Ron Slaymaker – VP, Outgoing IR Director Dave Pahl – VP, Incoming IR Director Kevin March – SVP, CFO

John Pitzer – Credit Suisse Jim Covello – Goldman Sachs Stacy Rasgon – Sanford Bernstein Blayne Curtis – Barclays Doug Friedman – RBC Capital Markets Joe Moore – Morgan Stanley Ambrish Srivastava – BMO Capital Markets Christopher Rolland – FBR Capital Markets Vivek Arya – Bank of America CJ Muse – ISI Group David Wong – Wells Fargo William Stein – Suntrust Humphrey Robinson Ross Seymore – Deutsche Bank Tore Svanberg – Stifel Nicolaus Srini Pajjuri – CLSA Research Ian Ing – MKM Partners Chris Caso – Susquehanna Financial Group Timothy Arcuri – Cowen & Co.

Please stand by. Good day and welcome to the Texas Instruments Second Quarter 2014 Earnings Conference Call. At this time I'd like to turn the conference over to Ron Slaymaker. Please go ahead, sir.

Good afternoon and thank you for joining our second quarter 2014 earnings conference call. As usual, Kevin Marks, TI's Chief Financial Officer, is with me today. In addition, Dave Pahl has joined us. As many of you know, I will retire in August and Dave will replace me as Head of Investor Relations. Dave has worked at TI for 25 years and has worked directly with me Investor Relations for 10 years. With that consideration, you probably should allow him some time to come up to speed. Dave has also been recently elected by TI's Board to the position of Company Vice President. Dave will moderate today's call. With that, let me turn it over to Dave.

Thank you, Ron. It's good to join you today for the call. And now down to business. For any of you who missed the release, you can find it and any relevant non-GAAP reconciliation on our website at TI.com/ir. This call is being broadcast live over the web and could 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 more complete description. The second quarter was another solid quarter. Our core businesses of analog and embedded processing grew strongly with combined revenue up 14% from a year ago. We continue to benefit from our investments in industrial and automotive as these important markets continue to grow as a percentage of our revenue. Revenue of $3.29 billion came in slightly higher than the middle of the expected range we communicated to you in April. Earnings per share of $0.62 were near the top of our expected range as profitability was stronger in the quarter. Free cash flow of $3.2 billion or 25% of revenue for the trailing 12-month period was right in line with the 20% to 30% range in which we expect to operate over time. Also over the past 12 months we returned $4.2 billion of cash to investors through a combination of dividends and stock repurchases. As a reminder, our model for cash returns to shareholders is to return all of our free cash flow less the net debt amount that is retired, plus any proceeds we received from exercises of equity compensation. This model demonstrates our confidence in TI'x business and our commitment to return excess cash to our shareholders. In the second quarter TI revenue grew 8% from a year ago, with double-digit growth in both analog and embedded processing. Analog revenue grew 14% from a year ago, primarily driven by power management. High-performance analog, high-volume analog and logic and Silicon Valley analog also grew. Embedded processing revenue grew 14% from a year ago, primarily due to processors and micro-controllers, both of which grew about the same amount. Connectivity grew at a faster rate, although it was coming from a much smaller base. Embedded processing delivered its seventh quarter in a row of year-over-year growth as our investments over the past few years in strategic areas are yielding favorable results. In our other segment, revenue declined $90 million or 13% from a year ago due to legacy wireless which is essentially gone. Turning to distribution, resales increased 15% from a year ago while distributors' inventories were about even. Weeks of inventories fell by several days to just over 4-1/2 weeks. This reduction was driven by a higher percentage of resales being supported by TI's consignment inventory programs. From an end-market perspective, most growth from the year-ago came in communications equipment, followed by automotive and industrial. Enterprise Systems was also up while revenue in personal electronics declined due to mobile phones and tablets, areas that use legacy wireless products from TI. Now, Kevin will review profitability, capital management and our outlook.

