Ron Slaymaker - Vice President & Manager, Investor Relations Kevin March - Chief Financial Officer, Senior Vice President

Cody Acree - Stifel Nicolaus Michael Masdea - Credit Suisse Glen Yeung - Citigroup Craig Hettenbach - Wachovia Tim Luke - Lehman Brothers Jim Covello - Goldman Sachs Ross Seymore - Deutsche Bank John Lau - Jefferies Chris Donnelly – JP Morgan David Wu - Global Crown Capital Uche Orji - UBS Joe Osha - Merrill Lynch Mark Lapacis - Prudential Louis Gerhardy - Morgan Stanley Sumit Dhanda - Banc of America Securities Doug Freedman - AmTech Research JoAnne Feeney - FTN Midwest

Good evening. At this time, I would like to welcome everyone to the Texas Instruments first quarter earnings release conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Ron Slaymaker. Sir, you may begin your conference.

Good afternoon. Thank you for joining our first quarter 2007 earnings conference call. Kevin March, TI's Chief Financial Officer, 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 include risk factors 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 complete description. Our mid-quarter update to our outlook is scheduled this quarter for June 11. We expect to narrow or adjust the revenue and earnings guidance ranges, as appropriate, with this update. In this call, all of our financial results will be described for continuing operations, including historical comparisons, unless otherwise indicated. We believe the first quarter marked a significant milestone for our company. For the first time, TI has moved through the trough of a cycle with gross margins in excess of 50% and operating margins above 20%. In fact, operating margins were 650 basis points above our last cyclical trough in the fourth quarter of 2004. In addition, the quarter included expense for stock options, whereas we didn't expense options in 2004. As a percent of revenue, total stock-based compensation expense in the first quarter was 230 basis points higher than in the fourth quarter 2004 period. This performance reflects our manufacturing operations that are fully proving their resiliency to flex both up and down, as well as the enhanced quality of our product portfolio. Specifically, the role the highly differentiated analog products have played. In today's call, I'll review our highlights of revenue performance and then Kevin will discuss profit performance and the second quarter outlook. We will keep our remarks short, saving time for us to respond to your questions. First quarter TI revenue of $3.19 billion declined 8% from the fourth quarter and 4% from a year ago. Revenue was impacted by an inventory correction in the semiconductor market that we believe largely ended in the first quarter. Revenue was in the upper half of the updated guidance that we provided in March. Kevin will provide more details on our outlook in a few minutes. The first quarter's sequential decline in semiconductor revenue was broad-based across most product areas. Total semiconductor revenue declined 8%, with both analog and DSP revenue down 5% and the remaining revenue down 17%. Semiconductor revenue was down 4% from a year ago, as lower DSP revenue more than offset growth in analog. The DSP product revenue declines of 5% sequentially and 10% from a year ago were similar to the wireless trends that I will talk about in a minute. Outside of wireless, most of our DSP product lines declined sequentially. From the year ago quarter, revenue declined in areas such as high density voice and catalog products. In both comparisons, we saw DSP growth in automotive navigation systems and industrial control. Total analog product revenue declined 5% sequentially, although grew 2% from the year ago quarter. The sequential decline was across most analog products. The growth from a year ago was comprised of growth in high performance analog, automotive and broadband modems that was partially offset by a decline in wireless analog revenue. High performance analog revenue declined 5% sequentially and grew 8% from a year ago. Revenue from wireless applications declined 7% sequentially and was down 9% from a year ago. For cell phones, 3G revenue grew sequentially, as we believe the excess inventory in this segment of the market was mostly cleared in the second half of last year. Revenue from mid range and low end products declined as inventory was reduced in the market. Compared with the year ago, 3G revenue was about even, while mid range and low end revenue declined. Wireless infrastructure revenue declined sequentially, although was up strongly from a year ago. The opportunity for TI in the wireless market took a big leap forward in the first quarter, when we announced a significant design win at Motorola to jointly create a 3G solution customized to their needs. Beyond our current customer engagements, Motorola is an important strategic opportunity to drive higher 3G revenue and we are pleased that we have won this program as part of a far-reaching engagement with that customer. Finally, in DLP products, first quarter revenue declined 30% sequentially and 15% from a year ago. As we explained in January, the front projector market was reducing excess inventory in the quarter, whereas we believe the TV and cinema markets were positioned with desired amounts of inventory. The decline from a year ago was due to lower projector revenue. At this point I'll ask Kevin to review profitability and our outlook.

