great! With that… [Cross Talk]

A - Rich Templeton

Hopefully I haven’t surprised you with the response on that.

Q - Ross Seymore

No bonanza surprises at all.

A - Rich Templeton

You’re shameful!

Q - Ross Seymore

Yeah, I know. Thank you, Rich.