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

James Covello - Goldman Sachs Group Inc., Research Division Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division Sumit Dhanda - ISI Group Inc., Research Division John W. Pitzer - Crédit Suisse AG, Research Division Christopher B. Danely - JP Morgan Chase & Co, Research Division Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division Glen Yeung - Citigroup Inc, Research Division Joseph Moore - Morgan Stanley, Research Division Patrick Wang - Evercore Partners Inc., Research Division Doug Freedman - RBC Capital Markets, LLC, Research Division Vivek Arya - BofA Merrill Lynch, Research Division Craig A. Ellis - Caris & Company, Inc., Research Division Ross Seymore - Deutsche Bank AG, Research Division Christopher Caso - Susquehanna Financial Group, LLLP, Research Division Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division Romit J. Shah - Nomura Securities Co. Ltd., Research Division David M. Wong - Wells Fargo Securities, LLC, Research Division

Good day, and welcome to the Texas Instruments Second Quarter 2012 Earnings Conference Call. At this time, I would like to turn the conference over to Ron Slaymaker. Please go ahead, sir.

Good afternoon. Thank you for joining our Second Quarter 2012 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 September 11. At that time, we expect to adjust the revenue and earnings guidance ranges as appropriate. Let me start with the market environment. Revenue in the second quarter landed in the middle of our guidance range, with sequential growth of 7%. Orders grew and backlog expanded, although at a slower pace overall than in the first quarter. Also, there was a clear downshift in our order momentum in the month of June. Even though we believe inventory of TI products is low at our OEM customers and distributors, both are reluctant to place new orders and commit to backlog given the uncertainty in the overall economic environment. This, combined with lead times that are largely below 6 weeks, has resulted in our window of backlog coverage narrowing. Although backlog for July and August has filled in consistent with a typical third quarter, at this point, our visibility is somewhat reduced for the month of September. This could reflect a range of reasons and potential outcomes. On the one hand, customers could be anticipating their own businesses to slow. On the other hand, customers may simply be waiting until the last minute to place orders, given short lead times. Regardless, as a result of this increased uncertainty, we are being more cautious ourselves in planning for the third quarter and are currently expecting a below-seasonal quarter, with revenue at the middle of our guidance range projected to be about even with the second quarter. If customer demand builds as the quarter progresses, we are well positioned with short lead times, strong inventory and available manufacturing capacity to support a higher level of shipments. Let me now walk through the second quarter's results. Revenue of $3.34 billion declined 4% from a year ago and grew 7% sequentially. Analog revenue grew 13% from a year ago and was up 7% sequentially. The growth from a year ago was due to the acquisition of National Semiconductor and, therefore, the inclusion of Silicon Valley Analog revenue in the second quarter that wasn't included a year ago. The sequential growth was primarily driven by growth in Power Management. Embedded Processing revenue declined 15% from a year ago, with both communications infrastructure and catalog products down. Sequentially, Embedded Processing grew 8%, primarily driven by strong growth in communications infrastructure. Wireless revenue declined 39% from a year ago, primarily due to lower baseband revenue. Sequentially, Wireless revenue declined 8% due to lower OMAP revenue. Baseband revenue ticked up a few million dollars to $90 million in the quarter, although we expect it to step down to about $50 million in the third quarter as we continue to wind down this product line. Our other segment revenue declined 4% from a year ago and grew 16% sequentially. From a year ago, revenue declined due to the expiration of our transitional supply agreements from previously acquired factories in Japan and China. Sequentially, revenue growth was driven by higher demand for DLP products as well as the seasonal increase in calculators. In distribution, resales sequential growth of 7% matched the pace of TI's overall revenue growth. Distributors reduced inventory levels by a day and are holding a little less than 6.5 weeks of inventory. Most are waiting until there are clear signs of higher-end demand before they are willing to carry more. Now, Kevin will review profitability and our outlook. Kevin P. March: Thanks, Ron, and good afternoon, everyone. As I've done in the past couple of quarters, let me start by walking through some of the charges in the quarter that were included in our reported results. Acquisition charges in the second quarter were $104 million. In the prior quarter, total acquisition-related charges were $174 million, consisting of $153 million in acquisition charges and $21 million in cost of revenue. In addition, we also had restructuring charges of $13 million in the second quarter compared with $10 million in the first quarter. In total, the EPS impact of these charges was $0.06 in the second quarter compared with $0.10 in the first quarter. Gross profit of $1.65 billion was 49.5% of revenue, and increased 8% sequentially. Recall that in the first quarter, we benefited from about $65 million of insurance proceeds that helped gross profit and gross margin. Operating expenses of $936 million declined about 4% from the first quarter. At 28% of revenue, operating expenses have moved back into the 20% to 30% range that we target over the course of the cycle. Our second quarter results included a cumulative adjustment for a revision in our annual tax rate as well as a $10 million discrete tax benefit. Net income in the first quarter was $446 million or $0.38 per share on a GAAP basis before charges. Again, in the EPS calculation, please note that accounting rules require that we allocate a portion of net income to any unvested restricted stock units on which we pay dividend equivalents. In the second quarter, the amount of net income excluded from the EPS calculation was $8 million. If you don't make this adjustment, you'll likely calculate EPS to be $0.01 higher than we have reported. Let me make a few comments on our cash flow and balance sheet. Cash flow from operations was $675 million, up $226 million from the prior quarter. Capital expenditures were $146 million in the quarter, up $43 million from the prior quarter. I should note that year-to-date, capital spending has been about 4% of revenue as we benefit from having pulled ahead fab spending through opportunistic purchases over the past few years. We used cash to repay an additional $200 million of our outstanding commercial paper in the quarter, bringing the remaining balance of this obligation down to $500 million. We also retired $375 million of maturing debt that we assumed in the acquisition of National Semiconductor. We used $300 million in the quarter to repurchase 9.6 million shares of TI common stock and paid dividends of $195 million. We increased our inventory by $32 million in the quarter, although inventory days declined to 101. Orders of $3.41 billion in the quarter increased $174 million or 5% sequentially. TI's book-to-bill ratio was 1.02 in the quarter. Turning to our outlook, we expect TI revenue in the range of $3.21 billion to $3.47 billion in the third quarter. At the middle of this range, revenue would be about even with the second quarter. We expect earnings per share to be in the range of $0.34 to $0.42. We expect the third quarter EPS results will be negatively affected by about $0.07 of acquisition and restructuring charges, assuming the company's marginal tax rate of 35%. For the year, our estimate for R&D expense has been reduced to $1.9 billion from our previous estimate of $2 billion. Our estimate for capital expenditures is unchanged at $700 million, and our estimate for depreciation is also unchanged at $1 billion. Our estimated effective tax rate has been reduced to 26%, down from our prior estimate of 28%. In summary, although our financial results for the second quarter were consistent with our expectations, our visibility into the third quarter's demand has been reduced. We remain focused on strengthening our long-term position in Analog and Embedded Processing, while also staying responsive to the twists and turns of near-term demand. With that, let me turn it back to Ron.

