德州儀器 (TXN) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to this Texas Instruments fourth quarter and 2005 earnings update conference call.

At this time, all lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period.

If you would like to ask a question during that time, please press the star key followed by the number one on your touchdown telephone.

If you would like to withdraw your question, please press the pound key.

It's now my pleasure to turn your call to your host, Mr. Ron Slaymaker.

Sir, the floor is yours.

Good afternoon, and thank you for joining our fourth quarter and 2005 earnings conference call.

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

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

This call is 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 released 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 March 6.

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 March 1 until the update.

In today's call, I'll review our highlights of revenue performance, and then Kevin will discuss profit performance and the first quarter outlook.

After this review, we will open the line for your questions.

Fourth quarter TI revenue of $3.59 billion was even with the third quarter level, and grew 14% from a year ago.

This was at the lower end of the updated guidance range that we provided in December, primarily due to assembly and test capacity constraints in semiconductor.

Even so, semiconductor revenue grew 3% sequentially and was up 15% from a year ago.

This was the second consecutive quarter of accelerating year on year growth for semiconductor, a trend which we expect to continue into the first quarter.

Sensors and controls revenue grew 8% sequentially and 9% from a year ago.

E&PS revenue declined seasonally by 62% from the third quarter and was down 16% from a year ago.

Semiconductor revenue set a new quarterly record, and was accomplished while simultaneously setting a new quarterly record operating margin of 28.1%.

Especially noteworthy was another strong quarterly performance by our high performance analog group, which grew revenue 8% sequentially.

High performance analog revenue was up 41% from a year ago, reflecting the combination of four consecutive quarters of solid growth and the inventory correction that was underway at TI's distributors in the year ago quarter.

Overall analog revenue grew 2% sequentially and increased 20% from a year ago.

The year on year comparison was negatively impacted by about 7 percentage points, due to the divestiture of the commodity LCD driver product line in the first quarter of 2005.

This revenue was $53 million in the year ago quarter.

In addition to the previously mentioned high performance analog growth, demand for wireless analog products was also strong in both comparisons.

TI's overall wireless revenue grew 4% sequentially and was up 12% from a year ago. 3G revenue was the biggest factor driving our year on year growth.

Sequentially, in addition to 3G, we had strong growth in range of 2.5G products, including chipsets sold to Odium customers for low price handsets to address emerging market opportunities, and OMAP application processes for Smartphones.

In addition, our Bluetooth units tripled sequentially as we ramped new programs into production.

Overall, VSP revenue increased 2% sequentially and 12% from a year ago, driven in both comparisons by wireless.

Let me make a few quick points about our performance overall in 2005.

First, our execution in high performance analog was very strong in 2005, with revenue growing 13% from 2004.

This growth rate was 50% higher than our closest major competitor.

And we exited 2005 with distribution inventory levels of our high performance analog products lower than they were at the end of 2004, despite resales that were significantly higher.

Growth in 2005 would have been several points higher had distribution inventory grown at the same pace as resales through the year.

Nonetheless, we are encouraged that the lean channel inventories will service well in 2006.

Next, I believe we performed well on wireless in 2005, with revenue growth of 14%.

We entered the year with many predicting that TI would lose market share in the fast growing 3G, WCDMA market.

We're exiting the year having done the opposite.

We believe industry shipments of WCDMA handsets doubled in 2005.

TI doubled our shipments of OMAP application processors and almost tripled our shipment of WCDMA modems in 2005.

In both areas, TI holds strong market leadership.

We solidly accomplished our goal to exceed $1 billion of semiconductor revenue in WCDMA in the year.

As we enter 2006, a year in which most expect that WCDMA handsets will double again in terms of shipments, we are confident that we will maintain our market share, if not expand it further.

At the same time, we have garnered an undisputed leadership position supplying chips to the rapidly growing emerging market for low price handsets.

In 2006, we expect to extend this lead even further as we ramp volume production of our single chip cell phone product.

As in 3G, we are engaged with market leaders who are gaining share themselves.

TI shipped more than 400 million units of digital base stand devices in total in 2005, and more than half of the world's cell phone continue to be based on DSP technology from TI.

TI has shipped more than 150 million chips in total in 90 nanometer technology; and our 65 nanometer process is now qualified and ramping into production.

This deployment of advanced technology is well ahead of any of our major wireless competitors, and is a significant differentiator for TI.

Our customers are advantaged by our technology, allowing them to introduce phones that perform better, consume less power, fit into smaller, thinner form factors and cost less. 2005 was a more challenging year for TI's DLP product line, as we entered the year with significant excess inventory at both our front projector and HDTV customers and their channels.

Overall, DLP revenue declined 8% in 2005; however, we left the year in a much better position, with revenue in the fourth quarter up 10% from the year ago quarter.

More importantly, our products continue to be enthusiastically received by our OEM customers and consumers alike.

We continue to leverage the flexibility and inherent performance advantages of DLP technology, as well as continue to build our brand image with consumers.

Recent technology introduction examples include DLP/HGTV chipsets that support LED elimination, and brilliant color technology, which extended DLP color processing from three colors up to six colors, significantly increasing the number of producible color shades and providing up to a 50% brightness increase.

These innovations provide real advantages to consumers and demonstrate the level of technology headroom that is available to TI and our customers with the DLP technology.

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

Thanks, Ron, and good afternoon, everyone.

As Ron indicated, we are pleased with the progress that we made on profitability in the quarter.

Excluding stock based compensation expense, we held our 25% operating margin that we first achieved in the third quarter.

Total stock based compensation expense in the fourth quarter was $86 million, or 2.4% of revenue.

For the year, it was $178 million, or 1.3% of revenue.

