Texas Instruments Inc (TXN) — Q3 2023 Earnings Call Transcript

Welcome to the Texas Instruments Third Quarter 2023 Earnings Conference Call. I'm Dave Pahl, Head of Investor Relations, and I'm joined by our Chief Financial Officer Rafael Lizardi. For any of you who missed the release, you can find it on our website at ti.com/ir. This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded and will be available via replay on our website. This call will include forward-looking statements that involve risks and uncertainties that could cause TI's results to differ materially from management's current expectations. We encourage you to review the notice regarding forward-looking statements contained in the earnings release published today, as well as TI's most recent SEC filings, for a more complete description. Today, we'll provide the following updates: First, I'll start with a quick overview of the quarter. Next, I'll provide insight into third quarter revenue results, with some details of what we are seeing with respect to our end markets. Lastly, Rafael will cover the financial results, give an update on capital management, as well as share the guidance for our fourth quarter 2023. Starting with a quick overview of the third quarter: Revenue in the quarter came in about as expected at $4.5 billion, flat sequentially and a decrease of 14% year-over-year. Analog revenue declined 16%, Embedded Processing grew 8%, and our Other segment declined 32% from the year-ago quarter. Now I'll provide some insight into our third quarter revenue by market. During the quarter, automotive growth continued and industrial weakness broadened. Similar to last quarter, I'll focus on sequential performance, as it is more informative at this time. First, the industrial market was down mid-single digits, with weakness broadening across nearly all sectors. The automotive market continued to grow and was up mid-single digits. Personal electronics was up about 20% off of a low base. And next, communications equipment was down upper teens. And finally, enterprise systems grew upper-single digits. Given where the market is right now, it is a good time to remind everyone of our plan and areas of strategic investment. First, our confidence in the secular growth of semiconductor content per system, especially in industrial and automotive, remains high, and we are well positioned in these markets. Second, our long-term 300 millimeter manufacturing roadmap provides our customers with geopolitically dependable capacity. To support these buildouts and enable future growth, we continue to expect associated capital expenditures to be about $5 billion per year through 2026. In addition, we made good progress on our inventory replenishment, consistent with our long-term objectives to support growth and provide high levels of customer service. Rafael will now review profitability, capital management, and our outlook.

Thanks Dave, and good afternoon everyone. Third quarter revenue was $4.5 billion, down 14% from a year ago. Gross profit in the quarter was $2.8 billion, or 62% of revenue. From a year ago, gross profit decreased primarily due to lower revenue and, to a lesser extent, higher manufacturing costs associated with planned capacity expansion and reduced factory loadings. As a reminder, LFAB-related charges transitioned to cost of revenue in the fourth quarter of 2022. Gross profit margin decreased 690 basis points. Operating expenses in the quarter were $923 million, up 7% from a year ago and about as expected. On a trailing 12-month basis, operating expenses were $3.7 billion, or 20% of revenue. Operating profit was $1.9 billion in the quarter, or 42% of revenue, and was down 29% from the year-ago quarter. Net income in the third quarter was $1.7 billion, or $1.85 per share. Earnings per share included a $0.5 benefit for items that were not in our original guidance. Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $1.9 billion in the quarter and $6.5 billion on a trailing 12-month basis. Capital expenditures were $1.5 billion in the quarter and $4.9 billion over the last 12 months. Free cash flow on a trailing 12-month basis was $1.6 billion. In the quarter, we paid $1.1 billion in dividends and repurchased about $50 million of our stock. In September, we announced we would increase our dividend by 5%, marking our 20th consecutive year of dividend increases. This action reflects our continued commitment to return free cash flow to our owners over time. In total, we have returned $5.6 billion in the past 12 months. Our balance sheet remains strong with $8.9 billion of cash and short-term investments at the end of the third quarter. Total debt outstanding was $11.3 billion with a weighted average coupon of 3.5%. Inventory at the end of the quarter was $3.9 billion, and days were 205, down two days sequentially. Inventory was up $179 million in the third quarter, less than half the increase versus the prior quarter, as we near our desired inventory levels. Therefore, we began to lower factory starts in the third quarter, which results in additional charges to the income statement. This impact is reflected in our outlook. For the fourth quarter we expect TI revenue in the range of $3.93 billion to $4.27 billion and earnings per share to be in the range of $1.35 to $1.57 as we continue to operate in a weak environment. Lastly, we continue to expect our 2023 effective tax rate to be about 13% to 14%. As you are looking at your models for 2024, based on current tax law, we would expect our effective tax rate to remain about what it is in 2023. In closing, we will stay focused in the areas that add value in the long term. We continue to invest in our competitive advantages, which are manufacturing and technology, a broad product portfolio, reach of our channels, and diverse and long-lived positions. We will continue to strengthen these advantages through disciplined capital allocation and by focusing on the best opportunities, which we believe will enable us to continue to deliver free cash flow per share growth over the long term. With that, let me turn it back to Dave.

