Ron Slaymaker - Vice President ofInvestor Relations Kevin March - Senior VicePresident and Chief Financial Officer

Srini Pajjuri - Merrill Lynch Joanne Feeney – FTN Midwest Allan Mishan - Oppenheimer Sumit Dhanda - Banc of AmericaSecurities John Pitzer - Credit Suisse Jim Covello - Goldman Sachs Cody Acree - Stifel Nicolaus Tim Luke - Lehman Brothers Glen Yeung - Citi Chris Danely - JP Morgan Doug Freedman - Amtech Research KrishnaShankar - JMP Securities Ross Seymore - Deutsche Bank David Wu - Global Crown Capital Tore Svanberg - Thomas Weisel Steve Smigie - Raymond James John Dryden - Charter Uche Orji - UBS

At this time, I would like towelcome everyone to the Texas Instruments Fourth Quarter and 2007 Earnings Call.(Operator Instructions) Thank you. Mr. Slaymaker, you maybegin your conference. Ron Slaymaker - Vice President of Investor Relations: Good afternoon. Thank you forjoining our fourth quarter 2007 earnings conference call. Kevin March, TI'sChief Financial Officer, is with me today. For any of you who missed therelease, you can find it on our website at ti.com/ir. This call is being broadcastlive over the web and can be accessed through TI's website. A replay will beavailable through the web. This call will includeforward-looking statements that involve risk factors that could cause TI'sresults to differ materially from management's current expectations. We encourageyou to review the Safe Harborstatement contained in the earnings release published today, as well as TI'smost recent SEC filings for a complete description. Our mid-quarter update to ouroutlook is scheduled this quarter for March 10. We expect to narrow or adjustthe revenue and earnings guidance ranges as appropriate with this update. Inthis call, all of our financial results will be described for continuingoperations, including historical comparisons unless otherwise indicated. In today's call, we'll try toaddress the key questions that we believe are on most of your minds.Specifically, we realize that while many of you are excited about the analogopportunity for TI, we are also concerned about topline growth and the impactthat changes in the wireless market might have. We'll provide some data points anddiscuss where we're taking our wireless product lines strategically. In addition, many investorsfrequently ask about profitability and whether our margin goals of 55% grossmargin and 30% operating margin are still intact? We'll address our financialgoals and our progress toward these goals in this call. Finally, the economy and broadermacro issues have been top of mind for many of you recently. We'll share ourperspective on the overall environment and how we're addressing the uncertaintyin the environment. At the highest strategic level, we are excited about ourposition in the semiconductor market as analog and DSP are in the heart of themost exciting applications. Fourth quarter saw a return ofyear-on-year revenue growth, and most importantly, growth in the right areas,areas where we are being paid for our innovations and our value contributionsto our customers. As a result, profitability continues to move up and towardour financial goals. Operating margin for the year crossed 25% for the firsttime in our history and hit 28% for the quarter. Probably most telling of whatwe've accomplished is cash flow in 2007, more than $4 billion of cash outflowfrom operations for the first time. This reflects the comprehensive gains we'vemade in improving our product portfolio, as well as executing this into abetter mix of opportunities and revenue. Cash flow, along with return oninvested capital, which exceeded 25% for the year also reflect the improvementswe have accomplished in our manufacturing operations to invest where we get thebest long-term return. I'll now review our revenueperformance, and then Kevin will discuss profit performance and the firstquarter outlook. As usual, we will keep our remarks short, saving time for usto respond to your questions. Revenue in the quarter was justbelow our expectations. Wireless, which was the primary reason for the smallincrease in our mid-quarter revenue range, delivered as expected. On the otherhand, our distributors did not replenish inventory very late in the quarter, aswe had been expecting them to. Semiconductor revenue was abouteven with the third quarter and calculator revenue declined seasonally.Although the net effect was a 3% sequential decline, it's important to notethat revenue grew 3% from the seasonally comparable year ago quarter. This wasthe first quarterly year-on-year growth for TI in a year. Wireless, once again, became acontributor to our growth in the fourth quarter. Wireless revenue of $1.32billion in the fourth quarter increased 9% from the year ago quarter and was up5% sequentially. The biggest factor in this growth was 3G handsets, whererevenue was up double-digit levels in both comparisons. Wireless infrastructure was alsoup strongly, more than 20% sequentially and year-on-year. As the wirelessmarket continues to change and as competition continues to build for digitalbaseband, we are encouraged that handset OEMs are continuing to emphasize theimportance of user interfaces and applications in their handset product lines. These smartphones were thefastest growing segments of the handset industry last year, and most of themuse applications processors from TI. We have a strong position with OMAP and agreat opportunity. As a result, OMAP will become increasingly important to TI'swireless strategy in the years ahead. Overall DSP product revenue grewto $1.36 billion, up 4% sequentially and 12% from a year ago. Wireless handsetsand communications infrastructure were the biggest drivers of the DSP trend. Outside of wireless, our DSPstrategy is to focus on opportunities and applications where our customersinvest R&D in software that runs on our architecture. Our experience isthat when customers invest in software, our relationships with those customersare strategic and long lasting across multiple generations of their products aswell as profitable. Analog product revenue grew to$1.37 billion in the quarter, a 2% sequential decline and 4% growth from a yearago. The sequential decline in analog revenue is mostly attributable to thesale of our DSL CPE product line last quarter. This product line was acombination of analog and DSP products. High-performance analog was up 1%sequentially and grew 12% from year ago. High-performance analog growth wasmostly driven by power management as well as precision and high-speed dataconverters and amplifiers. Outside of HPA, the mostsignificant area of strength in analog was products sold into the hard diskdrive markets. We believe that analog will be our most important growth driverin the years ahead. We're pleased with our growth andcontinued share gains in high-performance analog, and we're investing tobroaden this growth into the application-specific analog area. We are makinggood progress in targeted areas such as medical electronics that we believe candrive growth in both high performance as well as application-specific analog. From a top-down perspective, theopportunity in analog is encouraging. At $37 billion, analog is one of thelargest markets in the semiconductor industry. Although we are the marketleader in analog, we only have about 13% share. As a result, we believe we havea substantial opportunity for sustained growth in excess of the analog marketgrowth rate for many years ahead as we continue to build share. Investments in our productportfolio, our analog manufacturing capacity and the scale of our field salesand applications customer support will be the primary drivers of this sharegain. The remainder of our fourthquarter semiconductor revenue declined 2% sequentially as lower DLP revenuemore than offset gains in microcontrollers and royalties. From a year ago, thisrevenue was down 14% as declines in DLP revenue, royalties and RISC microprocessorsmore than offset growth in microcontrollers and standard logic. For the year, overall, TI revenuedeclined 3%. DSP revenue of $5.07 billion declined 2%, driven by the sale ofour DSL CPE product line and broad declines across a number of markets,including wireless. Analog revenue of $5.29 billionincreased 1% as growth in high-performance analog more than offset lowerrevenue