Texas Instruments at Bernstein Conference: Strategic Growth and Challenges

On Friday, 30 May 2025, Texas Instruments (NASDAQ:TXN) participated in the Bernstein 41st Annual Strategic Decisions Conference. Led by CEO Haviv Viland, the discussion centered on the company’s significant capacity expansion, its position in the industrial and automotive sectors, and strategies to navigate geopolitical challenges. While optimistic about growth, TI faces competitive pressures in China and the broader semiconductor market.

Key Takeaways

• Texas Instruments is completing a six-year investment cycle, focusing on expanding its manufacturing capabilities.
• The company is strategically positioning itself in industrial and automotive markets, which now account for over 70% of its revenue.
• TI is investing heavily in U.S. manufacturing to enhance supply chain resilience amid geopolitical tensions.
• The company anticipates a 13% growth in the first half of 2025, driven by strong demand in its core markets.
• Tariffs have not significantly impacted TI’s operations in Q1, but the company is prepared for potential changes.

Financial Results

• Texas Instruments reported a 13% growth for the first half of 2025, indicating strong market performance.
• The company maintains higher inventory levels compared to peers, aiming to be prepared for market fluctuations.
• Gross margins are expected to benefit from shutting down older fabs and ramping up new facilities like Lehi.

Operational Updates

• TI is nearing the end of a six-year investment cycle, which included acquiring the Lehi fab and developing a mega site in Sherman, Texas.
• The Sherman site, capable of supporting up to four fabs, has begun moving wafers, with the first products expected to be qualified this year.
• The Lehi fab expansion involves a $12 billion investment, focusing on advanced 28-nanometer technology.

Future Outlook

• TI is optimistic about its future prospects, emphasizing its strategic positioning and competitive advantages in the semiconductor market.
• The company is focusing on growing its embedded business and gaining market share in the analog sector.
• TI’s commitment to U.S. manufacturing is part of a broader strategy to ensure supply chain dependability and capitalize on potential decoupling trends.

Q&A Highlights

• TI is replenishing inventory based on real consumption, with competitive lead times.
• The company is preparing for potential tariff scenarios by requalifying parts in different locations.
• CEO Haviv Viland expressed confidence in the company’s ability to navigate market challenges and continue its growth trajectory.

In conclusion, Texas Instruments outlined a robust strategy for growth and resilience amid market challenges. For more details, please refer to the full transcript below.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Operator: We can start the clock. Awesome. Great. Thank you all

Stacy Rasgon, Analyst, Bernstein: for coming. I’m actually glad to see so many people here at 11:00 on a Friday. It was great. I’m Stacy Rasgon. I cover The US semiconductor and semi cap space here at Bernstein.

And it’s my honor to introduce our guest here today, Haviv Viland, the president and CEO of Texas Instruments. Before I start, want to mention if you have questions you’d like to ask during the presentation, you should have a link to the pigeonhole forum. You can submit them and we will have time for Q and A at the end. So TI, TI used to be thought of as sort of the boring semi company. I think you were proud of it actually.

They sort of wore that with pride. It’s well, it’s been a little less boring I think lately as they’ve embarked on a program of significant capacity expansion here in The US that at least temporarily has sidelined some of the cash flow and return that was always part of the thesis. But look, TI, they always think long term and now we’re kind of approaching the tail end of that investment strategy. The company believes those investment seeds that they’ve planted will be growing into even more cash cash flow in the years ahead with a footprint that may leave them very well advantaged in a world that’s becoming increasingly decoupled, which I’m sure we will be talking all about today. And so to tell us all about it, it’s my great pleasure to welcome Aviv.

So thank you so much

Operator: for for being with us.

Haviv Viland, President and CEO, Texas Instruments: Thanks. Thanks, Stacy. Thanks for having us. It is a pleasure to see so many people in New York on a Friday

Stacy Rasgon, Analyst, Bernstein: in person. Absolutely. This is this is fantastic. Thank you. You know, maybe just to just to start there.

Right? So, you know, you’re into what? You’re four of of a five year CapEx cycle, and it looks like

Haviv Viland, President and CEO, Texas Instruments: Year five, but who is counting?

Stacy Rasgon, Analyst, Bernstein: Year five. Okay.

Haviv Viland, President and CEO, Texas Instruments: We’re we’re coming to the end

Stacy Rasgon, Analyst, Bernstein: of Yeah. Coming to the end of it. I guess maybe you could talk about, like like, just at a high level, maybe for the folks who may not be aware, why did you do what you did? And then how has it gone like, what what’s it supposed to bring for you, and how has it gone versus your expectations? And what should we expect like now that we’re kind of maybe coming toward the end of it now?

Haviv Viland, President and CEO, Texas Instruments: First, thanks for the question, Stacy. And again, you’re right, we are at the tail end of a six years investment cycle, started in 2021 with our acquisition of the Lehi fab from Micron, and since then embarked on building a new mega site in Sherman, Texas, and we are in four and a half years in, right? So very much 70% in, and I’m excited about where we are. Now, the reason, of course, is to allow ourselves to support the future opportunity. We thought it was the right time for several reasons.

I’ll start with the fact that, you know, when you look at, in general, semiconductor adoption across markets, we see an acceleration, we call it secular growth of semiconductors are added to more end equipments, especially in industrial and automotive, so that is something that we’ve seen in the previous decade, but we think this decade it’s accelerating. It’s very easy to see if anything about your your car today versus your car three years ago and your car ten years ago, you can see the content coming in. If you go into

Stacy Rasgon, Analyst, Bernstein: industrial and auto is not new, though. That that’s been pretty

Haviv Viland, President and CEO, Texas Instruments: much gradually. Correct. But I think the the secular growth is is accelerating. So we look at this decade with EVs coming in with robotics, seeing a lot of adoption, factory automation. I think these trends also accelerated by COVID.

We saw all the difficulties with labor during COVID, the issues around energy, we are seeing acceleration. So we say, ’Hey, these markets are going to be probably growing instead of maybe the market’s mid single digits, maybe these markets can grow together faster.’ The second thing is we’ve done a lot of work to be better exposed to market, so you’re right, the last decade we said, Hey, these are going to be fast growing markets, but our exposure was very low. We had a 40% exposure between these two markets.

Stacy Rasgon, Analyst, Bernstein: Was that low?