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

[Operator Instructions] And we'll first go to Jim Covello with Goldman Sachs. James Covello - Goldman Sachs Group Inc., Research Division: In terms of the utilization rates that you're expecting as you go through the third quarter, I guess that would be the first question. The follow-up, just so then I can go away after that, is, is there ever a cost benefit analysis that would make sense to shutter some of the strategic capacity? In other words, if the expectation is that it's going to stay dormant for an extended period of time, would it make sense to shutter it and then bring it back online when the utilizations picked up?

Kevin? Kevin P. March: Jim, let me just start on the utilization in the third quarter. I think implicitly, we don't normally forecast that. But implicitly, with the revenue guidance being flat and inventory being at desired levels, about 101 days right now, I don't expect our utilization level to be going up at this stage, and in fact, it might even decline a little bit as we go into the quarter. As to the second question on the cost benefit of shutting down strategic capacity, you may recall that back in January, we did announce the closure of 2 older factories that from a cost benefit standpoint, the economics of upgrading or trying to improve those factories to compete with some of the newer factories we brought online just didn't pay. So the decision was to go ahead and wind the operations at those factories down. That's one factory in Houston which we expect to close by the middle of next year and another factory in Hiji, Japan, which we expect to close by the end of next year.

Next, we'll go to Stacy Rasgon with Sanford Bernstein. Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division: First of all, just looking at the outlook, so flat revenue guidance, EPS up a little bit. Sounded like you said utilization down, which might imply that gross margins may be down a little bit. So is the EPS savings here all OpEx, or is some of it gross margins? Or is it a split between the 2? And could you give us maybe some color on the drivers between -- for gross margins and OpEx into Q3?

Stacy, let -- just for correction purposes, at the middle of our guidance range, our revenue is flat and our EPS is also flat at $0.38 on a GAAP basis. Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division: Performance sounds like a little higher though, right, $0.01?

All because -- yes, because we have an extra inside of that flat GAAP EPS. The charges, we'll think of it more rounding up to $0.07 as opposed to rounding down to $0.06 in the quarter. Do you have any other... Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division: I guess on that first question, then, does that imply sort of gross margin and OpEx kind of flattish to Q2? Kevin P. March: Yes. Stacy, I think what we're -- when you build your models and make the adjustments for various things we were just talking with Ron about, I think, let's say [ph] that gross margins are probably going to be a little bit better. We'll have a bit of a better mix, we would expect, in 3Q. Recall the seasonality of our calculator business, for example. Third quarter tends to be the strongest quarter. That has fairly good margins. As Ron mentioned, we'll see the baseband drop to probably about $50 million, coming off of $90 million last quarter. And so the remaining revenue that will fill in that gap has slightly higher margins. So between those things, I think you will see the margins probably up a little bit quarter-over-quarter. Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division: Got it, that's helpful. And for my follow-up, so you mentioned, I guess, limited visibility in September in regard to your customers. What kind of September outlook do you actually have baked in right now to your flat guidance, and where could this go if you would had a normal September, as we seem to have like a normal July and August orders right now? Kevin P. March: Well, Stacy, normal seasonality for us in the third quarter is to be up on average, seasonality is to be up 6% quarter-over-quarter. So one could say that if, in fact, September fills out in a more normal fashion, we might see growth rates approaching that sort of number. But as Ron mentioned, and as we've been talking about in the press release, given the profile of the backlog that our customers have scheduled on us, we clearly have less demand scheduled in September right now than we would normally have at this stage in the quarter, and that's caused us to be cautious on our guidance, because we're -- it's really not apparent to us why that is the case. Again, is it because customers fear their end demand? Or in fact, did they just got increased confidence that if their demand goes up, we have added with inventory that we could with [ph] short lead times.

Our next question comes from Sumit Dhanda with International Strategy Investment Group. Sumit Dhanda - ISI Group Inc., Research Division: Just a follow-up on that last point, Kevin or Ron. Could you tell us exactly what your lead times are? In other words, if you did have -- if you did end up seeing that pickup for September, what's sort of the last date by which customers need to place orders so it actually impacts your revenues in the third quarter?