Thanks, Rafael. Operator, you can now open the lines for questions. In order to provide as many of you as possible an opportunity to ask your questions, please limit yourself to a single question. After our response, we'll provide you an opportunity for an additional follow-up. Operator?

Hi guys, thanks for taking my questions. My first one, I did want to ask about gross margins. So depending on what I assume for OpEx next quarter, I'm getting something like 250 basis points of compression, maybe more. I know you talked a little bit about how some of that is the impact of utilization. Can you give us some feeling for the magnitude of the different drivers' utilization, lower revenue depreciation, pricing, and how we ought to be thinking about that trajectory as we get into the next year? Is there more to go, I guess, is what I'm asking.

Yes. Thanks, Stacy. Let me try to help you with that. Of course, for the forecast, we give a range of revenue and a range of NPS, not the pieces. Let me go through some of what I said for the third quarter, which applies for the fourth quarter and beyond. So for the third quarter, like I said in the prepared remarks, in the third quarter gross profit decreased primarily due to revenue, so that’s the first driver. Then, to a lesser extent, higher manufacturing costs associated with planned capacity expansion, namely depreciation is the main one there, and reduced factory loadings, and that's the underutilization component. Then as I also said in the prepared remarks, inventory, which is the other side of the coin, as we near desired levels of inventory, we will begin lowering factory starts in the third quarter. So there was an impact in the third quarter due to that on the income statement. There will be a bigger impact in the fourth quarter due to that. Beyond that, we're not forecasting, but of course that will depend on revenue expectations well into next year. Do you have a follow-up?

I do. Thanks. You gave us a little color on the end market behavior in Q3. Can you give us some thoughts on, at least even qualitatively, what to expect by end market into Q4? And particularly for auto, it sounds like auto in Q3 was so strong. Do you still see that strength continuing in Q4 and the year end?

Yes, Stacy, I'll take that. When you look at the guidance, it would suggest and we believe that we continue to operate in a weak environment in general. And if there was something significant that was changing from one quarter to the next as our typical practice, we highlight that and we just don't have anything to specifically call out for the fourth quarter. So thanks, and we'll go to the next caller please.

Thanks a lot. Dave, I also had a question on autos. It sounds like it's holding in there despite this broadening strike. And I guess the question is, are more of your customers on consignment in that business or is the split in autos about the same as that, two-thirds, one-third versus the rest of the company? And I ask because I'm wondering sort of what you're seeing on the Disti side that you would sell into autos. Do you see bookings, at least, weakening that would be more consistent with what we're seeing in terms of this strike and some of the weak macro numbers that we see?