Thanks, Dave, and good afternoon everyone. Gross profit in the quarter was $1.88 billion or 57.1% of revenue. Gross profit increased 20% from the year-ago quarter and gross margin hit another new record. When compared with the previous record in the third quarter of 2013, revenue was $48 million higher and gross profit was $102 million. This reflects an improved product portfolio focus on analog and embedded processing, as well as increased efficiency in our manufacturing operations. Moving to operating expenses, combined R&D and SG&A expense of $821 million was down $39 million from a year ago. The decline primarily reflects the reductions in legacy wireless as well as continued cost discipline across TI. Acquisition charges were $82 million, almost all of which were the ongoing amortization of intangibles, a non-cash expense. Restructuring and other charges were a $4 million benefit. As a reminder, the year-ago quarter included a gain of $315 million associated with the transfer of wireless connectivity technology to a customer. Operating profit was $982 million or 29.8% of revenue. Operating profit was up 8% from the year-ago quarter. Net income in the second quarter was $683 million or $0.62 per share. Let me comment on our capital management, starting with our cash generation. Cash flow from operations were $775 million in the quarter. Inventory days were 111, consistent with our model of 105 million to 115 days. Capital expenditures were $80 million in the quarter. On a trailing 12 months basis, cash flow from operations was $3.59 billion, up 8% from the same period a year ago. Trailing 12 months capital expenditures were $388 million or 3% of revenue, even lower than our long-term expectation of 4%. Although we've been able to keep capital expenditures at this low level, we continue to invest to expand both our capabilities and our capacity. As examples, capital expenditures in the second quarter included the cost to prepare the site and install the first tools into our new assembly and test facility in Chengdu, China. We completed manufacturing our first units there for qualification purposes. In addition, we brought on additional tools to expand capacity in our 300 millimeter facility in Richardson, Texas. We were able to make these investments and keep our capital spending at low levels because of our strategy to invest in capacity opportunistically and ahead of demand. Free cash flow for the past 12 months was $3.20 billion or 25% of revenue, in the middle of our expected 20% to 30% range. Free cash flow was 10% higher than a year ago. Depreciation expense for the past 12 months was $856 million. Depreciation exceeded our capital expenditures by $468 million or 3.7% of revenue. We continue to expect the whole capital spending at low levels or at about 4% of revenue. As a result, the depreciation will decline to the rate of capital spending and our gross margins will directly benefit. As we said, we believe strong cash flow growth, particularly free cash flow growth, is most important to maximize shareholder value in the long term and will be valued only if it's returned to shareholders or productively reinvested in the business. To that end, in the second quarter, TI paid $323 million in dividends and repurchased $743 million of our stock for a total return of $1.07 billion. The shareholder return part of our capital management strategy is to return all of our free cash flow minus debt retirement plus any proceeds that we receive from exercises of equity compensation. Total cash return in the past 12 months was $4.2 billion, which was 18% higher than a year ago. Dividends were up 32% and stock repurchases were up 13%. Fundamental to our cash return strategy are our cash management and tax practices. We ended the second quarter with $2.80 billion of cash and short-term investments, down from $4.03 billion at the beginning of the quarter. The decline mostly reflects the use of $1 billion to retire debt in the quarter. TI's U.S. entities own 82% of our cash. Because our cash is largely onshore, it is readily available for a variety of uses, including paying dividends and repurchasing our stock. TI orders in the quarter were $3.33 billion, up 7% from a year ago, and our book-to-bill ratio was 1.01, which would have been higher but was impacted by the conversion of consignment of some products that are sold through distribution. Turning to our outlook, we expect TI revenue in the range of $3.31 billion to $3.59 billion in the third quarter. At the middle of this range, revenue would increase 6% from the year ago. If you exclude the $57 million of legacy wireless revenue from the year-ago quarter, revenue would increase 8%. We expect third quarter earnings per share to be in the range of $0.66 to $0.76. Restructuring charges will continue to be essentially nil. Acquisition charges, which are non-cash amortization charges, will remain about even and hold at this level for the next five years. Our expectation for our effective tax rate in 2014 remains about 28%. This is the tax rate you should use for the third quarter. In summary, the second quarter demonstrates the strength of TI's business model, focused on analog and embedded processing which we believe are the best opportunities inside of the semiconductor market. We continue to invest in areas that offer sustainable growth, solid profitability and good cash flow from operations. The percentage of our business from industrial and automotive markets continues to grow as customers increasingly embrace technology that makes end-products smarter and more connected. At the same time, we continue to invest in our manufacturing capabilities, and our strategy to opportunistically acquire manufacturing assets means that we can deliver strong free cash flows. We continue to demonstrate, as we did again in the second quarter, our commitment to provide strong returns to our shareholders in the form of dividends and share repurchases. With that, let me turn it back to Dave.

Thanks, Kevin. Operator, you can now open the lines up for questions --

Thank you.

-- in order to provide as many people as possible the opportunity to ask a question, please limit yourself to a single question. After our response, we'll provide you an opportunity for an additional follow-up. Go ahead, Renee [ph].

Thank you. [Operator Instructions] And we'll now take the first question from John Pitzer with Credit Suisse. Please go ahead. John Pitzer – Credit Suisse: Yes, good afternoon guys. Congratulations on the strong results. Kevin, I guess my first question is on OpEx. I think for the June quarter, going into June, you kind of guided OpEx would be flattish Q-on-Q, and you did better than that. I'm kind of curious, is that a pull-in of the $130 million of annualized savings you expected from the restructuring or is that just a bigger number than 130? And how do we think about OpEx trending in September, in the back half of the year?

Yeah, John, you're right, the OpEx we had expected to be roughly even from first quarter and the second quarter, and that came in a bit lower than we had expected. And part of that was some pull-in with the restructuring actions that we announced in the first quarter for both embedded processing and resizing of our operation in Japan, and part of it was just continued discipline on the part of all the business units in TI when it came to spending. As you look into 3Q, we continue to expect the second half to be the primary benefit of the cost savings that we talked about for those restructuring action. Recall [ph] that we expect about $130 million of annualized savings, with about 85% of that in OpEx and the balance in cost of revenue. So as we go into third quarter, we'll see probably about half of that amount come in to our results in OpEx, with the balance in fourth quarter. So by the time we leave the year, we should be at an annualized $130 million cost savings from that action.

You have a follow-up, John? John Pitzer – Credit Suisse: Yeah, that's helpful, Kevin. As a follow-up, I know this is somewhat of an unfair question, but if you look at the proceeds from equity compensation. Last year it was almost about a third of the cash returns to investors. I know that's been a volatile number and probably a number that's impossible to predict. But I'm kind of curious, how should you think we should think about that number going forward from here? How do we try to model that number in the future?

John, we talked in -- during the update to our capital management strategy that going forward we would expect the proceeds from stock option exercises to reduce considerably. We saw, gosh, I think it was probably two to three times our normal rate stock option exercises and cash proceeds, in 2013 than we'd seen in prior years. So we'd talked about that going forward that would probably come back down to a more normalized level. And I would suspect that, you know, what we saw last quarter, what we saw this quarter, probably is more reflective of what you should model going forward, figure about, you know, I think we saw about 4% or 5% of stock options exercised last year, and that'll probably drop back down to 1.5%, 2% kind of level.

