Texas Instruments Incorporated

Please stand by. We are about to begin. Good day and welcome to the Texas Instrument Q2 2021 Earnings Release Conference Call. Please note that today's call is being recorded. At this time, I would like to turn the conference over to Dave Paul. Please go ahead.

Good afternoon and thank you for joining our second quarter 2021 Earnings Conference Call. For any of you who missed the release, you can find it on our website at ti.com slash 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. Our Chief Financial Officer, Rafael Lazzardi, is with me today and will provide the following updates. First, I'll start with a quick overview of the quarter. Next, I'll provide insight into second quarter revenue results with more details than usual by end market, including some sequential performance since it's more informative at this time. And lastly, Rafael will cover the financial results, some insight into one-time items, and our guidance for the third quarter of 2021. Starting with a quick overview of the second quarter. Revenue in the quarter was $4.6 billion, an increase of 7% sequentially and 41% year-over-year. driven by strong demand in industrial, automotive, and personal electronics. On a sequential basis, analog grew 6% and embedded processing grew 2%. On a year-over-year basis, analog grew 42% and embedded grew 43%. Our other segment grew 30% from the year-ago quarter. Moving on, given the current environment, again this quarter, I'll provide some insight into our second quarter revenue by end market and comment on our lead times. First, the industrial market was up mid-teens sequentially and up about 40% from the year ago. The strength was seen across most sectors. The automotive market grew sequentially following the strong first quarter 2021, and more than doubled from a week-year-ago compare. Personal electronics was about even sequentially and up about 25 percent compared to a year ago. The strength was broad-based across sectors and customers within personal electronics. Next, communications equipment was up low single digits sequentially and was down upper teens from the year ago. Enterprise systems grew up routine sequentially, and was about even from the year ago. Regarding lead times, the majority of our products continue to remain steady. However, the growing demand in the second quarter of 2021 again expanded our list of hotspots, which required extending some lead times. As planned, we continue to add incremental capacity in 2021 and first half of 2022 with additional support from the startup of our third 300 millimeter wafer fab, RFAB 2, that will come online in the second half of 2022. As discussed during our capital management review in February, our competitive advantage of manufacturing and technology delivers the benefits of lower cost and greater control of our supply chain. which really shows through in a market environment like this. Rafael will now review profitability, capital management, and our outlook.

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, second quarter revenue was $4.6 billion, up 41% from a year ago. Gross profit in the quarter was $3.1 billion, or 67% of revenue. From a year ago, gross profit margin increased 290 basis points. Operating expenses in the quarter were $816 million, up 5% from a year ago and about as expected. On a trailing 12-month basis, operating expenses were 19% of revenue. Over the last 12 months, we have invested $1.6 billion in R&D. Acquisition charges and non-cash expense were $48 million in the second quarter and are related to the national semiconductor acquisitions. These acquisition charges will remain at about this level through the third quarter of 2021 and then go to zero. Operating profit was $2.2 billion in the quarter, or 48% of revenue. Operating profit was up 80% from the year-ago quarter. Net income in the second quarter was $1.9 billion, or $2.05 per share, which included a $0.06 benefit that was not in our prior outlook. due to the signing of a royalty agreement. Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $2.1 billion in the quarter. Capital expenditures were $386 million in the quarter. Free cash flow on a trailing 12-month basis was $6.5 billion. In the quarter, we paid $942 million in dividends and repurchased $146 million of our stock. In total, we have returned $3.9 billion in the past 12 months. Over the same period, our dividend represented 56% of free cash flow, underscoring its sustainability. Our balance sheet remains strong with $7.4 billion of cash and short-term investments at the end of the second quarter. Regarding inventory, TI inventory dollars were down $34 million from the prior quarter, and days were 111, which are below desired levels. In the second quarter, we signed an agreement to acquire Micron's 300 millimeter fab in Lehigh, Utah. This investment continues to strengthen our competitive advantage in manufacturing and technology, and it's part of our long-term capacity planning. The Lehigh fab will be our fourth 300-millimeter fab, joining DEMO 6, RFAB 1, and soon-to-be-completed RFAB 2 in our wafer fab manufacturing operations. We continue to believe that our competitive advantage of manufacturing and technology will be of growing importance in owning and controlling our supply chain. For the third quarter, we expect TI revenue in the range of $4.40 to $4.76 billion. and earnings per share to be in the range of $1.87 to $2.13. We continue to expect our annual operating tax rate to be about 14%. In closing, we continue to invest to strengthen our competitive advantages and in making our business stronger. With that, let me turn it back to Dave.