Sumit, I guess one way to think about it is I think we mentioned that the vast majority of our products have lead times less than 6 weeks. So that would say certainly -- and some of that goes all the way down to 0 if we had in-stock inventory. But certainly, that would indicate that by the time we get to our mid-quarter update in September, we'll have certainly better visibility as to what the month of September should be looking like at that point. Do you have a follow-on? Sumit Dhanda - ISI Group Inc., Research Division: Yes, I did. And then just along the same lines, any -- clearly June orders were significantly weaker than you might have expected. Has there been any pickup or stabilization in July? And then, was there any difference in the profile of orders you got, for example, from the distributors versus your OEMs x your wireless OEMs?

I'll answer the first part, and Kevin, I'll let you handle the second part, if you remember it. In terms of July, the rate of new orders in July, really, Sumit, is consistent with what we saw in the month of June. So we haven't really seen a pickup, but we also haven't seen a further slowdown. So our guidance does comprehend those order trends. Kevin P. March: And, Sumit, as to -- relates to, say, the distribution channel, for example, what we saw in the second quarter was distributor resales actually increased quarter-over-quarter to about the same rate of TI's total sales. So that was consistent. And their inventory dropped about a day. So they continue to that [ph] hold very lean levels of inventory, which suggest to us that similar to our OEM customers, they're holding only as much inventory as they feel they need to have for a relatively short windows of time, 6.5 weeks, as I mentioned. So it goes back to what Ron was saying earlier, our customers across the board seemed to be carrying very lean inventories, expecting us to be able to meet very short lead times, which we presently have available. And so we should have better insight as to what their final demand will be in the third quarter when we get to the mid-quarter update.

Next caller comes from John Pitzer with Crédit Suisse. John W. Pitzer - Crédit Suisse AG, Research Division: Just quickly on the Wireless profitability for the June quarter, I would have thought with a better mix of baseband that, that op profit would have been a little bit better. So I wonder if you could just help me understand what's going on there, and importantly, x baseband, what's the breakeven op profit -- revenue you need to see for breakeven op profit kind of in the OMAP and the Connectivity? Kevin P. March: John, the biggest thing driving the profitability or, quite frankly, the lack of profitability right now in Wireless is the revenue. This is a revenue-dependent business that we talked about for a while. There's a large R&D built going on inside that segment as they develop new products for the end markets they're aiming at, and it really has been one that requires more revenue than it obviously has today to absorb that much R&D. It has clearly got our attention, something we're looking closely into. As it relates to a breakeven number, I would just remind you that back in fourth quarter that revenues at that segment turned in -- was actually above breakeven at that point in time, if you adjust it for baseband. So that's probably your best reference point. I won't try to forecast going forward. As you probably well know from our conversations here in the recent past, we're looking at the opportunities for that business to expand product offerings into the embedded processing space, and that, clearly, will have a different profile of needs as we get all that timing worked out.

So, Kevin, just to make sure I heard right, you're saying fourth quarter of last year, the non-baseband part of Wireless turned a profit, a small profit, and that would be the closest proxy? John W. Pitzer - Crédit Suisse AG, Research Division: Yes. Ron, just quickly, you talked about baseband being down to $50 million in the September quarter. Just relative to kind of your midpoint of flat revenue, are there any broader revenue buckets that are outperforming or underperforming that you can talk to? Or is everything coming in kind of flattish?

I would say for the most part flattish, and we don't break the guidance down too much by product area. But as Kevin mentioned, clearly there's a seasonal trend where our calculator business tends to grow third quarter compared to second quarter. So we would expect that, of course, to occur, and be -- and it probably largely offset the decline in baseband. And then outside of that, certainly collectively flattish but generally flattish by product area as well.

Our next caller is Christopher Danely with JPMorgan. Christopher B. Danely - JP Morgan Chase & Co, Research Division: Just to follow up a little bit on the Wireless group. Are the R&D cuts in the second half, are those all aimed at Wireless? And then is there some sort of time line to where we can tell, let's say, if Wireless isn't profitable by Q1 of next year, then there could be some changes there? And what are the options if Wireless does not become profitable within a 2- to 3-quarter time period of changing the business? Kevin P. March: Yes, Chris, I don't think anybody said anything about cuts in the second half. I think what we talked about was that we are looking at how to best align the resources to meet the changing market opportunities we see for those products, especially embedded processing space. And that can include also reallocating resources to other areas with better growth opportunities. And I don't have any numbers for you with that specificity as to what a breakeven or how much time that may take and so on. That will all come with time as we decide what the appropriate actions are, if any.

I think one of the things you're referencing, Chris, was just the fact that we lowered the guidance. And think of that more as anticipated growth that we had planned overall in R&D will not be in the plan or won't be occurring now. And for the most part, if we hold second half quarterly run rates consistent with where we were in the second quarter, then we would probably be rounding down that $1.9 billion guidance that we gave for the full year. Do you have a follow-on, Chris? Christopher B. Danely - JP Morgan Chase & Co, Research Division: Yes. Real quick on SVA, it was flat, and the rest of your Analog was up. Was there anything going on there? And do you have any outlook on SVA versus the -- sort of the core TI Analog for the second half or at least Q3?