Thanks, Ron and good afternoon, everyone. Profitability this quarter was solid, especially in the face of the significant revenue decline of the last two quarters. It confirms our strategic approach to manufacturing, our increasing focus on analog, and great efforts by TI employees around the world. TI's first quarter gross profit was $1.64 billion and gross margin was 51.3% of revenue. Gross profit fell $111 million in the fourth quarter due to the decline in revenue. Despite the decline in revenue and less royalty income, gross margin expanded by 80 basis points sequentially as we pulled back on production costs faster than the revenue declined. Operating expenses of $957 million declined $24 million sequentially and are back down to where they were a year ago. The sequential decline was achieved mostly due to actions across the company to contain these expenses, despite the pressure of seasonally higher pay and benefits. Operating profit for the quarter was $680 million or 21.3% of revenue. Operating profit declined $87 million from the fourth quarter. Operating profit included stock-based compensation expense of $78 million or 2.4% of revenue. Other income and expense was $40 million, down $30 million sequentially due to the fourth quarter settlement of all remaining matters related to grants from the Italian government regarding TI's former memory business operations. Income from continuing operations was $516 million, or $0.35 per share. Although income from continuing operations declined 5% from a year ago, on a per share basis these earnings increased 6%, reflecting the impact of our share repurchases over the past year. It might help if I summarized the first quarter’s earnings per share transition from the $0.45 that our continuing operations produced in the fourth quarter. Non-recurring items in fourth quarter reduced earnings per share by about $0.07. These included the R&D tax credit, catch-up royalty payments, and our final settlement with the Italian government. Lower sequential revenue further reduced EPS by about $0.04. In addition, our higher estimated annual tax rate for 2007 compared with 2006 reduced EPS by about $0.01. These declines were partially offset by about $0.01 of operating expense reduction in the first quarter, and about $0.01 that resulted from our lower share count. 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 $554 million in the quarter and we ended the quarter with $3.34 billion in total cash. Both of these decreased sequentially, reflecting the increased cash needed to meet working capital requirements, such as payment of profit sharing and bonus related to 2006 performance, as well as lower net income. The profit sharing and bonus expenses were accrued quarterly in 2006 based on our estimates for the full year and were paid out in the first quarter based on the full year's actual performance. In the first quarter, we used $857 million of cash to repurchase 28 million shares of TI common stock. TI shares outstanding declined by 8% over the past year. Inventory of $1.41 billion at the end of the quarter declined $28 million even as revenue declined. We are pleased with the results of our strategy to position the inventory ahead of demand so that we are able to meet the needs and timeframes of our customers. This has been instrumental in our market share gains over the last five years, especially in analog. With demand now rebounding, we are well positioned to support higher levels of revenue in the second quarter. Even with declining revenue in the quarter, depreciation was only 8% of revenue and capital expenditures were even lower at 6% of revenue. These metrics are moving into a range that you would expect for an analog company as we focus our internal capital expenditures increasingly on analog products and continue to outsource much of our advanced logic production. TI orders in the quarter were $3.20 billion, an increase of 4% sequentially. Semiconductor orders grew 3%. Our semiconductor book-to-bill ratio was 0.99, a solid improvement from 0.89 in the fourth quarter. As a result, in the second quarter we expect total TI revenue to resume sequential growth and to be in the range of $3.32 billion to $3.60 billion. Semiconductor revenue should be in the range of $3.14 billion to $3.40 billion. These ranges are equivalent to sequential growth of 4% to 13% for TI and 1% to 9% for the semiconductor segment. Education technology should be in the range of $180 million to $200 million as retailers begin to stock graphing calculators in preparation for back-to-school. Earnings per share are expected to be in the range of $0.39 to $0.45 in the second quarter. To summarize, in January we said that inventory correction of our customers was happening quickly and we said that we expected that it would be relatively short lived. We believe the correction has now largely ended, orders have begun to rebound, and we expect sequential growth to return in the second quarter. As our first quarter results demonstrate, we have progressed as a company and are continuing to progress. As our financial performance has strengthened, we have increased our returns to shareholders, repurchasing about $10.7 billion of stock over the past ten quarters and reduced our shares outstanding by 17%. We have also raised our dividend in each of the last four years. Last week, we doubled our dividend. Analog, with its higher gross margins and lower capital requirements has been an important contributor to this progress and we expect that it will become even more so in the years ahead. The opportunity inherent in analog is apparent. TI is the analog market leader, yet we hold only about 13% share of this very large market. Because this market is so fragmented, we believe we have an opportunity to grow our revenue even faster than the market overall. As analog continues to become a bigger part of our revenue mix, we believe it will contribute further to our financial performance. With that let me turn it back to Ron.

Thanks, Kevin. At this time, I'll ask the operator to open up the lines for your questions. In order to provide as many of you as possible an opportunity to ask your questions, please limit yourself to a single question. After our response, we will provide you an opportunity for an additional follow-up.

(Operator Instructions) Your first question comes from Cody Acree - Stifel Nicolaus. Cody Acree - Stifel Nicolaus: Can you give any granularity as to your comments on improving order trends? Any in the market tone, any place where maybe things have gotten stronger, where things maybe still lag? Ron Slaymaker: Cody, I don't know that I would try to spike out any particular end market for strength. I think even as we were saying back in early March when we were at that time indicating our expectation for growth in second quarter, the inventory correction that we saw in first quarter was very broad based and we expect the recovery that is happening in second quarter to be similarly broad based. So there's not any particular area that I would specifically spike out for growth. Cody Acree - Stifel Nicolaus: Nothing stands out one way or the other? Ron Slaymaker: No. Cody Acree - Stifel Nicolaus: LoCosto obviously doing very well and maybe helping to add something unique to TI's wireless that we're not seeing from some of the larger OEMs. Can you maybe break out how LoCosto's impacting your outlook? Is it impacting your outlook? If not, then what should we expect for LoCosto through the rest of the year? Ron Slaymaker: Cody, I would say LoCosto is in the number but I wouldn't say it's disproportionately impacting our near term outlook. As we described in January, we had a great first quarter ramp in -- first quarter meaning the first quarter of its full production, which was fourth quarter of last year. The first quarter of this year, built upon that and the ramp continued to be sharp and revenue continued to expand. So probably without trying to get to a quarter by quarter type of analysis, I think in general we would expect that ramp just to continue through the course of this year such that by the end of the year, probably at least half of the products that we're shipping into the low-end segment of the wireless market, we would be expecting to be based upon LoCosto. So it will continue to build through the course of the year. But again, when we're looking at second quarter and our growth expectations, that's part of it, but certainly not a disproportionate part.

