Texas Instruments Incorporated

The Texas Instruments Earnings Call will now begin.

Welcome to the Texas Instruments Third Quarter 2022 Earnings Release Conference Call. I'm Dave Paul, Head of Investor Relations, and I'm joined by our Chief Financial Officer, Rafael Lazzardi. For any of you who missed the release, you can find it on our website at ti.com. This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded. and you'll be able to get it via replay on our website. 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. Today, we'll provide the following updates. First, I'll start with a quick overview of the quarter. Next, I'll provide insight into third quarter's revenue results with some details of what we're seeing with respect to our customers and markets. And lastly, Rafael will come and show results and our guidance for the fourth quarter of 2022. Starting with a quick overview of the third quarter. Revenue in the quarter came in about as expected at $5.2 billion, an increase of 1% sequentially, and 13% year-over-year. Analog revenue grew 13%, embedded processing grew 11%, and our other segment grew 20% from the year-ago quarter. Now I'll provide some insight into third quarter revenue by market. This quarter, I'll focus on our sequential performance as it's more informative at this time. First, personal electronics declined mid-teens as we continue to see the weakness we described in the second quarter. Industrial was about even sequentially as we saw weakness begin to broaden in the industrial market. The automotive market remained strong and was about 10%. Next, communications equipment was up high single digits. And finally, enterprise systems was up mid-single digits. Turning to our expectations for the fourth quarter, We expect that most of our end markets will decline sequentially, with the exception of the automotive market. Lastly, we and our customers remain pleased with the progress of our expansion of our manufacturing capacity, which was outlined in our February capital management report and will support the long-term secular trend of increased semiconductor content per system. Customers especially value the geopolitically dependable footprint of our manufacturing additions. We are now in production in RFAB 2 and expect production in LFAB later this year. In addition, construction of SM1 and SM2 in Sherman, Texas continues as planned. Rafael will now review profitability, capital management, and our outlook.

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, third quarter revenue was $5.2 billion, up 13% from a year ago. Gross profit in the quarter was $3.6 billion, or 69% of revenue. From a year ago, gross profit margin increased 110 basis points. Operating expenses in the quarter were $862 million, up 8% from a year ago, and about as expected. On a trailing 12-month basis, operating expenses were $3.3 billion, or 16% of revenue. Restructuring charges were $77 million in the third quarter and are associated with the LFAB factory that we purchased in October of last year. These charges will move to cost of revenue as we start production. The assets associated with the acquisition of the factory will begin to depreciate at the same time. Moving on, operating profit was $2.7 billion in the quarter, or 51% of revenue. Operating profit was up 16% from the year-ago quarter. Income in the third quarter was $2.3 billion, or $2.47 per share. Earnings per share included a $0.02 benefit for items that were not in our original guidance. Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $2.8 billion in the quarter. Capital expenditures were $790 million in the quarter and $3.1 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $5.9 billion. In the quarter, we paid $1.1 billion in dividends and repurchased $1 billion of our stock. In total, we have returned $7.1 billion in the past 12 months. In September, we announced we would increase our dividend by 8%, marking our 19th consecutive year of dividend increases. We also increased our share repurchase authorizations by $15 billion. These actions reflect our commitment to return our free cash flow to our owners. Our balance sheet remains strong with $9.1 billion of cash and short-term investments at the end of the third quarter. In the quarter, we issued $700 million in debt. Total debt outstanding was $8 billion with a weighted average coupon of 2.8%. Inventory dollars were up $205 million from the prior quarter to $2.4 billion, and days were 133, up eight days sequentially, and below desired levels. For the fourth quarter, we expect TI revenue in the range of $4.4 to $4.8 billion, and earnings per share to be in the range of $1.83 to $2.00. This outlook comprehends the market conditions that Dave previously mentioned. We continue to expect our 2022 effective tax rate to be about 14%. As you are looking at your models for 2023, Without additional changes to tax law, we would expect our effective tax rate to remain about what it is in 2022 with a similar quarterly profile. Let me now make a few comments on the CHIPS Act that was recently signed into law. The combination of the investment tax credit, the grant, as well as funding for research and development will help make the U.S. semiconductor industry more competitive. We accrued about $50 million on the balance sheet in third quarter due to the 25% investment tax credit for investments in our U.S. factories. This will eventually flow to a statement of slower depreciation, and we will receive the associated cash benefit in the future. In closing, we will stay focused in the areas that add value in the long term. We continue to invest in our competitive advantages, which are manufacturing and technology, a broad product portfolio, reach of our channels, and diverse and long-lived positions. We will continue to strengthen these advantages through disciplined capital allocation and by focusing on the best opportunities, which we believe will enable us to continue to deliver free cash growth over the long term. With that, let me turn it back to Dave.