Haviv Viland, President and CEO, Texas Instruments: That’s low, yeah, that in 2013 actually. The first time we started to look at markets was 2013, that’s the most ancient history we have, and it was 40%. And we crossed 70% during 2022. Last year, we finished at around 70%. I think it will accelerate this year.

And in general, we like our position. So when you are exposed at a higher level to faster growing markets, just want to make sure you support it. And on top of it, you’ve touched upon it on your introduction, we are seeing in the last several years, but more visibly in the last month, that the geopolitically dependable capacity is going to be more important. We’ve been talking about it for three years, everybody kind of ignored, I believe, and kind of it came from one year and went out from the other one, but I think we are now seeing and are seeing it also in discussion with our customers that capacity coming from a diverse set of manufacturing footprint, and in our case, heavy footprint in The US is unique and is going to allow us to support our customers better and maybe pick up some market share. So that’s the reason for the investment, pleased with the execution, and I’m seeing early evidence that this investment is going to come to fruition in the coming years.

Stacy Rasgon, Analyst, Bernstein: Got it. Do you want to remind the audience exactly what you’re investing in? Like how much, where, how much capacity is going to be in place, the revenue targets that it can I shouldn’t say revenue targets, but the supportable revenue, I guess?

Haviv Viland, President and CEO, Texas Instruments: The revenue opportunity we could support, yeah. But again, I touched upon the Lehi, so again, the first part was an As I explained the excitement seen from customers, we decided to and we announced it, I think, back in ’twenty three, if I’m not mistaken, at the back end of ’twenty three, and we broke ground last year on the Lehi two fab. That’s going be a very large investment.

Stacy Rasgon, Analyst, Bernstein: That was $11,000,000,000 I think.

Haviv Viland, President and CEO, Texas Instruments: It’s probably going to be more like 12, yes. And it’s a three our first three level fab. It’s gonna go all the way down to 28 nanometer. You could even do another step. And this is going to mainly support our You’re

Stacy Rasgon, Analyst, Bernstein: to 28?

Haviv Viland, President and CEO, Texas Instruments: It’s gonna it’s already we are already having test chips in ’28 coming out of this fab, and you can do one more step. It’s not going to be do FinFET, but from a bulk transistor, that’s where we are going to end there. And it’s very good. It’s a very good fit for our embedded business. Think about MCUs, DSPs, embedded flash memory on a single die, and also our high speed, what we call high speed analog, some high speed mixed signal connectivity.

You can think about some of the parts in analog that need some MCUs embedded inside, so it’s going to serve both analog and embedded, but mainly an embedded centric fab. And that’s going to be a couple of fabs over there. So that’s two new 300 millimeter wafer fabs that are going to support a lot of output. The other investment, you remember our first RFAB1, it started in 2010. As you remember, during COVID, it got full, unfortunately, and we didn’t have the cleanroom in RFAB2.

That fab is now up and running. Actually utilized at close to 70%, and, you know, it’s connected to our Fab one, so it’s not even a new qualification for us, it’s just another 300 millimeter wafer fab, so now we have three. And a new mega site that I’ve mentioned before in Sherman, That fab has broken ground in 2022. We are moving wafers today. First products are going to be qualified this year, and that’s a big thing for us because when you put a new factory, you do have to qualify your part.

So even if you have them running in our fab, because it’s a new site, there is a qualification phase that we have to go through. Very, very good results. We are happy about the throughput that we’re seeing from the fab, and it’s going to be actually it can support up to four sites. We’ve built the first two. We’ve equipped the first one, not the full clean room.

Stacy Rasgon, Analyst, Bernstein: So you got two shelves.

Haviv Viland, President and CEO, Texas Instruments: Two shelves, one subfab already in Sherman 1, and some of the equipment to run the the pilot line.

Stacy Rasgon, Analyst, Bernstein: And then two empty lots, basically.

Haviv Viland, President and CEO, Texas Instruments: Two empty lots. By the way, lots we have in Texas, so we have options. But that’s very important because this is where our customers that are now more worried about supply and especially US supply are coming over. We are entertaining customers. We have customers coming this week.

And they see the capacity that we’ve built, they see the technology that is going to go there, they are very excited. I’ll give one example on the technology, Stacie. Analog, it’s mainly an analog fab, our next generation BCD process, 65 nanometer lithography, monolithic power stages are going to power, for example, data centers and GPUs are going to come from that. So this is a technology that is being ramped right now, and this is where we are going to utilize that fab across all of analog, but also embarking a journey into new markets.

Stacy Rasgon, Analyst, Bernstein: Got it. Got it. So I guess when once that’s all in the ground, and is this when did you expect it all to be there? Was it 2030, or was it maybe it takes longer than that, but how

Haviv Viland, President and CEO, Texas Instruments: do you do with the whole

Stacy Rasgon, Analyst, Bernstein: thing support

Haviv Viland, President and CEO, Texas Instruments: This is where the revenue support and we we’ve gone through it in the last capital management call back in August, but another one, a refresh in February. At the end of the day, we have flexibility. So we finish this is why we call it a six year investment plan because when we finish 2026, we are now sitting on already five out of the seven built with Shells, and now we have clean room that we can build into because we’ve qualified it. So Lehigh is already qualified and Sherman will be qualified this year. So now we have this, what we call this phase three of flexible capacity spend.

This is according to revenue. If revenue now you choose your revenue target, I know that we always talk about what revenue will We’ll get there. Yeah, we’ll get there. What revenue will do next year, but we have options all the way to above 40,000,000,000 in 02/1930 if we need to, and if we don’t need to, we’ll just slow down our CapEx starting in 2027. Even in 2026, we have some flexibility based on revenue then, and we are excited about that, because to me, if you want to start right now to support the second half of the decade, you’re already too late.

It’s just not going to be ready. So in that sense, when you think about geopolitical tensions, we are well prepared for for many scenarios. One of them is an upside scenario that no one wants to talk about, but also on a downside scenario. Okay.

Stacy Rasgon, Analyst, Bernstein: Let’s let’s talk about it. So you’ve laid out some of those twenty twenty six and, again, I won’t tell them targets revenue scenarios.

Haviv Viland, President and CEO, Texas Instruments: Correct. Framework. Framework. Yeah.

Stacy Rasgon, Analyst, Bernstein: Framework. Right. And I think was 20 to 26,000,000. Right? I’ll be honest.

I’m I’m below the low end of of that. Know. Yeah. I’ve noticed. 17 or something.

