Kevin March - Chief Financial Officer, Chief Accounting Officer and Senior Vice President Ron Slaymaker - IR

Shawn Webster - Macquarie Research James Covello - Goldman Sachs Group Inc. Uche Orji - UBS Investment Bank Glen Yeung - Citigroup Inc Stacy Rasgon - Bernstein Research Tore Svanberg - Stifel, Nicolaus & Co., Inc. Jonathan Smigie - Raymond James & Associates Christopher Danely - JP Morgan Chase & Co Ross Seymore - Deutsche Bank AG John Pitzer - Crédit Suisse AG Timothy Luke - Barclays Capital

Good day and welcome to the Texas Instruments Fourth Quarter and Year End 2010 Earnings Conference Call. At this time, I'd like to turn the conference over to Mr. Ron Slaymaker. Please go ahead, sir.

Good afternoon and thank you for joining our fourth quarter and year 2010 Earnings Conference Call. As usual, Kevin March, TI's CFO, is with me today. 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 TI's website. A replay will be available through the web. 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 safe harbor statement contained in the earnings release published today, as well as TI's most recent SEC filings for a more complete description. Our mid-quarter update to our outlook is scheduled this quarter for March 8. We expect to narrow or adjust the revenue and earnings guidance ranges as appropriate with this update. In today's call, we'll describe our views on the demand environment, where we are in the correction and our near-term outlook. We'll also talk about the financial impact of the three new factories that we have now brought online and the opportunities for growth that these factories provide. Finally, we'll provide a retrospective view of the year and our expectations for the years ahead. I'll start with the demand environment. As a reminder, from the second quarter of 2009 through the third quarter of 2010, the SC industry had six quarters of strong growth. Our own revenue in the third quarter of 2010 was up 79% from the first quarter 2009 trough. In the summer of 2010, the industry began to slow and then declined in the fourth quarter. During our October and December calls, we said that we believed the slowdown would be both short and shallow. We were in an environment where lead times were shortening and inventories were being quickly reduced. At this point, we believe the correction is mostly complete. TI's lead times have now completed an orderly reduction and are back to normal as we had projected in our last call. During the fourth quarter, we were able to replenish our inventory levels, which will help us keep lead times normal during 2011. Regarding customer and channel inventory, while there are some customer-specific examples where inventories are higher than they desire, we see some of the important end markets like PCs and LCD TVs having largely completed their inventory corrections. In the PC market, TI revenue from battery management products bottomed early in the fourth quarter and grew through the remainder of the quarter. In the LCD TV market, our customers tell us that their excess inventory was significantly cleared in the fourth quarter and to expect higher demand in the current quarter, as a result, even though new orders for the quarter were down again from the third quarter. After a very weak month of October, net orders were appreciably higher during the month of November and December. Let me translate all of this to our outlook. Historically, the first quarter for TI would be down about 5% compared with the fourth quarter. The middle of our current first quarter guidance range is a little better than seasonal. In addition, our backlog coverage as we enter the current first quarter was higher than recent years of history for our first quarter. To summarize the demand environment, we believe the slowdown that started in the summer of 2010 is mostly complete. Turning to our fourth quarter results, revenue in the fourth quarter was slightly better than the middle of our range of expectations. Revenue declined 6% sequentially and was up 17% from a year ago. Analog revenues declined 4% sequentially and grew 20% from a year ago. The sequential decline was primarily due to Power Management products given their higher exposure to the PC market. High Volume Analog and Logic products and High-Performance Analog products declined to a lesser extent. The 20% increase in Analog revenue from a year ago was mostly due to strength in High-Performance Analog products, although HVAL and Power Management both had double-digit growth. In Embedded Processing, revenue declined 7% sequentially and grew 31% from a year ago. The sequential decline was due to lower catalog product revenue, with revenue from products sold into communications infrastructure and automotive applications about even. The 31% increase from a year ago was primarily due to catalog products. Communications infrastructure revenue also grew, and in fact, its growth rate exceeded 30%. Growth from products sold into automotive applications was lower, although still double digits. Total wireless revenue was about even sequentially and from a year ago. Baseband revenue was $435 million in the quarter, down slightly from $438 million in the prior quarter and down from $465 million a year ago. Sequential growth in the OMAP applications processor revenue was offset by lower connectivity revenue and a slightly lower Baseband revenue. From a year ago, higher connectivity and applications processor revenue was offset by the lower Baseband revenue. In our Other segment, revenue declined 14% sequentially and grew 23% from a year ago. Most of the sequential decline was the result of the seasonal decline in calculators. DLP revenues declined by about the same amount as revenue from our transitional supply agreements increased. As a reminder, when we recently acquired our Aizu Japan and Chengdu China fabs, we agreed to continue to supply Spansion and SMIC with products from those factories on a transitional basis while we ramp our own productions in those facilities. The financial impact of these agreements should largely offset any carrying costs associated with those new factories and will be reflected as part of our Other segment. The 23% growth in the Other segment from a year ago was due to a combination of these transitional supply agreements, higher custom ASIC revenue and higher DLP product revenue. I should also note that the gain on our sale of a product line is included in the result of the Other segment. Distribution resales declined 4% compared with the prior quarter, not much different than our overall semiconductor revenue trend. We were able to help distributors replenish a few days of inventory in the quarter, helping to position down for expected growth. Shifting briefly to our full-year 2010 results, TI revenue grew 34% in total. Each of our core businesses contributed strongly to this growth, with each area growing in excess of 40%. Analog revenue grew 42%, with strong growth in HVAL, Power Management, and HPA. Embedded Processing grew 41%, led by especially strong growth in catalog products. In both Analog and Embedded Processing, we continued to benefit from the breadth and depth of our product portfolio, combined with the significant scale advantage that our field sales and applications force provides us. This means we have the ability to call on more customers and engage with them more deeply compared with our competitors. We believe the share gains we earned in 2010 were largely results of this. In Wireless, the combination of applications processors and connectivity products grew slightly more than 40%. Wireless Baseband revenue was $1.7 billion in 2010, essentially unchanged from 2009. As a percent of total TI revenue, Baseband declined from 17% of TI in 2009 to 12% of revenue in 2010. We continue to be encouraged by our strong design position and momentum in OMAP applications processors. With our dual core OMAP 4 applications processor generation, we have a combination of low power and high performance that we believe is unmatched in the industry. We are now in volume production of our first OMAP 4 device. We are deeply engaged in collaborating with multiple customers on tablet programs that reach across TI product lines, including OMAP 4 applications processors, single-chip wireless connectivity solutions that integrate four radio technologies: WiFi, GPS, Bluetooth and FM, and Analog Power Management technologies that optimize overall power distribution and consumption within the tablet. There are a host of other examples of OMAP's broadening design in success, including eReaders, personal navigation devices, portable data terminals and many other devices that can leverage OMAP's combination of high performance and low power. Now, Kevin will review profitability and our outlook.