Sure. Yes. And as we mentioned in the prepared remarks, it was up, auto was up mid-single digits sequentially and it was up 20% when you look year-on-year. So obviously that growth had continued. In general, I would say that a market like automotive and personal electronics will have larger customers. Those larger customers tend to be biased to more consignment. So we would have that probably more in automotive than if I contrast it to a market perhaps like industrial. But overall, as you know, we've moved to having closer direct relationships with customers, which would include the customers that we have in automotive. And I think we service pretty close to 1,000 or so different automotive OEMs, so there is quite a bit of broadness in who we serve there. You have a follow on, Tim?

I do, Dave. Yes. So what would it take for you to think about cutting CapEx? And I ask because the plan was put into place when revenue was quite a bit higher than where it is today. Is there kind of a line in the sand for revenue where you would reconsider the plan? I know you've actually increased the plan. Well, revenues continue to weaken, but is there some line in the sand where if it weakens to this point, you would consider cutting CapEx? Just wondering any comments there. Thanks.

Yes, let me comment on that. We're very pleased with the progress on our manufacturing expansion. They will provide geopolitically dependable capacity to support customer growth for the coming decade. And as you know, semiconductor content continues to increase. And to provide us the ability to grow at that 10% growth rate that we talked about at the last capital management call, if the market requires that, we'll continue to make those investments. So we continue to expect $5 billion of CapEx per year in 2023, 2024, 2025, and 2026. So you should count on that. Let me also give everyone, as a reminder, these CapEx numbers are gross, meaning they do not include benefits from the ITC or grants from the CHIPS Act. So we're actively working through the grant application process with the CHIPS program office, which we believe will be meaningful to our manufacturing operations in Texas and Utah and will help support semiconductor growth for decades to come. And funding from the CHIPS Act grants was included in our decision making for these investments.

Great.

Thank you, Tim. We'll go to the next caller, please.

Hi guys, thanks for asking a question. In the third quarter I think it was the first time in a few years that you guys just came in at the midpoint of your guidance. Usually you beat it by 2%, 3%, 4%, something like that. So I guess my question is, anything strange in the linearity in the quarter, either by end market, just aggregate bookings, any color on that you could provide?

Nothing strange. Ross, I'd say that the revenue built as we went through the quarter. And I'd say just in general, it's reflective of a weak environment that we're operating in, which is obvious from the guidance that we're giving. Do you have a follow on?

I do. On the end market side of things, you said automotive was up about 20% year-over-year. I know oftentimes you go between giving sequentials or year-over-years, but could you give us year-over-years by the end markets, please?

Certainly, yes. So industrial market was down mid-teens. I mentioned automotive was up about 20%. Personal electronics was down about 30%. Comms equipment was down about 50%. And enterprise system was down about 40%. So I think consistent with that weaker environment that we talked about. So thank you, Ross. We'll go to the next caller, please.

Hi guys, thanks for taking the question. I was hoping you guys could elaborate a little bit on the pricing environment. I think many of us have been picking up evidence of the pricing environment, particularly in Asia, intensifying over the past couple of months or a couple of quarters. You don't really give pricing as a reason for gross margins to be down sequentially and year-over-year, but what kind of role is pricing playing? Has your strategy changed at all, whether it be on the analog side or MCU side?

Yes, so thanks for that question. Always helpful to be able to clarify that. First, I'll just start with pricing doesn't move quickly in our markets, nor is it a primary reason that customers choose our products. So we're typically agreeing to pricing that's out six months or on an annual basis for the following year. And so, we're continuing to move through that. Our pricing strategy, as we mentioned before, hasn't changed. So we're regularly monitoring what's going on with pricing. We always have a goal to remain competitive. And certainly, supply and demand has come into balance, or closer to balance. We've said for some time that we would expect that pricing to behave like it has over the last couple of decades, meaning, low single-digit decline. So as we move out in time, that's what we're beginning to see. So really no changes other than going back to what we've seen over the last couple of decades. You have a follow on?