Our next question comes from Michael Masdea - Credit Suisse. Michael Masdea - Credit Suisse: Really impressive guidance, better than seasonality, but I guess the concern is we just came off an inventory correction here. Is this just somewhat of a step up and given that visibility, still doesn't look phenomenal and we're still below 1.0 in terms of book-to-bill. Are we stretching too far out? Just give us a little color on that and give us a little bit of confidence around that. Kevin March: Michael, I think one of the things that gives us some confidence as to the outlook that we gave you is that as you pointed out, the book-to-bill has improved quite a bit over the last couple of quarters, hitting 0.99 in semiconductor. More importantly, what we saw was our daily sales trend actually turned the corner in March. After watching our monthly sales decline for several months in a row, March sales increased; and in fact, our daily sales increased by 20% over the same daily sales rate that we saw in February. You put that together with a reasonable book-to-bill coming out of the quarter and that gives us some confidence that we will see some reasonable growth going into second quarter. Ron Slaymaker: Michael, the other thing I would add is probably about, I would say a quarter, of our semiconductor revenue these days is on consignment or other type of EDI programs where it's not a traditional backlog-based type of system. Basically we get production planning information but the orders don't come in until the customer actually needs the product. To add to what Kevin said in terms of what we're seeing on our backlog, for the most part that data that's feeding into those consignment and EDI programs similarly points to growth and gives us confidence into the second quarter. Then one other thing would be just quarter-to-date sales. Certainly what we saw during the month of March has carried forward thus far into the current quarter and again, all that points to the guidance that we just provided. Michael Masdea - Credit Suisse: When you look at your specific program to customers, do you think there's a share gain aspect to this guidance already or is this just the broad market picking up and you're playing into that? Ron Slaymaker: I would say probably the biggest factor is just the fact that the inventory correction is over and that is probably a broader market trend; certainly the fact that TI is especially focused in DSP and analog in the markets that we participate in will benefit TI relative to the overall semiconductor space. On top of both of those considerations, I think if you look at our performance in analog for the last five years, we've picked up probably on the order of 5 points of market share. If you look at our performance specifically in high performance analog, I think our CAGR from '01 to '06 was something like 19%. I believe the combination of our top three high performance analog competitors over that same period was 8%. So we have been gaining share and we expect to continue to lead the pack through 2007 as well.

Our next question comes from Glen Yeung - Citigroup. Glen Yeung - Citigroup: Kevin, if I look into your second quarter guidance, depending on what we calculate for OpEx, gross margins could be flat or up or could be slightly down. Just give us your thoughts between those two numbers, between gross margin and OpEx and how we should think about those in Q2. Kevin March: Glen, we don't typically break out the details there, but I know you can do the math from the bottom up. In fact, with the growing revenues we would expect improving results and clearly our growing EPS would suggest that our operating results will be stronger than what we just closed in first quarter. From a gross margin standpoint, as we continue to see the mix of analog product make up a bigger portion of our revenue and that enjoys higher overall margins, we expect that to continue to contribute positively to the gross margin. So that's probably about all the color I'll give you on that right now, Glen. Glen Yeung - Citigroup: When we think about the handset business, lots of talk about share gain/share loss and where it's happening and where it's not. I wonder if you guys could give us your perspective on socket wins and losses relative to overall market share, because those two things aren't necessarily the same thing. Just give us your feel on those two issues. Ron Slaymaker: Socket wins and losses relative to the overall market share. As I understand your question, your statement, I think you're exactly right, Glen. Not all sockets are equal and sometimes even within major customers, certainly not all programs are equal. What I would say, just in general, a lot of chatter about whether TI's won this socket or lost that socket. Let me just say overall, we've got a strong position in wireless and we expect to hold this strong position. I think we mentioned back in March that part of the process that's happening is that as we integrate more features and functions into our products, such as RF, analog baseband, and integrate that into the digital baseband functionality, such that we've done with LoCosto, we're absorbing value, functionality that had been historically provided by other suppliers to our customers; and so as these customers have historically maintained a diversity of suppliers, this type of integration trend then presents them with challenges as to how to partition their business among suppliers and maintain still some diversity in the supplier base. So again, I think if you consider that and look at market share, not based on what's the percentage of a customer's digital basebands that you're shipping but instead look at it as a percentage of their semiconductor dollar, I think we'll like the results. In addition, certainly that applies to some of TI's traditional customers but above and beyond that, that trend toward diversifying a handset vendor's supplier base also presents opportunities for us to increase our penetration at certain customers. Certainly the one that jumps to mind there is Motorola and the announcement that we made with them in January where we're basically extending our relationship from what was historically just the low end segment of their product line through mid range edge products as well as up into OMAP, custom 3G, and even WiMAX products. So net/net, I think all that presents an opportunity for TI to continue to expand our position in the wireless market.

Our next question comes from Craig Hettenbach - Wachovia. Craig Hettenbach - Wachovia: Ron, to follow-up on Motorola, since you announced the expanded relationship in January it sounds like they're looking to be more aggressive with second source solutions. Can you just talk about any milestones or timeline of opportunities at Motorola over the next six to nine months? Ron Slaymaker: Well, again, we announced several different programs as part of that announcement. Some may be earlier certainly than others. One that's probably getting a lot of attention just in terms of the timeline and even received some commentary on their call was the 3G program. What I would say there is certainly TI, and I believe Motorola, are both motivated to make that happen as quickly as possible. The reality is we're probably talking handset production in 2008 based upon that custom product that we're jointly developing with Motorola. Craig Hettenbach - Wachovia: Kevin, TI's been more aggressive in buying back stock relative to dividend distribution in the last few years. Anything to read from the doubling of the dividend last week? Kevin March: I think the thing if you're going to try to read anything from it, Craig, is really we keep on looking for efficient ways to return some of the cash successes that we've had to our shareholders and the two ways that we've used over the last few years have been principally through stock buybacks, but also through dividends. As you noted, we increased the last four years and the most recent one was doubling, so I think this is just a reflection of the ongoing consistent cash flow generating capability of the company as we see analog becoming an increasing mix of our total portfolio.