Okay. Thank you, John. Next caller please?

Thank you. We'll go next to Jim Covello with Goldman Sachs. Jim Covello – Goldman Sachs: Great guys. Thanks so much for taking the question, I appreciate it. You know, could you just give us some perspective on kind of the broader cyclical environment? Would you say there's anything at all going on other than normal, and maybe break that down by sub-category a little bit? And I'll leave that as both questions and pass from there. Thanks.

Okay, Jim. I think that, you know, we don't have any unique insight into what's going on from a cyclical standpoint. I think that the quarter that we just delivered, you know, we feel good about. If you look at the middle of our range into third quarter, 8% if you're excluding legacy wireless, is another good quarter on a year-on-year basis. If you look at a lot of the signals that one would pay attention to, such as inventory inside of the channel, we took several days out of inventory in the quarter as we had a higher percentage of revenue supported by our consignment programs inside of distribution. And if you look at cancellations, they continue to remain at very, very low levels. We think inventory at customers remains in check as well. So -- and then if you look at our lead times, they continue to remain stable. We'll always have some pockets where they may move out temporarily. But with our capacity and the position of our inventory, we feel really good to be able to continue to support that. So you have a follow-up question? Jim Covello – Goldman Sachs: The sub, the verticals, any differences by vertical?

No. I think that from a year-on-year standpoint we had, if you look at industrial, we had growth in nearly all the sectors, so, very broad-based from that standpoint, led by areas like factory automation. Automotive we had double-digit growth, and all of our sectors led by ADAS or Advanced Driver Systems. Personal electronics was down, but it would have been up had it not been for legacy wireless. Our enterprise systems we saw growth, driven by projectors and servers. And coms equipment was up due to wireless infrastructure. So, really broad-based growth on that stand. Okay, thanks. We'll go to the next caller.

Thank you. We'll take Stacy Rasgon with Sanford Bernstein. Stacy Rasgon – Sanford Bernstein: Hi guys. Thanks for taking my questions. First, I want to dig in to your, I guess, your margin trajectory. Your incremental operating margins for analog and embedded processing both exceeded 100% sequentially in the quarter. Your analog business also has about 100% incremental operating margins year over year. I guess the strong performance, particularly in analog, surprises me a little bit. I thought most of the cut you did were in embedded processing. So I wonder if you could give us some sort of view on what's driving that strong incremental margin, how much of that is sort of gross margin expansion within the businesses versus OpEx. And what do you sort of see as sort of sustainable levels of incremental operating margin going forward as the revenues in the businesses continue to grow?

Yes, Stacy, the fall-through was very good both on a quarter-over-quarter and year-over-year basis, certainly at the company level and at the segment levels. The -- I'd mentioned I guess on the first call from John that, from an OpEx standpoint, spending remains disciplined across the company. So while the restructuring action that you referred to will disproportionately benefit embedded processing versus other areas of the company, some of that will also -- some of that restructuring will benefit other areas of the company as well. For example, we mentioned resizing our sales team in Japan. And that, not just the sales team in support of embedded processing but also those in support of some of the other business units. So you get a little bit of benefit there. But then really you got just disciplined spending across the company, as frankly people are spending only what they need to support the growth of the business. On a go-forward basis, again we expect OpEx to be down a little bit sequentially, primarily for the benefit of embedded processing. That'll be true for both the third and fourth quarter. Beyond that, I don't know if that gives you any more specific forecast on OpEx other than, by the time we reach the end of the year, we will enter next year with OpEx about, total cost savings from the restructuring, about $130 million, about 85% of that coming off OpEx. Stacy Rasgon – Sanford Bernstein: Got it. That's helpful. Yeah. For my follow-on, I want to dig in to gross margin just a little bit. So if I take that, you know, half of the $130 million kind of hitting you or 85% hitting you by next quarter, it sounds to me like you're guiding OpEx down about 2%, which would give me an implied gross margin guidance at the corporate level, call it into the upper 57%, so, you know, up maybe 500 basis points, maybe a little more, off from Q2. So can you give us just some view of what's driving that gross margin expansion? Is this just further efficiencies, manufacturing efficiencies, is this just depreciation coming down? Is this something also to do with mix or pricing, or just overall revenue leverage as revenues grow?

You know, I think it's a little bit of all of that, to be quite frank, Stacy. The -- if you take a look at, as we go forward on gross margin, you know, there's multiple drivers inside the portfolio, not the least of which is being able to load or fill up our very cost-effective factories. We also get improved product mix, especially as we see industrial and automotive becoming a larger portion of our total revenue mix. And finally, we get the benefit from depreciation as it begins to roll off, being that the CapEx is running substantially below depreciation now for quite some time. Again just to remind, the depreciation was about 7% of revenue over the last 12 months and CapEx is expected to around 4%. So, you know, we get some closure that will start happening over the next couple of years. Depreciation this year is expected to be down a bit versus last year, but it'll start to climb more rapidly next year. So you got a number of different things going on, not just next quarter, that will move gross margins up again, as you indicated, but should also continue to benefit us as we look out into the balance of the year and going into 2015.

Great. Thank you, Stacy. Operator, we can go to the next caller please.

Thank you. [Operator Instructions] We'll go to Blayne Curtis with Barclays next. Blayne Curtis – Barclays: Hey, good afternoon. Thanks for taking my question. Wondering what utilization was in the quarter and where you expect that to go. And then the second part of my question, as you look into December, typically seasonally softer period, things seem fairly normal. I was wondering your thoughts on just seasonality into December.

