Texas Instruments Earnings Call Nuggets: Gross Margin Outlook and Worldwide Growth
Gross Margin Outlook
Glen Yeung – Citi: Kevin, can you walk us through the gross margin expectations for the third quarter? Just what are the puts and takes on how you get to, what I think you call notable gross margin improvement in that quarter?
Kevin March – SVP and CFO: Yeah. Glen, I think what you’re going to see with legacy wireless declining by about $90 million next quarter; that lower margin revenue is going to be displaced by higher margin revenue with the form of Analog and Embedded Processing taken for bigger piece. In addition, with our growing backlog and higher revenue expectations for the quarter, we’ll be utilizing more of our factory capacity. So, as you kind of run through all that, I talked a moment ago about our operating expenditures would expect to be down a couple of percent quarter-over-quarter and our restructuring and acquisition cost to be about $100 million in the quarter. So, you squeeze that math on through and you’ll see that our gross profit margin will continue to increase as it has this last quarter.
Ron Slaymaker – VP, IR: Do you have a follow-on, Glen?
Glen Yeung – Citi: I do have a follow-on. If I look at your – and forgive me if I’m doing this math wrong, but I think I got it right. If I look at your revenues less wireless year-over-year in the June quarter, it was still actually a negative number, and I think based on your guidance, it will be positive in the third quarter. Question is, do you think that your revenues less wireless will actually be positive for the year?
Ron Slaymaker – VP, IR: Glen, I’ll let you try to extrapolate what we’ve done year-to-date out into the fourth quarter. Clearly, with the legacy wireless down as significantly as it will be in the third quarter, and we’ve said before that we expect it to be pretty much zero by the time we get into 2014. That variable was pretty much filled in for fourth quarter, but you can make some estimates on what the rest of the revenue could look like to make the assessment of whether we are going to be up overall without legacy wireless.
James Covello – Goldman Sachs & Company, Increase: Ron, first, if I could just ask this, the improvement that we’re seeing across the industry in the comms business early stages, could you offer some perspective on that, and how long do you think that potential last, what the puts and takes there would be?
Ron Slaymaker – VP, IR: I think you’re talking specifically about infrastructure there. So, I believe that’s what my comments would be.
James Covello – Goldman Sachs & Company, Increase: Sure.
Ron Slaymaker – VP, IR: We’ve actually seen pretty broad growth across geographies. It is being led by North America, and it’s been led by some of the players (that late) last year in terms of operators announced that they would be doing capital spending increases this year. So, after several quarters of, what I’ll say is, not a lot of activity, we did see real results in third quarter. But again, it was broader than North America. Looking into the back half of the year, I think we’re still optimistic that – well, actually first of all, let me say that what we’re seeing in North America is a combination of continued WCDMA deployment, but also accelerating LTE deployments as well. So again, as you know, we play quite strongly across both the new LTE technology as well as the more entrenched WCDMA. So we’re seeing strength on the combination. In terms of China, we like many other people are waiting to see the impact of – and whether in fact, we will see second half deployments, but clearly that’s our expectation. We’ve seen some activity – more so from the standpoint of customers getting prepped for that in Japan. But we haven’t actually seen the bigger lift, and I think that’s pretty much consistent with at least my understanding of what other players have been describing as well there. Do you have a follow-on, Jim?
James Covello – Goldman Sachs & Company, Increase: I apologize if I missed this because I got cut off briefly. But did you say what your plans for (indiscernible) quantities for the back half of the year (indiscernible)?
Kevin March – SVP and CFO: Jim, I’ve not heard your question correctly. I think you were asking what our plans were for factory loadings on the back half of the year versus the first half. Clearly, our loadings have been stepping up. Second quarter was higher than first and we would expect third quarter to be higher than second on the basis of our growing backlog. Beyond that we don’t have enough visibility to really comment on what the fourth quarter might look like. And so, we’ll wait another 60 to 90 days before we comment on that.
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