from custom analog products sold into wireless applications. HPA revenue grew 9% and was about45% of total analog revenue in 2007. Wireless revenue, including both DSP andcustom analog products, sold into wireless handsets and infrastructureapplications declined 3% to $4.91 billion in the year. And at this point, I'll ask Kevinto review profitability and our outlook. Kevin March - Senior Vice President and Chief Financial Officer: Thanks, Ron, and good afternoon,everyone. Profitability was a good story last quarter and for the year as ouroperating margin continues to move upward toward the 30% level that we believeour portfolio should be capable of delivering. Let's start with the gross profitof $1.93 billion in the quarter. This was a sequential decline of $58 millionthat was mostly due to the seasonal $85 million gross profit decline in oureducation technology segment. Please keep in mind that the third quarter'sgross profit also included $39 million gain from the sale of our DSL CPEproduct line recorded at corporate level. Semiconductor was a bright spotfor gross profit in the fourth quarter. Although our semiconductor revenue wasabout even with the third quarter level, gross profit increased by $55 million.When compared with a year-ago quarter, TI's gross profit expanded $178 millionon $93 million increase in revenue. These trends reflect bothimprovement in our product mix as faster growth occurred in more profitableareas of our analog and DSP product lines as well as lower manufacturing costs. TI's gross margin at 54.2% in thequarter also reflected these product mix and cost improvements as gross marginwas even with the third quarter and increased 370 basis points from theyear-ago quarter. Lower operating expenses alsocontributed to our operating margin expansion. Total operating expenses of $930million in the quarter declined $41 million sequentially and decline $51million from the year-ago quarter. Both R&D and SG&A expenses declinedin both comparisons. As a result operating profit for the quarter of $996million declined $17 million sequentially and grew $229 million from the yearago quarter. Operating margin of 28% increased40 basis points sequentially and increased 590 basis points from a year ago.Income from continuing operations was $753 million or $0.54 per share. EPS was$0.02 higher than the third quarter and $0.09 higher than the year ago quarter.EPS in the fourth quarter included $0.01 discrete tax benefit. EPS in the yearago quarter included a $0.05 tax benefit from the reinstatement of the FederalR&D tax credit. I will leave most of the cashflow and balance sheet items for your review in the release. However let memake just a few comments, cash flow from operations was $1.42 billion in thequarter, and we ended the quarter with $2.92 billion in total cash. We alsocontinued our share repurchases, repurchasing 57 million shares of TI commonstock. Inventory of $1.42 billion at theend of the quarter decreased to $32 million, although days of inventory werethe same as last quarter. Depreciation was $253 million in the quarter, andcapital spending was $181 million. TI orders in the quarter were $3.48 billiona decrease of $75 million due to Education Technology seasonality. Semiconductor orders were abouteven with the third quarter. Our semiconductor book-to-bill ratio was 0.98 inthe compared with 0.99 in the third quarter and 0.89 in the year ago quarter. Before I turn to the firstquarter outlook, let me make a few comments about the year. Profitability gainswere significant, with higher margin products grew to be a more significantpart of our portfolio, as we continued to reduce manufacturing costs and as wecontinue to tightly control operating expenses. Gross margin was 53% for theyear, 210 basis points improvement from 2006. Operating margin expanded 170basis points to 25.3%. Our capital efficiency continued to improve due to ourmanufacturing strategy and it was focused both on increasing our response basefor customers and generating significant long-term returns to our shareholders. As a result of this combinationof higher profitability and higher capital efficiency TI generated significantcash flow from operations exceeding $4 billion for the first time ever. Webelieve this reinforces the importance of our analog focused strategy. Returnon invested capital exceeded 25% last year making this our sixth consecutiveyear of increasing return on invested capital. Turning to our outlook for thefirst quarter. We expect total TI revenue in the range of $3.27 billion to$3.55 billion. Semiconductor revenues should be in the range of $3.20 billionto $3.46 billion. Education technology revenue should be in the range of $70million to $90 million. Earnings per share are expected to be in the range of$0.43 to $0.49 in the first quarter. For the year, we expect R&D expensesof about $2 billion down from $2.15 billion in 2007. Capital expenditures should beabout $900 million up from $686 million in 2007. Depreciation should be about$1 billion about the same as 2007. Our annual effective tax rate in 2008 isestimated to be about 31% up from 29% in 2007. The tax rate is based on currenttax law and does not assume reinstatement of the Federal R&D tax credit,which expired at the end of 2007. The impact of the loss of thistax credit is that our tax rate would be about 1.5 points higher that wouldotherwise be the case. In the first quarter this translates to about $0.01 EPSimpact. If the tax credit is reinstated during 2008 as we expect and if it isretroactive to the beginning of the year, as has been the case in the past.Then we would make a cumulative adjustment in the quarter on which the law wasreinstated. To summarize we are encouraged bythe progress that we made in 2007 on multiple fronts. First revenue is growingagain. Although we cannot allay all of your long-term concerns on our wirelessoutlook in the years ahead, this market and product line has been a contributorto year-on-year growth in the fourth quarter and we expect it to contributeagain in the first quarter. Second we are especially proud ofthe continued improvements to profitability that our product portfolio isgenerating. Our products provide significant and increasing value to ourcustomers and this is evident in the gross margin trends that are resulting. Finally we believe that analogwould be the most important growth engine for TI's revenue and earnings in theyears ahead and we are investing [in it] quarterly. We made significantprogress in strengthening our focus on analog in 2007. This includes higher levels ofR&D investment in these product lines. It also includes more sales andapplication support to our customers for these products; both in developedregions, as well as emerging regions around the world. We also furtherstrengthened our capability to manufacture analog products. While we increase our focus onanalog manufacturing we will increase the outsourcing of our advance digitalproducts. While we realize that there is significant uncertainty in theeconomic environment, we believe we have established a flexible manufacturingoperation that more readily adapts to changing market conditions than has beenthe case historically. We are also being prudent withour spending and capital investments given this uncertainty. At the same timewe believe our customers and distributors inventory levels remain well managedand are currently lean and our near-term demand trends are good. Our financial goals remainunchanged and are as follows; grow revenue faster than our markets, growearning per share faster than revenue, and continue our efficient usage ofcapital. In addition, we believe that with our prudent portfolio of analog andDSP products, TI is capable of achieving gross margins of 55% and operatingmargin of 30%. While we certainly have room for continued improvement, we areconfident that we are on the right path. With that, let me turn it back ofRon. Ron Slaymaker - Vice President of Investor Relations: Thanks Kevin. Before our closingremarks, I'll ask the operator to now open the lines up for your questions. Inorder to provide as many of you as possible an opportunity to ask yourquestions, please limit yourself to a single question. After our response, wewill provide you an opportunity for an additional follow-up. Operator?