Yes, there is some stuff going on with respect to SVA but really tied more to fourth quarter and first quarter. You'll recall, in those quarters, we were talking about that we had made some distributor changes. I think in fourth quarter, we had eliminated one of their traditional distributors and then brought on -- brought them onto additional distributors that had previously supported TI in the first quarter, which resulted in some just inventory adjustments in the channel. So think about first quarter for SVA benefited from some channel fill with inventory, and therefore, the comparison is just a little more complex or unfavorable than going into second quarter. So really that's the only difference. If you look from a resale perspective, SVA resales were very consistent with what you saw or what we described for the rest of TI. So again, it's just more noise associated with the changes fourth quarter and first quarter with respect to distributors. And, Kevin, was there an additional part of the question that... Kevin P. March: No.

Our next caller comes from Tore Svanberg with Stifel. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: The first question is during the mid-quarter update, you talked about wireless infrastructure or comm infrastructure and automotive actually holding up. Could you elaborate a little bit on that comment now, the way you see things now? And is there any market at all that could potentially be up sequentially in the September quarter?

Sure, I can talk about the comms infrastructure. I think automotive, we ended up just from a sequential standpoint with second quarter being down slightly, so that shifted a little bit during the month of June from our prior expectations. But comms infrastructure had very strong sequential growth in the second quarter. And it's really more of what we've described previously, which is in the North America market, there is a very aggressive build continuing to take place as carriers just try to stay up with consumer demand for data. And so with everybody having smartphones and tablets consuming lots of data, the carrier's under a lot of pressure just to be able to stay up with that demand. Given the strength of our position across almost all of the equipment manufacturers, we're a prime beneficiary of that. So again, it's -- you can say that LTE is starting to come into play a little bit, but really, this is mostly being driven by 3G, really, WCDMA builds here in the North America market. We see that trend on a secular basis continuing going forward, although once we get really towards the end of this year, you'll see more of the carriers' spends start to shift to small cell. Macro doesn't go away, of course, because those base stations are still required. But on the other hand, a bigger part of the carrier spending will likely begin to shift towards small cell, where we have an extremely strong position with our system-on-a-chip, and we look forward to that. But again, that will start here in the North America market. I think it's already begun in some markets like Korea. It will start here in North America late this year, and really, we think we'll ramp nicely from there. So again, a good secular trend for us there ongoing. I think in the automotive space, the only thing I would say is I think that, that market, as you might expect, with economic uncertainty, consumers expressing more concern on where they spend their money, especially on large purchases like automotive, we're starting to see some of that, as well as, I assume, other players will as well. Do you have a follow-on, Tore? Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Yes. Just for Kevin, the R&D coming down a little bit for the year, is that sort of as a response to the environment? Or have you seen some consolidation programs? Just trying to understand where that's coming from. Kevin P. March: Yes. Tore, that's a little bit of response to the environment, but it's also on a lowered outlook, some variable compensation, for example, would be less than it otherwise would have been. So I'd say it's a combination of some temporary and kind of permanent adjustments. The permanent, if you will, is that the expected variable compensation will be a little bit less than we've previously planned, and some of the permanent is just realigning some of the programs that we had under way.

Next, we'll go to Glenn Yeung with Citi. Glen Yeung - Citigroup Inc, Research Division: Can I just ask a little bit about the order linearity between June and July? Because it sounds like June was very bad but July is back to normal seasonal. And my suspicion is that's probably more about June than July. So in your response, can you also describe what exactly happened in June?

Let me make sure that you didn't misunderstand what I said before, Glenn. July in terms of new orders coming in really is about the same level that we saw in June, so it hasn't picked up, nor has it slowed down. What I did say is that our backlog coverage, meaning orders that are scheduled to ship in the month of July, looks pretty typical. But in terms of new orders, they fell from May to June, and July is running at about the same, just call it daily run rate that we felt for the month of June overall. So not a change one direction or the other. But again, it's a combination of what we saw in the month of June as well as what we've seen month to date in July that has led us to give the sub-seasonal guidance that we provided. Do you have a follow-on, Glenn? Glen Yeung - Citigroup Inc, Research Division: Well, sort of as part of that, what exactly did you see in June? Was there any sort of pattern in terms of geographies getting weak or end markets getting weak? Or was it just everything across the board?

I would say pretty broad-based. I mean, there were some markets that shifted maybe a bit more than others. I don't know so much from an order standpoint. Maybe this is a little different twist on your question, but from a revenue standpoint, probably -- let me just kind of walk through the regional results. The North American market, from a sequential growth standpoint, was strongest, followed by Asia, followed by Japan, and then Europe actually was the only region that was down a little bit. At mid-quarter update, I believe I described that at that point, we were expecting some growth out of Europe. So at least from a revenue standpoint, there was a little bit more of a downshift in Europe. Probably no real surprise there. I don't know, Kevin, is there anything that jumps to your mind from a product-line standpoint or from an end-market standpoint? I would describe it as more broad-based, Glenn, as opposed to any particular area of weakness that was pronounced. Kevin P. March: I would agree. If you look across the whole quarter, you could probably say most of the end markets were up a bit. Auto and TV were down a bit, as Ron mentioned earlier. And the industrial space, it was probably about flat on a quarter-to-quarter basis. That's kind of the mix we saw in the major markets.

So, Glenn, I think you're describing that as 1A and 1B on your question list, and you still have number 2 coming. So if you're still there, do you have a question? Glen Yeung - Citigroup Inc, Research Division: Yes. It's a very, very simple one. Do you happen to know what utilization rates were in the June quarter?

