Texas Instruments Incorporated (NASDAQ:TXN) Company Conference Call September 7, 2022 9:00 AM ET
Company Participants
Rich Templeton – Chairman, President, Chief Executive Officer
Conference Call Participants
Chris Danley – Citigroup
Unknown Speaker –
Chris Danley
Thanks very much. I’m Chris Danley, your friendly neighborhood semiconductor analyst here at Citi. It’s my distinct pleasure to kick off the tech conference semiconductor-wise with the reference standard company in our opinion for semis, Texas Instruments. Today, we have the Chairman, President, CEO – there’s probably a few other monikers or initials after his name, he does so many things around there – Rich Templeton.
As those of you who have followed my research over the years know, TI has been one of our favorite semiconductor stocks for at least a decade, if not more, for a combination of really two factors: one, the market they’re in, high end analog, which we consider the best market in semis and one of the best markets out there; and then number two, this man standing to my left, Rich Templeton.
If you look at the statistics, which even a semiconductor sell-sider like myself can determine, the margins have gone up for, I believe, basically 20 years since Rich took over, hitting new highs every upturn and hitting higher lows in every downturn, and then more importantly he gives that cash that he generates back to you guys in the form of both dividends and buybacks. I think other than some other semiconductor companies that try and be a growth company, and Rich has never pretended to chase any of the various shiny new pennies in semiconductors, so it’s really my pleasure to welcome him, so take I’ll take a seat, switch mics–
Rich Templeton
Chris, we could end right there, just call it a day!
Chris Danley
Exactly. You know, Rich, I’ve spent some time, you’ve been doing this for a while, you’ve been on the circuit for a little bit this year. I wanted to think of a question that you have not been asked before, and this is the one thing I came up with. Several years ago, you had the shortest retirement this side of Michael Jordan, and at some point, I would imagine that you’ll give up the reins to the next generation of TI. What would you like your legacy to be at TI?
Rich Templeton
Chris, it’s very simple to me, and I think we’d probably even touch on different themes about today, and that is have a company that’s stronger 10 years from now. That’s not legacy, it’s always the way that I’ve thought, and I think our Board and whole leadership team thinks, which is make sure you’re making the right choices to build the place stronger, and that includes the leadership you put in place.
Chris Danley
Mm-hmm, and I wanted to ask you about another–you know, I don’t know if it’s urban legend or if it’s true, but things I hear in and around Texas Instruments is that every new employee at TI gets the, I guess, the TI handbook, which is something that you implemented, and when I think of TI and what sets you guys apart from some of the other, what I would call higher end or premier semiconductor companies is you guys have taken a business, high end analog, that is one of the better businesses out there and have introduced process and a striving to do better culture to a business that, frankly, a lot of folks within high end analog tell me they don’t need that.
So if you can just talk about the culture at TI and what you guy have done so well to keep pushing on the margins and the returns there.
Rich Templeton
Yes, I think–you know, it’s admitted a little bit–I’ll go two places with that. First, if you look at the–it’s in the investor overview and you’ll see it in other materials that we have, we talk about a passion in general, and it literally describes my passion as I was coming out of high school and wanted to be an electrical engineer of–you know, semiconductors, making more electronics more affordable and making a greater world, a better world. That remains–you know, if you look at most people joining TI that want to be in the semiconductor business, that really is the passion.
You then drop down to more executable, are the ambitions, and that’s this whole desire to make sure you’re going to operate like an owner and an owner that’s going to be around for a decade. This whole concept of making sure, back to the point you were making of getting stronger and succeeding in a world that’s always changing, okay, just look at the world around us now and you’ve got a good example, and then finally make sure that you’re a company that you’re proud to be part of and you’d want as a neighbor. People get very complex in this world with how do you build culture – well, just focus on a couple of simple things like that and it’s really easy to communicate.