(Operator Instructions) And your first question comesfrom the line of Srini Pajjuri from Merrill Lynch.

First on the [distri] inventoryfront, you said this is a cut back in inventories. Just wondering if that’swith respect to any region or any end market?

Sri, I am not aware that it'sspecific in any product line market or region. I simply don’t have that data. Ijust know overall distributors pulled back from what we were expecting verylate in the quarter. In general, if you look at the trends in and out ofdistribution, sell-out or resales ended up increasing sequentially a littlebit, whereas our revenue, our shipments into distributors held about the sameas what we did in the third quarter. So the net, the in and out was a small declinein inventory in the quarter.

Did you have follow-on throughSrini?

Yeah, just a follow-up on thegross margin front. Looks like if I look at your EPS guidance and if I take themidpoint, you're assuming that the gross margin are going to come down at leastabout a 100 basis point. I’m just wondering if this is all volume related oranything to do with the mix or pricing here?

Yes Srini. You may recall that wehad discussed at beginning of the year that we would discontinued manufacturingin one of our older digital fabs here in Dallas, called KFAB, and we havestarted this quarter to ahead and move that equipment from KFAB into otheranalog factories, and there will be expense associated with that plus lostproduction as we don't use that equipment while we are moving them.

Okay, Srini. Thank you for yourquestions. Let’s move to next caller please?

Your next question comes from theline of Joanne Feeney with FTN Midwest.

Joanne, are you there?

Yes. Can you hear me now?

Yes, we can. Please proceed.

Sorry about that. I’m wonderingif you could elaborate a little bit on the economic outlook. So you’ve seeninventories a little bit thinner than normal, I’m wondering if you see adifference in the wireless outlook versus you digital prospects for the year,and has your visibility changed much from what's typical this time of year?

Joanne, I'll take a crack thatand then Ron can add some color. I think from the indication we’re getting fromour customers, the demand remains good. We are seeing the same kind of orderpatterns that we've seen in the past, in other words we are not seeing extendedorder patterns as evidenced by our book-to-bill being at or slightly below one. :

The only thing if I would add is,just kind of reiterating what we said in the prepared remarks, that in thefirst quarter we also expect wireless to be a contributor to the year-on-yeargrowth. So, beyond that we probably don't have any specific color to add interms of particular composition of our outlook. Do you have a follow-on,Joanne?

Yeah, a quick one. On the capitalexpenditure, you mentioned last time and then again today that you're focusingon the test and assembly investments. When do you see that sort of comingonline and contributing to your gross margin expansion?

Yeah, Joanne we have beenactually adding on to our assembly and test operations for probably a couple ofyears now at a significant level versus what we've historically done. Andthat's largely a reflection of the fact that, as we gain more and more analogshare, we're shipping considerably more units than we ever had in the past. Tosupport even further expansion on that, we announced in the summer that we havebroken ground on a new assembly test factory in the Philippines,and we expect to actually start putting equipment in to that factory late thisyear, and so we'll see that beginning to be able to also support us. So I thinkthat it's already being supporting the growth in the gross margins that youasked about and it will continue to do that as we move forward.

Okay, Joanne, thank you for yourquestion. Let's move to the next caller please.

Your next question comes from theline of Allan Mishan with Oppenheimer.

Hey guys. I was wondering if youcould tell us how much of the decline in R&D is due to the manufacturingstrategy shift, and what is happening to product R&D, and if you canelaborate in any specific area that would be helpful.

Allan, most of the R&Ddecline has been on a year-over-year basis and in large part due to this shiftthat we've got underway that you just alluded to having to do with our processtechnology development, and actually sequentially a good portion of that wasthe effect of the change in the restructuring action associated with thereductions in force that we took with that action. We're actually increasingthe proportion of our total spend in to the analog space in order to continueto improve on the offerings that we have there both in the high performanceanalog as well as in the application-specific analog.

You are following, Allan?

Sure. Does your guidancecomprehend any unit share loss at Nokia from the low end?

Allan, we are not going to talkspecifically about expectations on a customer-by-customer basis. So, I thinkwhat Nokia would like to share about when they're going to ramp particularsuppliers probably would be up to them. But, in general, we have a greatrelationship with Nokia, and we expect that to maintain so in the years ahead.So, let me just leave you at that. Thank you for your questions, Allan. We'llmove to the next caller.

Your next question comes from theline of Sumit Dhanda with Banc of America Securities.