The answer to that is also very simple. Yes. But we do not disclose specifically what our utilization is. I think Kevin said our utilization overall was up slightly second quarter to -- compared with first quarter. Similarly, the utilization -- the underutilization charges were, therefore, down a little bit. But frankly, as we got into the month of June and saw orders fall off, we changed our loadings, we pulled back on our loadings. And as a result, the underutilization expense did not fall quite as much as we had expected, which you see in the gross margin, which, frankly, was not quite as strong as we had expected in the quarter as well.

Our next question comes from Joe Moore with Morgan Stanley. Joseph Moore - Morgan Stanley, Research Division: Just to keep pushing on this Wireless question a little bit. In the fourth quarter of last year, you had a big high-profile tablet win that helped OMAP business, and I have that business down -- x baseband, I had Wireless down a couple of hundred million from -- in the last couple of quarters. I may be wrong on those numbers. But do you have the types of OMAP opportunities in the next 2, 3 quarters that can get you back to that level? Or is this more of a kind of waiting for the embedded business to fill in those gaps to get back to that level?

I think it's a little bit of both. I mean, clearly, in the tablet space, we have other customer wins that you can assume will be ramping into production using new products, new OMAP products from TI before the end of the year. And just where those go in terms of actual success in the marketplace is still to be determined. But clearly, there's opportunity there. And at the same time, as you've heard us say now for several quarters, we're not resting, waiting for the tablet or smartphone space to carry us. We are rapidly pursuing opportunities in the embedded space and more horizontal opportunities outside of smartphones and tablets, and those are showing good traction as well. But there's clearly opportunity for growth in smartphones and tablets as well. Do you have a follow-on, Joe? Joseph Moore - Morgan Stanley, Research Division: Sure. The Windows 8 on OMAP in the wake of kind of Microsoft Surface coming out with their own Windows 8 tablets on a competitor's ARM chip, what's your customer's interest in continuing to pursue that market? And is that still a big -- or is it a big investment for you guys?

It is an area that we're pursuing. We have win RT, ported over to our OMAP architecture, and we think that will have opportunities not just in the tablet space, but also in some of the embedded opportunities that we're pursuing as well. So a lot of those embedded opportunities are going to be looking for high-level operating systems to run on our applications processor. And the fact that we have the broadest coverage of any applications processor in terms of high-level operating systems that are ported and running on our chip is differentiation for TI and opens a lot of doors for us. So in terms of the customer enthusiasm, I can't speak for the customers other than to say we are still -- we see a lot of activity with those customers in terms of preparing to launch their own products. So we assume their enthusiasm is unabated, and we'll see where it goes.

Our next question comes from Patrick Wang with Evercore Partners. Patrick Wang - Evercore Partners Inc., Research Division: Just first question, you talked about Europe softening since you gave the mid-quarter update. I'm curious, you've seen stabilization in that area, and I mean, what's your latest read on that?

I'm not following your question. We've seen a stabilization in Europe, you're saying? Patrick Wang - Evercore Partners Inc., Research Division: Yes. I'm curious, when you said relative to your mid-quarter update, the one geography that seems to have softened a bit that wasn't necessarily surprising was Europe. I'm just curious with your more typical month of July if things have stabilized there and you guys are looking for more construction type of trends going forward. Or is that still an area where it's still softening? Kevin P. March: Patrick, I'd say it's probably too early to tell. Recall that in Europe, it's customary that many of the businesses there take mass vacations during the summer months, especially in August. And so typically, you actually don't see much resumption of meaningful demand in the third quarter from Europe until you get to the end of August. So it's probably too early for us to comment on that just yet.

Do you have a follow-on, Patrick? Patrick Wang - Evercore Partners Inc., Research Division: Yes, got you. Yes, I do. And it's really about gross margins. If we look at gross margins going forward here, it sounds like you guys are guiding margins up slightly here in the third quarter. But as we look into the back half into next year, what are some of the structural things we should be thinking about in terms of getting the margins back into the low to mid-50s? Kevin P. March: I think the most apparent one is revenue growth. As we've been talking about -- we did bring in -- bring on quite a bit of capacity during the last couple of years that we bought for literally pennies on the dollar. And even though it's inexpensive, nonetheless, it does still contribute to our underutilization charges in the quarters. So clearly, the most meaningful way for us to improve gross margins is simply to continue growing our revenues so that we can absorb that underutilization and it will fall through to gross margin. In addition to that, we'll just see a continuation of improvement of mix. As we talked about earlier, baseband will drop to about $50 million, we think, in the third quarter. We still expect that to wind down to essentially 0 as we begin 2013. That will be replaced. Our revenue that replaces that tends to have higher gross margins. So there'll be a little bit of mix inside there, but I think the biggest driver to point to is revenue growth to absorb the underutilization.

Our next caller comes from Doug Freedman with RBC Capital Markets. Doug Freedman - RBC Capital Markets, LLC, Research Division: And in the past, Ron, you guys have been able to offer some color on what's going on in the PC market, specifically the disk drive market. There was a lot of movement this quarter. Can you give us an update on what you're seeing right now?

