Key questions and answers from the second quarter fiscal 2008 earnings call conducted by Texas Instruments on July 21, 2008.

John Pitzer (Credit Suisse): Looking at the September quarter, what kind of gross margins we should be expecting and how much of the margins in the quarter are going to be negatively impacted by utilization rates coming down in order to control inventory?

Kevin March: We won't be forecasting gross margins specifically but I'll give you some other numbers to work with. We've already given the range on revenue and EPS. We still expect our R&D to be about $2 billion for the year and our depreciation to be about $1 billion for the year, with CapEx continuing to be about $900 million for the year. You can therefore work into the math there what that may constitute on how you model our revenue expectations. However, with the continued efforts to reduce our overall inventory, we continue to expect the wafer fabs to be less than loaded and so that will put some pressure on our gross margin moving forward.

James Covello (Goldman Sachs): Can you comment on the external production in terms of wafer start requirements to the foundries for the wireless business?

Kevin March: We had pulled back the loading in the foundries in that point in time to bring those inventories down because we had late demand reductions at the end of our first quarter in the wireless space. We've progressed on that front and have loaded the foundries in order to support our expectation for revenue in the third quarter.

Uche Orji (UBS): Looking at this current quarter, can you give more insight as to what happened to mix within wireless and any comments on ASB business units?

Kevin March: It was very similar in terms of mix to what we expected at the mid-quarter in that 3G rebounded from the very low level that we had in first quarter. First quarter was very weak specific to 3G.
On the more legacy products, GSN, GPRS, and probably EDGE, if you just take those in combination, there were declines both sequentially as well as year-in-year. Thus there was mix improvement in terms of stronger 3G sales in both comparisons but at the same time weaker legacy product sales in both comparisons as well.

Christopher Danely (J.P. Morgan): In terms of the guidance, your leading customers seemed to give fairly positive wireless trend guidance and you seem a little more cautious than that. Can you give us any hints as to what's going on out there?

Ron Slaymaker: If you look at the quarter we just reported and the decline in wireless revenue, which was below seasonal, you heard from our largest customer, Nokia, last week. Our shipments, revenue and business levels with Nokia were fully consistent with what you heard from that customer. However, Nokia's not our only customer and most likely the other customers did not fare as well as Nokia in terms of sales of their own products.
As far as share, probably the one caveat I would say is that we've discussed the loss of the 3G program Ericsson mobile platforms. That, as we've said before, we expect to decline until it bottoms by the end of this year, stabilize for about a year before growth returns on the next generation program that we've won. However, that would probably be the one case in terms of a program where there's a share loss consideration for the company.
Outside of that one program, we believe that our share is stable at those various customers and our results are reflecting the varying performance levels of our customers in their marketplace.

Cody Acree (Stifel Nicolaus & Company, Inc.): Could you talk about order trends in wireless?

Kevin March: There may be some distribution support of wireless but for the most part the comments we're talking about distribution are much more broadly based than any particular end segment. I don't know that we made comments on distributor orders previously but what I can say is distributor orders did increase in the quarter. Our backlog with distributors increased in the quarter. In fact, our book-to-bill with distributors is probably at the highest level it's been in a year. We saw re-sales increase at distributors even more than what we were expecting back in early June. Everything at distribution sounded good with the exception of our revenue which went down as they reduced inventory.
I don't have a lot of insight as to why they chose to reduce inventory other than the observation that in fact they did and that represents the gap in what we were expecting back in early June and what we actually closed out the quarter.

Glen Yeung (Citigroup): You make the point that your June month saw a slowdown. What's your sense as to how July has been and are you getting any indications from your customers on direction?

Ron Slaymaker: It's very consistent with the guidance that we're giving. The guidance has the range but generally if you look at the middle of the guidance that we're issuing, it would be flattish in terms of semiconductor and what we've seen thus far in the month of July would be consistent with that type of outlook. Nothing that we've seen in July is causing us to question whether that guidance should be moved one direction or the other.

Glen Yeung (Citigroup): To the extent that this is a downturn that lasts a long time, is there room for you to cut costs, both on the OPEX side and on the gross margin side?

Kevin March: There's always room for us to continue to improve. The biggest benefits still coming to us on the growth side is the increase of analog as a percentage of our total mix, especially high-performance analog which delivers very generous gross profit margins. As we see that mix continue to change and become proportionally larger over time, that will give us a boost as well and we expect to see depreciation continue to be modest, if not even going down a little bit. The last couple of years our CapEx has been running below our depreciation. It's only natural to assume that depreciation will continue to moderate. If you look over the last four quarters or so, depreciation's been about 7% of that and CapEx has run about 6% of that. That gives us a bit more headroom also on the gross line.
On the OPEX line, as we see certain markets changing we will clearly make the changes consistent with the timing of those market changes. That'll be speaking to a large program to large markets that may be shifting, where we'll shift resources accordingly or invest in those areas accordingly. I would expect that the OPEX lines will reflect the changes that we see and a fairly close timing to any outlook that we have for the respective businesses and the changes for their futures.

Srini Pajjuri (Merrill Lynch): The business has been weak for the past few quarters but it looks like you're sticking to your expense and depreciation forecast. At what point would you take another look at R&D and expenses and maybe resize the business?

Kevin March: In the past we talked about what we would do if it turns out that we're dealing with a softer overall business climate than I think people are hoping for and really what we would do is take advantage of the position that we have, both from a cash position as well as a market position. From the cash standpoint, if we did see continuing softening going on, we'd probably take the opportunity to go ahead and try to continue to acquire used manufacturing equipment that we can get much cheaper in an environment like you're describing. From an overall market standpoint, we'll continue to deploy a sizeable sales force to sell to as many of competitor's customers as well as our own customers as possible. Thus we'll continue to be fairly aggressive in our approach to the market. That being said, we won't have our head in the sand. We will be paying attention to cost and where it makes sense for cost to be removed. Consistent with changing fortunes for the businesses that we may be in, we'll go ahead and make those adjustments.

Ron Slaymaker: Our OPEX in the quarter we just reported is down 6% from the year ago quarter. Those changes are ahead of revenue. Revenue is down 2% over that same period.

David Wong (Wachovia Capital Markets, LLC): You have seen orders weakening since the end of the June quarter. Is your current run rate at book-to-bill of 1 or is it below 1?