Hi, Ron and Kevin. Just as afollow-up on that, I know you don't want to discuss specific customers, butjust allude to what you'd said last quarter when you said that there would be,at least, a couple of quarters of share losses at EMP. Could you give us anupdate on that and how that's factored into your thinking, as it relates toyour Q1 outlook? And then, as it relates to that, is the offset, if there isone, just to better mix the wireless in Q1?

Right. In the case of EMP, Ibelieve that company and another supplier had issued a release saying that thatother supplier had picked up a 3G program. I think in our case we first startedtalking about that in July, and that it would have impact on our revenue startingthird quarter, but probably fourth quarter was the bigger decline. We also characterized that we expectedseveral quarters of sequential declines as that supplier continue to ramp andthat remains the case today. So, yes, that is comprehended in our first quarteroutlook. But as I said, we do expect our wireless to be up on a year-on-yearbasis in the first quarter. That comprehends EMP and that specific program, butalso certainly our other large customers as well. Okay. And did you have afollow-on question?

Yes, I do, Ron. Just onequestion. The impact of the DSL business, could you quantify that? And, ofcourse, related to that, your ASSP business is down in 2007 in aggregate, doyou expect a reversal of that trend in '08?

Yes, Sumit, on the DSL, you mightrecall that that business, when we sold, it was about a $200 million annualrevenue business. And we sold that early in the third quarter. So, you can kindof compute there what the approximation as to what the sequential revenueimpact was from that sale. And your second point was on application-specific?

No. DSP revenue being down in '07and what our expectations would be in '08? Sumit, let me just take a stab atthat. In general, our DSP revenue was down in '07. As you noted, that wasdriven primarily by wireless. Our outlook for '08, we give it to you on aquarter-by-quarter basis. So we probably don't have anything to share otherthan the comments that we provided with respect to first quarter. Okay, Sumit. Thanks for youquestions. And let's move to the next caller please.

Your next question comes from theline of John Pitzer with Credit Suisse.

Good afternoon, guys. Justquickly on the December quarter, DSP revenues up, analog revenues downsequentially, but gross margins up a bit. Is that all due to some of thedivestitures from Q3 to Q4, just help me understand that dynamic?

John, there is a couple ofdifferent things in there. Certainly, the mix of products is an importantcontributor to that, as we saw overall analog, especially high-performanceanalog, which did grow sequentially and become a bigger portion of our mix andthose are higher margins. In addition, we discontinued some manufacturing inthe KFAB, as I mentioned earlier, and that takes some of the manufacturingexpense as we bring that down. Of course, that's offset, as Imentioned earlier, by the fact that we'd be having some expense in moving thatequipment into other factories in the first quarter and put that back inproduction maybe this year.

Is there a follow on, John?

Yes. Quickly, can you guys helpme understand the lifecycle of share gains within the analog space? I mean, ifyou look at throughout '07, our calculations was might be wrong. We have yougaining about 50 to 75 bps of market share. What's your expectation as you movethroughout '08?

When you are talking aboutlifecycle or share gains, I'm not sure, what's your --.

Basically, given the product lifecyclein the analog, how long do you think it takes to gain share and sort of whatkind of expectations? I think you talked about 13% of the overall market inyour prepared comments. Where might we be in 12 months?

Okay. I think share gains in theanalog market tend to move slowly. And I'm sure I'm not educating you on that.In general, from the time we would win a program, for example, high-performanceanalog program until the time that we see revenue from that customer on thatprogram probably typically ranges maybe between 18 months or so. So, basically, what I wouldencourage you to look at would be -- what we saw on 2007 was not a result ofdesign win activity in 2007. It probably reflected more 2005 type of designactivity. And what I can say is we've been pushing the accelerator down onanalog for several years now. I don't have a 2007 number foryou. But, for example, 2006 analog field applications engineers, we increasethe number of analog FAEs that we have right out working directly withcustomers by 45% in that one year alone. So, again, we've been increasingthe investment for a number of years, and we expect that you will continue tosee the results from those investments in the years ahead. So, we are notlighting up. And so, from a lifecycle of a share gain in our view is once wehave, we are going to hang out to it and not give it back. So thank you foryour question, John, and let's move to the next caller.

Your next question comes from theline of Jim Covello with Goldman Sachs.

Good afternoon, guys. Thanks somuch for taking the question. My question is about the consolidation in theanalog space. You guys have been very clear about the strategy. You are doing agood job of taking share in analog without necessarily consolidating any of thebigger companies. But what would it take if youwant to change this strategy and think about being more acquisitive of some ofthe mid or larger-sized analog companies to accelerate the share?

Well, Jim, as you are aware, wehave been acquiring companies for quite a few years now. Our preference hasbeen towards the smaller companies really for two reasons. One, they are alittle bit tactically easier to integrate into TI. And second, the leverage that wecan gain from their product offerings, given the size of sales force and ourcustomer contacts, is pretty substantial. So, we can typically ramp up therevenue opportunity quite strongly in many cases. As it relates to acquisition,consideration of mid-sized or larger companies that are out there, that'sreally not something that's on our radar right now that I would want to offerany kind of commentary on. I think what we have been doing has worked for usand you can probably expect to see us do more of that.

Okay. Thank you. One follow-upthen. Are you seeing any incremental competition from the folks in Asianow anymore so then you were say 12 months ago?

In analog.

In analog, I don't -- I cannotpoint to any examples specifically Jim that I could say yes or no to on that.

Yeah, Jim, I don't think thoseare the guides that our front line direct competitors, I mean, they are on theradar screen pretty far out there, we are watching them but they are probablynot the foremost on our mind when it comes to analog competition. Okay, Jim,thank you for your questions. Let's move on to next caller.

Your next question comes from theline of Cody Acree with Stifel Nicolaus.

And congrats guys, it was a toughquarter. May be you can talk a little bit more about analog and how in thiskind of economy obviously gaining some share but with the wins you have seenwhat kind of sensitivity, do you think you really have to at least nearmid-term economic fluctuation?

And Cody, let me just ask forclarification, you are saying how much will our revenue fluctuate with economiccycle or are you saying if our revenue fluctuates how much impact does thathave on the bottom line?

