德州儀器 (TXN) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the documents' third-quarter earnings conference call.

At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation.

It is now my pleasure to introduce your host, Mr. Ron Slaymaker.

Sir, the floor is yours.

Good afternoon, and thank you for joining our third-quarter earnings conference call.

Kevin March, TI's Chief Financial Officer, is with me today.

This call will last one hour.

For any of you who missed the release, you can find it on our Website at ti.com/IR.

This call is being broadcast live over the Web and can be accessed through TI's Website.

A replay will be available through the Web.

This call will include forward-looking statements that involve 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 December 7.

We expect to narrow or adjust the revenue and earnings guidance ranges as appropriate with this update.

We will observe a quiet period beginning on December 1, until the update.

In today's call I'll review our revenue performance and then Kevin will discuss profit performance and the fourth-quarter outlook.

After this review, we'll open the lines for your questions.

Third-quarter TI revenue was $3250 million, about even with the second quarter and up 28% from the year-ago quarter.

As we discussed in the mid-quarter update, revenue was affected by Semiconductor inventory adjustments, especially in the distribution channels.

Standard products that are predominantly sold through distribution, including high-performance analog and commodity logic and linear products were most significantly impacted.

At the same time, we are encouraged by the solid growth in wireless and DLP products that occurred in the quarter.

Both of these areas achieved record revenue levels for the second consecutive quarter.

Semiconductor revenue in the third quarter was $2786 million, even sequentially and up 31% from the year-ago quarter.

We believe this year on year growth rate reflects market-share gains for TI when compared with the industry overall as well as in our strategic focus areas of DSP and analog.

These results only reinforce our belief that TI has a strong position in some of the best-growth markets in the electronics industry.

Sensors & Controls revenue of $276 million declined seasonally by 5% compared with the prior quarter.

Compared with the year-ago quarter, growth accelerated to 14% as a result of broad-based demand.

E&PS revenue of $190 million grew 13% sequentially due to seasonal back-to-school demand and grew 8% compared with the year-ago quarter due to strong retail demand for our new educational graph and calculators.

In Semiconductor, total analog revenue declined 5% sequentially due to weaker demand for standard products, including high-performance analog and commodity linear products, reflecting inventory-related adjustments in distribution.

Analog revenue increased 29% from the year-ago quarter due to growth in high-performance analog revenue as well as stronger demand for analog products used in wireless cell phone applications.

High-performance analog revenue declined 7% sequentially and increased 41% from the year-ago quarter.

Although distributors inventory adjustments caused a sequential decline in high-performance analog revenue compared with the year-ago quarter this product line continued to grow significantly faster than the Semiconductor segment overall.

In addition, its operating profit margin is higher than the total Semiconductor segment, and its operating margin has expanded faster.

All in all, a good combination.

DSP revenue grew 6% sequentially, and 33% from the year-ago quarter due to strong demand in wireless.

In addition to wireless, growth in both comparisons was also strong in voice over internet protocol or VoIP applications.

Sequentially, catalog DSP declined 8% due to distributor inventory corrections, although it was up 45% from the year-ago quarter.

TI's remaining Semiconductor revenue was even sequentially and grew 34% from the year-ago quarter.

DLP continued to set the pace with 8% sequential growth and revenue almost doubling over the year-ago quarter.

Standard logic and RISC microprocessor revenue declined sequentially while microcontroller revenue was about even.

Compared with the year-ago quarter, all of these product areas expanded at double-digit rates.

Turning to specific in equipment, wireless had a strong quarter, both in cellphones and infrastructure.

Revenue grew 5% sequentially and was up 40% from the year-ago quarter.

The sequential growth was driven by our large OEM customers, which more than offset a decline in wireless chipsets that are mostly sold into Asian ODMs as well as Chinese local manufacturers. 3G UMTS modems continued to be a significant factor in TI's wireless growth in the third quarter.

A strong majority of the UMTS hand sets shipping today are based on TIDSPs, including our modem solutions and OMAP application processors.

Recall that UMTS is the 3D standard to which today's GSM and GPRS networks will ultimately transition.

If you consider that about 70% of the world's cellular subscribers today are on GSM-based networks, it is clear that UMTS is the world's most significant 3G opportunity and is where TI is intensely focused.

We intend to extend the strong leadership position that we hold today in GSM and GPRS hand sets into the 3G UMTS market.

Based on our successes so far, we believe that we are well on our way to achieving this goal.

In broadband communications revenue increased 2% sequentially and grew 32% compared with the year-ago quarter.

VoIP products were the most significant growth factor in both comparisons although cable modems and wireless LAN revenue also grew sequentially, more than offsetting a sequential decline in DSL revenue.

At this point, I'll ask Kevin to review profitability and our outlook.

Kevin.

Thanks, Ron and good afternoon, everyone.

TI's third quarter gross profit was 1,489 million or 45.8% of revenue.

Gross margin was about even with the second quarter and up 5.1 percentage points from the year-ago quarter.

Sequentially, gross profit benefited from a decline in the accrual for profit sharing that was made in the quarter.

The lower profit-sharing accrual in the third quarter was offset by sequentially higher expenses that resulted in lower utilization of Semiconductor manufacturing assets, particularly for production of analog products.

We responded quickly and aggressively to the changing market environment by sharply reducing production loadings and our loadings are currently well below our shipment rates.

As a result, we expect to end the year with lower inventory levels.

Our manufacturing strategy includes complementing our internal advanced logic capacity with external foundry support.

As we saw in the third quarter, this strategy is yielding a positive result for which it was designed.

Despite overall loading reductions, our internal advanced logic factories continue to run at high levels of utilization.

These are our most capital intensive factories where the costs associated with under utilization would otherwise be very high.

The internal factories where we are currently under utilized are predominantly our less capital intensive analog factories.

While we are still carrying significant depreciation from our analog factories as a result of the 8-inch upgrades that we installed in 2000 and 2001, when you consider that we depreciate equipment using the five-year accelerated schedule, it's evident that we're in the waning years of this depreciation.

We are pleased that this manufacturing strategy is providing us with better operating flexibility and improved financial stability.

In the other segments, gross profit in Sensors & Controls decreased to $102 million, or 37.1% of revenue.

Gross profit in E&PS increased to 114 million, or 60.1% of revenue.

This is the first time that this segment's gross margin has exceeded 60%.