Thanks, Ron and good afternoon, everyone. Our financial performance this quarter again illustrates the benefit of our transformation to a company focused on Analog and Embedded Processing and our associated manufacturing strategy. We've discussed for sometime that the additional manufacturing assets that we acquired over the past 15 months would have minimal negative impact on TI's financials because of the low prices that we paid for this equipment. In the fourth quarter, we ramped production at three new factories. RFAB, on 300mm Analog fab located in Richardson, Texas, the Aizu Japan fab that we acquired from Spansion Japan; and the Chengdu China fab that was previously operated by SMIC. As a result, this was the first all in quarter from a financial perspective and we are now depreciating all these acquired assets. While we're now carrying the full weight of this depreciation, loadings of TI products at these factories are still low given the early stages of our production ramp. These factories provide us with tremendous headroom for growth, more than $4.5 billion in total additional revenue. As we load them with TI analog products, the profit potential is significant. As you might expect, TI factory utilization was down in the fourth quarter, impacting gross margin. This was only partly the result of new capacity additions. It is also due to our lowering of production loadings in our other factories in response to the weaker demand environment. In other words, we had three variables influencing gross margin in the quarter. On the negative side, we had higher costs from new factories and we had lower utilization in our existing factories as the market slowed. On the positive side, we were able to make nice strides replenishing inventory for those products whose lead times had been extended for much of the past year, largely returning those products to move to normal lead times. Given these cross currents, we're pleased with how our gross margin performed in the quarter. In total, gross profit fell 8% sequentially and our gross margin declined 150 basis points to 53% of revenue. Turning to our other financials, the combination of R&D and SG&A decreased $26 million in the third quarter. We had a gain on the sale of a product line of $144 million in the quarter. Operating profit for the quarter was $1.23 billion or 34.9% of revenue. Without the gain on sale, operating margin was 30.8% of revenue. Net income in the fourth quarter was $942 million or $0.78 per share. In the earnings per share calculation, please note that accounting rules require that we allocate a portion of net income to any unvested restricted stock units in which we pay dividend equivalents. In the fourth quarter, the amount of net income excluded from the EPS calculation was $14 million. If you don't make this adjustment, you'll likely calculate EPS to be $0.01 higher than we have reported. As you'll note in the release, earnings per share included $0.14 from the combination of the gain on the sale of a product line and a tax benefit that was primarily associated with the restatement of the federal R&D tax credit that was retroactive back at the beginning of 2010. I'll leave most of the cash flow and balance sheet items for you to review in the release. However, let me make just a few comments. Cash flow from operations was $1.23 billion. This was down $88 million in the last quarter, and up $230 million from a year ago. Capital expenditures declined to $301 million in the quarter and included additions to our assembly and test capacity, as well as our Analog wafer fab capacity. We used $600 million in the fourth quarter to repurchase 19.5 million shares of TI common stock and pay dividends of $153 million. We increased our inventory by $96 million in the quarter and inventory days to 83. With this inventory position, we have returned lead times to normal levels. Orders in the quarter declined to $3.13 billion. TI's book-to-bill ratio was 0.89 the quarter. Orders bottomed in the month of October, with November and December orders appreciably above that level. Turning to our outlook, we expect TI revenue in the range of $3.27 billion to $3.55 billion in the first quarter or down 7% to up 1% sequentially. We expect earnings per share to be in the range of $0.54 to $0.62. Our estimate for 2011 R&D is $1.7 billion. 2011 capital expenditures and depreciation are expected to be about $900 million each. Our estimate for our 2011 effective tax rate is 30%. Please note that our estimates for 2011 depreciation is approximately the same as we had in 2010. As I described in October, the additional depreciation associated with our acquired manufacturing assets will be mostly offset by the roll off of depreciation from capital expenditures five years ago. Needless to say, even though our fixed cost in the form of depreciation will be essentially unchanged, our ability to grow and to respond to customer demand will be much higher. Before I wrap up, I'm going to make some brief comments about 2010 overall. It was a good year for TI and our shareholders, with strong 34% revenue growth, gross margins have expanded 570 basis points to 53.6% of revenue and operating margins that moved up 1,320 basis points to 32.3% of revenues. We didn't just ride the rising tide of a growing semiconductor market. We believe we also gained significant market share overall, as well as in each of our core businesses. We've described to you for sometime the potential that we believe exists in a transformed TI and I believe 2010 provided a glimpse into that potential. Our challenge going forward is to demonstrate that 2010 wasn't a one-off year. We must prove that we can continue to grow our Analog and Embedded Processing revenues significantly faster than those markets. We need to expand our wireless connectivity and applications to process server positions in the smartphone market, as well as in tablets. And we needed to continue to manage our Baseband business for maximum cash flow while it continues to become a smaller part of our company. If we do these things right, our shareholders have also continued to benefit. For example, in 2010 alone, our Return On Invested Capital was 30.7% and we generated $3.82 billion of cash from operations. This allowed us to repurchase $2.5 billion of our stock and pay dividends of almost $600 million. Combined, these cash returns to our shareholders amounted to about 10% of our initial market capitalization when we entered the year. Key to all this is that our Analog and Embedded Processing products are highly differentiated and not dependent upon the latest manufacturing technologies. Therefore, our capital requirements are relatively low. High differentiation and low capital requirements allow us to be more profitable and we don't have to channel all of our profits back into the manufacturing operations. As a result, we expect to continue to be able to provide significant returns to our shareholders in the years ahead. With that, let me turn it back to Ron.