I'll mention -- I'll talk to utilization and Dave will talk to seasonality there. But, you know, Blayne, we look at utilization 2Q to 3Q, we don't expect that to really change all that much, as we, you know, have our wafer starts not too far off from what we saw in the first quarter and what we -- excuse me, the second quarter, and what we saw in the second quarter will come out of the factory in the third quarter. So overall utilization, unlikely to change all that much as we look into the near term.

And from a seasonality standpoint, Blayne, essentially we're going to let you determine what you believe seasonality is. And just a few things to consider as you go through that, obviously calculator revenue is usually strongest in second quarter and third quarter with the back-to-school buying period, and you saw that in our results this quarter. And our semiconductor growth is typically relatively stronger in the second and third quarters compared with the first and fourth. So, outside of that, we don't put much credence on a specific sequential growth number just because the numbers around that have been so unpredictable, and we're just going to step back from trying to provide any appearance of doing that on it, because it'll appear that we're endorsing one number over another, so. You have a follow-on, Blayne? Blayne Curtis – Barclays: Just wondering, maybe in the September quarter, a similar question, whether outside of calculators there's any areas of particular strength or weakness. You had mentioned com had been a strong point. Is that sustaining? And then it seems like autos as well have held in there better, usually seasonally weaker second half, but seems strong. Any comments there?

Sure, yeah. Other than the top-line [[ph] guidance, we don't really get into strength or weakness by sector. If there's something very unusual going on, like with our legacy wireless, of course we've given visibility into those types of things in the past. So with that, we'll move to the next caller.

Thank you. We'll move to Doug Friedman with RBC Capital Markets. Doug Friedman – RBC Capital Markets: Hi guys. Thanks for taking my question. And before I begin my question, Ron, it's been great working with you, and best of luck in retirement, before forgetting to say that. So going into the numbers, if you could talk a little bit maybe about your strategy to maybe increase free cash flow. When we look at sort of what's going on with your balance sheet, you're getting pretty close to getting a debt level that might be good to carry that debt and stop retiring it or maybe just start rolling it forward. Can you maybe talk a little bit, Kevin, about your strategy there?

Well, the strategy is less about debt and more about the actual product portfolio and the markets we're going after, Doug. It's really about being sure that we're thoughtful on how we spend our research and development dollars, and we spend them on products that we expect to have very long revenue life streams off of them. And then in correlation with that is to continue to be opportunistic and to expand our manufacturing capacity at times when you may least expect us to do that, because we can get it for costs that are very low. Those are our two biggest levers for expanding cash flow. As it relates to debt going forward, as you observed, we just paid off in debt of $500 million this year. We raised $500 million in the first quarter and repaid $1 billion in the second quarter, so a net reduction of $500 million. We still have on the balance sheet total debt of about $4.625 billion, and those actually have lives that extend all the way out to 2023. So I don't see balance vanishing from -- debt vanishing from our balance sheet anytime soon. On a go-forward basis, of course our buyback, I think that was one of the things you were asking about on the free cash flow, is really a function of what our calculation of net present value of the company is. And so long as we see that the intrinsic value of the company exceeds the market value, we'll continue to be buyers of the stock. Doug Friedman – RBC Capital Markets: Okay. And --

Doug, you have a follow-up? Doug Friedman – RBC Capital Markets: Yeah. What role will M&A possibly play, and when do you think is there an opportunity to reenter the M&A markets? You guys really have not been active since the National Semi deal has closed.

You know, when it comes to M&A, again it's about product strategy. Our bias is likely to be to find an opportunity that would be attractive to us. Our bias would probably be in the analog space as opposed to embedded processing. And frankly, aside from the technology that we acquire and the product opportunity that we acquire, being attractive, meaning long revenue streams, it would also have to work for us mathematically, meaning that the price at which we could acquire it would have to be such that we could get a return on our invested capital inside of three to four-year period. And we're pretty disciplined about that. Some of the opportunities that some have speculated on here in recent months are such, if we do the math, it's very difficult to overcome that hurdle of making sure its ROIs be accretive. And we think that's very important if we're going to actually generate excess cash flow and free cash flow off of any acquisition in the future.

Okay. Thank you, Doug. Operator, next caller please.

Thank you. We'll take Joe Moore with Morgan Stanley. Joe Moore – Morgan Stanley: Great. Thank you. I wonder if you could talk around the strengths that you alluded to in communications equipment in Q2. Is that macro base stations or is there some other element of that?

Yeah. The majority of that is -- would be macro base stations. If you look at investments that we're making longer term, that will include small cell, but we really don't have measurable revenue on products like that at this point. Joe Moore – Morgan Stanley: Okay, thanks. And as part of the embedded restructuring that you had done, it sounded you were pulling back on some of the investing in that category. Does that your trajectory at all or does that mean you'll participate less in base stations over time?

No. I think if you look at those investments and those product cycles, they tend to have -- they tend to be very long in nature. So the areas that we've pulled back tend to be areas that we now believe are either mature or in the process of maturing, and yet we continue to invest in areas that will drive growth in the future as much as small cells, as I indicated before, so. Thank you, Joe. And we'll go to the next caller please.

Thank you. We'll move to Ambrish Srivastava with BMO. Ambrish Srivastava – BMO Capital Markets: Hi, thank you. A question on CapEx, Kevin. Your capital intensity has been fairly below the 4% that you had said that you would be. What should we be modeling for the remainder of the year? And more importantly, what would cause it to move and check [ph] upwards?