Yes, I do. Thanks, Dave. Over the past 12 months, operating expenses have increased by about 10%, while revenue has decreased by approximately 10%. As we look ahead to 2024, I would appreciate any insights you can provide regarding operating expenses. Additionally, Dave, you mentioned previously offering multi-year guidance on depreciation. If there are any updates, how should we approach depreciation for 2024 and 2025? Thank you.

Yes. No, thanks for the question. I'll address both OpEx and depreciation. So on OpEx, we've held a steady hand on OpEx for many years and we'll continue to do so. So as an example, to illustrate the point, from 2017 to 2021 we ran at about $3.2 billion of OpEx. And then in 2022, it ticked off to $3.4 billion. And now we're running at about $3.7 billion on a trailing 12-month basis. So you can see the steady hand and just a bit of an increase over the last few years. And that's, as we have had a steady hand with our hires, new college hires, and as we make investments to continue to strengthen the company in the case of R&D, the broad portfolio in the case with sales and TI.com on the reach of our channels. Then on depreciation, so our CapEx expansions are unchanged. We talked about that, addressed it with previous callers. So $5 billion of CapEx per year for the next 2023 and three years beyond that, as we have been talking about. Now when it comes to depreciation, as time has passed, we have more clarity on what to expect on depreciation. So for fourth quarter, let me start fourth quarter of 2023, we expect depreciation to increase on a quarterly basis at about the same rate as what we have been seeing throughout 2023. So essentially, we're going to end the year just shy of $1.2 billion, maybe somewhat in that range for the year. As an update for 2024, we expect depreciation to be between $1.5 and $1.8 billion, and for 2025 to be between $2 billion and $2.5 billion.

Very helpful. Thank you so much.

Thank you, Toshiya. Now we'll go to the next caller, please.

Hi. Thank you. I have a question about factory loadings and inventory. I want to clarify my understanding: I thought we were preparing for an upturn by building inventory, which you've mentioned over several quarters. While you mentioned there's no specific target, you did indicate an increase in the desired level of inventory. Is it correct that you're taking an underutilization charge because you've achieved this inventory level? Does this suggest a change in your expectations for recovery, meaning you anticipate a slower revenue growth than previously thought a couple of quarters ago?

Let me begin, and Dave can add his thoughts. We have set targets for our inventory levels, which vary by product and the state of completion of those products. For instance, out of the 80,000 products we offer, the majority are catalog items, meaning they are sold to numerous customers and have a long shelf life. This allows us to maintain several years' worth of inventory both at the chip level and in finished goods, based on our internal processes. Collectively, our inventory has reached between $4 billion and $4.5 billion, which we've been guiding toward. However, it's crucial to focus on the specific levels of individual parts. As we approach those target inventory levels, our inventory has grown by approximately $500 million each quarter for two quarters, followed by an increase of $179 million in the most recent quarter. There is clearly a slowdown in this growth on purpose, as we have reduced factory starts, primarily affecting our fabrication but also our assembly test operations. This slowdown will continue into the fourth quarter. The downside of reducing factory output is the underutilization charges. As we get closer to our inventory goals, we are preparing for the next phase of growth. Capacity is the bigger issue, but we've been actively addressing it for several years and investing in our capabilities. Inventory serves as a bridge until we can ramp up factory production again.

Yes, and I'll just add and bring back to our capital management that we've been saying for I think over a decade now, our objective with inventory is to maintain high levels of customer service, keep our lead time stable, keep product availability really high. So as we talked about earlier, ti.com, really, essentially all of our catalog products are available for immediate shipment. Lead times are stable. And so, we are prepared for that next upturn when it does come. You have a follow-on, Ambrish?

Yes, quick question, Dave. Looking at the year-over-year comparisons in the fourth quarter, we are experiencing a double-digit decline compared to the previous year, which is notable given the historical trends. There have been instances in the past where we've faced multiple quarters of negative performance, but it's rare to see a sustained double-digit decline over four or five quarters. I would appreciate your insights on how your team is viewing this cycle, recognizing that each cycle is unique. This would help investors understand the implications of a prolonged year-over-year decline. Thank you.