Sure. I guess what I would say is we saw some growth in disk drives in the second quarter. And that -- there probably was still some residual recovery from the Thailand flooding. But certainly going out of the second quarter, we think that is now fully recovered. Our view overall is that the hard disk drive TAM appears to be softening somewhat, though. And that very well could just be the mix of the types of computing platforms that are shipping. And many of those not using a hard disk drives. They're using solid-state memory at this point. I think other than that, I think I described that at the mid-quarter that we had seen some mixed signals in the PC space between maybe similar to what we're seeing with analog products, battery management, et cetera and what we are seeing with hard disk drive. And I'd say that, that still held through the end of the quarter. Do you have a follow-on, Doug? Doug Freedman - RBC Capital Markets, LLC, Research Division: Yes. So if you could, could you guys give us an update on how the progress of your recent -- or not-so-recent acquisition, the CICLON, Luminary. I know you commented on Silicon Valley Analog already. If you could just go back a little further and just highlight how well those businesses are working within your portfolio. Kevin P. March: Doug, you may recall, if others were listening, CICLON was supporting the power strategy inside Analog, and I'd say mild indications that has turned out to be quite an effective acquisition and contributing nicely to the growth in power space. Luminary was an acquisition that went into our Embedded Processing side of the house and really gave us a capability in the 32-bit microcontrollers that we previously didn't have a strong footprint in. And we're learning a lot in that space. We simply got a lot more to -- a lot more opportunity, a lot more growth to do there. But clearly, that brought a lot of knowledge to us. It filled in some gaps that we didn't previously have in-house.

Our next question comes from Vivek Arya with Bank of America Merrill Lynch. Vivek Arya - BofA Merrill Lynch, Research Division: I wanted to ask about underutilization charges, especially what is -- is that mostly a cash charge? Is that a noncash charge? And would there necessarily be an uptick in gross margins if you were to just conceptually, say, shutter 5% or 10% or whatever of capacity? So the question, really, is that what is really the cash drag from these underutilization charges? Kevin P. March: Vivek, the underutilization charges, there's probably a little bit of cash there, but these are mostly noncash. You're talking about assets that are depreciated or not being used. These are mostly noncash. There's going to be some cash, because you're keeping, of course, underloaded clean rooms open, so you're still using utilities and some gases and so on to keep those going, but that's minimal. As it relates to opportunities, when we described in January that we were closing 2 of our older factories, the one in Houston and the one in Hiji, Japan, what we talked about is once those factories were closed, they should save us about $100 million in costs on an annual basis once that's done, so it's by the end of 2013. So those are the kind of numbers that you can think about in this area.

Do you have a follow-on, Vivek? Vivek Arya - BofA Merrill Lynch, Research Division: Yes. I'm wondering why your operating margins in the embedded side have lagged. Is it mix? Is it more because of the wireless infrastructure business not doing so well? Because your Analog margins seemed to have recovered somewhat to the mid-20s, but the embedded operating margins are down substantially year-on-year. Kevin P. March: Yes, what you've got going on -- now year-on-year, you've got revenues down also. If I recall -- let's take a look here real quick. Yes, revenue's down about 15% year-over-year. So you've got underlying just R&D and support costs that are still there, and revenue's down, so that's going to take your margins down. But in the quarter itself, it's probably a bit below what we had expected, and really, that's being driven by some new product startups and some inventory scrappage that occurred in that segment in the second quarter.

Next question comes from Craig Ellis with Caris & Company. Craig A. Ellis - Caris & Company, Inc., Research Division: Maybe I'll just pick up on that last question. As we look at embedded profitability going forward, how should we think about the rate of growth in profitability, the rate of growth in revenues [indiscernible] is it -- or are there any projects that you have? Kevin P. March: Craig, I think you were fading out there. But I think you're asking questions about how to think about the rate of growth in Embedded Processing?

Embedded Processing, rate of growth of profitability versus revenues going forward. Kevin P. March: Okay. Similar to Analog, we would expect the Embedded Processing space to grow kind of at historical average, which would be probably in the 8% kind of range over time. In fact, if you take a look inside the Embedded Processing and where we're aimed at, at the 16-bit and 32-bit, those are growing a bit faster than the 8-bit portion of Embedded Processing. So you might see something compound a little bit faster than that over time just from a market standpoint. And of course, our stated objectives are to grow faster than our markets, and we put the resources down to do that. Clearly, with the operating expenses inside that segment being, all things being equal, being fairly stable, any growth in revenue should fall through pretty quickly and improve profitability. So you would expect growth in revenue to occur at a certain pace. Growth in profitability will occur at a faster pace, just because it's falling through without too much incremental operating expenditure.

Do you have a follow-on, Craig? Craig A. Ellis - Caris & Company, Inc., Research Division: Yes. On the follow-up, we talked a lot about reduction of R&D expense for this year. What about selling, general and administrative? Should we expect that to be lower than the trajectory you were looking at in the first half? Kevin P. March: Yes. On the general and administrative costs, we already have actions under way that we talked about when we acquired and closed on the National Semiconductor acquisition. You may recall that we talked about by the end of the first year of acquisitions, that's going to be sometime in the fourth quarter, that we will be removing redundant costs between the 2 companies such that we should have about $100 million of annualized savings after the end of the first year. We're actually making pretty good progress on that front. You may or may not be aware, but back when we closed on the National acquisition, we put some pro forma P&Ls out on the Investor Relations website that you're welcome to go take a look at that helps you see what the 2 companies would have looked like had they historically been combined. And if you go take a look at those, I think you'd find it somewhat insightful to just take a look at 2Q '11 and compare that to our most recent quarter, and you'll see that we're already beginning to see some of the cost synergies of those -- the merger of 2 companies coming together showing up in those results.

Okay, Craig and Kevin, do you happen to have a number on how that SG&A compares year-on-year? Kevin P. March: Sure. It looks like the combined SG&A for the 2 companies on a pro forma basis last year would have been about $478 million, and in 2Q, it was just at $457 million. So you're running about $22 million better on a year-over-year basis.