Thanks, Kevin. Operator, you can now open the lines up for questions. [Operator Instructions]

[Operator Instructions] We'll go first to Tore Svanberg with Stifel, Nicolaus. Tore Svanberg - Stifel, Nicolaus & Co., Inc.: You talked a little bit about the bookings trends in November and December. Could you just talk a little bit about what you've seen so far this quarter?

I won't break it down week by week, Tore but I will say that everything that we've seen both on the order front, as well as shipments or revenue has been strong thus far in the quarter. So we've seen nothing thus far that would discourage us at all from the outlook that we've provided.

Let me just add to that, if I can. Our backlog coming into the quarter was actually higher than we've seen from first quarter over the last few years, which gives further confidence to the outlook that we're providing. Tore Svanberg - Stifel, Nicolaus & Co., Inc.: And I realize you were to able to build a little bit of inventory in Q4. What's your inventory plan for the March quarter?

Specifically on the inventory plans per se, but we do expect to continue to build inventory on those parts that have high demand that we want to keep short lead times on. And clearly, the shape of the 2Q demand will dictate just how much inventory we try to position if we go through the quarter.

But keep in mind, Tore the other factor, even though we have a plan to build inventory, depending upon where we land in that revenue range, that could impact our inventory expectations or actuals as well.

We'll go next to Uche Orji with UBS. Uche Orji - UBS Investment Bank: Let me just start by off by asking in terms of where you've seen bookings improvement. So you called out the books, you also talked about LCD TV. I just want to understand whether you've also seen that from distributors as well? So if you are able to kind of walk through by end market, however you can just give us a sense of where bookings are coming from?