Right? Five. We we could have the argument. And I think the CapEx range was was two to five depending on where we now it’s it’s hard to cut anything in ’26 or below two. I mean, some of that was you wanna get some of the Chipsax projects started so you can get some of that what is the tax credit is ends in projects start by ’26 or something or?

Haviv Viland, President and CEO, Texas Instruments: No, no, it’s actually not related to ITC. It’s related to clean rooms and shells because you can’t build half a shell, right? When you think about Lehi too, it’s a big investment. When you build that shell, you have to go through it, and we want to complete it by 2026 to have that flexibility. That’s what drives the spend over there.

It’s also the qualification of Sherman one and the pilot line. We want get that completed. So that’s what drives the cost. From an ITC perspective, that’s not I mean, are going to be running we’ve started this project so that ITC will run into the future. Now, regarding the revenue, you’ve mentioned the framework, yes, you know, we are I’m not you know, we give you one quarter at a time in OTI for years, and we are not going to change there.

But, you know, with shareholders, they want to model, in our case, free cash flow per share by, you know, the revenue scenario. So we’ve given four examples. You are insisting that we need a fifth one. I don’t

Stacy Rasgon, Analyst, Bernstein: think we do. I’m not insisting anything. I can

Haviv Viland, President and CEO, Texas Instruments: But but in just let let’s look at what happens right now. We are we are coming off probably the largest down cycle ever. Rich will argue that it it competes with the 2,000 time frame. Yeah. But the economy was in a different state then, and we are seeing a very nice recovery coming in.

And we are you know, just Stacy, let me run one number with you, and you can you can do the math later on on your what what ’26 will do. But think about the first half at the midpoint of q two. At the midpoint of q two, are talking about thirteen percent first half growth. I think it accelerates every quarter.

Operator: Like, year over year.

Haviv Viland, President and CEO, Texas Instruments: You know, we when we finish, you you do the math, are you going to have a good chance to get to that number that maybe you forecast for ’26 already in ’25? You have a good chance. So let’s let it play out. We have the responsibility, and this is where we fell behind in the previous cycle, to be ready. Because it’s very easy to say, oh, it’s never going to come, so it’s easy.

You don’t need to invest. The hard decision is to make the investment so if it comes, you can support it. And this is what I am very proud of our steady hand on a strategic perspective, but also on our execution. The team has executed well. Some of these fabs are built into the biggest shortage of supply, not only on semis, on steel and high power stations and water treatment equipment.

And you had some semi cap coming in today, think about two years ago, and we executed on time. AlphaB2 is on time, AlphaB1 is on time, Scheirman one is actually pulled in probably a quarter. So we are very excited about our position and let the second half of twenty five play out and then we can talk about ’26.

Stacy Rasgon, Analyst, Bernstein: So let’s talk about that sort of cyclical recovery. So you’re right. We were, I don’t know what it was, eight quarters or ten quarters of year 10. Particularly in industrial. Are you seeing recovery everywhere right now?

Is it primarily industrial?

Haviv Viland, President and CEO, Texas Instruments: The short answer is everywhere in industrial. The other markets have already done it, meaning PE. PE is running very hard from a year over year perspective, I think more than 50%, if I remember well. And comms and enterprise similarly. They just came after PE or consumer.

I’ll talk about auto in a minute, but industrial is a big chunk of our revenue and it’s showing a very broad recovery every sector, every geography, every channel, including ti.com, so very good recovery. Starting in Q4 actually, we were very we say, hey, it came probably five points higher than our expectation, so let’s wait another quarter. It happened very nicely in Q1. And then if you think about our forecast for the 7% sequential growth in Q2 this quarter right now, and we are now two months in, I can just reiterate that we are it’s it’s you know, industrial continues. We are not we are not we are not very surprised.

Industrial was the the fast grower sequentially in Q1 and I think it’s going to continue to do that. So very confident about industrial, it’s about time. We are way, way below trend line. The second thing on automotive, you know, cycle almost like was quelched, you know, there is It was a single digit year over year decline at the peak of it and it’s already grown in Q1.

Stacy Rasgon, Analyst, Bernstein: Is it all China though or is it more than No,

Haviv Viland, President and CEO, Texas Instruments: it’s only China. I mean, of course is very helpful because there is a lot of EV adoption in China, so you have more content per vehicle. But I think other than Japan and Europe that came in late to the cycle, I think it’s looking good. So I think the shallow correction, I would say, in automotive is maybe behind us.

Stacy Rasgon, Analyst, Bernstein: It felt like you were starting to take utilizations down in Q4 though, even as you were seeing the recovery. Do I have that wrong or is that what we’re

Haviv Viland, President and CEO, Texas Instruments: No, I think Rafael mentioned it in the Q, we had a January call, I think he mentioned it, but then I think in April last month he said, Hey, we had an upside quarter, right? And we also look at the orders into Q2.’ is all before tariffs and everything, right? Is like life is So we said, ’Okay, we better keep these files running at a little bit higher utilization’ and that’s what we’ve done. We have to prepare. We we can’t be in the mode that happened in a previous cycle that you once you fall behind

Stacy Rasgon, Analyst, Bernstein: Yeah.

Haviv Viland, President and CEO, Texas Instruments: It’s very tough to catch up.

Stacy Rasgon, Analyst, Bernstein: And I totally get that. And and I think you guys are in a good position in the sense that your your parts, as you’ve said very many times, don’t don’t really go obsolete. So you you’re holding, like, lots of inventory more more than you used to hold in the past, much more much more than most of your peers. And and to the extent that your peers are holding this much inventory, it’s it’s involuntary on their part. With you guys, it it it’s deliberate.

Haviv Viland, President and CEO, Texas Instruments: It is deliberate. And just by the way, we talked about it a minute ago, but think about our business. It used to be 40% industrial and automotive. Now it’s 70%, seventy five %. So at the end of the day, this is where the low risk is.

These are there’s this diversity and longevity phenomenon there that you you talk no risk. I mean there is cost of capital, of course, but it’s an easier decision. When you’re in PE, you know, don’t like our bananas to turn brown, okay, because PE moves very fast. If you build it too quickly, you can scrap it. So the other thing that, by the way, you know that when you move stuff more internally, you just have more work in progress inventory versus, you know, think about us building Lehi versus, you know, TSMC or something.