Operating expenses of 832 million decreased 57 million from the second quarter, primarily due to the lower profit-sharing accrual but also reflecting additional expense reductions that we undertook in the quarter.

Operating expenses as a percentage of revenue declined 1.8 percentage points from the second quarter and 5.2 percentage points from the year-ago quarter.

Sequentially, R&D spending of 483 million decreased by $31million and SG&A expenses of 349 million decreased by $26 million.

TI's operating profit was 657 million, or 20.2% of revenue.

This is the highest level of operating profit achieved by TI in the Company's history.

Compared with the second quarter, it increased $65 million or 1.9 percentage points.

Compared with the year-ago quarter, operating profit more than doubled and operating margin increased by over 10 percentage points.

Although our objectives are higher, it's encouraging to have operating margin back above 20% of revenue.

Semiconductor operating profit was $582 million, or 20.9% of revenue.

Sensors & Controls' operating profit was 66 million, or 23.9% of revenue.

And E&PS operating profit was 83 million or 43.8% of revenue.

As was discussed in the mid-quarter update, the profit-sharing accrual was lower in the third quarter compared with the second quarter, reflecting a downward adjustment in our expectations for the Company's performance in 2004.

This adjustment resulted in a cumulative reduction or a catch up in this accrual in the third quarter.

As a result the total profit sharing accrual in the third quarter was about $25 million, which was about 75 million lower than in the second quarter.

About 40% of the accrual was allocated to costs of revenue and about 30% each to R&D and SG&A.

In the fourth quarter, without the catch up benefit, we continue to expect the profit-sharing accrual to increase to about $65 million.

In 2005, we expect the profit sharing accrual to decline significantly from the 2004 level as we implement a new profit-sharing formula.

For example, if we were to annualize the Company's performance in the first three quarters of 2004, the new plan would result in about $150 million of lower annual profit-sharing expense compared with what we expect for 2004 under the current plan.

In the third quarter, other income and expense produced income of $62 million, an increase of 24 million compared with the second quarter, primarily due to the partial settlement of matters related to grants from the Italian government regarding TI's former memory business operations.

Interest expense on loans was $4 million in the quarter, and about 4 million lower than the prior quarter reflecting the Company's lower debt level.

In the third quarter, we redeemed $400 million of maturing 7% notes, bringing the Company's remaining debt balance to $383 million.

The Company's quarterly effective tax rate was 21% in the quarter.

As was discussed in the mid-quarter update, this reflects a revision in the Company's expected tax rate for the year to 26% as of the end of the third quarter, which resulted in a cumulative reduction or catch up in tax expense.

Net income was 563 million, or 32 cents per share, up 28% compared with the second quarter.

It might help to summarize the earnings per share transition from the second quarter.

About 3 cents of higher earnings per share resulted from the lower quarterly tax rate in the third quarter compared to the second quarter.

An additional 3 cents' benefit was realized from from the lower profit-sharing accrual and about a penny benefit resulted from the higher non-operating income.

The quarter's results included $16 million of pre-tax amortization of acquisition-related costs.

Total cash of 5,617 million increased $83 million from the end of the second quarter and increased over $1 billion from the year-ago quarter.

Cash flow from operations was $942 million in the quarter, up $436 million sequentially.

Capital expenditures of $330 million in the quarter decreased $26 million sequentially.

Capital expenditures in the quarter were primarily for increased assembly and test equipment and for 90-nanometer wafer fabrication equipment within DMOS 6, our 300 millimeter Wafer Fab in Dallas.

We are currently ramping the 90-nanometer DMOS 6 production line into high-volume production.

This is in addition to the 90-nanometer production that has already been underway.

Depreciation of $378 million increased 15 million sequentially.

Accounts receivable of 1,965 million increased sequentially by 35 million due to higher shipments in the last month of the third quarter when compared with the last month of the second quarter.

Day sales outstanding were 54 days at the end of the third quarter, the same as the end of the prior and year ago quarters.

Inventory of 1,356 million at the end of the third quarter increased $71 million sequentially primarily due to work in process of wireless products that will support expected seasonally higher shipments early in the fourth quarter.

In addition, inventory growth reflected factory loadings that were made in anticipation of higher third-quarter demand as we proceeded through the quarter and our expectations for demand changed, we reduced production loadings as I already discussed.

Combining the lower production levels with anticipated fourth-quarter shipments, we expect TI inventory at the end of the year to be lower than at the end of the third quarter.

Days of inventory increased 69 days at the end of the quarter, up from 66 days at the end of the second quarter.

TI orders in the third quarter were 3,019 million, down 7% sequentially.

Semiconductor orders were 2,623 million, down 5% sequentially.

Semiconductors book-to-bill ratio was .94, down from .99 in the second quarter.

Turning to our expectations for the fourth quarter, we currently expect total TI revenue to be in the range of 2,960 million to 3,200 million.

Semiconductor revenues should be in the range of 2,630 million to 2,830 million.

Sensors and Controls should be in the range of 270 to 290 million, and E&PS should seasonally decline by more than $100 million to the range of 60 to 80 million reflecting the end of back-to-school sales.

The inventory corrections that are underway -- that were underway in the third quarter have continued into the fourth quarter.

Earnings per share are expected to be in the range of 24 to 28 cents in the fourth quarter.

In the transition from the third quarter's earnings per share of 32 cents, a couple of cents of lower earnings per share should result in the combination of higher profit sharing and an expected lower level of non-operating income.

About 3 cents of earnings per share should result in the seasonally lower revenue from E&PS as back-to-school sales have now ended.

The remainder of the earnings per share transition will mostly depend on the Semiconductor revenue trends in the quarter.

We expect the effective tax rate for 2004 to decline to about 25%, reflecting the reinstatement of the federal research tax credit that was signed into law on October 4.

The effect of the reinstated credit is not included in the Company's third-quarter results, as GAAP requires that companies use tax law in effect at the end of the quarter when determining tax rates.

Therefore, in the fourth quarter, TI expects an effective quarterly tax rate of about 21%, which represents the cumulative reduction of catch up in tax expense resulting in the change of the Company's effective tax rate.

Therefore, the fourth quarter's effective tax rate will be about the same as the third quarter's.

We continue to expect the profit-sharing accrual in the fourth quarter to be about $65 million.

For 2004, we expect R&D to be about 2 billion, down from the prior estimate of 2.1 billion.

Our estimate of depreciation is unchanged at about 1.5 billion.