I guess I would say it is reasonably broad-based now. Again, the overall trend was down. But we specifically called out what we were seeing in PCs and some of the HDTV space because those were areas that in prior calls, we had noted that there was inventory correction underway in those areas were particularly weak. To hit on distribution, I think I said in the prepared remarks that our distribution resales were down about 4% sequentially. I think I noted that we were able to help distributors build a few days of inventory. But I would say their inventory levels are at very comfortable levels from an absolute standpoint. They're just over six weeks of inventory currently. And if you look at historical levels, we've seen them generally in the eight to nine weeks. Now, you probably need to adjust that for about 30% of our distribution revenue that we now support with consignment. But even with that adjustment, certainly inventories are at very, I'd call, normal or typical levels compared to history and at a comfortable level based on what the distributors are expecting in terms of their future resale demand. Uche Orji - UBS Investment Bank: Can I just ask you about OMAP 4? You've talked about a prospect for OMAP 4 but one wouldn't help but notice that your OMAP 3 was designed out from one of your large customers. I just want to kind of get a sense of how we should be confident about the prospects of OMAP 4, especially as you see more and more competition there, get more tablets based. Are there any comments you can make there? And also, just types to clarify your stance on the tablet market with OMAP 4.

Did you mention a specific competitor in the tablets space? Uche Orji - UBS Investment Bank: That's right. We've seen [indiscernible] get very aggressive. We've heard comments about how much share of gains within the tablet market. And that's been probably the one product; one of shipping now is tablets that we know. So I just want to see now what makes you comfortable about OMAP 4 prospects in the light of all the competitions resting in the system.

What makes us comfortable are the designs programs we have underway and design programs that are specifically slated to go into production. Let me just say these are not long-term development programs. These are programs that are going to result in relatively near-term revenue. The competitor you referred to, NVIDIA, to their credit, was the first out with a dual core applications processor. I believe they had a couple of months, maybe a quarter lead on our OMAP 4 product. OMAP 4 began sampling fourth quarter a year ago. So we've had that product in customers' hands for over a year at this point. We're well along in development program. And again, them being first for customers that are trying to get out with tablet programs, right away, especially some that are based upon the Android operating system, they're the player, they were the first player out so there is a natural alignment there. But I guess what I would say is we fully are comfortable that we will be there as these programs hit stride and ramp into real volume. I think I mentioned in my prepared remarks, we are in volume production now with OMAP 4. And we're not just in production to put those products in inventories. In fact, we're shipping to a customer that plans to ramp their tablet production based on OMAP 4. So again, we've acknowledged for a long time the tablet market, as is the smartphone market will be a competitive market. But I think you're going to find that translates to great opportunity for TI across a variety of product areas.

We'll go next to Jim Covello with Goldman Sachs. James Covello - Goldman Sachs Group Inc.: First question, this quarter is a little bit unusual from the standpoint of your competitors are saying different things about their own lead times. Some say they're all the way back down to normal, consistent with what you're saying. Others are suggesting their own lead times are still elevated. Do you have any sense that you can give us for sort of industry average with the combination of some competitors still being extended and others still being all the way back down?

Jim, I agree completely with what you're describing, that I actually think different competitors are at different points. I know even last week, I was listening to a call where a competitor, a very credible competitor was talking about their lead times have progressed but they still remain extended, we'll take more time. I think the best thing I can say about our own situation is I believe we got on top of the situation earlier in terms of capacity investments and we brought that capacity online. And that's what translated to lead time reduction for us. I think you can always have demand fix your lead times. If it turns down enough, I think if anything for us, this respite in demand we've had over the last couple of quarters really just allowed us to get the capacity investments that we have been making, get it online, get some inventory in place and get our lead times back to normal. I think the other thing that's going to be important is depending upon what happens with growth in our industry, in 2011. I think we feel completely comfortable with the headroom that we have on our capacity now that will allow us to grow quite aggressively, if that's what the market wants to do. And at the same time, maintain our lead times where we and our customers want them to be. I think you'll find if we get into some heady growth in 2011, a lot of our competitors that have not made capacity investments and maybe lead times have adjusted maybe more recently because of slower demand environment over the last quarter, I suspect you'll find them in a different situation with their lead time trends in that kind of environment. James Covello - Goldman Sachs Group Inc.: If I could ask specifically about how you feel that your position within power management in the tablet space? I know another one of your competitors have referenced the fact that they lost the socket, the power management socket, in the tablet and I know everybody's trying to figure out who potentially gained that socket and I wondered how well positioned you think you are in that space?

There's a broad question and there's an implied question. Let me answer the broad question, which is I think we are very well positioned in the tablet with our power management. And you know well, we're well-positioned overall in the marketplace with power management but certainly, tablets are a targeted area for us across a number of product lines just because that's a new emerging space with a lot of opportunities. In fact, maybe I can even diverge for a second and talk about that opportunity overall. I'll stay away from the implied question, which was... were we the player that picked up their lost socket? But I will say we're well-positioned and we think there's a lot of opportunity. Let me maybe just kind of walk through a little bit our view of the tablet opportunity for TI. I know there's a lot of dialogue amongst analysts and investors on how big is that opportunity and how does it compare to a PC. For us, we believe there's over $30 of content opportunity in a tablet. And that goes across Analog, OMAP and wireless connectivity. And kind of the break out of that is the Analog content alone is over $10. The OMAP content, the apps processor opportunity is in the $15 range and then there's probably an additional $3 to $5 of content opportunity for connectivity. By no means do we have all of that in each system. In some cases, we are playing on Analog and maybe not on OMAP. But certainly, that's the opportunity. If I compare that opportunity to a PC for TI, I'd say the biggest difference is that in a PC, the processor, as well as most of the connectivity value really is dominated by a single player. And that's not an opportunity for TI. Of course, unlike a tablet, a PC includes a hard disk drive where we would have probably $1 to $2 of content per system on average. But the net difference between that PC opportunity and a tablet really represents a very significant opportunity for TI. The breadth of our portfolio across Analog, OMAP and connectivity, I'll just say gives us a tremendous opportunity to carve out what could be a very, very significant piece of this important emerging market and we plan to make the most of it.