So that also adds to a little bit higher level of inventory. But we are well prepared. Yes. Got

Stacy Rasgon, Analyst, Bernstein: it. And I guess with what I guess, some people would suggest that you guys have a better view of actual demand because you don’t you don’t really run a backlog model. Right? You have I don’t know. It’s probably pretty close to a % of availability of a % of your products right now.

Lead times are probably zero. Right? If I go on ti.com right now, couldIIjustt.com

Haviv Viland, President and CEO, Texas Instruments: is zero. And this is by the way, this is why why we see more we talked about turns. Yeah. But when you really need it now, you go to TI.com. But lead times are low, and they are very competitive, probably the best in the industry.

And you’re right. We can’t count look. Semiconductors now are used by so many customers. Some of them, they just don’t know how to plan it, and they also don’t want to take the risk, especially now when cost of capital and cost of inventory is higher with interest rates. So we decided we are going to replenish our inventory based on real consumption.

So of course, we’ll give you support according to our lead times, but we we want to be prepared for any cycle. And we modeled the previous cycle, and this time we don’t want to hit a capacity wall or an inventory wall like we did last time, and that’s part of the strategy.

Stacy Rasgon, Analyst, Bernstein: Is is it fair to say that if you can fulfill an order, you ship it? Or is that

Haviv Viland, President and CEO, Texas Instruments: Yes. But, again, you know, if you if you forgot to order, you know, I would fulfill it from I’ll fulfill it from TI.com. If you if you are respecting our lead time, which are the most competitive in the industry, we’ll we’ll ship it to you. And I think you asked me last time even, you know, is is the order coming from, you know, pull in or or or just a I don’t know. Yeah.

You know? So we just fulfill Do

Stacy Rasgon, Analyst, Bernstein: you care? I mean I don’t care.

Haviv Viland, President and CEO, Texas Instruments: Yeah. Of course, do look at the situation of and, you know, I’m an engineer, so I like to think about signal to noise I think the signal is a cyclical recovery. There is noise, okay? And typically when you think about a system and you inject noise into the system, you just accelerate the cyclical trend here. So I think if customers were really driving inventory to zero levels, I think they are thinking about maybe behaving differently right now.

Plus, you know, we talked about industrial, they have depleted their inventory. And the beautiful thing about industrial, when you move to your next generation machine and equipment, sensor, whatever, there is just more content. So you see this double acceleration of I’m stopped depleting my inventory, I also have my new system that has more content. And by the way, we also hopefully want more share over there.

Stacy Rasgon, Analyst, Bernstein: Yep. Got it. So let’s talk about tariffs and geopolitics and decoupling everything. So I guess just to level set, like

Haviv Viland, President and CEO, Texas Instruments: yeah. Seriously. You can spend hours on that. Right? I’m just checking time.

Okay. But just to level set, mean,

Stacy Rasgon, Analyst, Bernstein: what what are you seeing on tariffs? Sorry. I guess both direct and indirect. And my my guess is right now, not not much that you can measure.

Haviv Viland, President and CEO, Texas Instruments: No. Right now, as you know, there was a little bit of a chaos in in April. And this is why when I when I talked on the call, q one, including in China and The US, we haven’t seen any tariff related. Mhmm. And you asked me how do we know?

We don’t know, but that’s our assessment. Mhmm. Just because everything would behave very normally and, like, nothing unusual. Like, think ADI

Stacy Rasgon, Analyst, Bernstein: called out.

Haviv Viland, President and CEO, Texas Instruments: Yeah. But ADI is delayed by by a month.

Stacy Rasgon, Analyst, Bernstein: Right? Yeah. And and with them, but it was it was only in auto, and and they said, we know what the normal trends are, this for a couple of weeks was unusual, so called it out.

Haviv Viland, President and CEO, Texas Instruments: Yeah. But again, the auto tariffs came in in Q1. But look, our parts are mainly have our automotive customers in The US are using our US based parts, and it’s all consignment based, so I don’t think there was any anxiety there from at least from our perspective. You know, April was a little little interesting. But at the end of the day, if you think about tariffs, and everybody talked about the China tariffs, and now now semiconductor tariffs are exempt on both sides of the globe.

Right?

Stacy Rasgon, Analyst, Bernstein: For

Haviv Viland, President and CEO, Texas Instruments: now. For now. If they want it look. I I want openness and, you know, everything to to be as normal, but as it used to be maybe. But I think it’s not going to.

If if you just look at the forget about the noisy weekly news. Just look at the trend from the last five to eight years. This has not been a one administration or one this has been a trend. Yeah. Okay?

If you if you if you kind of average it, it’s a trend of, I think, decoupling at least on the semi side. And even if you listen to the Secretary of Treasury two, three weeks back, I think he mentioned it, we don’t want decoupling from China, but in some areas, and I think semis, alongside pharmaceuticals and aluminum and steel were mentioned. So we have to be prepared for that. And we’ve built our capacity in The US not for that reason, but it’s we are in a good position. Okay?

That’s really where we are, and I think our customers and especially those who spend more time in Washington other than less, understand that very well. How much time are spending in Washington these days? More than I thought two years ago when I took the job, but to be fair, this is not related to one administration or the other. I’ve seen a very continuity on the objective to have The US be controlling its destiny in terms of semis, you know, maybe ways to get there, but it’s been a very coherent I think this is like the one bipartisan area where there is totally agreement on them. Look at COVID.

I don’t think for a bad reason. I mean, you do want to control your destiny, semis are now everywhere. They are energy, they are in medical, they are in aerospace and defense, they are in data centers, they are in EVs and robotics. So it is a fabric of our economy and I think you want it to come from dependable sources.

Stacy Rasgon, Analyst, Bernstein: Yeah. How much of your business actually goes into China these days?

Haviv Viland, President and CEO, Texas Instruments: So, you know, more or less aligned with our share of GDP, it’s 20%, I think. It was 19% last year and

Stacy Rasgon, Analyst, Bernstein: 20% in Q1. Headquartered.

Haviv Viland, President and CEO, Texas Instruments: Headquartered. But that’s really where, to me, what matters is where what’s the end consumption of the semis that we ship into China. For the headquartered company, it’s a good proxy for what’s being consumed in China. They still do have some export business, but it’s not very large. And we think we are at a good scale, meaning we are not over penetrated, we are not under penetrated, and we want to play.