And capital expenditures is unchanged at about 1.3 billion.

Note that the Company has already expended almost 1.1 billion for capital year to date, which means the expenditures should continue to decline in the fourth quarter as planned.

In summary, we are encouraged by the strength of TI's position in important new growth markets such as 3G wireless and DLP displays.

We're also encouraged that our manufacturing strategy is providing the results we expected, both higher flexibility and more financial stability, while at the same time reducing TI's capital intensity.

And finally we're confident in our future.

Strong cash flow, excellent long-term growth prospects, and a solid balance sheet have led us to increase the return we're delivering to our shareholders, with the $1 billion stock buyback and the 17% dividend increase that we announced in the third quarter.

With that, I'll turn it back over to Ron.

Thanks, Kevin.

At this time I'll ask the operator to open the lines up 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.

Thank you.

The floor is now open for questions.

If you do have a question, you may press star one on your touch-tone phone.

If at any point your question has been answered, and you'd like to remove yourself from the queue, you may do so by pressing the pound sign.

We do ask that you please pick up your handset to minimize any background noise.

Our first question is coming from Adam Parker of Sanford Bernstein.

Yeah, hi.

Can you talk a little bit more about the lower utilization.

If you are running the same in Q3 as Q2, what would the margins have been -- gross margins all else equal, and do you expect to be under utilized again in Q4 given the inventory reductions you alluded to?

Yeah.

Adam, our utilizations throughout the quarter decreased.

August was less than -- than July and September was less than August.

We expect that September will be a utilization level that reflects the fourth quarter will probably be.

So there was a transition in third quarter.

As I mentioned, we did have an under utilization expense but that was approximately offset by the reduction in the accrual for profit sharing for the quarter.

Just on the cond line, you mean.

Yes, just on that portion, yes.

All right.

The under utilization, though, as we go forward in fourth quarter should be higher because we expect total utilization to be lower in fourth quarter than in first quarter, as our distribution customers continue to adjust their inventories.

Okay.

I'm a little confused, the follow-ups related.

Because it seems like implied in your guidance is -- you know, is only about 50 basis points in margin contraction and yet you have what looks like a few headwinds, given the catch -- you know, the sequential increase in profit sharing, the fall-off in the higher profitability of calculators and then I think if I'm not wrong, that semiannual customer and royalties is now off again in Q4, and I think there's a couple of headwinds.

So I'm just trying to understand if the utilization impacts going to -- under utilization impact's going to be even greater in Q4 than Q3.

What are we implying about the margins for Q4, the gross margins?

Well, Adam we're not forecasting gross margins, we're just forecasting our revenue and our EPS ranges.

But I think it is very reasonable for you to conclude that our utilization expense -- under utilization expenses in fourth quarter will be higher than they were in third quarter as we expect our total utilization to be lower on average in fourth quarter.

All right.

On the question on royalties, let me just -- I'm glad you brought that up and let me give you some clarification.

Thank you.

We did see that -- that semiannual payment, third quarter, for royalties that we were expecting, but at the same time we saw -- as we often do, other crosswinds in there, so that the total royalties on a quarter-over-quarter basis were relatively flat.

We didn't get the kind of upside that we would have anticipated, just solely due to that one semiannual pair.

Okay, and then for Q4, what would that look like, do you have any --

We wouldn't -- we're not forecasting that but we don't have that same sort of semiannual payment in there, so I think you can conclude from there that that might do with our royalty.

Sorry, one last question.

Depreciation in Q4, you might have said this, I didn't catch it.

Will that be flattish versus Q3 or up slightly?

We're holding the forecast for the year at our prior guidance of --

Okay.

1.5 billion, so I think you could --

I could probably add that up.

Even I can do that.

All right.

Thanks.

Lost sequentially a little bit.

Right.

Thanks, guys.

Next caller, please.

Thank you.

Our next question is coming from Michael Masdea of Credit Suisse First Boston.

Thanks a lot.

First of all good job on kind of operation shutting off pretty hard when you needed to.

The first question really relates to a customer side.

You saw some late-quarter strength where you're guiding below seasonal, we saw a little below seasonal last quarter.

Just help us understand what your customers are thinking.

Do they have any visibility or are they kind of struggling right now on the visibility side also?

Michael, what we're seeing there is principally on the distribution side again, you might note I mentioned our book to bill was .94 and that's making us a little cautious on the guidance that we offered for fourth quarter.

Consequently, what we're saying, it may be up 2% for semis or down 6%, in that kind of range.

We believe that the inventory correction that began in third quarter will continue into fourth quarter.

And so when we take that inventory correction belief and our book to bill into consideration, we believe the fourth-quarter revenues may not represent our normal sequential slight increases that we've seen in past years.

I mean implied in that, are the OEMs a little bit more stable than the distribution?

I'd say they're probably a bit more stable, generally, yes.

Okay.

And a quick follow-up on the wireless side.

You mentioned 3G and kind of UMTS.

Can you just give us an update on what your thoughts are in EBDD versus EBDO and how you're positioned in EBDO?

In EBDO we haven't announced any products at all or product plans.

What we had previously announced earlier this -- this year was a DV product, so I don't really have any anything incremental to add to what we might or might not be doing in DO.

Thank you.

Thank you, Michael.

Next caller, please.

Thank you.

Our next question is Allan Mishan of CIBC.

Hi.

I saw your analog data for this quarter.

Can you just let us know if the individual verticals, like, you know, hand set analog or printer analog or storage analog, whether those were up or down?

Well, Allan, there's a lot of moving pieces there.

What we identified in the release in the conference call already were the biggest-moving parts, and that, -- the decline was mostly driven by standard products and what, you know, generally can be identified as -- as the inventory adjustments that are taking place in distribution.

Outside of that, you have things up and down, so, for example, storage was -- was up, as we rebounded from -- and, frankly, it wasn't a rebound for TI, it was more the drive manufacturers rebounding from excess inventory in the second quarter.

I think printers were down a little bit, wireless was down a little bit, offhand I don't -- I don't know specific -- specifics beyond those off the top of my head.

Okay.

Great.

And as a follow-up, you know, understanding your guidance implies additional inventory corrections, are you looking for seasonality in the businesses that are normally seasonal, i.e., you know, DLP and wireless and then also in the PC-related businesses?

We're not being specific as to the assumptions in our guidance below the semiconductor levels.

Certainly the holiday season will still occur this year and in certain areas that will help.

