Texas Instruments Incorporated

Good day, ladies and gentlemen, and welcome to the Texas Instruments first quarter 2020 earnings release conference call. Today's call is being recorded. At this time, I would like to hand things over to Mr. Dave Paul. Please go ahead, sir.

Good afternoon, and thank you for joining our first quarter 2020 earnings conference call. For any of you who missed the release, you can find it on our website at ti.com.ir. This call is being broadcast live over the web and can be accessed through our website. A replay will be available through the web. This call will include forward-looking statements that involve risks and uncertainties that could cause TI's results to differ materially from management's current expectations. We encourage you to review the notice regarding forward-looking statements contained in the earnings release published today as well as TI's most recent SEC filings for a more complete description. Given the likelihood of a significant economic recession due to COVID-19, we're changing the format for this quarter's earnings call. In addition to Rafael Lazzardi, our CFO, we will be joined by Rich Templeton, our Chairman and CEO. Rich will be covering a broader frame of how we're approaching the current environment. I will then provide a summary of first quarter, and Rafael will wrap up with the financial details of first quarter and our outlook for second quarter. Our prepared remarks will be longer than usual as we hope to cover a range of anticipated questions. Let me turn it over to Rich.

Thanks, Dave. At the highest level, to understand how we will approach a likely significant recession resulting from COVID-19, I remind you of the three ambitions that, for decades, have driven all decisions inside of TI. These ambitions are, first, we will act like owners. We will own the company for decades. Second, we will adapt and succeed in a world that is ever-changing. And third, we will be a company that you are proud to be part of and would be proud to have as a neighbor. When we pursue these ambitions, our employees, customers, communities, and owners will all benefit. These guiding ambitions have served us well for decades, but they are enormously valuable in these times because they help simplify many decisions in an uncertain environment. Like many companies in the COVID-19 crisis, we have acted aggressively, keeping our people safe and able to support their families. We have kept our operations running to support our customers with special emphasis on our medical customers. And in the communities where we operate around the world, we have provided direct financial support and medical supplies to provide some relief. The list of actions is lengthy. So starting with the economic framework, no two economic recessions are identical, but the 2008 financial crisis provides us the most recent significant recession and therefore is the best example to study and inform decisions. on operating plans, revenue forecasts, and investment and spending plans. As a reminder, if you look back to 2008, and specifically to September of 2008, our new orders turned off overnight. This led to a 26% sequential drop of revenue in the fourth quarter of 2008, an additional 16% sequential decline in the first quarter of 2009, and then a rapid snapback for the next six quarters. By the second quarter of 2010, or within two years of the start of the sharp decline, revenue moved back above the level of the third quarter of 2008. For the benefit of hindsight, our customers overcorrected to the downside, and we then spent a year and a half chasing back up to support demand. With this in mind, we are not trying to predict this economic recession and recovery, but instead we want to ensure that we have the highest degree of optionality so that we can deal successfully with any outcome. Therefore, regarding our operating plan, looking at the pattern from pre and post 2008 and the second quarter of 2020 and quite likely the third quarter of 2020, we will be running our factories at about the level they ran in the first quarter of 2020. This will likely result in an increase in inventory during the second quarter, but this will be important to support our customers during a time when they have limited ability to forecast. Our product portfolio, primarily long-lived products, makes this an easy decision and maximizes our optionality. Regarding second quarter revenue guidance, Rafael will elaborate in a minute, but with reduced visibility of customer demand, we have used the historical transitions that I mentioned from 2008 and adjusted for seasonality. We are not implying precision, but explaining the assumptions. We are using an expanded range to account for the current uncertainty. Regarding spending and investments, first, research and development spending will be essentially unchanged, as these are five- to ten-year time horizon decisions. We will continue to make ongoing portfolio adjustments, but these are unlikely to make meaningful changes to investment levels. On SG&A, we will maintain critical investments in new capabilities, such as strengthening TI.com, because these are important times to gain ground. While we can minimize expense, we are and we will certainly continue to do so. On capital spending, our plans are generally unchanged because the bulk of capital spending is driven by roadmap capacity needs in the 2022 to 2025 time frame. We will continue with previously announced construction plans that are underway for the next generation 300-millimeter analog wafer pad in Richardson, Texas. Lastly, regarding how we are operating in the current environment, we were fortunately prepared for the unforeseen disruptions that COVID-19 has presented. We updated our customers in late March that our lead times remained short and unchanged and that we could respond to short-term demands. This is because we invested in inventory, had a robust business continuity plan, and invested in a geographically diverse internal manufacturing footprint. Our manufacturing teams are operating throughout the world, including countries like Malaysia and the Philippines, where local restrictions have resulted in partial operations. We've adopted protocols quickly to keep our people safe and minimize any disruptions. Our team was prepared and is comfortable getting our work done remotely. We continue to actively work new design wins with customers via virtual selling processes that we instituted several years ago. On most days across TI, we are averaging a peak of 10,000 VPN connections and 2 million meeting minutes per day, about four times higher than normal. We all look forward to things getting back to normal, but in the meantime, we are focused on execution. Let me hand things back to Dave.