We'll go next to Shawn Webster with Macquarie. Shawn Webster - Macquarie Research: On the gross margins, can you give us a flavor of the moving parts to go into Q1 and Q2 as it relates to your business and more particularly your utilization rates? Do you expect them to decline again in Q1?

Shawn, in the first quarter, I already mentioned that we felt the full effect of bringing three new factories online. So that clearly had an impact on us. The utilization in the fourth quarter was actually down quite a few points. And that wasn't all just attributable to the new factories. We consciously slowed down production in our remaining factories, with the exception of those products where we had extended lead times. We continue to build inventory on those products alone in order to get lead times back to normal. So, while we bring it on the new factories and define overall utilization, the weight in our margins in the fourth quarter. Going in the first quarter, we expect utilization maybe up another point or two, not significantly, but up a little bit and really will be a function of both how demand shapes up in the first quarter and more importantly, how our outlook begins to shape up for second quarter and beyond so we can have inventory ready on time to maintain the achievement we've had on bringing lead times in.

Just to ask and clarify Kevin, so the new factories that were being already accounted for in the fourth quarter for the most part, all the assets that we had previously acquired from Qimonda, Spansion and the China fab that was all in. There's not another chunk to come along in the first quarter, correct?

There's not another chunk to come along, it is all in. In fact one of the best ways you could see that is look on our cash flow statement and look at the depreciation line. You will see a step up from the third quarter to the fourth quarter. If you just multiply that times four, it's consistent with our $900 million depreciation we have for 2011.

So fourth quarter was already at the 2011 depreciation run rate. Shawn Webster - Macquarie Research: So on lead times, are there any other areas where your product lead times are still the tightest or are actually going out in Q1? And you mentioned your end markets that were good. Are there any specific end markets that are still soft or you expect the weakest sequential growth in Q1?

On lead times, the overwhelming majority of products are back to a normal lead time. There are still some exceptions but there always is in a normal industry cycle anyway. There are some parts where we'd prefer to have shorter lead times and some customers would prefer that also, but that now the minority of parts as opposed to the majority. Most of that is just fine. We expect now that we've gotten lead times largely caught up, we'll continue to use a relatively seasonal down period in the first quarter to make sure that we've got much more attractive lead times in the event that 2011 becomes a stronger year as Ron was talking about earlier so we can maintain what we've got in there.

We will go next to Chris Danely with JPMorgan. Christopher Danely - JP Morgan Chase & Co: So you mentioned that the inventory correction looks to be over in certain parts but maybe not over in other parts. Can you just talk about the various end markets and what stages you see them being at vis-a-vis, any sort of inventory issue? And I guess maybe throw in your expectations for the end markets this quarter and the rest of the year?

Chris, let me take a stab at it and Kevin may have a few comments to make. We're not going to be able to walk through market by market. I think what we have tried to do is identify in the few areas that we specifically have previously noted the inventory correction was the most significant. We've tried to provide some guidance or perspective that we think that inventory correction is largely complete. If you go more broadly, there are some customers that probably are totally clean. There are other customers that would not be in similar situation or still have more to go in terms of cleaning up inventory. And now, it will vary customer by customers, maybe somewhat market by market but probably more customer by customer. I don't know that we're really going to do us a lot of benefit to walk through each of those other than what you may gain from listening and talking to those customers directly as they report their own result.

I think that's right. Just to reemphasize on what Ron opened with though, the PC space we saw at least for our battery management products bottomed in the beginning of the fourth quarter and grew steadily through the balance of the quarter. TV space seemed to have bottomed out in the quarter. And indications from our customers that their inventories are largely cleared and we can expect resumptions of orders in the first quarter. We talked about communications infrastructure continuing to be solid in the quarter, automotive being recently solid. Smartphones are actually quite strong and with the adoption rates, consumer level around the world, one would expect that, that would probably be -- continue to be quite strong going into 2011. And then the industrial space, we had talked about 90 days ago that industrial had been enjoying quite a few quarters of very strong growth led by inventory replenishment, as well as just in demand growth and then we expected that, that growth rate will probably slow down in the fourth quarter and in fact, it did. It slowed down to just in demand kind of growth and we expect that to be the norm going forward. Christopher Danely - JP Morgan Chase & Co: So in 2010, your Analog, Embedded and other businesses all grew roughly the same within a few points of each other. Can you give us your sense of relative to your overall TI revenue growth, where you would expect those three product regions to grow?