Well, I guess, given that you'vebeen earning share, you've got these book of design wins over the last coupleof years with kind of you know the -- what the economy may or may not be doing,but do you believe that you've got such the backlog of new wins of new thingscoming on that regardless of, unless we're in a dramatic economic change thatyou'll push through that. You have a lot of sensitivity with these moves or isit going to take something very dramatic so to impact your growth?

Yeah, Cody, I think, there is acouple of things here that kind of weigh into that question, because it's afairly broad question I think. One thing to remind ourselves is that analog inour belief, probably sells in virtually in every kind of electronicmanufactured product in the world, and so by virtue of that sheer diversity ofopportunity to sell into, one can expect that there is no one real heavydependence on a particular market or outcome on a sub-setting economy. Beyondthat the growth that we have seen in the last couple of years has beenprincipally in the high performance analog side of our portfolio and we havebeen pretty open in discussing that we have not seen the acceptable growth infact we have seen some shrinkage in some elements of our applications specificanalog. That scenario you have heard us talk about in the last couple of yearsand especially the last year where we had taken some realignment actions and alot of energy to rejuvenate growth over there. So in fact if we look out intothe future to the extent that we are effective in rejuvenating growth on thatside, we will wind up having two parts, so both sides of our analog portfoliocontributing to our growth, which should give us a lot more stability andrevenue momentum into the future.

Is there a follow on questionCody?

I do. And on the wireless side,now contributing a bit to, a little bit of growth this quarter, what do you seeas we get into 2008 not necessarily just Ericsson or Nokia but maybe as you arelooking at your design wins as a whole and where your customers are positioned,would you hazard that you end '08 at a similar, larger or smaller market sharethan you are sitting to date, you have much visibility?

Cody I think -- yeah I mean thereare certainly cost [currents] inside of that, right. I mean there is no doubtwhat the Ericsson mobile platform program that we have already talked aboutthat's going to a head win for us on wireless revenue as well as share. But atthe same time we have a great position with other major customers that are kindof blowing and going in terms of taking market share these days and that will likelybe a strong tail win for us in 2008. And how it nets out will depend upon howthose individual customers perform probably more so than TI share swingsoverall, it will be how the relative performance between customers where we aregaining or where we have a very solid strong position versus how that offsetsthe program at Ericsson Mobile Platforms where we do have a headwind againstus.

That's a better color on that tooto keep in mind that as the 3G handsets become a bigger portion of the overallmarket going forward, that certainly is attracted to us, because many of thosecontain an applications processors as our customers try to differentiate theirproducts through the look and feel of the phone from the user interfacestandpoint, and that clearly is something that we find very encouraging notjust in '08 per say but over the long haul as a very attractive opportunity forus to continue to be successful in the market space.

That's a good point. A lot oftimes the share discussion really just gets centered up on the digital basebandand what interestingly we find a lot of customers will do is put up a TI OMAPapplications processor, in some cases even with another company's digitalbaseband, so that's a good addition. Alright Cody, thank you for you question.Let's move to the next caller.

Your next question comes from theline of Tim Luke with Lehman Brothers.

Thanks very much. Just a coupleof clarifications just if you can give any color on lead times and separately?Last year in the first quarter sequentially the analog and DSP businesses weredown by fairly similar percentages with seasonal softness in the first quarter.Is that broadly what you'd expect this time around Kevin, the degree of declinewould be fairly similar or do you think one might be somewhat softer than theother? Thank you.

Tim, we won't go in to moredetail on the guidance, other than what we have. We'll keep it at the toplevel. On the question of lead times, we in fact are seeing relative stabilityin the lead times, there are some areas where we would like to have better leadtime availability where we are trying to continue to work on our inventorystaging, but the overall average characterized lead times has been quitestable.

And as a follow-up, if I may,Kevin, on your OpEx guidance, you are guiding for 2 billion, which would inferthat you might see? Well I was just wondering whether you could provide somecolor on how we should think about the shape of your R&D spending throughthe calendar year would infer some reductions from the current levels. Shouldwe see that in the beginning of the year and then stay fairly flat and perhapsjust in terms of framework, you might be out of touch on how you see theG&A spending shape as well.

Sure. I am not going to get intotoo much details but I will talk at a high level. We did talk back when weannounced the change in our silicon process development technology that weexpected to see R&D savings as a result of that and about $150 million peryear. And in fact our guidance reflects that. We just spent about $2.15 billionon R&D in 2007 and we are guiding $2 billion for 2008. So you are seeingthat savings begin to find its way through. In the most recent quarter, wespent about $508 million on R&D, which isn’t too far off that 2 billion runrate. So, while you might see a little bit adjustment going into the firstquarter, I would just remind you that we do have our seasonal pay and benefitsincreases that come in the first quarter and so, we are not going to have aperfectly smooth line, but I think $2 billion is going to be pretty good foryou just to paint across the year. On the SG&A, again, wecontinue to focus on building our field applications and our sales force. Weare not letting up on that. As Ron mentioned earlier, we gained great momentumespecially in the analog space and we will keep pushing there. By the sametoken, we'll see other spending savings there. So I don't think we'd see muchchange in that -- often enough (inaudible) pay and benefits change on ayear-over-year basis.

Okay, Tim. Thanks for yourquestions. Let's move to the next caller.

Your next question comes from theline of Glen Yeung with Citi.

Thank you. 2007 was a year whereyou saw your revenues decline 3% over the course of the year, and yet you sawyour gross margins increase by something like 300 basis points. So, I recognizenow that we're in a mode where, at least, for one more quarter we'll seerevenue acceleration year-on-year. But in a situation where if we dogo into year-on-year revenue declines, particularly given how close you are toyour target gross margins, should we now be assuming that gross margins have togo down, do we see year-on-year revenues decline?