But to your more detailed question on process, I think there’s a couple of things we’ve done, and we were just talking to [indiscernible] earlier on this, and they just service amazingly well. First is that we did put a set of processes or playbooks in place, and it’s probably been a dozen years, and it just–in a way, what it gives you is a common language. When you’ve got 30,000 people around the world, having a common language that you can speak in terms of your business or how you’re running manufacturing or your factories is very, very powerful.
The second thing, and it may be even the more important thing, is we’ve really operated long term with a general belief of build a relationship, interns coming out of college, then make a high percent of your new hires being people that had an intern experience because there’s no better way of people getting to know you and you getting to know them, and those processes have really served us well, and they’ve served us amazingly well because we even kept the intern work underway during COVID. Obviously it was virtual, it’s not as good as being elbow to elbow at a bench with somebody, but many, many companies stopped their intern programs, for example in ’20 and ’21, so those steps, I think have really helped just drive a long term view of how to build the company stronger.
Chris Danley
Yes, so on that note, I want to touch on a few things that you guys have done, sort of regardless of cycles. I remember sitting down with you 12, 13, 14 years ago, the last big downturn, and you guys were buying up used equipment, buying up any piece of capacity you possibly could to be able to not let your customers down. As we look at what’s happened in this cycle, we did have some shortages out there and we’ll talk about the possible fixes. I guess I get this question all the time, how did we end up in this big-time shortage situation, and then how do you feel that TI was prepared for that?
Rich Templeton
I think we were well prepared for that, and we’ve had a tremendous number of customers turn to us during the process. I give as the best example of that is fourth quarter ’19, so take the last, quote, clean quarter pre-COVID, and second quarter ’22, we grew the revenue over 50% – in fact, I think it was close to 55%, which hold it up against any other large semiconductor company and that’s going to stand strong.
But even more importantly, within that we grew revenue to every end market, and so personal electronics, automotive, industrial, enterprise, and it wasn’t by accident. It actually–I can’t tell you how painful it was to have a very steady hand, not let the loudest noisiest customer commandeer capacity, and make sure you’re supporting a broad set of customers.
I think we’ve really been able to respond well in a very stressful environment, and we’ve seen more and more customers turn to us as a result of both that response, but probably equally when they look at the work we have underway of the next 10 or 15-year path of investments, they just see, one, the ability to support their growth, and two, they see the ability to provide what I’ll describe as geopolitically dependable capacity. They like that it’s owned by us, they like where it is, and it just ends up more and more important in every discussion I’m having a high levels today.
We’re pleased with how we’re–you know, that’s always our goal, is you get stronger through these stressful periods because that’s when the important relationships are built.
Chris Danley
Mm-hmm, and do you think that the severe shortages we’re seeing now – I get this question all the time – are a result of the pandemic and the pandemic-induced, whether it’s shutdowns or supply chain snafus or whatever, and future upturns or shortages won’t be this bad, or do you think we could see something like this in the future, and how does TI plan for that?
Rich Templeton
Yes, so I think there’s a few things. First is that–and there is more experts on this, but I think COVID in many ways probably accelerated trends in terms of what we see. Chris, we’ve talked about it for a decade now, we’ve been absolute believers that if you’re going to be well positioned as a semiconductor company, you’d better be in industrial, you’d better be in automotive because the secular semiconductor content growth is just going to make them the fastest growing markets. Ten-plus years ago, we had a third of our revenue in those two combined markets, and last year it was over 60%, and not by accident, but absolute plans. I think those trends are going to absolutely continue regardless of what the rate of macro GDP is trying to do. I think it’s going to be very positive on that front.
Then back to what will the supply environment be, that’s what will determine what will the pressure look like over a 10-year period on that front, and it’s why–you know, in some ways, I look at what we’ve done is just extraordinarily simple. With our fab one, we had great growth coverage from 2010 through 2022, and we didn’t have that much top line growth because we were working revenue down from a wireless business during that period, and then we needed to have the next 15-year road map, and that’s what you saw presented at capital management back in February. We’ve made that road map to where it has the flexibility, to where we can bring things in or it can ride out a little bit at the macro level. Just for example, we’ll build the first two modules in Sherman to remove the two-year construction lead time with the second building. I just think those types of choices are the ones that they cost a little money, they have some time value of money, but they’re tidy investments in terms of what the potential upside would be if the market needs it.