Sure. Yes. And I think we all know as being students of studying the cycles over the years. They're all the same and they're all different at the same time and they're unique. The one thing that is unique, of course, with the cycle is how the markets have behaved differently. We've seen bifurcation and really lined up very well with when markets recovered. So PE was the first to recover and was very strong early on. The other markets followed very shortly after that, and Automotive was last. As you remember, many automotive manufacturers struggled to restart their factories and people weren't going to showrooms when we were in the midst of the pandemic. So really, as we've seen things begin to roll over, Personal Electronics was first. It was then followed by the other markets, and yet we still have automotive that's hanging in there. So I think that's the one thing that's unique. And I think as we've learned and studied the cycles, our product portfolio has changed as well over time. But the best time to be preparing for the upturn is before it shows up. So that's what we've been busy doing, and we think we're in a great position to support the next upturn and to continue to gain share. So, thank you, Ambrish. We'll go to the next caller, please.

Thanks for taking my question. I wanted to go back to automotive just to make sure that I understood what you said. Do your comments imply that you're seeing a largely seasonal environment in Q4 with no changes in terms of orders to traditional or EV customers? And if that is the case, if I understood it correctly, isn't that surprising given the macro headwinds that the sector is facing?

Vivek, your question was on third quarter or on fourth quarter?

So I think when you were asked before, you mentioned that if there was anything unusual, you would have brought it up. Therefore, since you didn't mention anything, I take it to mean that things are normal.

Yes. So yes, what I said is that, if there was something that we needed to explain the outlook or unusual or however you want to describe it, we would do that. So I'm stopping at that point intentionally. And we'll finish up the quarter and report out what happens in the fourth quarter. Do you have a follow-up?

Yes. On depreciation, what is driving the revision? Because your CapEx doesn't seem to be changing. And then kind of part B of that is, if I take that year-on-year delta, Rafael, I think it's about $400 million, $500 million or so incremental in 2024. So at the current revenue run rate, that's a 2 point to 3 point headwind to gross margin. I just wanted to make sure that I got those two points right.

Yes. So for 2024, I said $1.5 billion to $1.8 billion, and that is down from what you probably had before, which was $2 billion. And for 2025, I said $2 billion to $2.5 billion, so that is down from $2.5 billion which we had said before. And the reason, as you pointed out, CapEx is not changing, so that's not the reason. It's just as time has passed, we have more clarity on what to expect. For example, depreciation on tools that doesn't start until the tool. It's not only received but installed and then qualified, and that’s when depreciation starts. So that doesn't happen immediately. So as we have learned more as to how that process works with all the number of tools that we're receiving for the various factories, then we're providing an update on depreciation. Thank you.

And the gross margin headwind, did I calculate it correctly? It's a 2 to 3 point headwind on gross margins.

We've provided the tools for you to calculate gross margin, so let me clarify what that entails. It starts with revenue; you should estimate the revenue expected over the next several years. Although it can be done quarterly, it’s generally more effective to consider a longer timeframe. You begin with revenue and then apply a range of 70% to 75%, which reflects the reliable capacity we are establishing, along with the new 300-millimeter fab capacity that offers a structural cost advantage. We’re also benefiting from ITC and grant incentives in the United States. After applying that range, you need to factor in the added depreciation. This year, it’s likely to be around $1.2 billion, and for next year, it's projected at $1.5 billion to $1.8 billion, which gives you the added depreciation for 2024. That's the overview, but within any quarter or year, there are adjustments to consider. Currently, we are facing underutilization, which is a headwind now, but it can turn into a tailwind as we ramp up loadings in the future. This is more of a tactical consideration that shifts from quarter to quarter. I hope that addresses your question.

Yeah. Thank you.

Thank you, Vivek. We'll go to the next caller, please.