Our next question comes from Tim Luke - Lehman Brothers. Tim Luke - Lehman Brothers: Thanks very much. Ron, in describing an uptick in orders in April, should we think about that being reasonably evenly distributed in terms of the momentum between wireless DSPs and analog? Or as you mentioned in the release, analog playing an increasing role and we should think about that maybe seeing a sharper uptick? Then maybe just for Kevin, the gross margin up sequentially despite lower revenue, maybe you could talk about some of the elements that contributed to that and how should we think about the utilization being a major factor continuing to increase in the second quarter? Thank you. Ron Slaymaker: Well to the first part of your question, comparing wireless DSP to analog and outlook, I guess as I said before, we expect the recovery, expect growth in second quarter to be broad based. I really don't want to try to specifically break the outlook down into various product areas, other than saying in fact both of those areas, certainly analog semiconductors has been going through an inventory correction in the market more broadly, probably even since sometime mid last year. But at the same time in the case of wireless, there's been a correction probably in the case of 3G handsets, not so much components but in terms of handsets during second half of last year and then more broadly outside of 3G continuing through first quarter. So both of those will see the benefit of rebounding off of that inventory correction but as to the relative strength between those two, we simply don't break our guidance down. Tim Luke - Lehman Brothers: Maybe then just as a follow-up to that, we would think that seasonally after a little bit of time of the book-to-bill running close or slightly below 1, you would then seasonally have it up as they saw some seasonal improvement into the third quarter, as you exit the second quarter. Is that a fair assumption? Ron Slaymaker: Well, I think if you just look at seasonal trends, typically on a sequential basis our wireless handset revenue grows about 5% sequentially in the second quarter and then you're right; once you move into the third quarter, typically we would see probably about 10% or so sequential growth. Again, that's ten year type of average growth rates, not certainly any forecast as to what we might expect this year. At the same time, I would also say, Tim, that if you just look at our high performance analog trends, the second quarter has tended to be a pretty strong quarter for that product line as well. But if you put it all together, an average second quarter growth rate for our semiconductor business overall would be in the 3% to 4% range. So given the range of our guidance that we just offered, clearly we have the opportunity to do better than that seasonal average. So we'll just have to see how it develops from here. Kevin March: Tim, on your questions about gross margins, certainly in the first quarter you did see those pick up a bit. What you really saw was our ability to reduce our overall manufacturing costs at a pace faster than revenue actually declined. So for example, we were able to shift our loads from foundries to our internal factories on those products that are outsourced. We also had been mentioning that we were starting the factories back up. In fact, we're taking the opportunity to build ahead on some of our high performance analog product which depleted quite a bit during the last growth cycle. If you look on our balance sheet, you can actually see the effect on that. While our total inventories declined quarter-over-quarter, our overall finished goods increased a little bit on a quarter-over-quarter basis and our work in process decreased. That's exactly the result of what you see as we're trying to restock our high performance analog inventory and our die stock as well, and get ourselves ready for growth in the second quarter. As we take a look, in the second quarter again with that revenue growth range that we've talked about, we believe we have inventory well staged to be able to meet the kind of revenue range that we discussed earlier. To the extent that we come in at the upper end of the range, we certainly have room inside the factories to increase our loadings to meet that demand.

Our next question comes from Jim Covello - Goldman Sachs. Jim Covello - Goldman Sachs: Good evening, guys. Congratulations on the good results. We talked a lot about the inventory or the market share puts and takes. Can you help us understand the timing on some of these things? When obviously the takes seem to be more than the puts, can you help us understand when some of the gains kick in and when some of the diversification that your customers are doing, would kick into the P&L? Are we seeing a large chunk of the Motorola now? Are we feeling the effects of the Nokia now? How all from a timing perspective does that work out? Ron Slaymaker: Let's just start with Nokia. Nokia is still very, very significant and we expect them to continue to be a very, very significant customer for TI going forward. They've announced the fact that they'll be working with another single chip supplier in addition to TI as they diversify their supplier base at the very low end of their product line. I'm not going to try to project for them when they will have that supplier all ready for production. I'll let them project that. At the same time Motorola, we have a broad range of programs there. One was certainly the LoCosto program, which is ramping here now today. I would also mention back over with Nokia, I think Nokia has publicly disclosed that they are now in production with their single chip platform based upon our technology as well, so both of those are in ramp mode today. The eCosto program at Motorola, which is an Edge single chip architecture, I believe what we have said publicly is that product will sample in second quarter of this year and typically it is about one year before it would move into production. Now, our announcement with Motorola also indicated they would be starting their program with TI on Edge using our existing multi-chip solution and then transition over to Edge, so certainly that would indicate some potential to pull that schedule in. WiMAX and 3G are both 2008 handset production. Probably the only other one that I would mention would be the program that we have with DoCoMo in Japan. I think you heard us mention for some time now that we have had a merchant solution, I think we began sampling it, I believe it was November of 2005. That would be one where I would say our perspective of the near-term market opportunity for just merchant 3G solutions in general have continued to diminish. Again, we have that product but at the time of that engagement, our view was actually that the Japanese handset vendors would likely emerge as the world's largest near-term consumers of merchant solutions. Certainly over time our perspective has changed. A couple of reasons for that. One is that the Japanese handset vendors, for the most part, have pulled back on their efforts to develop handset business outside of their own domestic market. Secondly, they've also been reluctant to move away from internally supplied ASIC solutions. In fact, if you look at the broader market today, the only significant customers for 3G merchant solutions are the Korean manufacturers. So in total, if you look at the merchant market for 3G, last year it represented about 10% of that segment of the market on a unit basis. The reality is we don't expect that's going to increase much beyond that in the near term. As a result, given this range of programs we've talked about, we're certainly focusing most intently on our large volume customer program commitments. You can expect that we'll modulate our development resources based on market opportunity and what we see as maximum return on investment going forward. So I know that was a long answer to your question. So I'll stop there and see if you have a follow on, Jim. Jim Covello - Goldman Sachs: That was very helpful, thanks. Final question would be the inventory, did you say what inventory would do in the second quarter? Ron Slaymaker: Jim, we didn't give any guidance on our inventory expectations. You can assume that we will continue to run our inventory strategy consistent with our anticipation for demand beyond the second quarter but beyond that, we don't have any specificity.