Chris, I'll just remind you that our objective that we talked about is growing those core areas in their respective markets. And in fact, we did that this past year. They've done enough in a couple of years if you take a look at them. The total company grew at 34% and the core areas grew at 40% plus, a little over 40% for the non-baseband wireless, about 42% for Embedded processing and 43% for Analog. So, clearly very strong growth rates and a lot of momentum given the scale of sales force and the scale of the portfolio, plus more recently the scale of our manufacturing capabilities. Our ability to outgrow our competitors certainly seems to be more highly probable today than you might have thought a couple of years ago, especially in light of the observation that Ron made earlier. And that is, we did take action in late 2009 and especially 2010 to increase our manufacturing capacity, which allowed us to begin bringing our lead times in many cases before quite a few of our competitors could. Many of our competitors would not necessarily take similar actions and should we have a resumption of growth as we go into second quarter and beyond, it could be difficult for some of them to respond to customer demand, which increases the probability again that we will outgrow our marketplace in 2011.

And Chris, as I know you're well aware but just as a reminder for broader audience, there is Baseband revenue that will decline over the next couple of years. And that's 12% of our revenue both fourth quarter, as well as for the year. I found it interesting that even though it didn't contribute to company growth at an absolute level it held those dollars, Baseband dollars, held relatively stable from '09 to 2010. Yet, as a percentage of revenue, it continues to decline, it continues to I would say it as be less important to us and less impactful to us. So that will continue to wind down and certainly, not provide the growth contribution that the core areas will. And just to give you a sort of a refresh on the numbers, the baseband revenue is over 90%, 3G, this point, if you compare that to a year ago. It was 66% 3G. So what you've seen is both as the non-3G market has not shown a lot of growth and to some degree as our customers brought on alternative suppliers in the non-3G technologies, that is now a minimal part of our revenue base. Sometime this year, they'll have a supplier for 3G on Baseband. And you can expect at that time then, incursion or degradation in that 3G revenue for TI. But just stay in tune what their alternative suppliers and what that customer says as to the timing of when that will be. It's not right now, is what I would say.

We'll go next to Glen Yeung with Citi. Glen Yeung - Citigroup Inc: Ron or Kevin, maybe just a clarification from an earlier question but in a circumstance where we're kind of an average growth year call it a 5% to 10% for the industry, do you feel that the capacity you've added is going to be a competitive advantage? Or another way of asking the same question is do you think of the industry absent your capacity is going to be relatively tight and really by adding capacity the way you have, you can therefore take market share? And that's sort of in an average growth curve?

Glen, if we just kind of take a look again at the capacity of the industry, you're well aware that with the onset of the downturn after the third quarter of '08, something in the order of 17% of available capacity was taken off-line and pretty much permanently off-line. Since then, there's been some capacity added but the last reports I saw suggested that total industry capacity, and I'm not including memory in that statement is somewhere around 90% of where it was in the third quarter of '08. I would just say that we're still under capacitized given demand if you will because the total market is now back above where it was in third quarter '08. So even if you just have an average kind of growth rate like you're describing, it would certainly seem that the market is going to be very stressed on capacity going into 2011 and competitors who have not thought ahead to put capacity in place and they find that rather difficult to deal with. What we find particularly attractive again is that the capacity that we have brought online has been at price points, cost points that we simply have not seen in the past. So if it turns out to be a slow growth year, it's not going to have much impact financially on a negative standpoint. If it turns out to be or strong growth year, we should be able to convert that into very profitable revenue at a rate beyond what our competitors can manage.

And Glen, I'll just also note rhetorically, when was the last time our industry has growth at an average growth rate? Usually, it's very aggressive or in decline, you know that as well as any of us. Glen Yeung - Citigroup Inc: You talk about OMAP 4, which is a dual core solution today. Can you talk about your plans if you have any for a quad core solution and as part of that, can you address whether or not you think that's even a relevant architecture to have in today's market?

I don't know. I think if you look at the one, call it the next-generation core, I don't think we specifically announced that we're using it for OMAP. But then again maybe we did. We've licensed in fact, I think we were the initial licensee from ARM for their Eagle Core. So I don't know that necessarily we go a key player in additional parallel courses as maybe moved to higher performance directions such as Eagle. But I guess we always have that flexibility.

We'll go next to Steve Smigie with Raymond James. Jonathan Smigie - Raymond James & Associates: I'm not sure if you discussed it but can you talk about if your mix of Analog between high-volume, power and high-performance remain roughly the same, percentage wise, as you sort of discussed in the past?