Look, the China market is important. It’s 20% of world GDP, less than 20%, but higher than 15%. And it’s very strong on the automotive EV side. There is a good robotics opportunity. So TI wants to play the game

It’s a very similar game that we play worldwide. It’s industrial and automotive. It’s selling a broad portfolio. It’s many, many customers, and we are continuing to compete at a very high level.

Stacy Rasgon, Analyst, Bernstein: Got Got it. I guess, like, from that standpoint, though, is is having a primarily US focused footprint in this kind of a world, does that become you’ve talked about it as as an advantage. Could it could it be a detriment as well?

Haviv Viland, President and CEO, Texas Instruments: First, I mean, I think we just talked about it. China consumption is around 20% of, of all semis, and, I’m talking about what stays in China. And in that sense, we have more than enough on our non US manufacturing. We have a manufacturing site in China. It’s an end to end.

Stacy Rasgon, Analyst, Bernstein: In

Haviv Viland, President and CEO, Texas Instruments: In Chengdu, we have a full turnkey almost. That’s the only place in the world that can do full turnkey from substrates all the way to finished goods.

Stacy Rasgon, Analyst, Bernstein: Is that used primarily to serve like China demand?

Haviv Viland, President and CEO, Texas Instruments: Mainly China, but you know, it can support everything else. We also have two fabs in Japan, a fab in Germany, and we also have our foundry partners. Think about our embedded business. Embedded can be built in in Lehi now, but also, of course, in Singapore and Taiwan with our with our partner. So we we have enough tonnage to support China.

That’s not the issue. Of course, I prefer to build it in a 300 millimeter wafer fab rather than 200, but our 200s are underutilized and we have enough capacity. Now, everybody likes to talk about China as risk. No one talks about the upside. There is another side that, how did it all start?

It all started because there is a termination of US government, previous and current, to bring semi manufacturing, mainly fabs, that’s what the focus is, to The US. Who is currently investing in The US in our area? Of course, they’re investing in Arizona and other places for advanced nodes, but I think we are the only game. So in that sense Some of

Stacy Rasgon, Analyst, Bernstein: the others that were doing a little bit less, a lot less, but some were dialing it back too, right? Those who

Haviv Viland, President and CEO, Texas Instruments: did something, look at their operating cash and investments in the last two, three years, it all went down. I mean, we are 10x versus the competition. So at the end of the day, it is recognized, we said it many times, but now people care. So there is a lot of to me, as I said, I want the world to be open, but if it decouples, I see more opportunity than risk. Okay.

Let’s say that.

Stacy Rasgon, Analyst, Bernstein: What is the competitive environment in in China look like? And every everybody always because I always say it’s not even just an analog. It’s an analog, it’s an AI, and it’s in semi cap. Just given this my view is that the Chinese guys, they’re not as good, but they will probably take more share than they would ordinarily deserve to take because they have no choice.

Haviv Viland, President and CEO, Texas Instruments: Yeah. Be careful on not as good. Feel a little bit like a broken record. Think that’s the third time we talked mean, they have some how they build EVs, look at how they build, you know, wireless base stations. This is a capable country and a capable engineering workforce, okay, so let’s start with that.

Now, every time the China competitors choose to make a product, they are able to do it. Maybe it takes more iterations, but they iterate quickly. And it’s across the board. I like to talk about the portfolio of analog and embedded as general purpose and more application specific. The general purpose are more like a building block of the analog and embedded market.

This is when you start a new application, you start there. Then you have application specific that are more integrated, solving a specific problem, maybe in automotive, maybe in solar energy or whatever. So they play in both domains and they play well in both domains. What’s hard is the breadth. The breadth is an issue because in our market to satisfy a board or to solve a solution, you have to have so many parts.

That’s why we have 80,000 of them.

Stacy Rasgon, Analyst, Bernstein: Do you still talk about look left, look right?

Haviv Viland, President and CEO, Texas Instruments: You told me that last year and we do. Okay? So sell the board and understand every socket. And by the way, there is a socket here that we cannot address. Let’s invest.

Okay? So but some of these sockets are going to get 100 k a year across many, many customers. So it’s just hard to go attack all of it and it takes really decades to build a portfolio. It does take decades. So this is where we have a competitive advantage, not only that we are cost competitive because we are vertically integrated with both fabs and ATs, We also have a very broad portfolio and we have positions as customers that they value.

On top of it, know, think about the markets we play in China, it’s about 80% industrial and automotive. We are, you know, customers care about longevity, they care about support, you know, what happens when there is a failure or, you know, in a car OEM, can you do my failure analysis? That’s heavy lifting for many of the local competition, and this is what TI has an advantage. So we are competing. But to your question, the competition intensify.

You know, it’s just stronger every year. And I’m glad that we decided to pick up that challenge back in 2017, ’20 ’18 rather than wait for now. Because if you wait for now, it’s kind of too late. It’s hard to catch up. So I think we are running at the same speed, and it’s also this is why I like to call it our conditioning room.

If can compete there, if you can run the the Shenzhen and the and the Shanghai treadmill, can run also the the Detroit and Stuttgart treadmill. That’s the way I look at it.

Stacy Rasgon, Analyst, Bernstein: How much your workforce, like, field engineers, R and D is in is actually in China right now?

Haviv Viland, President and CEO, Texas Instruments: About 20% of our workforce, you know, coding, kind of aligned. What we have done over the last years is, in terms of R and D, in terms of manufacturing, we don’t want to be oversubscribed. So R and D, I’ve less talked about it, but we want R and D to come mainly out of China. It’s also very competitive, it’s hard to keep a team there. And the second point is on the manufacturing side, we are good on the front end, but back end a little bit oversubscribed because OSATs, which are, you know, external manufacturing for the assembly and test, are mainly China, so we need to own our destiny there.

We are working on by the end of this year we’ll be at the right level, so 20% out of China, Eighty Percent outside of China. That’s where we want to land on the ATs.

Stacy Rasgon, Analyst, Bernstein: Got it. We didn’t talk about your back end assembly, but you’re building a ton in The Philippines?

Haviv Viland, President and CEO, Texas Instruments: Philippines, Malaysia, we have North America and Mexico. And ATs right now, to, they’re heavy labor, but that’s also going to change one day, Stace. If you think about, and it’s part of what we discussed about robotics, we are training robots in eighties right now, and one day can you run a lights out, AT facilities? You can. I think it’s going to come.

It’s not around the corner, but when that comes, you can actually bring it to areas like The United States. Right? It’s one of these things that I’m very excited about that automation and digitization are going to come into our life, including in semi manufacturing, including ATs, who would believe. Right? So that’s exciting future for TI.