But, as you see in the guidance, it will be partially or possibly even fully offset by the inventory correction that's still taking place predominantly again in distribution.

I would just add that the -- the inventory growth that we described from second to third, about two thirds of that was really wireless based in anticipation of increased wireless shipments going early into fourth quarter.

Good point.

Next caller, please.

Thank you.

Our next question is coming from Ambrish Srivastava of Harris and Nesbitt.

Hi, thanks, Ron.

Just to follow up on the inventory issue.

What is your sense of the -- of TI's inventory in the channel and do you expect the imbalance to be worked out by Q4, or do you think we see some tail effect in Q1?

Ambrish, what we're seeing on the inventory, we saw the beginning of what we believe was the correction in third quarter and based upon the book to bill and the orders that we've seen from our distributor customers, we expect that correction to continue in the fourth quarter.

Whether it runs beyond that or not depends on how fast our customers arrive at their desired inventory levels and what their sell-throughs are.

And the holiday seasonality and all those kinds of things that at this point we don't -- we don't have specifics on.

So beyond saying we expect it'll continue in the fourth quarter, we don't have color as to how long it might last.

Did you have a follow-up, Ambrish?

Yes, Ron.

Could you comment on the pricing environment, please, specifically about the large buckets catalog standard and the commodity parts?

Okay.

In -- in high-performance analog, catalog DSP, the standard proprietary products no different scenario than usual.

Those product areas tend to be relatively price immune to the near-term environment.

In the high-volume verticals such as wireless I think the same type of situation.

Pricing moves down but it tends to move down at a steady rate, somewhat independent of the near-term environment.

Where pricing does reflect the environment would be in the commodity areas, commodity logic and linear specifically.

And in those areas, if you look at third-quarter pricing, it probably -- in terms of what we actually ship, probably was above the second-quarter level but that more reflects the residual effect of orders that were booked in the second quarter.

If you look at the supply/demand imbalance currently it would point to -- if it remains, it would point to starting to see some price pressure in the fourth quarter on those product areas just reflecting excess supply in -- in inventory that are at the -- at the component manufacturers as well as the distributors.

If that situation corrects in terms of inventory, then, you know, we'll just have to see what happens to pricing after that.

But with the inventory excesses, we would expect to start feeling more price pressure there in the fourth quarter.

And, Ron, that would mean also in the high-performance analog categories.

No, not in high-performance analog.

High-performance analog, because you're dealing with mostly sole source, highly proprietary type of products they tend not to have pricing impacted by the -- by the near-term environment.

And I should remind you that the commodity spaces I was talking about, standard logic and standard linear, represent, only 5 or 6% of our semiconductor revenue.

So it's a relatively small part of the revenue mix.

Thank you, Ambrish.

Next caller, please.

Thank you.

Our next question is coming from John Barton of Wachovia Securities.

Yes.

Thank you.

In your comments you talked about revenue strengthening late in the quarter in the press release, one or the other.

You also made comments that the strength out of your larger customers offset what you saw from chipset sales, supplying, you know, Asian OEM's, et cetera.

Could you comment on how that strength has trended into this quarter and if you see any signs of a correction or a turn towards growth from the -- the chipset sales, please?

I -- let me not be so specific, although -- although I believe we think -- we would expect that the chipset called the inventory situations that are -- that cause the chipset weakness in third quarter are pretty much behind us and are starting to get worked through the system.

So we would say that would be waning as opposed to building on us.

I guess the only other color I would -- I would add is -- is let me -- let me comment on orders, because orders actually follow the same kind of trends that we saw in revenue as -- as we moved to the third quarter in that from an order perspective July and August were both what I would describe as weak from orders, and we saw a pretty -- a pretty nice improvement in the month of September.

So, again, momentum was stronger going out of the third quarter.

And if you'll recall, was -- as we were describing the second quarter in our conference call a week -- a quarter ago, it was the opposite trend.

We saw orders weaken as we moved through the second quarter in the case of the third quarter we've seen strength in the final month of the quarter.

That being said, all of that changing momentum has been comprehended in the guidance that -- that we gave you, certainly.

Do you have a follow-up, John?

Yeah, please.

On the operating expenses, you know, you talk about aggressive cost savings when you did your mid-quarter update, you delivered those.

I'm now looking at your R&D expectation for the year, which would imply R&D grows in the fourth quarter.

Just in general, how are you thinking about cost containment and/or growth, et cetera, as you go the next few quarters?

John, we'll continue the same kind of practice we put in place in third quarter and that is we essentially slowed our staffing changes and we also worked to begin to reduce our discretionary expenses.

One of the reasons you'll see that R&D go up in fourth quarter is because profit sharing will return back to about a $65 million level in the quarter, and of course a portion of that will be allocated back into R&D.

We'll continue just to manage the expenses pretty tightly as we move through this transition period.

Thank you.

Thank you, John.

Next caller, please.

Thank you.

Our next question is coming from Glen Yeung of Smith Barney.

Thanks.

A question about the wafer-start reductions as we head into the fourth quarter.

Can you talk about any changes in mix that we might expect to see both with respect to the types of products internally that you may or may not be changing around and also the split between internal capacity reduction and reduction at your foundry partners?

Glen, we reduced our loadings across all factories, and balanced those loadings to our internal factories where we could.

So for example, our advanced logic factories are still very heavy utilized and we are still procuring wafers from outside.

We -- all indications are we will continue to do that in the fourth quarter also.

The analog loadings are down.

We do plan to reduce inventory in fourth quarter.

And you can presume that that will probably come out of the analog areas.

And so that's where most of our loading -- under loading will be as we move through the fourth quarter.

Beyond that, I don't think I can give you much more color because there will be constant mix changes as we go through, just as our total business mix changes.

Right.

So safe to say, though, that if the mix were more towards advanced logic obviously would have a greater gross margin impact than you would otherwise see obviously with analog being where you reduce it, so that's actually better.

Only to the extent that we couldn't -- we didn't no longer need a foundry source wafers, but as long as we still need foundry source wafers we're able to keep our internally produced vast mythographies pretty full.

But if for some reason they went below full utilization then you're right, that's where most of the capital intensive cost is at.

And actually just then a follow-up to that.

As you look into the order trends that you are seeing from a product perspective exiting the third quarter, entering the fourth quarter, first of all, I'm not quite sure I heard you say that in fact those order trends were continuing, so wonder if you could just clarify that.