Our next question comes from Ross Seymore - Deutsche Bank. Ross Seymore - Deutsche Bank: Thanks and echo the congrats of others. Ron and Kevin, could you just help a little bit in giving us an idea of what OpEx will do, in a very general sense, given the average revenue growth you talked about? How should we see that either staying stable or growing with revenue? Kevin March: Ross, if you think about the OpEx and particularly the R&D, you may recall that last quarter we announced that we were going to discontinue internal development of our silicon process technology for advanced lithography and outsource that. In addition, we also talked about closing an older 8-inch fab. Combined, the two of those should net us about $200 million in annual savings starting next year. So I would say that would probably moderate some of the change in growth in the R&D line, certainly as it relates to process development. We may redeploy some of that to internal product development but we'll call that as we need it. Ron Slaymaker: Ross, one thing I would also just draw your attention to, I don't think we mentioned this in our prepared remarks but if you look in the outlook section of our release, we revised our 2007 annual guidance for R&D to $2.2 billion. The prior expectations had been $2.3 billion. I believe $2.2 billion is the same as what that line ran in 2006. So certainly we're trying to keep an appropriate constraint on the R&D line and again, we don't give specific guidance for SG&A for the year. Did that answer your question? Do you have a follow-up, Ross? Ross Seymore - Deutsche Bank: On the wireless side of things you talked a bit about what happened this quarter with the 3G side stabilizing. If we look at the year as a whole in 2007, how do you expect the mix to go between the low end and the high end? Within the high end, if you want to get down to the granularity of the OMAP versus baseband that would be great, but any comments would be helpful. Ron Slaymaker: I actually would describe what we said a little more optimistically than you did. Instead of 3G stabilizing, it actually grew sequentially. I think would just characterize it as we saw double-digit sequential growth. We had a nice quarter in terms of what 3G contributed. If you look at for the year overall, we don't have our own independent forecast that we publicize, but what I would tell you is most analysts are expecting the 3G market to grow somewhere between 70% to 80% in terms of units '07 compared to '06. If that happens, certainly we will benefit. But the bigger question is just what the low end does. If you look at the trend over the last, certainly, 2006 and I believe even 2005, the growth at the low end was outpacing the growth in the high end. So low end was becoming a bigger part of the unit growth mix. What I would say is we don't particularly worry about where the growth comes from. We certainly like the content advantage we have in 3G handsets but at the same time, our market share is very strong in the low end with our LoCosto product and even the predecessor product. If that's where the growth comes from we're going to enjoy it, regardless of where it comes from.

Our next question comes from John Lau - Jefferies. John Lau - Jefferies: Hi. I wanted to step back and talk a little bit more with regards to the planning for Q3 and it has to do with the capacity. Ron, do you believe that the capacity is put in place for a business into Q3 to prevent the lead time from going up again and discouraging any double ordering that would probably happen again? Especially if you take a look in context with what happened in 2006, especially in the first half of 2006. When we had discussed that you had said that the industry was placing a lot of orders and you had scrubbed the orders, but we still wound up with excess inventory. I was wondering if you can give us a little bit more comment on that. Kevin March: John, I'll go ahead and make some comments and let Ron add any color to it. To the extent of capacity being available for any kind of growth in third quarter, our answer would be yes, we do believe we're just fine on that. You may recall that we invested a fair amount of capacity into our assembly test operations last year from a capital standpoint. To the extent that our capital is lower this quarter than it has been for a few quarters, still the majority of that spend was in our assembly and test operations to continue to make sure that we have the back end capacity, because that's where we found most of the constraints when we came through this last inventory or this last demand cycle, was in the assembly test operation, not in the wafer fab. From the wafer fab standpoint, we still have plenty of clean room in our DMOS 6. We continue to convert DMOS 5 to analog. We have the ability to convert the equipment that were taken out of our old 8 inch fab that we announced we were closing last quarter to convert that to analog manufacturing capacity. So when we look at the fab side and the assembly and test side, from a capacity standpoint, we feel that we're much better positioned than we were a couple years ago. In addition to that, we have, as I mentioned to a caller a few minutes ago, even though our total inventory declined quarter over quarter, we actually were able to rebuild our high performance analog inventory to a much more healthy level than it's been in a couple of years. Again, you can see that on our balance sheet, in that our finished goods inventory actually increased about $14 million sequentially while our overall inventory decreased $28 million. We've been staging inventory much closer to when the demand call comes and we've got a good pipeline and die stock to be able to fill it up quickly if demand spikes and we've got the back end capacity to be able to handle it. I'd say we feel much better about going into a nice strong cycle this go-around than we did a couple years ago when in fact we had to work hard to keep up with demand.