Chris Danley
From a general capacity perspective, are you basically taking the blueprint from ’08 – ’10 and just expanding it this time around, or–you know, over the last decade, are you changing anything from a broad perspective as far as your approach to capacity expansion goes?
Rich Templeton
To me, it’s identical in that we just looked at, okay, what is 10 to 15 years of growth, what could that range be, let’s make sure we have a robust road map that can handle those variables, and now go get things in place. What’s different is we’re not going to be able to rely on used equipment, you’re going to have to do that new, but man, that’s not a big change. The magic’s always been 300 millimeter, not what did you pay for the 300 millimeter, so that’s not going to change the rates of return on that.
The other difference is it’s not one wafer fabs’ worth of growth, you’re may need five or six wafer fabs’ worth of growth to be able to handle the next 15 years, which is a great problem to have.
Chris Danley
Do you think that the CHIPS Act is going to help? I don’t think any of us are under the illusion that it will prevent any shortages in the future, but do you think that it’s going to help, I don’t know, ease the burden of shortages in the future?
Rich Templeton
Yes, I don’t connect it to shortages, even though I understand the headline. I think it’s historic, I think it’s a great choice, and I think it not only accelerates semiconductor manufacturing in the U.S. which will also attract the feeder supply chains that go into manufacturing, but the other piece that doesn’t get talked about very much is the R&D aspect of the CHIPS Act, which if it goes at least according to, I think, some thoughts, you’ll see a reasonable percentage of that R&D go through university systems for pre-competitive R&D, and I think that does great things for the long term health of the semiconductor industry and the semiconductor industry in the U.S.
I think it was–you know, it was a lot of hard work, but I think it was very important work.
Chris Danley
That’s a good point. I haven’t heard that one before. What does it mean for TI? Does it change anything, like are you changing any part of your business practices? Do you expect–I guess we’re seeing the CHIPS full reliance in Asia, there is a European CHIPS Act. Do you think that this is the first of many government, I don’t want to say interventions, but help for the future?
Rich Templeton
I think as you’ve said, we’ve already seen a number of them throughout Europe, or even India and other places, so who knows how that will continue. We’re a bit of an anomaly as a company in that the road map we showed, okay, the plans of completing our fab 2, building out Sherman, the acquisition and growth of Lehi, we said very clearly that we’re going to do those regardless of the CHIPS Act, and so even in those discussions where the government, I said, we’re going to do that, and they’re like, okay, but I said it’s really important that we do the CHIPS Act as well.
Chris Danley
You’re not going to turn the money down, right?
Rich Templeton
And if there’s opportunity that we can do things quicker or do things sooner, we’ll certainly take advantage of that, but the great news is that the choices that we were making, they were going to pay off even without it and they can only get better, is what happens with CHIPS.
Chris Danley
If you were in charge, I know you’ve been on the board of the SIA, etc., if you were in charge, would you be changing anything about the CHIPS Act? What would you do for the future? What do you think the U.S. needs to do to remain competitive on a global level, and we’ll get into China in a second.
Rich Templeton
Yes, I think–we’ve talked about it both at the SIA board and with the administration and with elected leaders. I think it’s great what’s been done. I think the piece that is still not being addressed, and it’s for the U.S.–you know, it hurts the U.S., is we’ve got to get a welcome sign back up for high skill immigration and we’ve got to be a country that says, we welcome the best and brightest from around the world to be here. That’s still politically not a very popular topic, and we’re going to have to get through that because we’re only 5% of the world’s population, which says by definition we’ve only got 5% of the smartest people in the world here, and I’d like to have a higher percentage over time. You know, just look at the history of the semiconductor industry, let alone tech, and how important have high skilled folks from around the world been in creating that, so that piece is still work to be done.