And then if you would look at that mix, is it consistent with the wafer start reductions that you're expecting to see over the rest of the quarter?

The quick answer is yes, it is consistent with the mix and that trend is continuing, albeit from a pretty low base.

So consequently we still have a book to bill that's about .94 and consequently we've guided fairly cautiously on our revenue outlook because the orders aren't fast enough for us to offer a guidance that's higher than that right now.

And as well if you can give us any guidance on book to bill for the fourth quarter.

I have no idea.

Okay.

Thanks.

Thanks, Glen.

Next caller, please.

Thank you.

Our next question is coming from David Wu of Wedbush Morgan.

Yes.

Good afternoon, gentlemen.

Can you help us on this -- you -- on your distribution, you do a sell-in basis, but obviously you know what the inventory of your -- of your distributors are, can you describe a little bit about how you viewed their -- their -- the inventory your distributors are still holding and what kind of a sell up pattern did they show to -- were they selling out faster than you are selling in, or -- or the reverse?

The -- let me describe it this way.

Our distribution resales, which is the sell out metric, declined sequentially third quarter compared to second.

I would describe it as a slight decline.

Our shipments into distribution declined significantly more than that.

So -- and we expect that -- that same -- to continue into the fourth quarter from the standpoint of -- of our sales into distribution will be well below what they're doing on the resale front.

So inventory in the fourth quarter should be down compared to the end of the third quarter in the DISB (ph) channel.

If you would look at distributors' turns, what kind of turns did they normally get and what kind of turns do you think you will get in Q3 and Q4?

David, the turn's vary by region, but if we look over the past year in Japan we typically turn around three times a year, in Asia it's between four and a half and five and a half times a year, and in -- in the Europe and the U.S., it's usually around four times a year.

I -- we believe that that's the kind of turns that the DISB customers prefer.

They move down a little bit down off those turns here recently and hence they're correcting their inventories but we would anticipate that providing their -- their resales continue that those turns will return back to normal right now we're anticipating that's the fourth quarter.

That's the fourth quarter.

Did the distributors have any indication to you that a resale would be up or down relative to Q3 at this point?

I don't have any insight into that for you, David.

Okay.

Thank you.

David, let me also just add before we wrap up because I don't think I specifically answered on distribution inventory trends.

Basically, in three regions, U.S., Asia and Europe, in the third quarter distribution inventory declined.

In Japan it was up a little bit.

And that was -- the increase in Japan really can be identified to be specific to a particular customer where distributors are building inventory to support a product launch in the fourth quarter.

So -- so generally some improvement was made in the third quarter overall we would say and then we expect further improvement in the fourth quarter.

Next caller, please.

Thank you.

Our next question is coming from Tom Thornhill of UBS.

Kevin, with your comments on order pattern coming out of September and the comments here on DISB inventories and your pulling your loadings down to try to get your inventory down, are we gonna see the low point in your loading factor in Q4, or will there be seasonal factors that will cause it to come down again in the March quarter?

Tom, that's a bit more visibility than I think that we have to really give you in a real constructive fashion.

We do expect our inventories to come down as we described, and that's based upon actual sales occurring consistent with the guidance range that we've given.

I think traditionally first quarter is usually a little bit weaker than first quarter as a general statement for us.

But also keep in mind that when we build our inventory, just from manufacturing cycle times, you start the inventory anywhere from 6 to 12 weeks in advance of when you are prepared to ship it.

So, in fact, any starts that we would do in the first quarter, relatively few of those would be for first-quarter deliveries, most of those would be destined for second-quarter deliveries.

So because it's that far out in time I couldn't really give you a real good answer as to what we think our loadings will be going into first quarter.

But under normal seasonal patterns, it looks -- sounds like this action in Q4 could be the low point.

From a normal seasonal standpoint, that's a reasonable conclusion.

Okay.

Could you run through the factors again affecting gross margin in the fourth quarter?

I have the same issue that Adam has.

If I take the midpoint of your EPS numbers and work up the income statement, I get a relatively smaller change in gross margin than I would have expected.

Yeah.

Just to refresh.

Going from the 32 cents that we just closed in third quarter and working your way backwards, we would expect that to be reduced by about 2 cents because of increased profit sharing and reduced non-operating income.

We would expect it to decrease another 3 cents or so because of the seasonality of E&PS and then any delta would be associated with where Semiconductor revenue actually closes out at.

Thank you, and congrats on your manufacturing flexibility.

Thanks, Tom.

Thank you, Tom.

Next caller please.

Thank you our next question is coming from Chris Danely of JP Morgan.

Thanks guys, just a couple of quick clarifications.

When you guys said inventories going to be down in Q4 is that in absolute dollars or a day spaces and do you have any sort of I guess goal or target to bring the inventories down to where you feel comfortable?

Chris, the inventory that we're projecting we say is down is going to be down on a dollars basis.

We'll have to see what revenue plays out to calculate the days from that.

And we've got a fairly wide range on our revenue right now so it's a little hard for me to give you a good answer on that.

Sure.

We don't have a model per se.

We actually will have and will continue to fluctuate our inventory levels, based upon seasonality, specific customer requirements.

And just overall, making sure that we've got lead times that are very acceptable to our customers.

So our inventories will be consistent with customer lead time requirements.

Okay.

So I guess just assuming that inventory is flat at 70 days, do you feel comfortable with that?

Actually, our inventory was 69 days coming out of this quarter.

Based upon our customer service levels that we talked about last quarter, that is our on time deliveries to our customers and our delinquency metrics that we try to operate by, the kind of inventory levels that we got at last quarter for last quarter were what we felt good customer service inventory levels.

But -- but, Chris, don't read that as to any particular number in terms of absolute inventory or even days of inventory, because those numbers will adjust seasonally.

There are a lot of factors there.

Basically, we're going to build inventory based upon what we believe we need to to support expected customer demand, maintain lead times and all that kind of stuff, but, you know, that's going to vary as we move through the year and in different -- different operating environments.

So the only -- the only specific guidance we're saying is that dollars will be down in the fourth quarter.

Sure.

Now, that makes sense.

Can I ask one quick follow-up?

Sure.

So orders are getting a little bit better.

Can you guys point to any specific area?

End market, product, region, something to give us a clue as to where they're getting better?

Well, I'm not sure -- you're saying in the month of September?

Yeah.

And you said that extended into October so can you give us any -- any sort of color as to what's -- is it wireless, is it DISB is it all of the above, can you just tell us where things are getting better?