Yeah, Ambrish, you know, again I think for purposes of your models, I would just assume about a 4% of revenue kind of planning. It's going to get you pretty close to probably the right answer over time. In any one quarter I'm sure it's going to be off, but it will be okay for -- on a rough annual period. Anything that might cause us to go above that could possibly be if we had a sudden opportunity present itself, we could add capacity at a significant cost savings. We wouldn't let than 4% artificially restrain us from taking advantage of very inexpensive manufacturing capacity which would benefit our future free cash flow. But right now I don't see that on the horizon, so again for your model I'd probably just use 4%. Ambrish Srivastava – BMO Capital Markets: Okay. And my quick follow-up, Dave, you mentioned that consignment as a percent of sales has changed. What has it gone back up? And I think I remember it used to be in the mid-40s before?

Yeah. If you look overall, our consignment as a percent of revenue has moved up a little bit from about 45% to about 50%. If you look inside of our distribution channel, so about 55% of our revenues are -- go through distribution and about 55% of those revenues are supported by consignment. So that's really the part that's beginning to drive that higher and our inventories that's owned by distributors lower. So, thanks, Ambrish, and we'll go to the next caller please.

Thank you. We'll take our next question from Christopher Rolland with FBR Capital Markets. Christopher Rolland – FBR Capital Markets: Hey guys. So your extra capacity, you know, at the bottom of the cycle may have been a bit of a burden but can be very valuable as the cycle heats up here. So do you think we're at the point in the cycle where you guys are benefiting from that extra capacity either front-end or backend? Do you think that some of your competitors might have a lack of capacity there, might be switching to your products?

Christopher, clearly we've had this strategy in place now for a number of years where we're acquiring as inexpensively as we can manage to in advance of our needs. The most recent example was the acquisition of an assembly test operation in Chengdu, China that I commented on in the call that we're now bringing online. And so that has certainly been a benefit to us, to allow us to have very stable lead times on behalf of our customers, and to be able to meet any short-term spikes or inside lead time requests that customers had had. You know, broadly speaking, across the industry, it does break [ph] us that many people perhaps have chosen not to invest in as much capacity as they might have in the past. It's unclear to us just what that may mean going forward. But at least from our standpoint for our customers, they can have confidence that we have ample capacity to meet their need.

Yeah, and Chris, I'll add also, you know, we've taken other actions that utilize that capacity different points of demand. And so one thing that we've done, and you can see it on the balance sheet, is that in periods of weaker demand we'll actually build finished good inventory as well as aging wafers to support future demand on low-volume products. And so it may take 20 minutes, 30 minutes to set up a piece of assembly test equipment, and you may run only 10,000 units on that part, and it may take up a half-hour or an hour. It doesn't take much longer to build either, you know, six months of demand or a full year of demand or a year-and-a-half of demand, and put that on the shelves. So when demand actually gets stronger, we've got the capacity open and available to support that stronger demand. So we feel good to be able to support really any demand environment that we see in the future. You have a follow-on, Chris? Christopher Rolland – FBR Capital Markets: Sure. The other segment, it was above the Street, also above seasonality. Is that just calculators or is there something else there?

Yeah, that's really just calculators, just seasonally strong in the second and third quarter for the back-to-school selling season, and then is typically weaker in the fourth and first quarter as kids are already in school and have their calculators.

Thank you, Chris. Now we'll go to the next caller please.

Thank you. We'll take the next question from Vivek Arya with Bank of America. Vivek Arya – Bank of America: Thanks for taking my question. And good luck to both Dave and to Ron. For my first question, I'm curious, what are under-utilization charges running at right now? And at what level of utilization can they go to zero?

Yeah, Vivek, they were about $56 million last quarter, down from the prior quarter which was about $105 million. And that's a bit of a theoretical question as to, you know, what revenue it would take to get to zero. Clearly the mix of products flowing across the various manufacturing flows are going to have a direct bearing on that. So if we had much higher demand but it was on a flow where we didn't have a lot of excess capacity, it wouldn't help much on the under-utilization. So our job on that is to make sure that all of our flows maintain open capacity. And I'll remind everybody again that the under-utilization, we don't let that distract us. It's an accounting adjustment that affects -- nothing happens to free cash flow. We are completely focused on free cash flow as the way to return value to our shareholders.

Yeah. And Vivek, I'll also mention that that charge is -- less than half of it is actual cash, so -- or about half of it is non-cash. So, really doesn't impact our free cash flow by having that open capacity. Do you have a follow-up? Vivek Arya – Bank of America: Yeah. So I guess that means open capacity you have is more source of keeping CapEx low and free cash flow rather than being a big source of expanding gross margins. But maybe on to my second question, on the demand environment, can you give us a sense, I think you mentioned end-markets, but what about the geographies, are there certain geos that are better or worse than what you thought two months ago? Thank you.

Okay. So let me follow up on the last one, just to make a clarifying point. So as Kevin talked about, there are certain factories that, you know, and you've seen some competitors, some of the manufacturers in Taiwan run above 100% capacity. So, you know, when we've got factories or flows that run above 100% or above the theoretical level that we've got from utilization standpoint, we'll continue to get a benefit, and we still may have an under-utilization charge. So, don't think that that -- all you have left is revenue growth, that small number that's an under-utilization charge. So, just wanted to make that clear. So from a regional standpoint, year over year, Vivek, we saw Asia, Europe and Japan were up. The U.S. was -- it was roughly even from a year-ago standpoint. So with that, we'll get to the next caller.

Thank you. We'll take our next question from CJ Muse with ISI Group. CJ Muse – ISI Group: Yeah, good afternoon. Thank you for taking my question. I guess first question, once OpEx normalizes in calendar '2014, how should we think about growth in OpEx relative to top line into 2015 and beyond?

