Texas Instruments Incorporated (TXN)

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Texas Instruments Inc. (TXN)

February 27, 2013 1:15 pm ET


R. Gregory Delagi - Senior Vice President and General Manager of Embedded Processing

Brandon Hodge


Joseph Moore - Morgan Stanley, Research Division


Joseph Moore - Morgan Stanley, Research Division

We're going to have to start the next session so if we could [indiscernible]. Thank you very much. Great. Well, thank you very much. Good morning, everybody. I'm Joe Moore. I'm the lead semiconductor analyst at Morgan Stanley. I'm very happy to have, from Texas Instruments today, Greg Delagi, who runs the Embedded Processing unit, and Brandon Hodge to speak to a lot of corporate issues.

So I think we're going to start out with Greg giving us a bit of an overview of the business that he runs and then we'll go into the Q&A from there.

R. Gregory Delagi

Okay. Great. Thank you, Joe. My name is Greg Delagi. I run the Embedded Processing business at TI. I guess, just as a little bit of a backdrop in terms of where we are, where we're going as a company. You've seen us intensify our focus in a very significant way on 2 segments of the market: Analog and Embedded Processing. It's really become the core focus of the company in the last several years. You kind of look back over 2012 and you look at the culmination of that with some of the decisions that we made to move away from investments and segments like the Wireless segment. We're in a position at the end of 2012 with 70% of our business focused on Analog and Embedded Processing. We believe both of those opportunities are very unique.

In the semiconductor market, we think there are very high-quality opportunities, and we think we are uniquely positioned to take advantage of those. If you look at the analog market in total, it's a $35 billion market. We've got -- with 17% of share, I think, is our round numbers, closer to 18% share in that market, and you've seen us do things to strengthen that position with the acquisition of National Semi, which was fundamentally important to our strategy there.

And on Embedded Processing, we talk about that as an $18 billion market. We have 11.5 percentage share. So both of the markets are great. They're big. We've got lots of room to grow in both of those segments.

One of the things that's important when we talk about these segments is the kind of the business model that we think we can drive to in terms of sustainability and profitability. And I think you saw some announcements from us late last week on our capital management strategy. I think that really is meant to underscore our confidence in these models and where we can take the company over time. With that, those businesses being 70% of our revenue today and continuing to expand that footprint as we grow and succeed in those markets. We believe we're in a just an unequal position in the semiconductor market to deliver very consistent returns, and we have a bias towards returning those -- returning that to our shareholders. So we can certainly answer any questions as we go into the Q&A session about that. But I do want to try to spend some time talking about Embedded Processing today.

So just this won't be too long, Joe, bear with me. The Embedded Processing, it basically breaks down into 3 different product areas we talk about. One is our microcontroller business; the second is our processor business; and the third is the connectivity technologies. When you think about connectivity technologies, wireless LAN, Bluetooth, GPS, near-field communication. Again, as we vector those investments toward the embedded space, we see great opportunities. Microcontroller is probably the biggest TAM opportunity we have. We have a relatively small position in that market place today at about 6% share. It's an investment market that we've been investing in dramatically, and I'm very excited about the opportunities there. Just with the new products that we have, the landscape of the -- competitive landscape that we have with a lot of those competitors being weaker, in combination with the sales footprint we have, I think, put us in an unparalleled position to have that business grow and be a great foundation of elements out of our Embedded Processing business.

Our processor business has been a great asset to us. You've seen in cases like Wireless Infrastructure where that's been a very strong area for us. Our DSP franchise is very important. We see great opportunities across an increasing number of spaces there.

And then lastly, on the Connectivity front, this is a smaller business for us today, but we're in this world where everything is getting connected either through a wireless network or WiFi network in your home or through your smartphone as a hub to the Internet or in terms of other kinds of mesh networks with things like ZigBee to do things like building control and automation, this technology is going into every corner of the market and is very closely coupled with what we're doing in our microcontroller business and our broad market opportunity we have.

One final comment I'll make is when we think about the Analog, when we think about Analog and EP and strategies at Texas Instruments, I think they are very, very synergistic. When you look at our Analog customer base today, we would describe that as about 90,000 customers worldwide. If you take that apart a little bit and look at how many of those customers buy some kind of embedded processor in those systems, it's probably on the order of 60,000. So it's that kind of a ratio that are using embedded processors. Our broadest footprint is in microcontroller with about 25,000 customers. So I think the opportunity there is we've got customers where we're selling them something today in an analog context. We have a dramatic opportunity to expand that as we build out our product portfolios and expand that market. And I think we could easily double the size of this business inside of the relationships we already have with customers today. So again, great opportunity, very synergistic, very, very, just a great opportunity for the company in total.

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