Toshiya Hari: Hi, guys. Thanks for taking the question. I was hoping you guys could elaborate a little bit on the pricing environment. I think many of us have been picking up evidence of the pricing environment, particularly in Asia, intensifying over the past couple of months or a couple of quarters. You don’t really give pricing as a reason for gross margins to be down sequentially and year-over-year, but what kind of role is pricing playing? Has your strategy changed at all, whether it be on the analog side or MCU side?
Dave Pahl: Yes, so thanks for that question. Always helpful to be able to clarify that. First, I’ll just start with pricing doesn’t move quickly in our markets, nor is it a primary reason that customers choose our products. So we’re typically agreeing to pricing that’s out six months or on an annual basis for the following year. And so, we’re continuing to move through that. Our pricing strategy, as we mentioned before, hasn’t changed. So we’re regularly monitoring what’s going on with pricing. We always have a goal to remain competitive. And certainly a supply and demand has come into balance, or more closer to balance. We’ve said for some time that we would expect that pricing to behave like it has over the last couple of decades, meaning, low single digit decline. So as we move out in time, that’s what we’re beginning to see. So really no changes other than going back to what we’ve seen over the last couple of decades. You have a follow on?
Dave Pahl: Yes, I do. Thanks, Dave. So I guess over the past 12 months, OpEx is up about 10%. Revenue is down about 10%. So as we think about calendar 2024, I was hoping you could give us a hint as to how to think about OpEx. And Dave, I think you used to give, or you had given multi-year guidance on depreciation. How should we — to the extent there are any updates, how should we think about 2024 and 2025 depreciation? Thank you.
Rafael Lizardi: Yes. No, thanks for the question. I’ll address both OpEx and depreciation. So on OpEx, we’ve held a steady hand on OpEx for many years and we’ll continue to do so. So as an example, to illustrate the point, from 2017 to 2021 we ran at about $3.2 billion of OpEx. And then in 2022, it ticked off to $3.4 billion. And now we’re running at about $3.7 billion on a trailing 12-month basis. So you can see the steady hand and just a bit of an increase over the last few years. And that’s, as we have has a steady hand with our hires, new college hires, and as we make investments to continue to strengthen the company in the case of R&D, the broad portfolio in the case with sales and TI.com on the reach of our channels. Then on depreciation, so our CapEx expansions are unchanged.
We talked about that, addressed it with previous callers. So $5 billion of CapEx per year for the next 2023 and three years beyond that, as we have been talking about. Now when it comes to depreciation, as time has passed, we have more clarity on what to expect on depreciation. So for fourth quarter, let me start fourth quarter of 2023, we expect depreciation to increase on a quarterly basis at about the same rate as what we have been seeing throughout 2023. So essentially, we’re going to end the year just shy of $1.2 billion, maybe [11.90, 11.80, 11.70] (ph), somewhat in that range for the year. As an update for 2024, we expect depreciation to be between $1.5 and $1.8 billion, and for 2025 to be between $2 billion and $2.5 billion.
Toshiya Hari: Very helpful. Thank you so much.
Dave Pahl: Thank you, Toshiya. Now we’ll go to the next caller, please.
Operator: Our next question comes from the line of Ambrish Srivastava with BMO Capital Markets. Please proceed with your question.
Ambrish Srivastava: Hi. Thank you. I had a question on factory loadings and inventory. So correct me if I’m wrong. I thought that thinking up until now has been we’ve got to be ready for the upturn and so, we’re building inventory for that. And you have highlighted that over several quarters. Look, we’re not — we don’t have a target, but you did raise the target in terms of how much inventory you want to carry. So this change, which I want to make sure I’m reading it right, that you’re taking underutilization charge because you’ve reached a desired level of inventory. Is that a reflection that your expectation for the recovery is changing, i.e. you’re expecting a slower ramp in revenues than what you perhaps were thinking a couple of quarters ago?
Rafael Lizardi: Let me start and Dave if you want to chime in. But we have targets for where we want inventory levels to be and that goes by product and by state of finish of those products. So for example, of the 80,000 different products that we have, more than — the vast majority of those are catalog, meaning, they sell to many, many customers. They last for a long, long time. So we can have so many years of inventory at the chip level or finished goods level, in many cases, at both levels, and that’s based on our internal process to set those. So those are the — and in aggregate, that’s added up to $4 billion to $4.5 billion, and that’s what we’ve been kind of guiding to and we’ve been talking about. But what really matters is what happens at the very specific level on a part-by-part number.
So as we have near those levels, and you see our inventory level, our inventory levels have increased about $500 million per quarter for two quarters, and then this last quarter, $179 million. So clearly, there is a deceleration of that growth, and that’s on purpose because as we near those levels, then we have slowed down the factory starts, that goes primarily with the fab, but also with the assembly test operations. And then we — that slowdown will continue into fourth quarter. So they reversed the other side of slowing your factory loading is the underutilization charges. So as we near those levels, we are ready to be on the other side of this cycle for the upturn. And of course, it’s not just inventory. Capacity is really the bigger driver, but you know what we’ve been doing on that now for a number of years and we’re investing, but inventory really bridges that gap as an upturn happens until you get your factories really cranking at a higher level.
Dave Pahl: Yes, and I’ll just add and bring back to our capital management that we’ve been saying for, I think, over a decade now, our objective with inventory is to maintain high levels of customer service, keep our lead time stable, keep product availability really high. So as we talked about earlier, ti.com, really, essentially all of our catalog products are available for immediate shipment. Lead times are stable. And so, we are prepared for that next upturn when it does come. You have a follow on, Ambrish?
Ambrish Srivastava: Yes, quick one Dave. Just looking at the year-over-year in the fourth quarter, double-digit year-over-year decline, and I looked back many years. There have been other cycles where we’ve had multiple quarters of negative, but not that many times we have seen a double-digit kind of four, five quarters. I just wanted your perspective on what you folks are seeing this cycle versus and I know no cycle is the same, but just kind of give — just help investors think about how to think about that double-digit four quarters and could be potentially longer year-over-year decline? Thank you.