Well, CJ, that's a long way planning you're doing there for a semiconductor analyst. You know, from an OpEx standpoint, I think that it will probably grow at least with the change in paying benefits that you'd expect on a year-over-year basis, so you'd certainly start there. And then to the extent that we see additional opportunities that we may want to invest in from an R&D standpoint or additional sales opportunities we may want to expand, it may go a bit beyond that. But typically you're going to see -- I think last year, paying benefits increased, average, around 3%, maybe 4%, depending upon the average from around the world. So that's what I'd probably use for planning. CJ Muse – ISI Group: Okay, helpful. And I guess as a follow-up, question on the cycle. It looks like your guide for Q3 year over year is slowing a bit, and would love to hear your thoughts on where we are here. Will we -- rebuilding inventory downstream and now we're normalizing and now attracting more with GDP and/or, you know, are there any signs of re-acceleration in GDP or in demand in any point geographically or product life, et cetera?

Yes. CJ, I think, you know, on that front, we really don't spend a lot of time looking at the cycle, and our strongest indicator demand of course is the view that we get from orders and the forecast that we get from our consignment customers as they'll give us forecast. This forecast of course can change. And, you know, we just turned in a good growth year on year. If you look at the year-on-year growth, that's 6%, 8% without legacy wireless, continues to be -- continues to be strong, at the midpoint of the guidance range, yes. And so, you know, that's what -- that we believe all those indicators are showing us. As I talked about before, things like, you know, we're building demand in the channel or downstream, it actually took inventory out of the channel as more of our distributors moved to consignment, and as the products that were on consignment actually grew faster than the other products. So we really, you know, for a little over four-and-a-half weeks of inventory that's in the channel, we consider that to be lean, but probably will be running in what is the more of a new normal range. So those changes in inventory downstream because of the consignments that we've got are going to have less of an impact on our revenues as what they've had in the past. So with that, we can go to the next caller please.

Thank you. We'll move to David Wong with Wells Fargo. David Wong – Wells Fargo: Thank you very much. Could you give us some idea of how your policy of returning the bulk of your cash to shareholders affects future acquisition policy? Do you have expectation, your acquisition activity will be relatively low or that you'll be working primarily in stock purchases?

Yeah. David, I think the way to think about it, it relates - it kind of goes back a bit to a question that was asked earlier about, I believe by Doug, on debt on the balance sheet, from an acquisition standpoint, again, we'll look at first the strategic bit, make sure it makes sense, and then second, to make sure the numbers actually work on the return on the invested capital that we put into it. Beyond that, the way we'd pay for it is probably very similar to what we did this last time, when we bought National Semiconductor, we used some cash on hand but we actually released the strength of the balance sheet and went out to the bond market and issued quite a bit of debt which supported that acquisition. As we slowly retire debt as we had been and continue to over the next foreseeable future, that just opens the balance sheet back up and makes it available again to take on debt if there's an attractive ROIC accretive acquisition out there. So that's where I would -- that's how I would think about the strategy going forward. I don't see any of our cash management strategy having any interference whatsoever with our ability to continue to acquire when it makes sense. David Wong – Wells Fargo: Great. Thanks.

Thank you. We'll take our next question from William Stein with Suntrust. William Stein – Suntrust Humphrey Robinson: Great. Thanks for taking my question, and congratulations on the good quarter and guide. I'm hoping you might comment on the margin progression in the embedded segment. It seems to -- progressed a bit better and it looks to us as though perhaps the restructuring benefits that you're targeting are coming in a bit earlier than you previously expected.

Yeah. You're exactly right on that. They have started to come in a bit earlier than we planned, but we still have a long way to go. We will see additional benefit as we move in the second and third quarter, as we talked about -- excuse me, third and fourth quarters as we talked about earlier, as we see more of the costs begin to come out of there. But frankly while that's certainly helpful in moving the profit performance of that segment forward, it is not going to be done when that's over with. There's a lot more work to be done there, and work is really on the revenue growth side. The operating profit clearly is below what we think the potential for that segment is, and that management team is very focused on driving results to get that profit up to where it should be. And really after the restructuring actions are complete by the end of this year, it's really going to be all about revenue growth. It actually has been a lot about revenue growth as evidenced by the fact that that business has successfully grown for seven quarters in a row on a year-over-year basis, and we expect to see more of that as we go forward. So that business can grow its way into cost structure [indiscernible] -- William Stein – Suntrust Humphrey Robinson: That's helpful. If I can follow up just a bit in that. I think there's one area of that business where you're kind of under-hitting relative to your weight in the industry, and that's micro-controllers. I know that you've invested in this area in the last year or two. I'm wondering if you can talk about, you know, the strategy in terms of products, end-markets, features that might lead to accelerating share gain in that category.

Yeah, maybe I'll make a comment, and if you'd like to add in, Kevin. Yeah. Well, as you know, that's an area that we decided to step up investments going back several years ago now, back 2010, 2011, in that period. And the expansion of investments included both development teams to produce more products and begin to broaden the portfolio. And second is in application support, basically supporting customers and design-ins. So we feel really good about the progress that we've got. We have several years that we have gained share inside of micro-controllers. I think that we still -- I think some industry analysts will have us at like a number six position inside of the market. So we've got plenty of room to go. And those are the types of markets that take a while to begin to get traction, and somewhat like a flywheel that you keep investing, keep making progress, and that progress begins to snowball. From a product standpoint, we're really building out a broad portfolio. We're focused on catalog products, primarily going into industrial applications. You'll note inside of embedded processing we also have connectivity products. So there we support about a dozen different wireless standards. So we're getting very good traction and you can go to our website today and be able to find reference designs with micro-controllers ranging from $0.25 up to a couple of dollars using all of those different combinations of the connectivity products. So we feel really good about the progress. As I said in the opening remarks, embedded processing has had seven quarters of year-on-year growth, and a big part of that is driven from micro-controllers. Okay, thank you very much, Will. We can go to the next caller please.