Our next question comes from Chris Donnelly – JP Morgan. Chris Donnelly - JP Morgan: Seeing as how we're only I think 30 bips below the previous peak gross margin, any guess on where the gross margins can go over time? Kevin March: Chris, I think that if you take a look at what's been happening with our gross margins over the past few years and what's been happening with our revenue mix, there's a connection here. As analog becomes a bigger portion we're seeing that begin to reveal itself in our overall gross margins and that certainly has revealed itself recently. Also, we're seeing the benefit of the manufacturing strategy that we put in place which allows us to avoid the fixed costs associated with the very expensive advanced lithography and outsource that so we don't see that drain us. At the same time, with the capacity I spoke to a few minutes ago when John was asking his question, we have enough open capacity that any increase in revenue gives us additional upward capability, just because we get to absorb that fixed cost on that revenue base. So short of characterizing an actual number, I would say we continue to think we can improve our gross margins over time. Chris Donnelly - JP Morgan: Do you think all three of those factors you mentioned have about an equal weight in terms of driving the gross margins higher, or is any one bigger than the other? Kevin March: Chris, that's kind of hard to say. I would say that as analog becomes proportionally bigger over time that one may be a bit more of an influencer as we move into the future. Chris Donnelly - JP Morgan: What was DIS-D sell in versus sell out? Ron Slaymaker: Chris, the trends were the sell in declined a little faster than the sell out did. Inventory at distribution basically held about even with where we ended the fourth quarter. Turns declined a little bit, but the decline in turns was strictly based upon the fact that resale, or sell-out, declined. So again, distribution inventory held about even. Sell in declined a little more than sell out declined, but both were down.

Our next question comes from David Wu - Global Crown Capital. David Wu - Global Crown Capital: Kevin, in terms of gross margin, as we ramp throughout the rest of this year, would you be relying more on external foundries which would impact your incremental gross margin? Or should we think that given your mix of business moving to analog, that we will still get very rich incremental gross margin flow-through as your revenue ramp in Q2 and Q3 of this year? Kevin March: David, of course that will be a function of where we wind up seeing any growth in the balance of the year but in fact, I think your logic on the analog comment is correct. That is, as we see analog become a bigger portion of our overall revenue we would expect that to have a favorable impact on our overall margins. Beyond that, to the extent that we see increase in the advanced lithography, keep in mind we do still produce a fair amount of that internally and so we do have capacity to be able to absorb some growth there before we have to begin shifting more of the loading into the foundries. So in fact, I think both of them will give us additional room for continued strong performance on the gross margin line. David Wu - Global Crown Capital: Kevin, since you're operating margin is now north of 20 by my calculation, north of 25 pretty soon, have you set any new goals in terms of operating margin for the company? Kevin March: David, that's a good question and a fair question. The best answer we'll give you is we do believe we'll continue to have opportunity to improve our margins. At this point in time we're really not in a position where we really want to talk about framing what those goals might be. Ron Slaymaker: Not on this call, David.

Our next question comes from Uche Orji - UBS. Uche Orji - UBS: First on the analog, I know you've alluded to how much this is going to be a driver for gross margins. But can you help us quantify, or give us a sense of how much more head room there is in the analog gross margin potential? I'm assuming it's above average but how much more and if you can answer that relative to the peer group, just for me to get a sense of what the potential upside could be? Ron Slaymaker: Let me express it in terms of our own goals. I mean, our high performance analog revenue, we fully expect that product area to be able to run gross margins 60% to 70% and with inventory down over the last couple quarters, I would say we're not inside of that range but we're knocking on the lower end of that range. High performance analog, just to set the position or the weight, is about 40% of our overall analog revenue. It has been rapidly expanding. As you note last year, our high performance analog basically grew twice the rate of our semiconductor growth rate overall and pretty much twice the rate -- let me just say, it increased within the mix, even of our analog product portfolio. So we're growing analog revenue and we're growing it in the right mix. With that weighting, I think you should be able to make some assumptions on what it would do to the corporate average as it continues to expand. Uche Orji - UBS: How are you planning to drive this higher mix for HPAs, are you going to drive it organically? Kevin March: I think we'll just do more of what we've been doing and that is there's been a lot of organic growth in there and to the extent that we see certain acquisitions from a technical standpoint that filled out a technical capability that we may be lacking to give us the kind of pace we want, we'll go ahead and include that in our mix as well. So more of the same in the future as what you've seen in the past. I would also add, not to be overlooked is what we've been doing with the growth and development of our sales force and the deployment of field application engineers and what that has been doing for us. It's worked well and we will continue down that path to take advantage of the scale of our sales force to be able to touch a lot more customers with the very broad portfolio we have to offer. Those things combined we believe will contribute to Ron's comments earlier, that we expect our analog business, our high performance analog in particular, to continue to grow quite healthy into the future.