Stacy Rasgon, Analyst, Bernstein: I’ll have do some work there, I think. Just one more China question for you. I just see given everything that’s going, have you seen any change in the competitive arena in China, especially just given everything that’s going on right now? Has there been more of a push from the Chinese customers to use more local supply versus because I’ll be honest, I always sort of joke. It’s like you got some companies that do business, but like I always say, like, Texas, has Texas right in the name.

Haviv Viland, President and CEO, Texas Instruments: So I

Stacy Rasgon, Analyst, Bernstein: always wonder if that causes an issue.

Haviv Viland, President and CEO, Texas Instruments: So first, our brand in in China is is very strong. Customers really appreciate it, and we do appreciate them. You know, some of them are leaders in what they do in the world, global leaders, not only in China. And we learn a lot. I think they also rely on us in that sense.

Customers appreciate our portfolio. They appreciate our support, we have a very strong sales team in China, very urgent, and we are doing well. The customers are very proud, and I actually talked with them after even tariff days, you know, and they say, look, we need you, the government knows we need you and we count on you.’ And when I spent time there in Q1, again pre tariff, but all I heard is ’Thank you for your support, thank you for your portfolio, thank you for your capacity.’ Because China, like everything else, everything comes quicker. So from a cycle perspective, we were talking about, you know, how TI solves issues on supply from our competition rather than any tariff discussions. That was very refreshing, but I’m not surprised. Was

China

Stacy Rasgon, Analyst, Bernstein: from The US?

Haviv Viland, President and CEO, Texas Instruments: We, today have all the back end, of course, out of The US. The front end, it depends. You know, it depends on the part. What we are doing right now is to prepare, in the case of a tariff coming back, also in China, I have to requalify some of our parts that are in The US into Japan, into Singapore, into China. So we are doing it.

Amicae embedded is already ready because they are coming out of Singapore and Taiwan and they are going into The U. S. So they are already ready. On the analog side, I do have to make some re qualification because the rules have changed. It used to be based on the COO or country of origin.

It used to be on the back. Now it’s a front end. So I have to now take some of our parts that are running in The US and requalify in Japan. But we have time. So this is something that we are doing.

We are also loading our fabs. You know, the color of wafers, where it came from, was not important before. Now it is. So we are also offering to our customers flows. And this

Operator: is Okay.

Haviv Viland, President and CEO, Texas Instruments: So what flow do you want? You want The US flow? Okay. That’s that that acronym. You want all that prefix.

You want another flow

Stacy Rasgon, Analyst, Bernstein: Can you preferentially charge for that?

Haviv Viland, President and CEO, Texas Instruments: We think we should. Yeah. I mean, it’s not gonna be the 125% header, but, yeah, if you because if you don’t run plain vanilla, meaning I decide where the wafer comes from, it’s a little bit more burden on our side. I have to carry a little bit more inventory. I have to now remember where the wafers come from.

It’s an investment in IT. So we are doing it right now, and we are already offering this to customers in China. And also in The US, by the way, not only in China.

Stacy Rasgon, Analyst, Bernstein: And maybe that’s a good segue into, like, gross margins. And we we all know gross margins have come down. And we we understand why. I mean, it’s just that the heavy CapEx burden, there’s a depreciation burden. There was lower utilization just because of the nature.

So I don’t I don’t actually wanna talk about like down I actually wanna give you to talk about the the upside on gross margins. I’m I’m I’m I’m gonna be very I’m gonna be nice here. And there’s a number of drivers. I mean, clearly, if utilizations are getting better, fine. But you also talked about closing older fabs and starting to bring some of that volume into more cost effective 300 millimeter.

I guess where I can’t even remember gross margin is sitting right now, like like mid to mid to high fifties, something like that.

Haviv Viland, President and CEO, Texas Instruments: Mike, do you remember that number?

Stacy Rasgon, Analyst, Bernstein: I I can’t remember where they where they were the guy with high fifties. Yeah. But maybe you could talk even even though I’m I’m not asking you to give us a gross margin target, like, qualitatively, can you talk through some of the positive drivers on gross margins now that we are sort of approaching the end of the investment phase?

Haviv Viland, President and CEO, Texas Instruments: Thank you. I like the way you asked you today. And again, we we run the company on on free cash flow per share target. That’s the way we measure

Stacy Rasgon, Analyst, Bernstein: was joking. It’s like it’s not even joking. You you guys you you don’t run the company for gross margins. It’s never been a a core target.

Haviv Viland, President and CEO, Texas Instruments: Right? No. But I know it’s but I respect it because it’s important. To me, it’s just there is a little bit of delay. We like free cash flow per share because you see more immediate what’s going on.

And with with accounting and everything, margins follow. Right? But high level, I would say, Stacy, from a from a tailwind perspective, I see three coming in right now. One is the shutdown of our last two six inch fabs. And there is one in Dallas, One in Sherman.

Same land in Texas. Yeah. Yeah. And by the way, the the the Sherman fab has already parted. We moved from Houston Fab.

It was four inches, I think. So it’s kind of crazy, but we we we have now probably 90% done. Okay? So we’ve moved these parts either to a 200 millimeter wafer fab or redesigned them into three hundreds. And that’s a very, you can almost think.

When you when you move a part that used to 160 inch into a 300, the cost of chip goes to, quote unquote zero.

Operator: Yeah.

Haviv Viland, President and CEO, Texas Instruments: That’s nothing. So the gross cost of running a fab goes away when you shut down the fab, it’s going be shut down. Our last wafer start is, I think, Q4 this year, and we are going to wind that cost in 2026. So that’s one tailwind. The second one is Lehigh.

That’s a substantial one when we move the wafers. Because think about the gross cost or think about depreciation. We’ve put the equipment. We have the people

Stacy Rasgon, Analyst, Bernstein: this Lehigh one or Lehigh two?

Haviv Viland, President and CEO, Texas Instruments: Lehigh one. Lehigh one. Okay. And Lehigh one right now, as we ramp it, and right now it’s it’s below 50%, but we’re gonna leave the year at above 50% utilization in Lehigh one. Just from the transition or from On transition.

Okay. And there is growth in Embedded this year. So when you think about that, that is another tailwind that is part of what we call phase one, meaning transitioning of six inches into 300, transitioning of foundry into Lehigh. The second element is really, Stacy, you know, the mix is going to change. I mean, industrial is coming back.