Our next question comes from Ross Seymore with Deutsche Bank. Ross Seymore - Deutsche Bank AG, Research Division: May I ask a question? Just one quick clarification from what you just said, Kevin, at the $22 million ahead of where you were before. Is that fair to then say you have $3 million more, and then you're at your $100 million total with the synergies? Kevin P. March: We would expect to get the rest of it over the next few months, yes, Ross. And really what's coming down there, recall that on our way there, we're having to spend a little leap [ph] to save a little, so to speak. In other words, just integrating the IT systems has caused us to take on incremental cost to get there. But I think it's pretty safe to say that we can see on the radar that we'll deliver that $100 million of annualized savings by the end of the year. Ross Seymore - Deutsche Bank AG, Research Division: Great. And I guess as my, hopefully, first main question, on the disty inventory side of things, what's your assumption from what the channel does inventory-wise in your third quarter guidance?

Ross, we may have some assumptions, but we don't publicize those just given distributors will do what they feel they need to do based on their own views of customer demand. But usually, we'll try to provide some insight in the mid-quarter update but not this early as to what we expect those trends to be. So that will be your first question, and you still get another one. Ross Seymore - Deutsche Bank AG, Research Division: Calculators, you mentioned, is a positive outlier for the third quarter. Could you give us an idea how big was that in the second quarter? Did it go up its typical, whatever it was, $75 million? And how much does it typically rise in the third quarter?

It was pretty typical, and I'm trying to remember what typical is. Hang on a second, let me see... Kevin P. March: It did increase about $70 million or so, second versus first. And it customarily goes up pretty close to the amount of decrease that we're going to see in baseband in second to third. But baseband was about $90 million in second, and we expect it to drop to about $50 million. That's not that far off what we would typically see the calculator business go up from second to third.

$30 million to $40 million type of increase in calculators, typically.

Our next question comes from Chris Caso with Susquehanna. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: I just wanted to take a step back with respect to the third quarter guidance. And typically, if we look in the third quarter and we're seeing a sub-seasonal third quarter, it's typically because -- that there's some inventory to burn in the channel. When you look at the seasonal businesses, I'd imagine that there's still some seasonal build that's going on. It's just more muted than normal. If we're to get towards the low end of your guidance, that would actually imply somewhat of a seasonal decline -- sequential decline. Could you help me to get there? What potentially could drive that? Is there still some inventory burn going on in the channel? Perhaps there's something going on with pricing or something maybe the nonseasonal market segments?

Chris, I'd make a couple of points. I mean, I think inventories are low already. So this is not a case where in second quarter, a lot of inventory was built and now there's potential need to replenish. That's not the situation that we see. We think what happened in second quarter, the growth that came about was not inventory replenishment but was simply customers, for the most part, no longer reducing inventory. And so therefore, our shipments necessarily needed to start moving back up to the rate at which the customers were producing their own product. So not inventory build, but rather the end of inventory depletion. And you can see, as we've said, distribution channel at 6 -- even at 6.5 weeks of inventory, which it's been for the last couple of -- last few quarters was low already, and yet, they did manage to take it down another day, as we mentioned, in the second quarter. So again, I think our third quarter scenario -- I don't think that the downside case or the lower end of the range case has to do with inventory burning. I think it has more to do with if the macro environment weakens and customers take their own production rates down or down from what they are currently expecting, that could come into play. And of course, the upper end of the range just would reflect that customers that today haven't filled in the September orders, just haven't placed those orders yet because they didn't need to based on where lead times were. And so that would drive the upside case. The "middle of the range" case is kind of what we see in our backlog now. We're not making a lot of assumptions that we get additional fill-in during the month of September. So hopefully, that helps. Do you have a follow-on, Chris? Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Yes, sure. I mean, just as a follow-up on that, then, embedded in your guidance, assuming the midpoint of the range, then is it fair to assume sort of customer inventory and distributor inventory would be relatively flat quarter-over-quarter in dollars?

Boy, it's kind of what I was saying before. I don't know that we -- I guess to some degree that may be the case in that we're not seeing signs of -- in the form of backlog, signs of a ramp during the month of September that you might more typically expect just given the upcoming holidays. So I guess you would say at the middle of the range, there's probably the assumption of flattish inventory. But I don't know that we put a lot of assumptions about customer distributor inventory into that guidance more so than just thinking about overall demand.

We'll go next to Tristan Gerra with Baird. Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division: Could you talk about OMAP as a percentage of Wireless in the quarter? And what was the magnitude of the sequential decline and whether you expect some rebound in Q3?

Well , OMAP, I think first half overall is running about 60% of the non-baseband revenue. So in other words, OMAP plus Connectivity, kind of a 40 -- a 60-40 split, with OMAP being 60% of that revenue and 40% being Connectivity. So from there, you can probably get pretty close in terms of what those trends were. But clearly, the decline was driven from OMAP. Connectivity was down, but I would describe it was down a small amount compared to OMAP. Do you have a follow-on, Tristan? Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division: Sure. Could you give us sort of based on your pricing strategy for SVA in terms of your target of getting back to the core growth that you have in your Analog business?

You said for SVA? Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division: For the Silicon Valley Analog, yes.