Chris Danley
TI was one of the pioneers of taking your inventory levels higher in anticipation of these future shortages. Now granted, you do high end analog, it’s not exactly D-RAM, so the price fluctuations aren’t nearly as bad. I think you guys raised your target inventory level earlier this year. How do you see that going forward? Do you think it continues to move up, and then as far as the channel goes, do you foresee coming out of this cycle as your customers will keep a higher, sort of normalized level of inventory?
Rich Templeton
Yes, so a couple of pieces. We took up the range, particularly the high end of the range, and Dave can [indiscernible] me – I think it was actually in early ’20 when we took that up, so it was actually pre-pandemic that we took that up to the 190 days.
Chris Danley
Wow. COVID blended everything together for me.
Rich Templeton
Yes, time did become one long year, I think most of our reflected. Bear in mind that compared to 15 years ago, our ability to do that is–we’re just in an enormously different position. Seventy-five percent of our portfolio, we can build because we sell it to multiple customers across multiple markets, so you have no risk of shelf life obsolescence. Fifteen years ago when you were running a Nokia business with essentially custom parts, you didn’t have that luxury, and so it’s not by accident that we’re in the place we are and you can take advantage of that.
It’s certainly served us well as the market slowed in second quarter of ’20 and really gave us a big leg up, and that inventory–boy, if we could have only had more, it carries us to early ’21, it just ran out of gas in ’21. So yes, I think that you’ve heard Rafael say he’s more than comfortable with even going above that, quote, high end of the range. We don’t sit there running the operating plan with that as a ceiling, so if the environment says it makes sense to build more, we certainly will and can.
You know, it is different – customers have learned more from a supply chain point of view through this downturn than they ever have in terms of what they’ve got to change. Our customer is going to have a different attitude in terms of inventory. I’ve certainly encouraged all CEOs that I’ve talked to – you know, look at your own internal processes before you just look for an outside factor of what you’re doing, and so I’m going to guess that there is some longer term change in that.
But at the same time, memories do tend to be short in this world, and you go from yelling about not having parts to people yelling about having too much inventory, and so humans are still going to be with us.
Chris Danley
Oh, they’d never do that, Rich. One thing about this year is you–TI was one of the first companies to see the slowdown, and now it seems like every week, somebody else sees it. What do you think was unique about you guys and your ability to see this coming first?
Rich Templeton
Well, I don’t know if there’s uniqueness or they just haven’t been around long enough–
Chris Danley
Call it like you see it!
Rich Templeton
–and pay attention to it. When everybody says no, the sky is the limit, there’s no end, you’ve probably got to be concerned that they aren’t looking. There could be that through construct of now over 60% of our revenue direct, things like TI.com online to where–that’s just real time consuming nature, we just haven’t had something like that in prior cycles. Can they assist us in being able to see it, and this in addition to looking, those are probably the only ways I’d think about it being different.
It’s also a slightly different cycle in that it’s not a synchronous downturn, and just look at second quarter where one extreme, if you were in PCs, it was a pretty miserable quarter, and if you were in automotive, there was no change. Typically if you go back to the bigger changes in late ’08 and bigger changes in late 2000 and early ’01, those were highly synchronized end market corrections, and this one is a little different on that.
Chris Danley
Yes, I know–you know, Rich has been through more cycles than I have, hard to believe, but as you sort of see this one playing out, like you said, it’s a bit of an asynchronous downturn, does TI do anything differently to prepare for the downturn, or are you out there–you know, clearly your capex plans haven’t changed. What do you guys normally do to prepare for the downturn, and could this one be as bad as, say, an ’01, ’02, or an ’08? What signs are you looking for besides the old order rates to tell us that it’s as bad, not as bad?
Rich Templeton
Yes, so as you’ve heard me say for many years, I don’t spend that much time focused on cycles because to me, the more interesting discussion is what’s going to happen in 2025 and ’26 and ’27, because those are the choices you’re making, those are the decisions you’re making today to really get positioned for them. That dominates 90%-plus of what we do, so preparing in this downturn is actually about getting capacity online and getting these things built out so that you’re in a position in 2025 to make sure that you can run very hard, depending on what that market wants to be.