Yes, thank you. I wonder if you could walk us through the calculation on the underutilization charge. I mean, I think it seems like with over of inventory, you would see the cost impact of that in six months, but you're pulling it forward. Can you just talk about how you determine how much to pull forward?

Yes. It's an accounting process that deals with underutilization. When production is below what is deemed normal utilization, you calculate the percentage of that shortfall, which is generally established based on wafer starts and the output from assembly test operations compared to maximum capacity. You determine a normal utilization level, which could be around 85%, 90%, or 95%, depending on the situation. When production falls below this level, the shortfall percentage translates into fixed costs that are immediately recognized in the profit and loss statement rather than being added to inventory. These fixed costs can include depreciation, but also other expenses like electricity, which remains constant regardless of production levels. Therefore, this impacts the financials directly without generating revenue. Essentially, it is reflected as a charge in the profit and loss statement for the quarter since that portion of capacity is idle. However, this situation also presents significant operating leverage when production ramps up, as fixed costs do not increase. Consequently, from a cash flow perspective, once production increases, there is a substantial benefit as revenue grows, especially with efficient 300-millimeter capacity at a low cost.

Do you have a follow-on, Joe?

Great. Thank you. Separately, on the comm infrastructure business seemed quite soft, both quarter-on-quarter and year-on-year. I know that business isn't a focus for you guys, but can you talk about what's driving that weakness?

Yes, last year Comms Equipment accounted for about 7% of our revenue. We see significant opportunities in this area and are continuing to invest, although we believe it lacks the secular growth found in markets like industrial and automotive. The Comms Equipment market tends to be volatile, and we think companies are adjusting their inventory levels as we navigate through this quarter. Inventory is down 50%, which is a notable decrease. Overall, we believe it's a promising long-term market and are well positioned, but we anticipate these types of fluctuations. Thank you, Joe. Let’s move to the next caller.

Yes. Thank you, Dave. Thank you, Rafael. So you talked about operating in a weak environment. Could you also give us some color on bookings trends, maybe even the current run rate versus where you think consumption is? Just trying to understand, and this goes back to Ambrish's question about four consecutive quarters of double-digit declines. So yes, any color on bookings trends would be really helpful.

Yes. So as I mentioned, I think as part of another question on revenue order linearity, there was nothing unusual inside of that. Secondly, we obviously, we're describing the environment as being weak. And we don't have a system that tells us, are we shipping above or below demand. The strongest signal that we get is orders from customers. Now as we talked about earlier comms, or a market like Personal Electronics was the first market to go into the downturn. We've had a couple of quarters of growth inside of that market. Now it's up off of a very weak base. But we are seeing that as a trend. If you compare that to the industrial market, we had seen that, let's say, let's call it, about half of the sectors begin to weaken a couple of quarters ago, it was really this quarter that we saw that, that weakness broadening. So customers, we believe, inside of markets like that, inside of markets like Comms equipment, that we said they're adjusting their inventories as such. So again, that provides us the opportunity both strategically with building the capacity and more tactically, building, putting in place the inventory to be able to support the next upturn, because it will certainly come. Do you have a follow-on?

Yes. Thank you, Dave. Very helpful. Follow-on for Rafael. Rafael, thank you for the depreciation numbers for the next few years. Do you also have an update us on the timing of the offsets to the depreciation, especially in relation to ITC and the CHIPS Act and anything new there?

There is nothing new to report. The expectation for the Investment Tax Credit is still around a 20% to 25% return on all capital expenditures in the U.S. for fabrication plants. As we mentioned back in February, we anticipate that around $4 billion of the approximately $20 billion allocated for capital expenditures will be recovered through the ITC, roughly about a year later. We have already accounted for $1.2 billion of this on our balance sheet under long-term assets. We expect to receive some of that cash by the fourth quarter of next year. As I noted in a previous call, we are actively applying for the CHIPS Act grant, which will provide additional funding not included in our forecasts. We do not have exact figures yet, as we need to wait for the Department of Commerce's decision. However, we are optimistic about our chances of receiving this funding, as it was factored into our strategy, and we believe it will have a significant positive effect on our manufacturing activities in Texas and Utah, supporting semiconductor growth consistent with the goals of the CHIPS program office.