That’s always a higher margin. That’s going to be a tailwind to gross margins. But if you look longer term, and we’ve modeled the company towards 02/1930 in multiple revenue scenarios, when you go to a steady state of capital intensity related to your growth

Stacy Rasgon, Analyst, Bernstein: What was that steady state in capital intensity by way?

Haviv Viland, President and CEO, Texas Instruments: 1.2x of growth. If you grow at 7%, you know, long term, it’s going to be, you know, 10%. If you grow at 10%, it’s going to be like 12, right? So 1.2x the growth. So that’s a long term capital intensity.

And is when you run that model, find margins are very attractive. And I’m talking about the way they used to run, but it was not sustainable. We ran there when we were when we were underinvested in capacity. It’s gonna go there very structurally.

Stacy Rasgon, Analyst, Bernstein: Yeah. I mean, yeah, I I still remember when you did the first three hundred millimeter, which was must have been o o nine, I guess. Right? Yes. Yeah.

And I actually remember where I was. Like, I was actually in it was I was having lunch with my family in the Japanese restaurant in the Upper West Side here in New York, and I saw this come across my BlackBerry. And my first thought was these guys are insane. Right? And then my second thought was these guys are geniuses.

And I I actually still remember the call that you did and everyone’s asking a utilization and like, oh my god, you’re gonna be what do you and your results is effectively like, guys are you don’t understand, like, do you have any idea what the return on these assets are gonna be? Right? And I remember back then you had aspirational targets to get to 55% gross margins someday. And I think you topped out at 70.

Haviv Viland, President and CEO, Texas Instruments: Yes. Yeah.

Stacy Rasgon, Analyst, Bernstein: Right? So under and and and you you’re right. It’s it’s I don’t know if was an I wouldn’t call it underinvested. You to me, you bought pre bought ten years worth of capacity at 10¢ on the dollar. Right?

Haviv Viland, President and CEO, Texas Instruments: No. I’m saying it was it was not sustainable. Right? We ran it at too low level of CapEx. Yeah.

But, again, I think we can do it more structurally moving forward because these new fabs are the return on investment is very attractive, but you have to wait. Okay? That’s the because they’re very, very efficient. The scale of 300 is so amazing. So we love the efficiency of the fabs.

And I think it’s gonna be different this time because our fab our fab two is ramping, as I said, 70% built and fully utilized. Mhmm. The reason it’s 70% is not because it’s empty. It’s because that’s what we can build there. This is why we are pulling in SM one.

So we we see a lot of momentum. Okay? And on Lehi, it’s just a longer process to qualify 45 nanometer, and I will finish this year. So I think you’ll see it coming in, Stacy, and and we are very proud. And if I may, on a personal note, you know, in the last two years I’ve seen how hard it is to invest in The US and I think that’s part of the reason we see a lot of people stopping.

These hybrid manufacturing means I used to be making it, I’m not going to make it in the future, right? So hybrid is a transition into fabulous. Yeah. A TI is going to be, you know, controlling its destiny and investing, but it’s very hard. How many how much praise you get Yeah.

When you invest, during a down cycle. Of course, you seem to be crazy or they think you’re crazy, but I think we are just thinking about it differently and see also the opportunity and I think it’s going to come. I think we’re seeing evidence that it’s coming now. So I’m excited about that.

Stacy Rasgon, Analyst, Bernstein: How does the CHIPS Act play into all of these decisions?

Haviv Viland, President and CEO, Texas Instruments: It’s not. It’s not. To me, the

Stacy Rasgon, Analyst, Bernstein: Like if there had never been any Chips Act, would you have done the exact same thing that you’re doing now?

Haviv Viland, President and CEO, Texas Instruments: I mean, the way, the reason we’ve accelerated our efforts was not because of Chips Act, it’s because we saw a larger opportunity and I’m very glad we have done it. But it does help. I think it’s just to level the playing field. Forget about all, I’m not a big fan of the grand stuff, but you know, the ITC part of that is very important because you just level the field versus people who are building it in Japan, in Europe. It’s not China is getting fully subsidized.

Okay? So it’s almost they do crazy stuff, but I’m not expecting us to do that. But I think ITC is a good method, and let’s see what they’re gonna do with it with a new bill. I think the ITC is a good way to have kind of a down payment for an investment and hopefully it will continue.

Stacy Rasgon, Analyst, Bernstein: Do you have any thoughts on that? I’ve just my view was that Trump hates the CHIPS Act and

Haviv Viland, President and CEO, Texas Instruments: don’t know. Don’t know. Don’t know. Of course, the word is not liked, but I think they do see ITC as a good thing, because it’s fair, you know, if you invest, it will help you. But grants are and also to me the process was not good and we were asked to do all kinds of stuff that isn’t related to semiconductor manufacturing, like unions and I like where we are going, let’s say Okay,

Stacy Rasgon, Analyst, Bernstein: and I agree with you, mean the tax credit at least was bigger, was 25%.

Haviv Viland, President and CEO, Texas Instruments: Yeah, that’s where the money is and to me ITC is where we want to and this is when I talk with the new administration, I see openness to ITC. I don’t like subsidies as well. I think it’s a discretionary decision of someone and they pull in all kinds of other stuff to it. So there is a lot of bad connotation to it rightfully so.

Stacy Rasgon, Analyst, Bernstein: Got it. I want to talk about the businesses a little bit, especially particularly embedded. And so some of the comments you made, particularly around Lehi, kind of resonated with me. Embedded has been a business for you that it’s had its issues over the last several years and you guys have kind of admitted, yeah, there were some things going on and you need to turn around. It looks like it’s kind of bothered and maybe it’s sort of resuming growth.

But your comments on Lehi suggest to me that you at least see potential for considerably more growth and prospects from that business than maybe we’ve had over the last five to ten years. And I guess what’s driving that? What gives you confidence? What have you actually, I guess what would, you said, what was the issue in Embedded? Like what did you do to turn it around?

Haviv Viland, President and CEO, Texas Instruments: Wow, that’s a long topic.

Stacy Rasgon, Analyst, Bernstein: In the six minutes that we have

Haviv Viland, President and CEO, Texas Instruments: again, Embedded, you’re right, it underperformed, I’m not talking in the last two years. It’s a 17 to twenty twenty four, very, very tough

Stacy Rasgon, Analyst, Bernstein: I mean, my math suggests you guys, your market share got cut in half in that business.