Now, the other thing. Chris – and I know you’re a historian in terms of trying to keep track of this stuff, to me potentially the different–the cycle you may want to go back and look at is ’95 – ’96 because 2000, 2001, the Y2K cycle emerged into really a pretty weak personal electronics market. The 2008 – 2009 cycle emerged into a pretty weak global economy because of the structural impact from the global financial crisis, and if you go back to ’95, ’96, you actually had what turned out to be an eight-year–seven, eight-year secular run with the growth of PCs and cell phones. Well, it isn’t going to be PCs and cell phones in this secular run, it’s going to be industrial and automotive because of semiconductor content.
That may be–and if you actually look at how pricing, and it’s a dangerous thing because of the way it’s calculated as an average, the last time you had three or more years of increasing AUPs per WSTS was back in ’92 through ’96.
Chris Danley
Yes.
Rich Templeton
So I just–that may be more instructive as to how to think about things.
Chris Danley
That’d be great if we get ’97 to 2000 coming out of this downturn, I’ll tell you that.
Rich Templeton
And ’96 wasn’t too bad, except if you were in the memory business, which we were still at that time. We did fix that finally, but–.
Chris Danley
Yes, I still have PTSD from those D-RAM years.
Two questions that I got up and down the halls today, that I wanted to ask you. In terms of your capacity expansion plans, capex, if the downturn gets really bad, would that potentially change?
Rich Templeton
No.
Chris Danley
Good, and then the other one is–I get this from a lot of your holders and I ask myself this question, your margins are–they’ve been hitting all-time highs for quite some time, which we all know and love, but now you’re entering an elongated cycle of increased capex which should bring on higher depreciation. What can give us confidence that your margins can get back to the previous highs, or do you even think about that? Do you just say, eh, margins are going to be the margins and this is what I need to do for the next decade?
Rich Templeton
Yes, they’ll be what they’ll be.
Chris Danley
Okay.
Rich Templeton
But the thing you do look at, and it’s not that we operate in ignorance, is if you look at free cash flow per share and you start asking, how are you going to grow it over 10 years, revenue growth is just going to be a higher contributor. You’re not going to get it out of more margin, you may get a little incrementally on share count, but you’ve got to win on the revenue side. I don’t mean–you said it very well, we’re not chasing shiny objects, we’re not looking for crazy places to grow, just really high quality growth for the long term, and that’s about having the capacity in place.
You know, when you do the modeling and you look out even on the capex road map that we’ve shown, and it can look kind of intimidating in ’22, ’23, ’24, well, just run those numbers out to ’30 and [indiscernible], so that’s why I say it’s not ignorant of margins, I just don’t–you know, maximizing gross margin percents are never a great way to run the place for the long term.
Chris Danley
Mm-hmm, great. We have some time left, but I know this is supposed to be interactive. Apologies for taking everybody’s question time, and if anybody has any questions, please raise your hand. I’ll repeat it. Just be nice.
Chris Danley
The question was, what percent of revenue comes from foundry, and then five years out, what percent will come from 300 millimeter?
Rich Templeton
Yes, so I‘ll give you–and Dave can yell from the back if I am a little bit off, but think of today, 80% of our wafers are on the inside, and over time I think we talked in the capital management slides, that number will run up to over 90%. The math is pretty simple. We’ve probably 60%-plus of our assembly test on the inside. That number will approach 90%, or over 85% five years out in time. 300 millimeter, it’s probably 40%-ish percent of our internal capacity, and you play that out over time, I’ll bet it’s pushing 80% when you get out in 2030, because it’s the only capacity we’re adding, and we’ll take a little bit of the final 6 in trough line as well.
Those are two very important knobs to me in terms of if you want an indicator of competitiveness and low cost and dependability, okay, how much do you own, how much is internal, and what’s your percent of 300 millimeter, that’s the winning–those are the winning variables you want to maximize.
