In the Texas Instruments Fourth Quarter 2024 Earnings Conference Call, Dave Pahl, Head of Investor Relations, introduces the call alongside CEO Haviv Ilan and CFO Rafael Lizardi. The call, which includes forward-looking statements, will be recorded and accessible later. A Capital Management call is scheduled for February 4. During the earnings call, Haviv will provide insights into fourth-quarter revenue, including end-market performance and an annual revenue summary, while Rafael will cover financial results and first-quarter 2025 guidance. Haviv notes that fourth-quarter revenue was $4 billion, down 3% sequentially and 2% year-over-year, although analog revenue grew 2% after declining for eight quarters.

In the second paragraph of the article, it was reported that Texas Instruments (TI) experienced a decline in revenue for its Embedded Processing segment by 18%, while its Other segment saw growth compared to the previous year. The industrial and automotive markets, two of TI's largest, experienced modest sequential declines, with the industrial market down by low-single-digits, and the automotive market down by mid-single-digits. Personal electronics grew by mid-single-digits, enterprise systems declined by low-single-digits, and communications equipment grew by upper-single-digits. Revenue distribution for 2024 is detailed with industrial (34%) and automotive (35%) together making up 70% of TI's revenue, a significant increase from 42% in 2013. The company emphasizes the strategic importance of industrial and automotive markets due to growing chip content per application. Overall, fourth quarter revenue stood at $4 billion, with a gross profit of $2.3 billion, or 58% of revenue, but gross profit margin decreased due to various factors, including lower revenue and higher depreciation.

In the recent quarter, operating expenses rose 4% to $937 million, aligning with expectations, and operating profit decreased by 10% to $1.4 billion, constituting 34% of revenue. Net income was $1.2 billion, translating to $1.30 per share, slightly boosted by $0.02 from unforeseen benefits. The company saw $2 billion in cash flow from operations, made $1.2 billion in capital expenditures, paid $1.2 billion in dividends, and repurchased $537 million in stock. The dividend per share was increased by 5%, continuing a 21-year streak of rising dividends, and $5.7 billion was returned to owners over the year. The balance sheet showed $7.6 billion in cash and short-term investments, $13.7 billion in total debt, and a $4.5 billion inventory. Throughout 2024, cash flow from operations was $6.3 billion, capital expenditures were $4.8 billion, and free cash flow was $1.5 billion, representing 10% of revenue, as part of a long-term strategy to enhance manufacturing capabilities.

The paragraph discusses Texas Instruments' (TI) financial outlook and strategic focus. They emphasize their strong free cash flow as a testament to their robust business model and decisions to invest in manufacturing assets. For the first quarter, TI anticipates revenue between $3.74 billion and $4.06 billion and earnings per share from $0.94 to $1.16. They expect a 12% effective tax rate in 2025 and remain focused on long-term value through strategic investments in manufacturing, technology, and their product portfolio. They intend to maintain competitive advantages via disciplined capital allocation. The paragraph also includes a transition to a Q&A session, with Toshiya Hari from Goldman Sachs asking about the guidance for a 2% to 3% sequential revenue decline and seeking insights by end market.

In the paragraph, Haviv Ilan discusses the seasonal trends and expectations for Q1, noting a typical sequential decline of around 3%, primarily driven by a significant drop in the personal electronics market following a strong Q4. He mentions that the automotive and industrial markets usually experience a less pronounced decline. In Q4, the industrial market saw mixed performance, with some sectors at the bottom, while industrial automation and energy infrastructure continued to decline. The automotive market showed notable weakness outside of China, with a mid-single-digit decline, although China experienced growth that could not fully counterbalance declines in Europe, the US, and Japan.

In the paragraph, there is a discussion about the expected decline in earnings for the first quarter, focusing on a 2% to 3% drop in revenue. Rafael Lizardi explains that gross margins (GPM) will be affected by increased depreciation and reduced factory loadings aimed at managing inventory, resulting in a decrease of a few hundred basis points in GPM from Q4 to Q1. Operating expenses (OpEx) are anticipated to rise by 3% to 5% due to seasonal increases and additional investments. Additionally, a $50 million decrease in interest income is expected as short-term interest rates and cash levels on the balance sheet decline, contributing to the overall drop in earnings.