Thank you. We'll move to Ross Seymore with Deutsche Bank. Ross Seymore – Deutsche Bank: Hi guys. Before my questions, also want to just pass on the congrats to Ron and to Dave on the promotion. Best of luck to both of you. I guess, Kevin, one clarification for -- that I wanted to get from you if I could. What was the starting point off of which that $130 million in savings exiting this year was going to be achieved?

Ross, we announced that action with our first quarter result, and we took -- excuse me, the fourth quarter and first quarter results, as I recall. On our fourth quarter, we took the charge, and first quarter, for embedded processing. So that's the start there. In the second quarter we took the charge for the Japan restructuring. So it's a bit of a mixed start, if you will. So it'd be a little hard to do a direct correlation, but again the math you should be using is $130 million annualized savings by the time we end the year with 85% of it coming out of OpEx. Ross Seymore – Deutsche Bank: Great. And I guess as my follow-up, in the past, and I don’t know if you guys are going to do this anymore now that you've started to split out the revenues in a different way, but in the past, in the middle of the year you would say what the revenues by end-market did midyear. Is that something that you can give us now?

Yeah, Ross, we're really just planning on getting those numbers on an annualized basis, as I answered Jim's question earlier, you know, we'll provide revenue on a quarterly basis, just a color on what's happened in each of the markets. And that's what we've decided to move to. So with that, we can move to our next caller please.

Thank you. Our next question comes from Tore Svanberg with Stifel. Tore Svanberg – Stifel Nicolaus: Yes. Thank you, Ron, and best wishes in your retirement. First question, you talked a lot about strength being broad-based, but was there any segments of markets in Q3 that are relatively weak, you know, whether that's seasonal or even secular [ph]?

From an end-market standpoint, Tore, the only market that we saw a decline was in personal electronics, and that was -- I'm sorry, was it third quarter or second quarter? Tore Svanberg – Stifel Nicolaus: Q3 guidance.

I'm sorry. Yeah. Yeah, again, I somewhat addressed that, that we're really not trying to get into the color by end-market or our product segments or that. We realty just focus on the top-line number overall. Did you have a follow-on, Tore? Tore Svanberg – Stifel Nicolaus: Yeah, that's fair. My follow-up is, did you have a change in your distribution strategy at all in the quarter, or are you planning it? I'm thinking, you know, are you going to go to certain customers more of a direct business or?

No. We haven't had any change in the quarter. I can't say that we had changes to our business arrangement with distributors, you know, on a periodic basis over the years. And for example, if we just go back a few years ago as an example, we implemented the consignment program with distribution. So now we've got more than half of our overall revenues supported by distribution. So they're going to continue to be a very important part of our business. We're focused on growing our revenues overall, which will mean growing our revenues with them. As we've invested in catalog products and in industrial markets, we want to work with the distributors to be able to broaden our reach with customers. So we will do things that will optimize both our resources and theirs, but any specifics of details that we've got going on with changes we just won't get into. Okay? With that, we’ll go to the next caller please.

Thank you. We're going to take our next question from Srini Pajjuri with CLSA Research. Srini Pajjuri – CLSA Research: Thank you. Dave, just looking at the end-market breakdown one more time -- I apologize, I know this question has been asked several times. You gave us the year-on-year trends. Can you also talk about sequential trends from Q1 to Q2?

Sure, yeah. I think aside from the increase in calculators, communication, and personal electronics actually grew the most, and we did see a benefit in personal electronics, led by a strong quarter in PC and notebooks. We did see industrial, enterprise systems and automotive all contribute to the growth sequentially. So if you look underneath that, and industrial as an example, we had -- we've got over a dozen sectors inside of industrial. So with that we saw areas like factory automation, control, smart grid, motor drives [ph] drive that. In automotive, on a sequential basis, we had growth in all sectors overall, and that was led by ADAS. So those are the things that drove the revenue in the quarter sequentially. Srini Pajjuri – CLSA Research: Okay, great. Thank you. And then on the connectivity fund [ph], Dave, I think you mentioned you participate in a number of different standards, if I recall correctly, you sold the smartphone business a while back. My question is, is there anything preventing you from participating in the wearables market, if you think about the watches, et cetera?

No. In fact, you know, you'll -- I actually wear some of those products to track my steps, and it has quite a bit of TI contact [ph] both from power management standpoint and other analog products, as well as connectivity. So the beauty of having a catalog portfolio is that the incremental cost to engage a customer, the tools and the support are all in place. So we can very readily and very easily support markets like that overall. So thanks, Srini. We'll go to the next caller please.

And the next question comes from Ian Ing with MKM Partners. Ian Ing – MKM Partners: Yeah, thanks. Just a clarification on being opportunistic in acquisition of manufacturing assets. Are you -- is it for taking a long view on increasing capacity or are you removing bottlenecks in the manufacturing flow? It looks like Richardson and analog, there's still a lot of headroom here.

Yeah, Ian, it can be a little bit of both. If we see bottlenecks popping up some place and we're able to go ahead and pick up equipment inexpensively, or if we anticipate that a flow is going to become a bigger, more important revenue source in the future, we can go ahead and pick up for that. Or just outright new factories for example, and what's what we did when we bought the assembly test site in Chengdu, China. It was an entire that we had bought in that case. So we'll play -- we'll take advantage whatever opportunity presents itself, especially if the finances are compelling. Ian Ing – MKM Partners: Great. And this commentary on connectivity growing faster within embedded, I'm assuming, you know, we're talking about internet of things and wearables, sockets [ph] that could attach with micro-controllers and power management, and do you have a sense of IOT [ph] mix, how much of it is more like industrial, military, first responder type of applications with long cycles?