Great. Thank you, Tore. Let's go to the next caller, please.

Thank you. Good afternoon. China headquartered shipments or about 20% of to the first half of this year. Does this geography have experienced the most significant decline? I think it was down like 33%, 35% year-over-year in the first half of this year. Much of your China business is focused on industrial. Is this geography continuing to contribute to the weakness here in Q4? And what other geographies are you seeing that is contributing to this broadening out of sort of the weak industrial trends?

Yes. Let me discuss what we observed in the third quarter. Overall, the industrial sector in China continues to be weak. A year ago, as China emerged from COVID, many of us would have anticipated a more pronounced recovery, which has not occurred. When comparing regions year-over-year, the only area that showed growth was Japan; all the other regions declined. This weakness is widespread. Do you have a follow-up question, Harlan?

Yes. Thank you. So your embedded business continues to hold up relatively well, right? Trailing 12 months, it's up 8% year-over-year. You've talked about the positive strategy changes in embedded. Last quarter, you also cited some constraints. I assume that those constraints have fully normalized. So do you anticipate embedded continuing to hold up? Or do you anticipate this segment starting to weaken from here with some of the capacity constraints potentially easing?

Yes. As we talked about before, we had focused on changing the product strategy that we had inside of embedded. I'd say we're very pleased with the results that we have so far. Our first objective was to stabilize that business. And we continue to invest in it because we believe it has long-term growth potential and contribution to free cash flow. So we're very pleased with where we're going. I think more tactically, as we talked about last quarter, we saw that business does rely more heavily on foundry suppliers. We began to see that capacity begin to free up for us. And I think that it was different because we had capacity in place to service analog, our own capacity there overall. So, yes. So again, we think that business long term is going to be a great driver for us in the future. So thank you. And I think we've got time for one more caller.

Great. Thanks for squeezing me in. Dave, can you remind us what's in the other segment besides calculators and perhaps why that end market was down so much more than the others? I know it's very seasonal from calculators, but there was a big drop year-over-year.

Yes. So besides calculators, we have our DLP or Digital Processor Products that are in there. So those products are continuing to make their way through inventory correction overall. And calculators had a weaker back-to-school this season. Do you have a follow-on?

Yes, perhaps something that hasn't come up in a while, but lead times. We were dealing with this golden screw issue for a while where there were quite a number of parts or quite a big part of the, let's say, all the available SKUs that had very extended lead times with revenue down as much as it is. I'm guessing that, that's mostly resolved and lead times are like sort of stock to four weeks for most things at this point. But if you could level set me on that, the degree to which there are still extended lead times, that would be really helpful. Thank you.

Sure. I may have mentioned this earlier, but almost all of our catalog products are available on ti.com for immediate shipment. As we work towards our desired level of inventory, we have products ready both in finished goods and in wafer form to restock. Consequently, lead times are as I described earlier and remain consistent. We generally maintain a diverse range of products for many different customers, so while we may experience occasional hotspots, they are infrequent, and our ability to address them is strong due to our flexible manufacturing, as most of our production is interchangeable. With that, I'll ask Rafael to conclude the call.

All right. Let me wrap up by reiterating what we have said previously. At our core, we are engineers and technologists, the foundation of our company but ultimately, our objective and the best metric to measure progress and generate value for owners is a long-term growth of free cash flow per share. While we strive to achieve our objective, we will continue to pursue our three ambitions. We will act like owners who will own the company for decades. We will adapt and succeed in a world that's ever changing and we will be a company that we are personally proud to be part of and would want as our neighbor. When we are successful, our employees, customers, communities and owners all benefit. Thank you, and have a good evening.