The paragraph is a discussion during a Q&A session where Chris Caso from Wolfe Research asks about the differing performances and margins between the Embedded and Analog businesses. Haviv Ilan and Rafael Lizardi respond by explaining that the variability is due to asynchronous market behaviors, with the Embedded business peaking later than Analog, leading to a sharper decline now. The profitability of the Embedded business is impacted by falling revenues and underutilization at the Lehi factory (LFAB) in Utah, which disproportionately affects Embedded due to its significant reliance on this facility.

In the paragraph, Haviv Ilan updates on the company's business activities in China, noting that their China business saw mid-teen growth both sequentially and year-over-year in Q4. The automotive sector, particularly electric vehicles, is performing well, benefiting from secular growth and increased content in EVs. The personal electronics market, which had previously experienced supply chain challenges, is now growing significantly both in China and the US. However, the industrial segment hasn't started to see cyclical growth across all geographies, including China. Dave Pahl adds that business activities in the US, China, and the rest of Asia remain relatively flat sequentially.

In the discussion, Ross Seymore from Deutsche Bank inquires about the current pricing environment, questioning any significant changes, particularly in pricing between Analog versus Embedded sectors or across different regions. Haviv Ilan responds that there hasn't been any notable change in pricing in Q4 compared to 2024. He notes that they anticipated a return to pre-COVID pricing behaviors, which involved a low single-digit decline per year, and this occurred as expected in 2024. He also mentions a shift in market revenue mix from 2023 to 2024, with the industrial sector's share decreasing and the PE market's share growing. Despite these shifts, like-for-like pricing has behaved as expected, and similar behavior is expected for 2025 across all regions. Ross Seymore then hints at having a longer-term question for Haviv.

In this paragraph, Haviv Ilan discusses the historical measurement of market share changes in basis points for the company and notes that despite supply disruptions during COVID, the market still experiences asynchronous behavior across sectors and geographies. He emphasizes the long-term approach to assessing market share changes and highlights the company's current right inventory level and supply to support growth. Ilan expresses optimism about the progress in the analog market, citing recent growth after periods of decline, and focuses on the expected secular growth in industrial and automotive markets.

In the paragraph, representatives from Texas Instruments are discussing the company's outlook on market conditions and product demand. Haviv Ilan emphasizes that while predicting future market trends is challenging due to short lead times and real-time customer demand, the company is well-prepared with adequate inventory and capacity. He mentions that certain markets, such as personal electronics, enterprise driven by data centers, and communication, are experiencing an upturn. The communication market, in particular, has rebounded from a low point in early 2024 and has shown sequential and year-over-year growth by the fourth quarter.

The paragraph discusses the current state and future outlook of a company's industrial and automotive business, which constitutes a significant portion of their revenue for 2024. The speaker acknowledges that while there are points of strength, such as in China, they have yet to see the bottom of the market, particularly in industrial segments, which are currently operating at low levels. Despite this, they view it as a potential opportunity for growth. The conversation then shifts to the company's Embedded business, where margins are at a low point. Haviv Ilan expresses optimism about the business's future, attributing current margin pressures to a transitional phase, particularly in manufacturing. He reassures that no restructuring is planned and expects Embedded to become a significant contributor to free cash flow. Rafael Lizardi emphasizes that revenue is the key factor affecting margins.

In the conference call, Haviv explained that the Embedded sector experienced a delay in entering a downturn compared to the Analog sector, though both are now at similar points of decline. A significant factor affecting Embedded is the underutilization of LFAB, a facility or component, which impacts its performance negatively. However, the situation is expected to improve as LFAB becomes more fully utilized, enhancing gross profit margins and free cash flow. The sector is currently in transition, and better results are anticipated once it stabilizes. Following this, Harlan Sur from JPMorgan asks a question about customer activity such as pushouts, cancellations, and backlog changes, and the performance of turns orders. Haviv responded that Q4 showed high levels of orders coming in real-time, mainly driven by turns business, and they hope this situation will persist into the next year.