Steve, it actually has. When we looked at how 2010 landed overall versus 2009, you might recall in 2009, we've described that breakout, 40% HVAL and then 30% each High Performance Analog and Power. And the good news is and frankly, what we had tried to set as expectations was we thought we were at a point where we would have HVAL contributing at about the same pace as those others. So that makes an impact, that happens and the mix did not change 2010 compared to 2009. So again, further reinforcement of a lot of the work that we have done to have HVAL become a major contributor to our growth in fact has followed through to reality. Jonathan Smigie - Raymond James & Associates: With regard to HVAL, as you mentioned, you put a lot of work into that. I know you have a number of wins. You've taken some technology transferred to other areas. Does that suggest as we go through 2011, HVAL will now perhaps outgrow the other categories?

I don't know that we would expect it to outgrow the other categories. I think our expectations, and this is not a 2011 statement, it's a longer-term statement, our expectation is that the opportunity and our growth should be pretty well balanced across power, HPA and HVAL. So that's probably as specific as I'd like to be at this point.

We'll go next to Ross Seymore with Deutsche Bank. Ross Seymore - Deutsche Bank AG: Kind of a question that followed on from Chris' question earlier, rather than by end market, if you talked about your better than seasonal guide by the four product segments you have, are there any big outliers in what's being better than seasonal, worse than seasonal or right at seasonal?

Ross, I don't think there's anything really specific to point at. Part of it is that we had a slightly below seasonal fourth quarter and so that's down looks the other way when you go into first quarter. But again beyond that what we had dragging on us was that PC and consumer space and with the TV space in the fourth quarter. As we indicated, we now are seeing PC begin to pick back up and indications from our TV customers is that the TV, people that we supply, is that we would expect to see a resumption of orders in the first quarter. Beyond that, there's not any one place that I would additional color to.

And Ross, as you understand probably, we try not to take our forecast or outlook and break it down by individual segments or product lines. But we probably will -- probably serve us well to stay with that approach. Ross Seymore - Deutsche Bank AG: The TV and PC together, what that represents as a percentage of sales? Then the real follow up, on OpEx, it dropped nicely in the fourth quarter. I know you give full-year guidance to R&D, but what are the puts and takes for OpEx in the first quarter specifically?

Ross, the OpEx was down in the fourth quarter and that's fairly typical where we see people taking more vacation time and so on. So you'll tend to see OpEx decline, which it did nicely. We would expect in the first quarter, OpEx to increase. A good is to look back at last year. Last year's fourth quarter, our OpEx was up around $30 million quarter-over-quarter and that was a direct effect of the increase that we typically put into place in the first quarter, as well as just far fewer vacation days in the quarter. So again, we'd expect to see a similar up on a quarter-to-quarter basis to what we saw a year ago. In addition to that, you might note that I did give R&D guidance as being up a little bit from what we spent this past year and that will start immediately in the first quarter. So I would expect it to be up OpEx in the first quarter at a faster growth rate than what we saw in the year-ago quarter, again on the function of paying benefit increases, fewer vacation days and stepped up spending on R&D.

For your question it's a mix of revenue, that is TV and PCs, you're going to get a bonus answer and I'm going to breakout our revenue overall by market. This is for 2010 as a whole. Communications was 42% of revenue, and that's down a few points from 2009. And I'll also note the biggest piece inside of communications is communications infrastructure. Computer was 22% of 2010 revenue, down a point from '09. Let me break that 22% out because it goes across several different areas. PCs actually is about 9%. That's what we sell directly into PC manufacturers. Beyond that, we also have sell into storage manufacturers both in terms of hard disk drives, as well as optical. That's about 6% of revenue. Servers is 1%. Monitors are 4%. And really think of that as DLP front projector revenue. And then printers are 2%. And then continuing at the TI level, industrial is 14% of revenue or was 14% last year. And that's up a few points from 2009. Consumer was 11% and that's unchanged from '09. And inside of that, Ross is the TV number, but I don't have a specific breakout for television. Automotive last year was 8%, up a couple of points from '09. And then education, which is really our calculator product, was 3% in 2010, down one point from 2009.

We'll go next to Tim Luke with Barclays Capital. Timothy Luke - Barclays Capital: Maybe from the fourth quarter and as you look at the first calendar quarter guidance, could you give us, Kevin, any feel for the contribution from the revenues associated with the factory service deals that you have in China or in Japan? And separately, rather in the vein of Ross' question on the OpEx side, in seeing a somewhat lower gross margin in the calendar fourth quarter, could you give us some feel for what some of the puts and takes might be in what appears to be a slightly lower gross margin for the first quarter?