Yeah. Glen, we're not going toreally get into a lot of detail on that, other than just to remind you what'shappening especially inside our manufacturing footprint. As we have outsourcedmore of your capital intensive, and therefore, expensive advanced logic or bestdigital capacity, that's the capacity that we fluctuate the loads on with thefoundries. We can keep our internal utilization really quite high. On the analog footprint, thosetend to be older, more depreciative factories. And so, therefore, thedepreciation cost is not that much. And so, change in loading doesn't havequite the swing that you might have been accustomed to seeing in the yearspast. So overall, I think that unless we're talking some kind of significantchange in revenue, it's difficult to see where the manufacturing footprintwould have a big swing on the GPM percent line. The other contributing element tothis, as we've seen during this past year, is that analog is becoming a biggerportion of our total revenue mix. It closed this year at 40%, and inside thathigh-performance analog was 45%. And as you're aware, those margins are higherthan what we enjoy on other products. So to the extent of those mix shiftscontinue independent of what might happen from a topline standpoint that willalso have a long-term positive impact on what our GPS percents could beovertime.

Do you have follow-on, Glen?

Yeah. It's basically anotherquestion. I had another one. Well, anyways last one I have sort of follow-onfrom that. So, I understand your position, Kevin, in terms of what you guys aredoing to sort of maintain more comfortable level of gross margins. One of thethings that happens though in these down cycles is that we often, as demandstarts to slow, see pricing pressure. And I wonder if you look into yourvisibility as far as you can see it, in terms of pricing, if you have any sensenear-term and/or longer-term that pressure may be worse/better the same thanwhat we've experienced in the last year?

Well, in fact, we do look atpricing often, and I would characterize pricing has been really quite normalduring this past year. And as it relates to the smaller slice of our productportfolio that actually is in the commodity space that that pricing actuallyhas been quite stable. As far as projecting price, I don't have any goodinsight for you there, Glen, other than the topline revenue guidance that we'reoffering.

I would just, you know, maybe acouple other points of color on the pricing trends. Areas like high-performanceanalog, pricing tends not to move. They tend to be very, very stable pricesovertime. And that's our strategy to benefit from that market characteristic ofhigh-performance analog which is stable pricing. When you get out ofhigh-performance analog and those catalog products into areas like wireless orother big vertical type markets, you do have price declines, but they tend tobe steady, predictable price decline. And in many cases, they are based uponlonger-term contract that we have with those customers that kind of ride usthrough some of the market fluctuations. As Kevin pointed out, commodity,which we estimate about 5% of our revenue, is the area where pricing will swingwildly during good times or during worst times. And that is a very, very smallpart of our product mix these days. Okay, Glenn. Thank you for yourquestions. And let's move to next caller.

Your next question comes from theline of Chris Danely with JP Morgan.

Hey, thanks, guys. My firstquestion, Ron and Kevin, did the distributors tell you why they didn't, Iguess, put product in the month of December like you thought they would, and istheir inventory level now back to where it was in Q3 before they build HPAinventory?

Chris, I don't know that we'vegot an explanation, or if there is, I don't what it was. What I know is thatversus the forecast that we had in place back in early December, thedistributors or the most significant area that was out of line versus ourexpectations very late in the quarter. Where they are in inventory? Iwould say the adjustment was a small adjustment. And if you look at totalinventory level, it puts them at right around eight weeks. Yes, it is down fromwhere we were third quarter. I don't recall exactly what that sequentialdecline was in terms of weeks of inventory of distributors. But they are rightat about eight weeks, which we consider a healthy level, but also wecharacterize it as a lean level of inventory for distributors. Do you havefollow-on, Chris?

Yes. And then just a question onyour wireless business, can you guys just, I guess, comparing contrast yourmodem versus your OMAP business in terms of size, pricing, what the grossmargin trends have been and what growth rate do you expect out of both ofthose?

Chris, let me take it this way.If you look at OMAP pricing, I think generally we have characterized OMAPpricing as roughly a $10 type of product. And so that change has declinedsomewhat from the very early days of OMAP, but it's also been pretty stable at$10 price point over the last year, as we get the impact of new technology suchas OMAP3 introduced that carries, of course, higher price point as well. If you look at the mix of ourrevenue, I'm going to have to walk through a little bit of math, 3G is about40% of our total wireless revenue. And of that, OMAP represents about 25% ofthat revenue. There is probably some OMAP revenue outside of 3G, but itprobably puts the total of OMAP somewhere maybe the 10%, 15% of our wirelessrevenue. So, last year, we said what ourwireless revenue was just under $5 billion that gives you a feel for the sizeof the OMAP business. And Chris, I can't remember. Did you have other questionsembedded in there? Also, did that answer your question?

Yes, quick last (TechnicalDifficulty), can you talk about the relative growth rate expected out of eachbusiness and also the trends in gross margins from each business? And that'sit.

Okay. Trends in gross margins, wedon't specifically breakdown what's happening inside of wireless in terms ofvarious product lines. I think we characterize our wireless gross margins ingeneral as low to mid-40s. So, beyond that, probably there's no interest tobreak it down by product line. In terms of the relative growthrates, probably the best indicator is that if you look at -- again it's not a100% but OMAP basically services the smartphone market probably the best proxyI can give you for that other than some third party reports that have beenpublished would be the 3G market. 3G in 2007, our estimate was roughly a 185million units. 2008 going up to about 300million units, and those are -- those numbers are based upon third partyforecasts as well. So that's probably the best proxy of what the OMAPopportunity looks like going into 2008. And, so again, we have a very strongposition in terms of our share to that application processor market andcertainly it's our intention to continue to build upon that. Okay, Chris, thankyou for your questions and let's move to next caller.

Your next question comes from theline Doug Freedman with Amtech Research.

Hi, great. Thanks for taking myquestion. Ron just digging in to a little bit more on that wireless, if wecould look at the other end of that equation, the LoCosto and the impact thatthat's had LoCosto, eCosto, can you talk a little bit about their ramps andwhat you are seeing there as far as a percentage of the wireless mix now?

So, the way I would approach thatone is roughly 25% of our wireless revenue last year was to service the low endsegment of the wireless market and again these are relatively low pricedhandsets, I believe the cut off is sub $75 handsets, in many cases servingemerging markets and regions of the world. The LoCosto is in about 50% ofthe cost -- about 50% of what we're shipping into the low-end, is now LoCosto.That continues to build, we expect it to be about 85 -- 80% of our low-endshipments as we go out 2008. And the other thing that I would say is, we'reright at about 100 million units of LoCosto that we've shipped now or closelyapproaching that number. So those are just some data points for you on LoCosto.Sure you're following, Doug?