Okay. So I mean, I think their pricing strategy is going to be consistent with TI's own pricing strategy in the catalog space. So it's like High Performance Analog and some of the -- a good part of the power product line, which is we want to be competitive in terms of pricing, but at the same time, those markets you tend to sell into -- not always, but a lot of relatively low-volume applications where the focus from the customer perspective is much more on the product specification, the performance characteristics of the product as opposed to price. These products in general tend to be relatively low-priced products, meaning less than $1 type of ASP. And so as a percentage of the customer's bill of material, it represents a pretty small amount. So customers for these products tend not to be hypersensitive on price. They're more focused on getting the right type of product. And I think with the strength of the product line and portfolio that SVA has, the product -- the focus is much more on getting the word out, getting the support out to a much broader range of customers. And making sure, of course, we're competitive on price. We're certainly not going to go out and not become -- try to position the product line so that it's not competitive. And frankly, that was part of the issue in terms of that revenue growth before, was reaching for higher levels of gross margin, sometimes the pricing out of National was not competitive in the marketplace. And you saw their market share loss as a result. So the strategy shift is just make sure you're competitive but, again, make sure we're winning products based on performance and support considerations as opposed to pricing.

Our next question comes from Romit Shah with Nomura. Romit J. Shah - Nomura Securities Co. Ltd., Research Division: Ron, just looking at your sales guidance this quarter, it seems a lot -- a little bit worse than what some other companies have reported thus far in July. As I look at Intel, they guided up 6%, which is a couple of points worse than what they normally do in Q3. Xilinx, if you look at their core business, being down a couple of percent, that's also maybe 1 or 2 points worse than what they normally do in Q3. Your third quarter flat. I think it's about 6 to 7 points below what you normally do. So I'm just kind of curious, what is it about this environment that's hurting you guys a little bit more?

Romit, I might get -- first of all, Intel probably has just a different type of seasonal pattern. They certainly are much more narrower in terms of their end market exposure. So I'm not sure that we can do much of a direct comparison there. And then I think similarly, Xilinx, if we were just looking at our comms infrastructure trends, they might be different than what we see for overall. And clearly, they're going to have much stronger part of their mix tied to comms infrastructure. So I think of all the companies that -- at least ones that you've named, our exposure is probably much broader than any of them. And the second point is we really are operating in a more uncertain environment. And as we've said, this is a question not of the backlog that's painting a very clear story, and it's a negative story. This is more a question of we don't have all the backlog visibility that we would normally have. And so in that type of environment -- and I think a lot from what I've seen with other companies, that is not unique to TI. And I suspect there's probably just different means by which different management teams will choose to extrapolate what they see going forward. And so I don't -- we've given you what we've given you. We've -- explained the basis for it and what we've done, and I guess I just need to let you sort it out in terms of how that compares to our other semiconductor peers. Okay, do you have a follow-on, Romit? Romit J. Shah - Nomura Securities Co. Ltd., Research Division: Yes. Does the fact that Q3 being 6 to 7 points below seasonal, does that have any bearing on how you guys think about the December and the March quarters? Kevin P. March: No, too early for that at this time, Romit. I might also add just to remind you that there's still -- one of the things -- even if we did have a seasonal growth, we still have a unwind of baseband going on. So that's the $40 million sequential headwind, 2 to 3Q. So if you adjust for that, it might not be down quite as sharply as you say, although it is still down versus what our seasonal number might suggest. The seasonal number of 6% actually is x baseband and refitted for the inclusion of National.

Okay, Romit, let me also just say, as we said before, if this market wants to lift on us versus the guidance we've provided for Q3 or, frankly, even going into Q4, we have inventory position, we have manufacturing capacity. I think you'll find our ability to flex up and support higher level of demand should it arise, that flexibility is pretty high. So we really don't need to at least overly stress about what the outlook into Q4 will look like. We'll work it as it comes towards us.

Our final question will comes from David Wong with Wells Fargo. David M. Wong - Wells Fargo Securities, LLC, Research Division: You've talked about in the past about how with Silicon Valley Analog, you've got a bigger sales team and more field presence. Are you seeing any effect of this on design wins for the Silicon Valley Analog products? And if so, do you expect the growth of the SVA division to actually accelerate past your other Analog divisions at some point in the future?

I think that's a reasonable expectation, David. As you are implying in your question, right now it's more measured in customer interest and in design wins, and those, then, will be precursors to actual revenue growth that will occur later. But we've long said our assumptions coming into this acquisition was that the share losses that National had experienced pre-acquisition likely would continue into the first year of the acquisition, and then we would hope to have the revenue stabilized and running consistent with the market. And then for the next year and then in year 3, basically have it trending faster than the market, consistent with our own Analog growth. So that would imply over the next couple of years, you could see a faster acceleration in SVA growth compared to TI's own revenue, just as it's coming kind of from a hole to moving consistent with our own revenue growth. And I'll also say, those assumptions that I just talked about were what we built into our financial returns and financial assessment on the acquisition. Our internal goals, of course, are much more aggressive than that, and we're confident at this point that just based on traction with customers, the interest with customers, the design-in rates that we're going to be able to do better than that. But we'll report it as it comes. Do you have a follow-on, David? David M. Wong - Wells Fargo Securities, LLC, Research Division: Yes. Your EPS guidance, does that assume any improvement in gross margin in the September quarter? And if so, is this mix-related? Or is there some other factor that helps margin? Kevin P. March: David, we mentioned early on in the call that there's some improvement inside there, given that, really, the EPS is about flat quarter-over-quarter. Revenue is about flat quarter-over-quarter at the midpoint. So there's a little bit of improvement in there. And we could see a wind-down in the baseband, as lower margin being replaced by the calculator business at higher margin.

Thanks you your questions, and thank all of you for joining us. A replay of this call is available on our website. Good evening.

That does conclude today's call. Thank you all for your participation.