Our next question comes from Joe Osha - Merrill Lynch. Joe Osha - Merrill Lynch: Two questions. First, maybe I'm reading this wrong. This very dramatic roll-off in payables here over the last two quarters kind of mirror what's going on in terms of you unloading your foundry partners. Am I reading that correctly? Kevin March: You are. Joe Osha - Merrill Lynch: I thought so. So we might want to watch that line and that's a reasonably good way of understanding what your internal versus external sourcing arrangements look like? Kevin March: It's a bit of a lagging indicator, Joe. It's not the only thing in there. Keep in mind also our capital expenditures for the quarter were down quite a bit over recent quarters. You've got a number of moving parts inside that they are going to affect that. I'd say they probably generally reflect both leading demand outlook as well as our overall expansion capacity that we do internally. Ron Slaymaker: I think Joe, take it up a level, that absolutely is our strategy. That is the whole core of our manufacturing strategy, is to be able to keep our TI internal factories full and be able to adjust foundry demand to the overall marketplace. That's where you saw even what we talked about in first quarter, where we were able to draw down our inventory levels while at the same time taking TI's own utilization up in the quarter. So you found a different place to identify that but that clearly is our strategy and that was part of the reason we maintained the profitability that we did through the course of this down turn. Do you have a follow on, Joe? Joe Osha - Merrill Lynch: Looking at capital structure, obviously great news there with the buyback and the dividends. You do still have this very lovely debt-free balance sheet. I'm wondering whether there might be any possibility of TI undertaking some of the transactions that we've seen from other companies recently on the convertible side? Kevin March: Joe, I think just to remind everybody, over the last ten quarters we have used about $10.7 billion in cash buying back shares and reduced our shares outstanding by 17% over that period. It is our view that this measured approach is best for our long-term shareholders in that it allows us to repurchase at various, more efficient price and volume levels versus what some highly accelerated activity might allow. In the context of a long term, measured kind of approach to our buyback activity, we believe that what we put in place is actually a very effective way to benefit the long-term shareholders.

Our next question comes from Mark Lapacis - Prudential. Mark Lapacis - Prudential: CapEx intensity this quarter was around 5.5%. That's a low end of the range over the last five years of about 6% to 14%. This year it looks like you're going to continue to underfund depreciation which suggests we'll see a continued downward bias. My question is longer term, what sort of CapEx intensity should we be thinking about for your aggregate business? Kevin March: I think as we become more analog, you can look at other analog companies and see where they operate from a CapEx standpoint. It is not unusual for analog companies to be in the mid to upper single-digit kind of range when it comes to CapEx as a percent of revenue. You can see that our company is beginning to take on more and more of that. Also contributing to that to the extent that we continue to be active in advanced lithography and we use foundries to supplement that need that will further support our CapEx being down in the upper to single-digits. Mark Lapacis - Prudential: So that means that you're there right now. Does that suggest that this is where we should expect to see you guys running? Kevin March: Well, I think it might be a little bit too strong to say that this is the exact level. But I think over time, we're not that far off from where we probably want to operate and that would be in the upper single-digits from a CapEx standpoint. Mark Lapacis - Prudential: And then a follow-up is on the advanced logic outsourcing, the trend seems to be to increase there. Can you remind us about the percent that was outsourced this time? Ultimately, having this capability, do you guys consider it strategic or at the end of the day do you ultimately move to 100% outsource on your advanced logic? Thanks. Kevin March: Ron may remember the exact percent, but just to answer the conceptual question, we continue to manufacture a significant portion of our overall advanced lithography products internally. As we have done over the last couple of technology nodes from 130 to 90 to 65, to the extent that there is an amount of capacity that comes in place in the foundries, we'll use that to modulate how much capacity remains, if at all, internally and then we'll also balance that with our view of demand and also our ability to migrate that equipment eventually into mixed signal analog manufacturing. Ron Slaymaker: We don't break it out quarter by quarter but 2006, what we outsourced was about 25% of TI's total wafer requirement. Of our advanced CMOS requirement it was right around 50%. You can assume both of those numbers were lower in the first quarter for the reasons we've already discussed, but generally last year about 50% of our advanced CMOS.

Our next question comes from Louis Gerhardy - Morgan Stanley. Louis Gerhardy - Morgan Stanley: Good afternoon. Just given the strong gross margin performance, can you weight some of the various factors there? Like decreasing costs and increased factory utilization and mix, just give us a sense of which was most important? Kevin March: I think that mix was certainly a contributor, as we saw revenue come in a bit stronger in the quarter and more towards the high end of the guidance range. That we had given and that was on the strength of a pickup in both wireless and high performance analog. In addition to that, we saw overall analog as a larger percent of our revenue and that in turn at a higher mix gives us a higher contribution to our gross margins. And then in turn, as we were continuing to draw down the inventories, especially inventory in wireless that we talked about last quarter, as that drew down and we continued to build in our analog, restocking our inventory there, that also contributed to the mix. I don't think I have a good break up for the weight of each of those but you can assume that all three of those had a favorable impact on our gross margins. Ron Slaymaker: I think the other consideration on mix, and this goes back a few years, but we're certainly enjoying it as we move through this trough, having a product line that is disproportionately full of highly differentiated products that don't move on price with near term market environment is just a wonderful thing. So having price stability through the trough of a cycle is great. Having a manufacturing environment that allows us to keep our factories full, in addition to mix, that's made all the difference. Louis Gerhardy - Morgan Stanley: In terms of Q2. It seems that you're going to need more turns to hit the midpoint of your revenue plan. What's your expectation in terms of backlog? Do you think on top of that increased turns that you'd have enough additional bookings to grow backlog in Q2? Kevin March: Louis, that's probably a level of detail that we don't typically give. I'll just remind you of what we talked about what we talked about early in the call, after watching several months of our monthly sales continually decline, in March we saw sales begin to increase and more importantly we saw the daily sales number increase about 20% on a daily basis over what we saw in February. As Ron mentioned earlier, that continued on into the current quarter. So to the extent that those sales continue strong, it's a question of just how fast revenue grows in relation to those sales as to whether or not we'll actually build a backlog for the quarter.