Yeah, great. Thanks, that wasjust terrific. If you could talk a little bit, we saw some tightness ofcomponents in the wireless space over in Asia, some real challenges during thequarter, some real winners and losers, can you talk about what impact did thathad on your business, and what you think it's going to do going forward,shortage of -- get some components there?

Doug, I'm not specifically awareof how to quantify the impact, I think what I would say is certainly we werenot in a position where we were not able to service demand from our customers. So to the extent that if some ofour customers' competitors were unable to ship product, maybe there was somesecondary type of benefit that way, but nothing that I could specificallyquantify. Okay, Doug thank you, and we'll move to next caller please.

Your next question comes from theline of Krishna Shankar with JMP Securities.

Yes, so for in January, can youcharacterize the order placed from the distribution channel and what you areseeing from your wireless customers?

Krishna,not quite that much color, but just at the top level I will tell you that ouroutlook and our order patterns are consistent with each other.

You are following, Krishna?

So, I would say so you woulddescribe things as being normal seasonally so far?

While consistent with the outlookthat we have given, yes, we described that. And it's just not that far off froma normal season kind of a trend so far.

Okay, thank you.

Okay Krishna,thank you and let's move to the next caller.

Your next question comes from theline of Ross Seymore with Deutsche Bank.

Thanks guys. You talked a lotabout OMAP and the strength in that business going forward. Can you talk alittle bit about the competitive landscape there? There's been a number ofplayers that have eluded to entering the space recently. Have you guys seen anyadded pressure from new entrants coming in or pricing or anything along thoselines?

Ross this is an interesting one,because the reality is, over the last maybe three or four years or it has beena steady stream of new entrants into the OMAP or into the applicationsprocessor marketplace, and I would have to say sitting here today in early2008, there is not a clear number two or a top competitor for us. And that's not saying, we don’thave competition, but not one of those competitors really has gainedsignificant traction in application processors from our perspective. And againthat's not meant out of any disrespect for those various players, but you tendto have a competitor that will have a one-off win at this customer or thatcustomer and there is no single competitor that has gained across the boardtraction. And so that's why you hear us remain very confident in our positionwith OMAP and the outlook for that going forward. And again that's not out of anylack of respect or pullback in terms of a lot of investment there. We have alead and we are absolutely investing to make sure we maintain that lead.

Do have a follow-on Ross.

Yeah. Changing over to the analogside specifically in HPA, other than the [distri] guys shutting down a littlebit late in the quarter, was the up 1% you did in the quarter greater or lessthan your expectations?

I think it was generally prettyconsistent. Again, as you just pointed out, there was an exception withdistributor inventories. And, I’ve got to make a point; that was more of asell-in versus a sellout consideration. Sellout exceeded the sell-in. But, wecame into the quarter, we even said mid-quarter update, we expected highperformance analog to grow sequentially and in fact it did. So, I would say once again we arepleased with what we delivered high-performance analogs. The 1% sequentialgrowth probably doesn’t fully tell that story as well as the 12% growth that wesaw from the year-ago quarter or the 9% growth that we saw on high-performanceanalogs for the year 2007. And I suspect, when all the numbers are in, you willthat once again TI gained significant market share in high-performance analogsin the year 2007. Okay Ross, thank you for your question and let's move to thenext caller.

Your next question comes from theline of David Wu from Global Crown Capital.

Well, thanks for taking my call.I want to get some clarification on the first quarter guidance. Kevin youguided down the 3%, but my memory kind of persists that the wireless business,particularly handset declined much more than 3% from Q4 to Q1 in past years.And what does it tell us about the rest of the business, that’s my question?And I have a follow up.

David I think the normal wirelesstrend in 1Q is down about 5%.

That’s correct.

Only 5%. Okay. But it's stillmore than your 3. So, I was wondering what else is better than 3?

We don't know. It might go belowjust that top level range, and I would say it is a range that we're forecastingto. But again, we do continue to, as Ron just pointed out, take share in thehigh-performance analog space. DSP has begun to grow again. So there are anumber of elements inside our portfolio that are doing quite well on acontinuing basis. Beyond that, I won't go down and try to project individualgrowth rates underneath the total company level.

You have a follow-on, David?Okay. With that, we'll move to the next caller, please.

Your next question comes from theline of Tore Svanberg with Thomas Weisel.

Yes. Hi, Ron and Kevin. On yourdepreciation guidance being constant this year, guess I'm a little bitsurprised about that, especially since you continue to outsource more and moremanufacturing. Could you explain that please?

Yeah. Actually, that's really arounded kind of number when we look at that. I believe our depreciation wasabout $1.40 billion, if I recall, this past year. And it will probably be alittle bit less than $1 billion going into 2008. So we're approximating that as$1 billion. We will not get anymore precise than that because depreciation issomething in the function of the timing of our actual CapEx during the courseof the year.

Tore, the other thing I wouldencourage you in, in terms of looking at that depreciation trend is, again,we're on a five-year straight line. So yes, our depreciation has dropped, forexample, in 2007 compared to 2006. But as we roll into 2008, you kind of needto look at what drops of the depreciation from five years ago. And I think whatyou'll see is the impact is more driven by the five-year ago effect as opposedto what's happing in the current year.

Got it. And then second questionis on R&Ds, you mentioned a $150 million in savings. Should we now assumefor your guidance on '08 that that's pretty much it with leverage for R&D?

That's all we would guide you toright now, Tore, is that we'd be down about a $150 million on a year-over-yearbasis with R&D to be about $2 billion for the next year.

Fair enough. Thank you very much.

Thank you, Tore. Let's move toour next caller, please. Operator Your next question comes from theline of the Steve Smigie with Raymond James

Great. thank you. Sure youplanned your guidance before we had the news that came out of the Feds todayabout the rate cut. I am just curious, do that cut make you guys sort ofrethink your guidance at all here before you put it out? And obviously, you've talkedabout your book-to-bill and so forth, but I'm just curious what impact thatmight have on your thinking before you put out your guidance today?