Tim, on the revenue from the Transition Services Agreement, we've focused in the past and still hold forecast that we expect those revenues to be less than 1% of our 2011 overall revenues. And we won't break it down any more than that or by quarters anymore than that. I would just put a little bit more color on that, remind you that with the Chengdu fab, as we disclosed, that transition service agreement will run for three or four quarters before it winds down. And with the Spansion fab, that transition services agreement will run for up to two years and winding down during the course of that period. But overall, revenue is expected to be less than 1% of our 2011 revenue. Timothy Luke - Barclays Capital: Is the contribution Kevin fairly similar in the fourth quarter and the first quarter? Or is that helping, to some extent, with the slightly better than seasonal guidance?

It will be fairly similar quarter-over-quarter. Fourth quarter versus the first all in quarter for all three of those factories, specifically those who are doing the transition services agreement on. So, first quarter should be offset. And your second question Tim on OpEx? Timothy Luke - Barclays Capital: More on gross margins puts and takes as we begin the year.

You indicated you felt maybe gross margin might be a little different in the first quarter. I would remind you that we do expect utilization to be up a little bit in the first quarter. I'm not quite sure how you're putting that into your model, but do make sure that you've got the OpEx properly accounted for on 4Q going into 1Q. That is it was up $30 million a year ago. It should be up more than that this quarter because we're stepping up our R&D. Also, don't forget that should just stock dividend equivalent adjustment that we have to make on our earnings per share. We need to make a similar adjustment when you do your model so you get back to what you think is the target GPM percent of course.

We'll go next to Stacy Rasgon with Sanford Bernstein. Stacy Rasgon - Bernstein Research: The orders down 9% this quarter, revenue guidance down about 3%. Is that mismatch strictly because of the order linearity in the quarter? And can you give me some feeling I guess if October or is it a little bit more normal might those two numbers, orders and revenue guidance been more closely matched?

What we really see in there, Stacy, is as lead times came in, as they started coming in the third quarter, we already began to see our book to bill fall below one, which is really quite normal. So, customers who may have been putting six months backlog on us, as we began to move the lead time in, didn't have to give us backlog orders as far out in time. Frankly, they could go for a few weeks or even a couple of months without putting new orders on and still have the backlog coverage they want. So we saw that sort of phenomena going on in the third quarter and fourth quarter. And it's quite normal and was quite expected. The other thing that we did see, that gives again reassurance as to the outlook that we provided for the first quarter is that we had a backlog coverage going into first quarter that frankly was higher than we've seen for a number of years. That's consistent I think with what we've been talking about, the markets, the major markets of PC and TVs we talked about, pretty much cleared their inventory in the fourth quarter and were beginning to see kind of a normal order pattern beginning to show up as we came into late fourth quarter and currently as we move further into the first quarter as well.

I would add maybe two other things, Stacy. Again, it's not new but just reiterating what we said. Our views of the corrections and adjustments to customer inventories and where they are in that progress is part of the reason. Another reason is, maybe the last reason would be that just what we've seen quarter to date in terms of strength, both in terms of orders and revenues play into that confidence as well. Stacy Rasgon - Bernstein Research: Regarding the R&D guidance, can you give us some feeling for where you're investing the incremental spend in terms of the specific types of projects or areas?

It's going to be across the core area, Stacy, of Analog, Embedded Processing and the non-baseband portion of wireless. But I would just say that given the size, Analog will get most of those dollars. And then you'll get a distribution of that into the Embedded Processing next and the remainder, the growth will go into the non-baseband portion of wireless. But it's all in the core product areas. It is not in other areas.

We'll take our final question from John Pitzer with Crédit Suisse. John Pitzer - Crédit Suisse AG: Just a follow-up to an earlier question, on the $435 million, which is baseband, how do we think we should model that? It sounds like no incremental suppliers to your big customers until mid-year. And so, flattish first half and then a decline. How should we think about that?

John, you've heard us say before that if you straight line from where we are today down to zero in the first quarter '13, the only thing we can tell you is that'll be wrong. You'll have some quarters above; you'll have some quarters below. I know qualitatively, I've tried to describe that most of that revenue is 3G and until they have a 3G player ready to start supplying that revenues, well, I won't say it's stable, but it will move with our customers' own business levels. But we've kind of given up forecasting when they're going to have a specific alternative supplier on board. I'm going to shift that risk to you as the analysts now. But you at least know that our mix of 3G to be able to base that on. John Pitzer - Crédit Suisse AG: If you look over the last decade, you guys have always done a good job growing R&D slower than you grow revenue, and I know you're not going to him to easily back into a revenue guidance for the year but when you look at the R&D guidance up over 8% for the year, is there something unusual about this year that is a structurally high investment year? Or when we think about the core business x Baseband, is that leverage that you guys have been able to show in the past still applicable?

I don't know what your revenue assumption is John but it sounds pessimistic. You said R&D up... John Pitzer - Crédit Suisse AG: Is there anything that you see in the R&D for this year specifically which would drive R&D growth faster than revenue growth?

No.

Overall, thank you. As we wrap up, thank you for joining us. A replay of this call is available on our website, and good evening.

And again, that does conclude today's call. We do appreciate everyone's participation.