Chris Danley
How much is a 300 millimeter fab?
Rich Templeton
I don’t know, round numbers, they probably want to be $6 billion or $7 billion to build them out if it’s a 340,000, 350,000 square foot facility, which are very large, highly automated and as competitive as anything in the word, so we can play ball with the best in those.
Chris Danley
Hey Rich, I wanted to touch on a couple of those topics that popped up as it relates to China. It seems like every other week, we hear of some China city being shut down, some of which are rather large. Has that impacted you guys this year? Is that something you have to plan for? How does TI respond and deal with that?
Rich Templeton
Yes, well certainly, take a look at second quarter. We talked about just dealing with the Shanghai lockdowns in terms of customers and such and just saw an extremely low April, and the team was able to make it up by the end of June. You’ve recently read in the past couple of weeks, the Chengdu lockdowns, the team has done a great job of building a closed loop system so that facility is up and operating, to be able to operate independently. But we do our best to be able to plan and anticipate, but it doesn’t mean we can anticipate everything.
Chris Danley
Then on the China trying to do everything on their own, how do you see that, because certainly a large portion of your sales goes to China. Do you think that diminished in importance for TI over the next decade or two, and do you think that they can replicate your model?
Rich Templeton
Yes, so a couple of pieces in that, Chris. First is–you know, and we have in our annual report whatever the percent of sold to revenue in China, 50%-plus, I forget the exact number. I’m always just very careful with that because of the manufacturing, that’s not where it’s designed in, and I get asked, what’s the real use of our semiconductors in China, it’s probably about the GDP of China as a percent of the world. That’s probably what that looks like.
In terms of importance, I think China has been a–you know, you can have a debate, is it the number one economy in 10 years, or number two? It’s going to be something close to those, so it’s going to be big and it’s going to be important, and our strategy is to be a great supplier to these customers, there for the long term. We have–we continue to be very determined in doing that and designing things to make us very appealing – great parts, great service, great availability, everything that you would want to do, but we’ve also got the advantage when you think about Chinese domestic companies. The ability to build out a direct sales channel, the ability to build out a portfolio of 100,000 parts, the ability to get to the markets that we get to, that’s just a very hard thing to go do, or it takes a very long time. As a result, you see most of the domestic companies tending to have more verticality, so they’ll focus on markets that are closer, local, a few customers, a few parts make up a lot of the revenue. We’ll go compete very aggressively, and I think if we do our job, we’ll be successful.
Chris Danley
You know, you’ve talked with a lot of the other muckymucks in semis. How often does the possibility of China invading Taiwan pop up? You do have some foundry exposure. Do you have a backup plan, or do you think that this very, very unlikely?
Rich Templeton
Well, I think you’ve got to–and it’s why I talked about–you know, even in discussions with customers, when they look at the road map, and again it’s identical slides that we shared with investors back in February, the number one comment I hear is our road map represents geopolitically dependable capacity, okay, because it’s not going to be centered in Taiwan or China on that front.
We think that is a very important thing to have, and I don’t know how to handicap the percentages, but the magnitude of the impact, it’s very easy to handicap, and we’re just going to be a very dependable option that isn’t going to be exposed to that. I think the value of that, even in the discussions I have, is going to be enormous for the long term.
Again, we’ve got a lot of work to do to build it out, we’ve got to get that done, but I think we’re going to be very well served with that capacity road map.
Chris Danley
I have a few more questions, but–?
Unknown Speaker
Rich, [indiscernible] that your capacity expansions not tied in any way to government subsidies or CHIPS Act. The Biden administration released guidelines yesterday that suggested–that seemed to politicize returning cash to shareholders for companies that see [indiscernible]. If these subsidies are not going to impact your capacity, would the potential strings attached to them impact your capital allocation going forward?
Chris Danley
The question was on the CHIPS Act and the potential strings attached and how does that impact TI, if I could paraphrase.