First of all, I wouldn't -- I wouldn't -- we're not trying to overexcite on the order trends.

We did say September was better than July and August, but July and August were also very weak.

So, you know, if you look at -- if you look at the order trends for the quarter overall, certainly they were down and also if you looked at book to bill, but again there was some -- some reasonably encouragement -- encouraging signs coming in the month of September.

I don't think we want to be more specific as to what regions or what -- what specific end-markets or product areas drove those orders just consistent with the way we give our guidance on revenue as well.

That's fine.

Sorry for getting overly excited.

That's okay, Chris.

Next caller, please.

Thank you.

Our next question is coming from Andrew Root of Goldman Sachs.

Just a couple quick questions as follow-ups.

The -- you mentioned I think Kevin that wireless work in process was primarily up due to wireless that would be up early in the fourth quarter, is that -- is that sort of suggestive of the fact that wireless would be up seasonally in the fourth quarter?

Our experience traditionally is that wireless is up seasonally in the fourth quarter, yes.

And then secondly on the autos which we haven't really talked about as an end-market segment.

The microcontroller business is actually flat in the third quarter and your guidance for Sensors & Controls which I think is auto heavy was up actually flat or up slightly so it looks like you're seeing decent almost seasonal traction out of autos even though some of the auto OEMs are struggling a little bit, is that a fair statement?

That is, yes.

And you're split right now of foundry versus on the leading edge foundry versus internal?

I believe it's still in the 50 -- a little over 50% of our advanced logic wafers in the third quarter came from foundry.

Of advanced logic shipments.

Well, I don't -- let me talk about our -- our -- our wafers as opposed to shipments, but I think -- I think it's close to that same amount.

It's been -- it was 50%, in the second quarter, probably close to that number in the first quarter as well.

So we've been running at that level for some time.

Okay.

And then just a last quick one.

Any thoughts on -- early thoughts on 2005 CapEx and if you could just reiterate your schedule for DMOS 7.

Yeah.

Andrew, we're in our annual planning stages even as we speak here so we're not in a position to give guidance on capital or any other numbers for next year just yet.

As far as the new Fab, we have announced that we would probably break ground on that before next year -- before the end of next year, excuse me.

And as soon as we're at a point to make a public statement on that, we will.

Okay.

Great.

Thanks a lot.

Thank you Andrew.

Next caller please.

Thank you our next question is Cody Acree of Legg Mason.

Thanks.

Maybe just follow up there on the manufacturing side.

Can you talk a little more about 90-nanometer.

You said that you're beginning to ramp towards production there?

That's correct.

So -- well, I mean there's two areas where you're -- you can talk about 90-nanometer in the short term.

One is our KILB fab, which has been in production since early this year.

DMOS 6, where we're in the process of ramping production, and then I believe our status is we have 90-nanometer coming from one foundry at this point and expect to ramp the second foundry up here by the end of the year.

Great.

And, let's -- W-CDMA, can you talk -- you mentioned that specifically back on the -- I believe mid-quarter update, can you talk about how that impacted the end of the quarter and what you expect for Q4.

W-CDMA, in general when I use the term UMTS, UMTS again is a standard that includes W-CDMA as well as backward compatibility to GPRS and GSM.

And the modem growth in UMTS, I would -- I'm not -- I can't quantify it here, but, I would describe it as a significant contribution to our wireless growth in the quarter.

And you know, it carried forward, maybe not the same amount -- dollar amount of impact but carried forward that same -- that same trend that we saw in the second quarter where it was a significant contributor to the growth in that quarter as well.

Other than just this fourth quarter coming up, can you talk about really what you're seeing as far as the design activity and how much of a contributor do you think UMTS is going to be for '05.

We are well positioned, I would say, from a design standpoint.

And, again, we're talking our large OEM customers and actually some new customers that we're reaching into with these UMTS products as well.

But, again, it's probably -- it's primarily being driven in the near term by what I would characterize as our large OEM customers as opposed to the smaller customers or the ODM players at this point.

And as -- I guess probably the biggest external metric that I would -- I would encourage you to watch would just be the overall deployment of UMTS as we indicated in our -- in our opening remarks, a strong majority of the handsets that are shipping are using TI's modem solution as well as -- as well as OMAP plays in there as well.

So as 3G in general deploys in the industry you can assume that our business should track accordingly.

And incremental dollar increase per phone?

Significantly higher than what would be in a 2.5G handset.

For starters, the -- the digital-base band or the modem function itself is a good 2X out of the GPRS handset.

In addition, you have the OMAP applications processor, which is -- which is very nice added revenue for TI as well from a content standpoint.

So 3G is going to be rich in TI content for -- for a long -- long way to come, we would hope.

Thanks, guys.

Thank you.

Next caller, please.

Thank you.

Our next question is John Lau from Banc of America Securities.

Great.

Thanks.

Ron, following up on your comment with the DLP strength.

Have you seen any effect of the recent exit of a competitor in their L cost product line and would that result in any additional strength this current quarter or is this more of a next-year event in the projection TVs.

Thank you.

Boy, there have been quite a few competitors that have exited L cost, I'm not sure specifically who you're referring to.

But -- but the reality is, L cost is never a factor in the marketplace to begin with.

You know, who we competed with in big-screen TV, first and foremost is the CRT technology, although that's -- that's rapidly losing market share.

We compete against plasma and our market share has been growing quite rapidly against plasma as we noted in our opening remarks we're now outselling plasma in the North American market.

And then there is some LCD technology in projection, but, L cost has never been much of a factor because it's never been -- it's never been manufacturable in a reliable fashion where any of the television manufacturers felt confident to be able to deploy it in high volume.

So, you know, it -- that's not saying it will never emerge, it's certainly, you know, it's a technology we're continuing to watch from a competitive standpoint, but today in the marketplace it has never been a real significant factor.

So if you were to exclude the market-share gains against the competition such as the CRTs or the plasma, do you believe that we are in a seasonally normal consumer environment for the larger-ticket projection item in television?

I'll be honest, John, we don't have enough experience with DLP in the big-screen TV market to be able to isolate out what the seasonal trends are versus just the secular trends of that technology penetrating into the marketplace.

So I really can't comment on whether we're seeing normal seasonality or -- or not just given, you know, the strength of our position.

Great.

Thank you.

Thank you, John.

Next caller, please.

Thank you.

