The Texas Instruments Second Quarter 2024 Earnings Conference Call began with Dave Pahl, Head of Investor Relations, welcoming participants and introducing CEO Haviv Ilan and CFO Rafael Lizardi. The call covered updates on the quarter's results, including revenue, end markets, financials, and guidance for the third quarter. Haviv Ilan provided a quick overview of the quarter and shared details about the company's business strategy. Revenue for the quarter was $3.8 billion, a 4% increase from the previous quarter but a 16% decrease from the previous year. Analog revenue declined by 11% year-over-year, and Embedded Processing declined by 31%.

In the second quarter, the company's other segment declined by 22%, reflecting the asynchronous behavior across its end-markets. The Industrial market was down low-single digits, while the Automotive market was down mid-single digits. Personal Electronics showed mid-teens growth, Communication Equipment was up mid-single digits, and Enterprise Systems was up about 20%. The company is also investing in expanding its 300-millimeter manufacturing capacity to meet increasing demand in industrial and automotive markets. A capital management call will be held on August 20th to provide more details on these investments and their potential impact on revenue and free cash flow per share. Rafael will now review profitability, capital management, and the company's outlook.

In the second quarter, the company reported a revenue of $3.8 billion and a gross profit of $2.2 billion, with a gross profit margin increase of 60 basis points. Operating expenses were $963 million, up 3% from the previous year. Net income for the quarter was $1.1 billion, including a $0.05 benefit. The company generated $1.6 billion in cash flow from operations and had $9.7 billion in cash and short-term investments. They also repaid $300 million of debt and returned $4.9 billion to shareholders in the past 12 months. Inventory at the end of the quarter was $4.1 billion with a days inventory of 229.

In the third quarter, TI expects revenue and earnings per share to be in a certain range. The company will continue to focus on areas that add long-term value, such as manufacturing, technology, and a broad product portfolio. They will also prioritize disciplined capital allocation and the best opportunities for growth. The company is seeing an increasing impact of geopolitical factors on customer buying decisions, particularly in the auto industry. This has led to a demand for dependable capacity, which is not a new concept for the company.

TI has seen an increase in requests from customers, particularly at the highest levels, for a dependable and affordable supply chain that can withstand geopolitical tensions. They are able to provide this through their unique capacity at scale, low-cost structure, and dependable fabs in the US. As a result, they are confident in their ability to win future platform positions and have seen a growth in interest from customers, especially in China where their dependable capacity is highly valued for export business.

In the sixth paragraph of the article, Dave Pahl asks Timothy Arcuri for an update on the CHIPS Act and Rafael Lizardi responds, stating that they are still going through the process and have accrued about $1.8 billion in total for the Investment Tax Credit. They expect to receive another $200 million in the third quarter and a total of $1 billion for 2024. The next caller, Stacy Rasgon, asks about the growth in the third quarter and Haviv Ilan responds, stating that in the second quarter, personal electronics were strong while industrial and automotive were down. He expects similar trends in the third quarter.

The company's revenue declined by 9% in Q2 but is still performing well year-over-year. Personal electronics and the calculator and DLP businesses are driving growth. The industrial sector has been experiencing asynchronous behavior with some sectors showing improvement while others continue to decline. The company is expecting a sequential revenue increase of $300 million in Q3, but it is unclear how this growth will be distributed across different end markets.

Haviv Ilan and Dave Pahl from Texas Instruments discuss the company's third quarter forecast and the growth of their China market. They expect revenue to grow 7% at the midpoint of their forecast range, which is typical for this time of year as customers prepare for the holiday season. They also address concerns about potential oversupply in the market, stating that their China business grew by 20% in the second quarter.

TI has seen strong growth in all five of its markets, which was a significant improvement after seven quarters of decline. The China market, which is exposed to all of TI's end-markets, took seven quarters for the asynchronous cycle to go through, but now it has corrected and Q2 was a good quarter for TI's business. The competition in China has intensified in the past several years, but TI is confident in its ability to compete and win business with attractive margins. The growth in China was strong across all markets, including automotive and industrial. While TI is not giving specific end-market commentary for Q3, they noted that the supply-demand situation in industrial and automotive semis is broad and varied.

The speaker believes that the company has seen some improvement in inventory adjustment and supply issues in the two end markets, but they do not have enough data to accurately determine the current situation. They mention that cancellations have decreased and lead times are stable, but they cannot provide a definitive answer on whether the worst is over. They also note that some sectors in industrial and automotive markets are showing signs of bottoming out, while others are still declining. Automotive is currently down mid-single digits, but this is off of a strong growth year in 2023. They attribute this growth to the company's strong content in the automotive market.

Haviv Ilan, along with Rafael Santana, discussed the company's strategy and plans for capital expenditures during a recent earnings call. The company remains confident in its strategy and sees opportunities for growth in both the industrial and automotive sectors. They also mentioned the importance of having dependable capacity for customers and the flexibility of their CapEx strategy. The company will continue to evaluate their plans based on market demand and will provide more insight during their upcoming off-cycle capital management call in four weeks.