The paragraph discusses Texas Instruments' recent financial performance and future prospects. It mentions positive business trends in Q4, including low cancellation rates and strong product availability. The company received a preliminary CHIPS Act grant of $1.6 billion, confirmed in December, which was not included in their previous free cash flow projections. This funding is expected to boost their free cash flow per share by $1.75 by 2026. The grant supports the construction of three new 300-millimeter wafer fabs in Texas and Utah.

The paragraph discusses the financial aspects and progress of a project involving direct funding and the Investment Tax Credit (ITC) to supply Analog and Embedded Processing chips. The company expects to receive $7.5 billion to $9.5 billion through the program's duration but lacks specific details on cash payments timing due to dependencies on construction and tool installation milestones. Currently, they have $1.6 billion recorded as receivable on their balance sheet, with $1 billion allocated to an already built factory and $0.6 billion as deferred liability for a factory still under construction.

The paragraph discusses updates on depreciation forecasts and considerations for future gross margins. Depreciation for 2025 is expected to range from $1.8 billion to $2 billion, slightly lower than previously anticipated. The 2026 depreciation range remains at $2.3 billion to $2.7 billion, with expectations to be at the lower end. Responding to CJ Muse's question, Rafael Lizardi emphasizes that revenue is the primary driver of gross margin. He advises modeling revenue with a margin rate of 75% to 85%, adjusting for depreciation, and considering factory utilization. This approach works best over a full year rather than individual quarters.

The paragraph discusses the financial expectations and operational strategy of a company. They anticipate a financial impact in the first quarter but acknowledge potential benefits if revenues increase. The company aims to grow revenue faster than the market and is transitioning its foundry business to Lehi, which is expected to progress in 2025, particularly in the automotive sector. They emphasize the importance of meeting customer commitments and maintaining a dependable capacity at a lower cost, which benefits margins. The discussion shifts to inventory levels, with an emphasis on maintaining a healthy level of $4.5 billion without depletion, while stating they forecast financials one quarter at a time.

In the discussion, Joshua Buchalter from TD Cowen queries about the company's inventory strategy, particularly regarding maintaining inventory levels around $4.5 billion and any plans for a near- to medium-term target based on days. Rafael Lizardi responds by explaining that the goal is to balance customer service with minimizing inventory obsolescence. They rigorously manage inventory for the 80,000 parts they sell, minimizing the risk of obsolescence due to long product life cycles. Rafael anticipates a slight increase in inventory levels, approximately $100 million or more, going into the first quarter, with plans to stabilize at that level.

In the paragraph, Haviv Ilan and Rafael Lizardi address questions about competition and capital expenditures. Ilan mentions that there hasn't been a significant change in the competitive landscape despite a down cycle in the market. Lizardi clarifies that their capital expenditure (CapEx) projections remain unchanged, anticipating a $5 billion CapEx for 2025. He notes that the updated guidance on depreciation is largely due to tax credits and grants, not a reduction in CapEx.

The paragraph outlines a strategic plan and its execution for 2026 and beyond, detailing the company's phased approach to transitioning revenue from external foundries to internal operations, particularly at the LFAB factory in Utah. Phase 1 focuses on optimizing production methods, such as moving from smaller fab facilities to larger 300-millimeter fabs. Phase 2 involves expanding capacity in Sherman and Lehi to provide flexible growth opportunities for customers. The company reiterates commitment to its plan while maintaining flexibility, anticipating similar updates in future discussions.

In the paragraph, Haviv Ilan addresses concerns about the sustainability and market dynamics of doing business in China, particularly in the context of product competition and market presence. He acknowledges that while China is a significant market, accounting for about 20% of the world GDP and Texas Instruments' business, the company's presence is proportionate to this share. Ilan emphasizes the importance of meeting Chinese customers' needs with high-quality products and strong support. He highlights TI's value as a supplier to Chinese companies aiming to become global players, due to TI's extensive global manufacturing and support network. Despite the competitive nature of the Chinese market, TI is committed to its customers there.

The paragraph discusses Texas Instruments' (TI) competitive advantages in the semiconductor market, emphasizing its extensive product portfolio, strong customer relationships in industrial and automotive sectors, and ownership of manufacturing and technology. TI believes it can effectively compete across its entire product range without needing to specialize. They also mention that there's no current investigation affecting their business in China. The paragraph concludes with a note about an upcoming Capital Management call and provides logistical details for accessing the call's replay.

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