Yeah. Steve, our guidance isreally a function of the inputs we get from our customers, and that's whatreally drives it. We are not trying to predict what the impact of some of themore global type of changes, such as the Fed move, would have today. I would again just point out thatfrom a book-to-bill standpoint, we commented about that earlier, we do believethat become a much less reliable indicator on what our revenue direction mightbe. For example, in the last five quarters our book-to-bill has either been 1or less than 1, and yet four out of those last five quarters, we've actually seensequential revenue growth. So we tend not to read as muchinto the book-to-bill as we once did in the days in the past.

Okay, Tore. Thank you for yourquestion. Let's move to the next caller, please.

Your next question comes from theline of John Dryden with Charter.

Hi. Thanks for taking myquestions. Kevin, can you talk about the value of your asset-backed securities?HAVE they changed from the $1 billion in September? We saw a sharp reduction incash that came out of short-term investments.

Yeah, it is actually down a fairamount from what we had then as we use cash for purpose of stock repurchases. Iwould say our asset-backed is down considerably. In fact, if we could take alook at the makeup of our cash and how we have invested, probably roughly athird of it is in commercial paper type products, about third of it in auctionrate securities. And these are almost all Departmentof Education guaranteed student loans. Somewhere around 15% of it is mortgagerelated, with about half of that being agency-backed, and about another 15% inbank accounts and money market funds.

John, did you have a follow-on?

Yes, please. xDSL, on a pro formaquarter-to-quarter, would that have been flat? And if not, can you talk aboutthe strategy shifts with new management in order to accelerate growth withinHPA? Where we are on that implementation phase?

You are saying would analog havebeen flat quarter-on-quarter xDSL. Was that the question?

For HPA high-volume, and thenyou've had new management in the last three to six months in the HPA group. Iwanted to know if some of the strategy shift took some of the growth in thatarea has taken place.

Okay. You are right. Analogrevenue would have been, and this is total analog revenue, would have been downjust very slightly sequentially. Almost all of the decline was associated withthe DSL divestiture. The rest of the question there?

Repeat the question….

Yes, John. Can you help us on therest of it?

HPA, I believe you've had achange in management. I am not sure if that's true or not, and I was looking tosee if in your corporate operating margin targets for HPA and looking for thetopline groups. I want to know what the strategy was if anything has beenimplemented in the last three to five months in HPA to accelerate revenuegrowth in '08.

Yes. We do have a new managementteam there, as you mentioned, and they have been actively realigning theresources available, making the teams a bit more smaller, a bit more focusedand going after those areas where we don't have as much strength from an application-specificstandpoint. For example, we're pretty strongin computer in the form of storage and printers and so on, but there are otherareas in automotive and consumer and so on where we could strengthen ourportfolio. So, that management team has been realigned in the resources toadjust our position there. We would remind you that thattakes a while. These are chips that are designed -- it has to be identified andthen chips that have to be designed for those wins. I mean it takes time forthem to ramp the production. So, it will probably be a little while before wesee some actual momentum on the growth there.

Okay. John, thank you for yourquestions. And operator, I believe we have time for one more caller.

And your final question comesfrom the line of Uche Orji with UBS, New York.

Thank you very much for taking myquestion. Just two questions. First of all, let me ask you about variousgeographies on what maybe driving the guidance for Q1. Any color you can giveus as to what maybe happening, specifically in a place like Chinaand what expectations you have there, and also the Europe and North America, just from a top level give us an idea just to understandwhat's driving this guidance for Q1?

Yes. Uche, we're a little bitreticent about giving too much credence to our regional breakout of revenue.North of 85% of our revenue is actually outside of United States. But the reality is, is that much ofthe electronic products that we sell into are actually manufactured outside theUS, largely in Asiaand from there are shipped to other regions. So we don't believe there is anyreal insight you can gain as to where our revenue is actually coming from.

Okay.

Do you have a follow-up?

Yes, I do. Can I just ask youabout DLP? Currently, I mean on the TV side of the market, essentially LCDseems to be getting a lot more traction, and looks like lesser for DLP. Withinthat market projector seems to be the only part that seems between fairly allright. Can you give us an idea what your outlook is, plus the performance ofDLP in the quarter? What your outlook is for Q1? And in the long run, what thestrategy is within the television business for DLP?

Well, you are right inidentifying that the DLP space is highly challenged on the TV front by LCDs andthat has been going on for pretty much most of 2007 especially taken a pace inthe back half. We are seeing DLP really having its most attractive position fortelevision space in the 50, 55+ screen sizes [radar] screen size. We continue to be very successfulon DLP in some projectors with roughly half of some projectors sold todayhaving DLP based projection systems inside them. What we've seen in the lastfew quarters is [some] projector growth has slowed versus what we've seen inthe prior years. The other area that's actually gained quite a bit of traction,although it's a relatively small part of DLP is the large venue such as movietheatres and so on. We now have over 6000 screens identified around the worldthat are installed and they continue to expand quite rapidly. So, as we look into the future,we would expect that TV will to be continue to be quite challenged goingforward, our large venue continues to be growing nicely albeit relatively asmall piece and some projectors to the extent that market continues to grow andwe've 50% market share we will see DLP growth underneath that before offsettingany changes in the TV space.

Okay. Thank you, Uche. And sobefore we wrap up let me make just a few closing comments. 2007 was a year ofprogress for TI. We established a stronger strategic position in analog. Weincreased profitability reflecting a better product portfolio. We were morecapital efficient due to our manufacturing strategy that is focused ongenerating long-term returns. The combination of higherprofitability and better capital efficiency generated strong cash flow andimproved return on our invested capital. At the same time growth is importantto TI. TI revenue grew in the fourth quarter for the first time in fourquarters on a year-on-year basis and our wireless revenue is in growth as well.And we expect TI's year-on-year growth to accelerate in the first quarter. Andwith that I'll say thank you for joining us. A replay of this call is availableon our website. Good evening.

And this does conclude today'sconference call. You may now disconnect.