Yeah, if you look at our -- the product portfolio, we actually support a dozen or so different wireless technologies, so, whether you need Bluetooth flow energy or WiFi, we've got GPS, we have multiple sub gigahertz standards, including things like ZigBee. So whatever label that you want to put on to that, essentially if things are getting smarter and more connected, we've got a broad range of catalog products in which to show the customers, and we can be fairly agnostic on how to solve their problem and bring really the best bit of the technology to whatever markets they're trying to enter. And oftentimes we'll find manufacturers that have, you know, never had any wireless experience, so they'll want to go to the web, they'll want to contact our local apps people, and get support for that product, and they really don't have to become RF experts. And so they can focus their time on other things. And that's a combination that's working real well. Okay. With that, we can go to the next caller please.

And the next question comes from Chris Caso with Susquehanna Financial Group. Chris Caso – Susquehanna Financial Group: Yes, thank you. I wonder if I could go back to some of your earlier comments with regard to the consignment revenue. I guess just to clarify that, I guess what you're saying is the higher percentage of fulfillment through consignment that you're expecting for third quarter is what's pulling down the book-to-bill. And I think in the past you've talked about your book-to-bill for the non-consignment portion of your business. Could you tell us what is and perhaps that's a better indicator of the end-market booking trends?

Yeah, on the -- what I talked about, Chris, was that we've had a conversion of more products into consignment going to distribution. And so that suppressed the book-to-bill a little bit that we just came out of the quarter with. If you keep in mind that -- oh gosh, how much of our revenue is going through consignment now? Probably 50% for the total company is going through consignment. What that really means is that book-to-bill for that consignment revenue is by definition one. And so the book-to-bill that we reported at the company level really just applies to the other half of the revenue. So that 1.01 that we just reported in very simple terms will be 1.02 because it really applies to non-consignment portion of the business. And again that was suppressed somewhat as a result of a conversion from a previously directly sale to a consigned arrangement.

Yeah. And Chris, I’ll just add, in second quarter, you know, we delivered a 10% sequential growth and our book-to-bill was 1.03. You know, if you look at orders, they were up 9% sequentially. So, you know, that book-to-bill number is just one number, and as Kevin said, it's got some noise in it. So it's one consideration that we look at as we put together the demand forecast. You have a follow-on, Chris? Chris Caso – Susquehanna Financial Group: Yes, sure. For my follow-on, I guess I'll ask a little bit of a bigger picture question. TI over the years has always been a cyclical company, just the function of the industry. But as you guys are operating the business a little bit differently now, your focus is on some different end-markets. Just interested in your view of, you know, going forward, what does that do to the cyclicality of TI as we go over the next couple of years?

Yeah, I think you're spot-on, Chris. As you look at the mix of what's going on inside our portfolio, in years past, as you observed, we had some big verticals, certain end-markets you might be able to take a look at, and our business cycle with that end-market in addition to any so-called semiconductor cycle itself. Now as we have industrial and automotive becoming a larger and larger percentage of our total revenue and the market to which our products are being shipped into, arguably we would see -- likely see less impact as a result of big vertical fluctuations and begin to see a little bit more correlation between TI's growth going forward and the global GDP as a whole. So we'll probably track more to the economy as opposed to a particular single end-market. That's not to say that we escaped the semi-cycle if there still is one. It's simply to say that our fortunes are more tied much more broadly than they have been ever in the past, and therefore they're much more reflective of, you know, how does the overall global GDP tend to expand over time.

Okay. And with that, operator, we have time for one last caller.

Thank you. Our final question comes from Timothy Arcuri with Cowen & Company. Timothy Arcuri – Cowen & Co.: Thanks so much. Guys, based on your current schedule of depreciation, and if you assume that CapEx remains at roughly 4% of sales, when is depreciation going to hit the level of CapEx? Is this is a 2016 event or is this sometime beyond that?

Yeah, Tim, it's unlikely that we would see CapEx and depreciation converge prior to 2016. So that's probably a good starting point for you to build your models with.

You have a follow-on, Tim? Timothy Arcuri – Cowen & Co.: Okay, great. Okay, great. And then a question about gross margin drop-through. You know, the number has been a little bit above 75% the last couple of quarters. But is that still the right number to think about going forward for the gross margin drop-through? I know people were talking about operating margin drop-through, but I'm wondering about gross margin drop-through. Thanks.

Well, certainly we're operating at a higher level now, Tim, than we have in years past. And we talked a number of years ago about a long-term -- a long window of time that that fall-through during the course of a business cycle historically has been a pretty good indicator to follow. But in any one time period, it's always been -- it doesn't really apply very well. More importantly, going forward we'll operate into much higher level of gross than we have ever in the past, and I would expect that to continue to drop through quite richly, and importantly, drop through as free cash flow, that we can continue to return to our shareholders in the form of dividends and stock buyback.

Okay, great. And with that, I will turn it over to Ron to make some final remarks.

Okay. As we wrap this up, let me just close by saying the past 32 years working at TI really has been a good -- I'd say great ride. For Dave and Kevin, let me simply pass on the request and words of advice that had been passed down from generations of TI managers, and that, please don't screw it up. Thank you all for joining us. A replay of the call is available on our website. Good evening.

That does conclude today's presentation. We thank you for your participation.