Our next question is coming from Mark Edelstone of Morgan Stanley.

Hi, good afternoon, guys.

Kevin, I wonder if you can give us an idea -- you mentioned that your Fab loadings right now are below the consumption rate of your products out there.

Can you give us a sense based on the fourth-quarter revenue guidance that you've given here, what the delta is there between the consumption rates and your Fab loadings?

Mark, I don't know that I can give you the specific guidance but I can kind of perhaps characterize it for you.

We would expect our loadings going into fourth quarter to be fairly similar to what we saw in the -- in September.

Our loadings in third quarter resulted in a -- an expense that was -- an under loading expense that was roughly offset by the reversal of the profit-sharing accrual from our cost of revenue line.

So from that standpoint we would expect our loadings to be quite a bit lower on average across the quarter and that expense to be quite a bit higher as a result.

I'm not sure if I'm answering your question very well there, Mark.

Well, I guess I was just really trying to understand what the -- what the percentage differential was right now between what your loadings are and what you view as true end demand out there.

Are we talking about a 5% delta or 10%?

I don't know the answer to that question.

Okay.

Sorry.

Another quantifiable question, then, perhaps you might know is related to distribution.

I think Ron made the comment that your POF numbers were actually down a little bit and your fill into the channel was significantly lower.

Can you give us a general range as to what the difference was there in percentage terms between the sell in and sell out of your products?

I would say single-digit percentage but actually getting close to 10% delta between the decline in resales and the decline in our shipments into distribution.

Great.

Thanks a lot, guys.

Okay.

Thanks, Mark.

Next caller, please.

Thank you, our next question is Tim Luke of Lehman Brothers.

Thanks.

Just a couple of clarifications, just for next year should we continue to assume the 25% tax rate?

Tim, I wish I could give a concise answer but with the -- the fact that there's a new law about to be signed by the President that will affect our tax rates for next year, that's a pretty complex question to try to answer.

I think that if -- if you just start from this year's tax rates we project and you figure about that kind of profit next year, any incremental profit would be taxed incrementally at 35%, at least under the old law.

I think you can probably squeeze your way back into figuring what an appropriate tax rate would be based upon your estimate of our profitability next year.

I'm afraid I can't be more concise than that because the -- the new tax law really has quite a few changes that will affect exporting manufacturers such as TI.

I -- I have another question.

Given the new profit sharing regime to be instituted next year, should we consider that the -- the first-quarter expenses would be sort of flattish or lower from what you've guided in the fourth quarter given the new profit-sharing arrangement.

I would anticipate that they would probably be sequentially down.

Yeah, I -- Tim, I can be very specific on that.

We've said our fourth-quarter profit-sharing accrual should be about $65 million.

Yeah.

You know, we're not forecasting profitability in the -- in the -- in the first quarter but what we've said is based upon '04 performance, profit sharing would be down about 150 million, which if you quantify that, that would be an accrual rate of 25 to 30 million.

So, again, we'll let you make the assumptions on profitability going into -- into the first quarter relative to the fourth, but all things being equal, there would be a significant step down.

But I meant more broadly in terms of the operating expenses that -- is kind of suggesting would be generally lower sequentially or flat, I think you said lower sequentially in terms of overall expense.

Oh, I'm sorry, you meant overall, I thought you meant just profit sharing.

Yeah, overall.

Overall expenses we haven't looked out the first quarter yet, but that'll be based upon what we see the orders at as to how long we continue to try control our discretionary spending.

And lastly just -- with respect to 3G could you just give us a reminder of some of the key relationships that you sort of feel have held and you have some Nokia relationships and then talk about other platforms or wherever the key relationships are.

Tim, beyond being -- beyond describing them as large OEM customers as opposed to ODMs or local Chinese manufacturers or whatever at this point, those customers haven't specifically disclosed their products or their supplier relationships.

So we're not free to make those disclosures for them at this point.

In the past you've talked about Ericsson, for example, but --

Yeah.

I don't -- let me -- in terms of the -- I think we've talked some customers that have engaged with us for example, on OMAP, but in the case of UMTS modems I'm not aware that we've made specific -- specific announcements, at least since I'm not aware of it I'd prefer not to make unintentional disclosures here.

Okay.

Thanks.

Thanks, Tim.

Next caller, please.

Thank you.

Our next question is coming from Charlie Glavin of Needham.

Thanks.

Without belaboring the point a little bit more Ron, in terms of taking a look at the inventory.

The width has noticeably increased over the last couple of quarters and you guys have made a conscious effort of indicating that one, your turns business would increase, and two, that you'd be taking a look at a lot more dye banks I think the phrase you guys used to avoid the bananas rotting on the dock, but how much of the inventory increase particularly on the whip was deliberate as opposed to a push-back from within the channel?

Sequentially, Charlie, probably, 65 or 70% of that would be deliberate.

As we mentioned we're staging with -- for fourth-quarter revenue for wireless.

And then the balance would have been inventory that probably went a bit beyond what we would have wanted to build, given the fact that our revenue came down during the quarter.

And then going back to Chris's previous question, given that the dollar amount may actually decrease, is it more likely that we'll see a larger increase in the whip maybe even going up to the 70% level of total inventory?

Charlie, I don't think we have that kind of precision right now in our forecasting so I don't want to really mislead you into believing that we have a number to give you there.

And then -- thanks.

Then lastly, in regards to -- I know again you -- you haven't -- with the tax bill kind of lurking within congress right now, would that fundamentally change in terms of if somebody approached Kim Ritchie uses in terms of the manufacturing both internally as well as future partnerships or joint ventures that you may do with foundries in terms of less incentive through the ETI versus say external foundry sources.

Right now that is not weighing on any of our decision making and you've actually -- and you've brought up a good point.

Because the ETI is expected to evolve out over the next couple years but that's going to also be replaced by a change in the tax rate for manufacturing exporters.

And it's not clear to us yet what the net effect of that's going to be as this transitions over the next couple years.

So is it safe to say then until we figure out whether or not the tax bill and what sort of form it is, the CapEx numbers could be in flux even if you were to announce it if the bill hasn't been signed.

I think it's premature to say that.

I don't -- it's difficult for me to imagine why we would change the strategy that we've laid out right now with that tax bill.

Okay.

Thank you.

Thank you, Charlie, next caller please.

Thank you.

Our next question is coming from Joe Osha of Merrill Lynch.