Rich Templeton
Yes. We’ll make sure we have the ability to run the company the way we think is wise, and I think we’re very clear that growing free cash flow per share over the long term is the best approximation of increasing value. The other part of that is to either invest the outcome wisely and/or return it, and so I see no change in our ability to do both of those.
Unknown Speaker
But the subsidies do change the math [indiscernible] correct?
Rich Templeton
I’ll have to see what the–I’ve not seen all the documentation yet on that, Mike.
Unknown Speaker
[Indiscernible] released their guidelines [indiscernible]
Rich Templeton
Like I said, we’ll have to see what that all looks like, but we have no intent to change the long term belief that we have of how do you grow value and then how do you return it, because we think that’s again a foundation.
Chris Danley
Anybody else from the audience, or else I’ll keep going. Going once, going twice.
Rich, just to touch on that, I think–and you’ve talked about one of your advantages is your own 300 millimeter fab. One of your larger, largest competitors could potentially be building their own 300 millimeter fab. Do you think that that would make them more competitive? Would that change anything? Would that cause your worry level to go–does anything cause your worry level to go up these days? What do you think about that?
Rich Templeton
No, my worry level doesn’t go up that much these days. You know, Chris, I think we’ve got the material even the past couple or three years of just these competitive advantages, manufacturing and technology and breadth of the portfolio and reach of the channel and diversity and longevity, and we really believe that the test of those, when we look at those on a very regular basis, is do they give you tangible benefits, are they difficult to replicate, and ultimately if they’re real and not just nonsense on a PowerPoint, your free cash flow per share should grow faster than your best competitors. Cut through the crap, and that’s the real test.
Chris Danley
Yes.
Rich Templeton
So that’s where I keep–whenever people say, yeah, but this company’s is buying another company or this company may invest in something, just put it up against that list of competitive advantages and ask, what’s it’s going to do to any of those? The fact is even on something like manufacturing and technology, if you look at how much has to be invested, how much skill has to be built, that’s probably a 10-year journey, okay, for that other company or for a company that to undertake if they’re starting from ground zero. It’s going to be a long time coming, and therefore it really doesn’t decay the advantage that we will end up having.
The number of our competitors that are going to be able to build their own internal manufacturing and technology is very, very limited. Just look at where they are and look at their portfolios. I think that’s becoming increasingly obvious.
Chris Danley
One other thing I want to touch on, so you are not afraid–or I don’t know who, if it was you or Tom, was not afraid to get out of the D-RAM business in ’97 when it didn’t fit the bill, you were not afraid to get out of the Nokia business in the 2000s. As I look–and were not afraid to get rid of the sensor and control business as well. If l look at the embedded business, the margins and the returns have not quite been up to the analog business or overall TI. Why have we not seen that go down the route of D-RAM or the Nokia business? Is there some sort of synergies with the analog business? Do you think that those returns, while they’ve gotten better, they’re still not quite to where the analog business [indiscernible]?
Rich Templeton
It’s really simple. If I didn’t think it had the ability to add value over the next 10 years, it’d be gone. I think we’ve been–you just summarized it, and so you take a look at that business, you look at the potential, and there’s things that we didn’t execute well, okay, and we’ve got changes in place, and I think that team is starting to show the right leading indicators. But we’re pretty simple – we don’t come out on earnings calls and talk about leading indicators. Let’s get real results and real growth. That’s what Amichai and his team are doing right now, is proving that they can, and I do believe you’re going to look back five and 10 years from now and say, it is absolutely all the contributor, and I don’t mean matched gross margins or operating margins, but if you just had the business growing at the same rate, it’s going to be helping the company the same way, and I think it’s got the potential to do it.
So no, it doesn’t live on synergy. That’s an oxymoron in terms of a lot of that discussion.
Chris Danley
Great. I think we’re out of time. Thanks everyone. Thanks so much.
Rich Templeton
Okay Chris, thank you.
Question-and-Answer Session
End of Q&A
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