Haviv Viland, President and CEO, Texas Instruments: It’s kind of the seven bed years. Some of that market share is by design. Okay, us walking away

Stacy Rasgon, Analyst, Bernstein: from base The common infrastructure stuff.

Haviv Viland, President and CEO, Texas Instruments: Yeah, base station was hundreds of millions. And also infotainment, you know, overall about a billion dollar that we walked away from. So that’s structural decision, strategy. But the other part was issues on execution, Stacie, and execution meaning we went under the strategy was not a good fit for the competitive advantages of the company. We like to build internally, we like to have a breadth of portfolio, we like longevity and diversity.

It usually goes with these kind of smaller sockets. Instead of $50 per chip, can we sell those singles and doubles, 1 or $2, and sometimes 50¢ MCUs so we can play that game? And I think that’s what we’ve done in the last five years. Now why we have confidence is now we have enough evidence that not only we stabilize the business, we are prepared to take share. And the reason we want Embedded to be a strong contributor to free cash flow per share, to your comment, maybe even better than analog because the compare is easy.

Okay, so when you lost so much market share over the last seven years, it’s time for you to play offense and that’s what we’re going to do. So we have a new portfolio that is coming to fruition, we have new wins of funnel and I hate to talk about designing funnels, but it’s so substantially different in embedded versus the analog. When I do the comparison over the last five years, it grew tremendously. That the expectation from Amica and the team is that you grow fast. In the last peak to peak, and I showed the slide from ’eighteen to 2022, embedded revenue for GetAbout Market Share declined.

That’s not going to happen from ’twenty two to the next cycle. Embedded was flat year over year in Q1. It grew sequentially nicely, we’re going to do it again in Q2, and the target and the objective of the team is to accelerate from here. And I’m talking to you the way I talk to the team, it’s the same message. It’s time to grow, we’ve invested, we want to see the results in 2025.

So please check us in check us every quarter, you know, every quarter at a time. Remind me that if we are behind because I will use it with the team. But I I have strong confidence that we are going to make that happen in ’25.

Stacy Rasgon, Analyst, Bernstein: On the analog side, mean, to to drill down under the market share point there. I mean, plus a decent amount of share over the last several years, maybe since since COVID started. But in in analog, I mean, you went from 20% market share to 15?

Haviv Viland, President and CEO, Texas Instruments: Yeah. That’s when yeah. First, it’s four points. It’s not five. But but first, Stacy, let’s be fair.

Our analog share was running at 18 for many, many years. It popped to 20 at the beginning of COVID. Okay? It popped because we had supply. We had supply, we had inventory.

Remember back in 2020, we ran the fab You were the only ones to run the Yeah. So, yes, it dropped and I’ll talk about it in a minute, but I think I want to count the money at the end. And I’m not considering on the analog. I think our position is strong. I think the cycle is not done.

Look at our share, the quarterly share even on a quarterly basis in Q1, wait for Q2. Oh, you always tell us not to share. Yeah, but look it over the long term. The cycle is not done, Stacie. We are seeing a first in first out evidence from TI versus the competition.

I think this continues into Q2 and beyond. So a long story short, I think the analog business is in a very strong position. Now the issue we had, and that’s our frustration, and this is why you are seeing us in a very different mode during this down cycle, we had the positions, we had the designees, we were on board. As a young COO, I had to call the customers and tell them this was your last wafer start. This is your last wafer start.

So we had to allocate our wafers into markets that we thought are more important. That’s a tough

Stacy Rasgon, Analyst, Bernstein: never understood it because, again, you were running the fabs, you were making stuff. Did you The issue that we have, and I don’t want

Haviv Viland, President and CEO, Texas Instruments: to go too deep here, but we ran out of clean room. So ARFAP2 took a stumble. You know, remember Rich who took a short sabbatical? Yeah. You know, remember that?

So there was a loss of the company stumbled before Rich came back. When Rich came back, we drove ARPAB two in the highest speed, but a little bit too late. And this is part of the lessons learned. So we will admit first when we’ve done a mistake. But the good thing, we have the part, we have the position as customers.

And even those same customers I called to say that was your last wafer start, we are back in, not at a % share, but we are winning back sockets.

Stacy Rasgon, Analyst, Bernstein: Okay.

Haviv Viland, President and CEO, Texas Instruments: They were all in China. They were all PE customers. So that’s where we had to cycles. Faster cycles. Don’t go and protect your automotive and industrial market customers, unlike what we’ve done in 2010 or 02/2009 after the GFC, support them with your wafers and come back, fall on your sword, which we’ve done, and try to win back shares.

So we are, and this is part of the reason you see us growing in PE, it’s across the geographies, including in China, but we have work to do. So to me, I prefer that problem, that that you you were not prepared last time because you didn’t have enough supply. You are now, and we are gonna play a different game in this next up cycle. So we are very prepared for that, Stacy.

Stacy Rasgon, Analyst, Bernstein: Got Got it. We got about one minute left. Okay. Got a room full of investors here. Again, I always do, I will give you your soapbox.

Haviv Viland, President and CEO, Texas Instruments: I thought you’ll be alone here on a Friday, so thank you

Stacy Rasgon, Analyst, Bernstein: This is all you. They’re interested. Why should they buy Texas Instruments stock?

Haviv Viland, President and CEO, Texas Instruments: Look, I’ve been in TI for more than twenty five years and for the last ten to fifteen years, we worked so hard to reposition the machine, I call it, the strategy, analog and embedded. We talked about divesting some businesses, stepping out of business. You know, fifteen years ago, we had a big business still Remember, remember very well. And BlackBerry, remember them?

Yeah. We have done a lot of work to position ourselves in the right market. So we are well positioned into industrial and automotive, we have a great technology that can go into more markets like data center and beyond, so I’m very excited about our position and we don’t have any more headaches, okay? We’ve built the capacity, we have the machine, we’ve injected higher level of competitiveness each time, okay? So TI is prepared to play offense.

You will see it coming in every quarter, starting this year, and I recommend joining us. It’s going to be a wonderful journey for the company in the next ten to fifteen years.

Stacy Rasgon, Analyst, Bernstein: Got it. I think we’ll close it out there. Thank you so much.

Haviv Viland, President and CEO, Texas Instruments: Thank you, Stacy. Always a pleasure. Thanks.

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