Our next question comes from Sumit Dhanda - Banc of America Securities. Sumit Dhanda - Banc of America Securities: Kevin, I just want a clarification on the cost reduction efforts. My recollection was on the last call you had indicated that K fab would be literally the sole driver of the $200 million reduction in cost. Now, is the argument that the R&D savings over and above that because of joint technology development factored into that $200 million number, or is that additive? Could you give more clarity on that, please? Kevin March: Sumit, I hope I didn't leave you with that impression, because that certainly wouldn't have been a correct impression. In fact, the combined savings that we see from those two activities is about a $200 million annual run rate. Practically speaking, they both will be implemented simultaneously. So for example, we expect to have both those activities complete by the end of the year at which point then we'll see our full annual run rate on savings occur next year. But there definitely is not a bias, it will all be in one area. Sumit Dhanda - Banc of America Securities: Then the follow-up I had was on 3G. From your commentary it seemed like Japan was probably not a source of strength so could you tell us what really drove that double-digit sequential increase in 3G for you? Was there any disproportionate benefit from handsets versus infrastructure, et cetera? Kevin March: Sumit, a year ago in the 3G space, we had talked about a build going on with inventory there for a customer doing a build-ahead for number portability and that in fact that would burn off during the course of the year. As Ron indicated a few minutes ago, most of the 3G customers from a baseband standpoint in Japan had been staying mostly with their own custom ASICS solutions. In fact, our 3G growth is really coming with the more custom solutions that we had for some of our bigger customers here recently.

Our next question comes from Doug Freedman - AmTech Research. Doug Freedman - AmTech Research: I echo the congratulations on nice results. Could you comment on your success in gaining more analog content in the wireless space? If you have begun to feel those efforts yet or not. Ron Slaymaker: I don't know how to quantify it. We are making progress. I think specifically, just based upon our prior conversations, you're probably referring to our high performance analog penetration into wireless handsets. I would characterize it this way. We believe we are under-penetrated, meaning our share in cell phones with high performance analog products is less than our share overall in the high performance analog market, which is a huge opportunity for us, given the relationships that we have with those customers. So it's an opportunity that we are now enlightened to and we are in full force addressing and we're starting to see benefits, but that's another space where we think there's runway ahead of us as opposed to already accomplishing what we would hope to. Doug Freedman - AmTech Research: On the high performance or on the high volume analog segment of the market you've been taking some actions there to try to reposition it, I believe. Where are you at in the progress of that and just if you could give us a progress report, that would be great. Kevin March: Doug, you're probably recalling I think it was in 2005 when we had done some work in that portion of our business. Mainly there we had decided to divest our commodity LCD driver business to a Japanese competitor. Since then, we've been also investing in some other activity to develop our growth opportunities there in the mixed signal analog area. That's been targeted at various spaces including the automotive market which tend to have several years before you see those designs actually turn into revenue. We have a number of activities that we've been engaging in. We look to be accelerating several of those activities over the next year or so and we'll probably be talking more about those in the future. Ron Slaymaker: Doug, I would just say, profitability I know a lot of times those on the outside as well as even those of us here, we tend to talk a lot about high performance analog. Those high volume opportunities, profitability is very good. We just need more of that revenue and that's our focus there.

Our last question comes from JoAnne Feeney - FTN Midwest. JoAnne Feeney - FTN Midwest: Could you breakdown what you think the market development will be for single chip versus discrete solutions and handsets? Do you see single chip solutions really in a small segment? I understand you said 50% for LoCosto for yourselves. What about the eCosto? Ron Slaymaker: JoAnne, we believe that is a trend that is going to sweep the wireless industry, frankly. It comes down to -- except at the very high end, the very, very high end, where you are maybe adding new features and functions and integrated solutions just aren't available, over time, it just comes down to an integrated solution is more cost effective than a discrete solution. If we rewind ten years or more, we used to sell standalone DSP into a handset; next we had DSP with discrete memory; next to that was discrete ASIC devices. All of that got swept up into an integrated digital baseband and there are no standalone DSP sales in handsets anymore. Today we're integrating the analog baseband, we're integrating RF, we're integrating application processors. That trend only moves forward. It doesn't step back. So you have talked about LoCosto to address the low end of the market. We've announced our Edge product eCosto and it doesn't take too much forward thinking to realize where we're going to take that in the future with other even more advanced technologies. So we believe over time that trend toward integration, single chip solutions will just continue to march forward. JoAnne Feeney - FTN Midwest: On the manufacturing strategy, do you foresee any savings this year and have you begun any of your headcount reductions? Finally, what do you see as a potential for gross margin improvement from this particular change, the closing of K fab and the shift over to an asset light strategy on the advanced logic side? Kevin March: JoAnne, on the savings from any restructuring activity there, really that's not going to be apparent until sometime well into the second half of this year. In the case of K fab for example, in order to discontinue production in that factory, we're going ahead and doing some inventory built ahead in there so that we have time to migrate the products that are in there into other factories. So that factory will remain pretty heavily utilized for most of 2007 and then we'll come down toward the end of the year. On the silicon development side, that will phase in through the course of the year, mostly in the second half. So we really won't see the full effect of that $200 million or so run rate savings that I mentioned until we get into calendar '08. From an overall savings standpoint, one of the things that the K fab factory shut down does for us, or mothballing does for us, is it allows us to migrate that equipment into our analog factories. So that in fact will save us some capital expenditures in the near term. Ron Slaymaker: Thank you, JoAnne. With that, let me wrap up by making an important announcement; or maybe what's more appropriately characterized as a brazen plug. Our analysts meeting is in two weeks on May 8 and 9 in Frisco, Texas and all of you need to be there. Registration is open through the end of this week and if you need additional information on that, please just contact us or give us a call. With that, we will wrap up this call. Let me remind you that the replay is available on our website. Thank you and good evening.