The speaker explains that they will provide more details about their investment plan and revenue scenarios. Rafael adds that they have narrowed the range for depreciation for 2024 and 2025. In response to a question, Rafael clarifies that loadings increased in the second quarter, but they expect them to be flat or slightly up in the third quarter. They also expect gross margin to be higher in the third quarter compared to the second quarter.

During the Q&A session, Chris Danley from Citibank asked a question about gross margins and if they have reached their lowest point. Rafael Lizardi responded by saying that it is possible for gross margins to improve if revenue increases and they bring in more external loadings. He also mentioned that the fall-through excluding depreciation will likely trend between 75% to 85% on a year-on-year basis. Chris then asked about bookings, and Rafael confirmed that they have been increasing every month.

Revenue and orders increased in the second quarter for the industrial automotive space, indicating a potential bottoming out of the market. Lead times are stable and cancellations are declining, suggesting a balance of supply and demand. Bookings continue to increase month over month. In terms of end markets, half of the industrial sectors are showing signs of bottoming out, while the decline in the auto market has been relatively shallow compared to other markets. A question was also asked about CapEx and long-term revenue growth.

Toshiya Hari asks about the $30 billion for 2026 and $45 billion for 2030 plans, and if they are still the base case scenarios. Haviv Ilan states that they will provide more information and updated presentations in August, discussing different scenarios and how they will affect CapEx and free cash flow per share. Toshiya then asks about the decline in revenue and operating margins for Embedded Processing, and Haviv explains that although the numbers may be down, their product portfolio is improving.

The speaker is optimistic about the potential for the embedded business to contribute to TI's growth in free cash flow per share in the coming decade. They note that the embedded business is less exposed to personal electronics and communication equipment, which have longer cycles, and is currently experiencing a sharper correction due to supply issues. However, the new Lehi factory will help support the embedded business and will eventually become a tailwind for the business.

Harlan Sur, from JPMorgan, asks about the growth of the embedded business compared to the analog business and the positive changes made in the past few years. Haviv Ilan, the speaker, mentions that the business has shifted to more internal manufacturing and a broader market focus, leading to improvements in margins. He also mentions the design-win momentum in the industrial and automotive sectors, but notes that it takes time to see results.

The speaker discusses the significant growth of their funnel in the embedded market compared to the analog market. They provide examples of this growth in areas such as real-time control, connectivity, automotive, and industrial applications. The speaker also mentions their excitement for the potential of this business in the second half of the decade. The gross margin fall-through for embedded is not given separately, but it falls within the range of 75% to 85% for both segments.

Rafael Lizardi and Haviv Ilan discuss the impact of Lehi on the company's financials. They mention that without Lehi, the company's analog business would be at the higher end of the range, while the embedded business would be at the lower end. They also discuss the potential for growth in ti.com, with investments being made to improve the customer experience and increase digitalization.

TI's strategy is to know their customers better and provide the relevant product portfolio to serve their growth and win market share. They are investing in IT systems and warehouses to serve customers just in time. Orders placed through ti.com are down due to product availability, but the long-term strategic value of ti.com is high. The company has over 200 days of inventory and low factory utilization, which may help prevent future shortages.

Haviv Ilan discusses the company's strategy of investing in capacity and inventory ahead of demand to improve customer service, even during market cycles. They aim to maintain this approach during the next up-cycle and are prepared to gain market share. The inventory is being built thoughtfully to avoid the risk of scrap. The company is focused on providing high customer service levels and dampening industry behavior of accumulating inventory.

The company intends to maintain lead times through the cycle, although there may be some steep cycles where this is not possible. They have modeled the company to maintain good customer service levels and encourage customers not to hoard inventory. The CEO, Dave Pahl, adds that he has never taken a double order during his eight years in sales, and controlling customer behavior during times of shortage is difficult. The last caller asks about China, and the company reports a robust rebound in the first quarter. They believe that Chinese customers have decreased their inventory levels and are still undershipping demand.

The speaker discusses the asynchronous behavior of different markets in China, with personal electronics picking up in 2021, enterprise and industrial in 2022, and automotive in 2023. This led to a long decline and now a strong recovery with 20% sequential growth. Other markets, such as Europe and Japan, are in an early phase. The speaker also mentions a narrowed range for depreciation and a decrease in CapEx in the second quarter.

The speakers confirm that $5 billion is still a reasonable estimate for the company's CapEx this year. They reiterate their focus on long-term growth of free cash flow per share and mention their three ambitions: acting like owners, adapting to change, and being a company they are proud of. They believe that success will benefit all stakeholders. The conference call is now concluded.

This summary was generated with AI and may contain some inaccuracies.