Hi, gentlemen, congrats on the tight operating expenses.

Let me just try asking this question a real simple way.

What -- what should we think of the operating expense run rate to be for the fourth quarter, can you give us a sense?

Joe, we're not forecasting, other than our top-line revenue and our bottom-line EPS, we would expect just because of the profit-sharing accrual alone that that's going to put some upward pressure on that operating expense going into fourth quarter versus third but we will try to manage as best we can to keep other discretionary costs at a reasonable level.

Right.

I, like a lot of people, am just kind of struggling to put these numbers together and one of the things that I think surprised us pleasantly was, you know, the fact that you two -- you know, $60 million, you know, out of your OpEx run rate Q2 to Q3, which is far more than what was suggested by the lower accrual.

So what I'm trying to -- to find out now in Q4 is whether, you know, are we gonna get to the report and discover that there's kind of an extra -- another $30 million just fell out of that, or what?

Joe, let me help clarify the 2Q to 3Q operating expense reduction.

A good portion of that was the profit-sharing reversal.

Recall that we accrued almost 100 million in profit sharing in second quarter, about 40% goes into cost of revenue and 30% each into R&D and SG&A.

Right.

And third quarter we only accrued about 25 million.

So there's about 75 million that's reversed and you can apply the percentages to cogs and operating expenses.

Okay.

I still can't get there.

But anyway, so the -- the point is that perhaps off this run rate we should perhaps now -- you know, think about that flattish and then kind of, you know, add back the -- the accruals to that -- that number, would that be a good way to think of it.

Well, Joe, I think in R&D we've given pretty specific guidance.

There could be some rounding in there but we've said $2 billion for the year and given that we have three quarters behind us.

Even I can figure that out, okay.

I'll let you characterize it.

Okay.

The second question, then, back to this issue of -- of run rates you said 6 to 12 weeks in terms of between when you start a product and when you ship it is that -- you know, is the lag affect overall between, you know, when the utilization affect -- you know, utilization goes back up and when that manifests itself in the profit margins, is that gonna -- gonna be a whole quarter by the time all is said and done, or less than that?

If you pick up utilization, say, for example, in Q1, would it manifest itself as better margins in that quarter or would it really be sort of more Q2 thing?

Dependent on when we change our loading direction it would start probably fairly shortly after the change in direction of our loading.

So just like we saw in third quarter, when we began to reduce our loadings, you know, fairly shortly thereafter we began to see the under utilized costs being stranded.

The same would happen when we go back the other way, Joe.

So the 6 to 12 weeks I was talking about is really over a wide variety of manufacturing process, some of the simpler ones, six weeks' lead time, some of the more advanced ones are going to take you 12 weeks or more.

Okay.

Thank you, Joe.

Next caller, please.

Thanks.

Thank you, our next question is coming from Ben Lynch of Deutsche Bank.

Hi.

I was trying to work out what Joe and myself have got in common.

Ron, just, did I hear you say that only 5 to 6% of TI's Semiconductor revenue base is subject to, you know, pricing variations due to the cycle, or is that just more a comment on sort of near-term pricing variations.

No.

What I was trying to be specific on is the percent of our revenue -- our Semiconductor revenue, that is standard logic and standard linear commodity products.

The other area that I would describe as kind of that pure commodity product space would be some of the display driver products which are maybe an additional few percent, but in total it would be probably 10%, maybe a little under 10% of Semiconductor revenue.

And is there another portion which you would say is, you know, not pure commodity but also, you know, moves around.

Yeah.

I mean you have pure proprietary at one end of the spectrum, you have pure commodity at the other end and then you know you probably have some grey areas in between and I don't know specifically how I would characterize them.

And just a last question on that train of thought.

Is -- is some of that pricing pressure showing up in your Q4 sort of EPS applied EPS or is it more so -- is it flowing into backlog and we'll see it then?

No, I --

Q4.

Yeah.

Good question.

I -- just to clarify.

We expect that probably what we're shipping in standard logic and linear in fourth quarter will be below the third-quarter rate based on the supply and demand -- supply and demand and balance that I was referring to.

Great.

Can I just have one last follow-up?

Sure.

You had the -- other income line was better than I guess we certainly expected because of this Italian settlement.

And you called it partial settlement in the third quarter.

Is there some more of that to come and is it going to come in the fourth quarter?

Ben, we expect to see that other income and expense line probably work its way back to its more normal 40 or $45 million per quarter level probably by the first quarter.

So we'll see a transition from what you saw in the third quarter on our way to a lower number, probably in the first quarter.

So there's going to be perhaps more things coming through there if -- if the things work out.

So I think what you're saying is probably lower fourth-quarter compared to third, but then another step down to the more normal rate as of the first quarter.

Great.

Thank you very much.

Thank you, Ben.

This will be our last caller.

Operator.

Our final question is coming from William Conroy of Sanders Morris.

Ron, Kevin, good afternoon.

Just I think a couple that could be left.

First, can you give us an update on DMOS 6.

What's the current status in terms of capacity and and of the CapEx that you're contemplating for the fourth quarter at adding capacity at DMOS 6?

Okay.

I'll take the first one and Kevin if you have anything to add to the second one go ahead, DMOS 6 basically is running right on track to the plans we talked about probably for a year now, where we have a 10,000 -- and when I'm talking about wafers here I'm doing -- I'm characterizing as 300 millimeter wafers, so we have 10,000 wafers per month capacity of 130-nanometer.

That's full production.

And we have 4,000 wafers per month of capacity for 90-nanometer, which is what I referenced that will be ramping up here by the end of the year.

So by the end of the year, we would expect to be at 4,000 wafer per month run rate on 90-nanometer.

And then to answer your question on going forward, we have pretty much completed the -- most of the capital expenditures in our assembly test sites and as we mentioned early on most of our capital expenditures in the third quarter will be 90-nanometer and fourth quarter it will continue that but clearly more on the 90-nanometer side.

And time for a quick follow-up.

Okay, go ahead, Bill.

Any inventory written off or written down in the third quarter?

Nothing that we normally wouldn't do.

Great.

Thank you.

Okay.

Thank you, Bill.

And with that, because of time, we're going to go ahead and wrap up the call.

I realize some of you are still in queue, so I apologize.

Before we end the call let me remind you that the replay is available on our Website.

Thank you and good evening.

Thank you and thank you callers.

This does conclude today's conference.

You may disconnect your lines at this time and have a wonderful day.