In comparisons to prior periods, please remember that stock option expense is not included in the periods prior to the third quarter of 2005.

TI's fourth quarter gross profit was $1.73 billion, or 48.3% of revenue.

The sequential decline in gross profit and gross margin was due to the seasonal decline in graphing calculators with their associated strong margins.

Semiconductor gross profit increased due to high revenue, and its gross margins were about the same as last quarter.

Operating expenses declined by $32 million, or 1% of revenue compared to the third quarter.

The seasonal decline in paying benefits resulting from holidays and vacation time taken by employees during the quarter was the primary reason for the decline.

As you would expect, these trends should reverse again in the first quarter.

TI's operating profit for the quarter was $810 million, or 22.6% of revenue.

Again, this includes stock based compensation expenses that were 2.4% of revenue in the quarter.

Semiconductor operating margin reached a new record high of 28.1% of revenue in the fourth quarter.

This was a sequential increase of 1.5 percentage points and an increase of 11 percentage points from a year ago.

For the year, TI's operating profit of $2.79 billion and operating margin of 20.8% of revenue both set new annual records and reflect profitability gains in semiconductor.

Semiconductor's operating margin for the year was 23.9%, an increase of 5.2 percentage points from 2004.

TI's overall tax rate in the fourth quarter, including discreet items, was 24%.

Net income was $655 million, or $0.40 per share in the fourth quarter.

Although we were at the lower end of our guidance range for revenue, we were pleased to be able to deliver earnings that were at the top end of our range.

It might help if I summarize the fourth quarter's earnings per share transition from the $0.38 that we reported in the third quarter.

On the plus side, about $0.02 of higher EPS resulted from semiconductor revenue growth, and about a penny came from lower operating expenses, and about $0.02 came from lower tax rate.

Recall that the third quarter tax rate included a a cumulative catch-up adjustment.

On the minus side, earnings per share were reduced by about $0.03, due to the seasonally lower E&PS revenue.

For the year, net income increased 25% to $2.32 billion.

I'll leave most of the cash flow and balance sheet items for you to review in the earnings release.

Let me make just a few comments.

Cash flow from operations was $908 million in the quarter and $3.77 billion for the year.

We ended the year with $5.34 billion in total cash.

TI used $870 million of cash during the quarter to repurchase 28 million shares of TI common stock.

For the year, we used $4.15 billion to repurchase 153 million shares of stock.

Average diluted shares outstanding were $1.64 billion in the fourth quarter, down 20 million shares from the third quarter.

For the year, average diluted shares outstanding were $1.67 billion, down almost 100 million shares from $1.77 billion in 2004.

Inventory of $1.27 billion at the end of the fourth quarter increased $115 million from the less than desired level of the third quarter.

Note that almost all -- or $108 million -- of the inventory increase remained work in process at the end of the fourth quarter.

Inventory levels, while improved, remained below our desired levels, especially in high performance analog die banks and overall finished goods.

Days of inventory at the end of the fourth quarter were up -- were 62, up five days sequentially and the same as a year ago.

TI orders in the fourth quarter were $3.77 billion, about even sequentially.

Semiconductor orders were $3.39 billion, up 2% sequentially.

Semiconductor's book-to-bill ratio was 1.05, down slightly from 1.06 in the third quarter.

Before I turn to our outlook for the first quarter in 2006, let me remind you that the previously announced divestiture of TI's sensors and controls operations to Bain Capital is expected to close in the first half of 2006.

The financial results of this business will be accounted for as a discontinued operation beginning in the first quarter.

This means that its results, excluding a small RFDI operation that will remain with TI as part of the semiconductor segment, will be consolidated to a single line item on the income statement, labeled "Income from Discontinued Operations."

Its results will not be reported in the Company's revenue, cost of revenue or operating expense lines.

For the first quarter, we currently expect total TI revenue from continuing operations to be in the range of 3.11 to $3.38 billion.

Semiconductor revenue should be in the range of $3.05 billion to $3.30 billion; and E&PS should be in the range of 60 to $80 million.

Earnings per share from continuing operations are expected to be in the range of $0.29 to $0.33 in the first quarter.

This estimate includes about $0.04 for stock based compensation expense, or above $90 million, and a little higher than the third and fourth quarter levels.

EPS from discontinued operations is expected to be about $0.03.

In 2006, our tax rate will be affected if the U.S.

Government reinstates the Federal Research Tax Credit, which expired at the end of 2005.

Our annual effective tax rate is expected to be about 30% and does not assume the reinstatement of this tax credit.

For reference, the higher tax rate will negatively impact first quarter EPS by about $0.03 when compared with the 24% rate of the fourth quarter.

For 2006, for continuing operations, we expect R&D to be about $2.2 billion, capital expenditures to be about $1.3 billion, and depreciation to be about $1.03 billion.

This depreciation estimate reflects the Company's change from an accelerated to a straight line method of depreciation for existing and future property plant and equipment beginning in the first quarter of 2006.

This change is the result of our studying the pattern of usage of TI's long lived depreciable assets.

The study indicated a trend toward more consistent utilization of assets, as TI has focused its product portfolio on differentiated products, and supplemented its internal semiconductor manufacturing to supply from foundries.

The effect of this change will be reflected on a prospective basis, and prior results will not be restated. 2006 depreciation is expected to decline about $350 million compared with 2005.

About half of this decline is the result of the change to the straight line method, with the remainder mostly due to TI's lower capital spending of the last few years.

A small amount of the decline will be due to the discontinued operations.

In the first quarter, we expect depreciation to decline about $80 million in total, which is about $35 million lower under the straight line method than it would have been under the prior method.

However, please note that since depreciation is inventoriable cost, we will see less than $10 million of benefit to pre-taxed income from this change in the first quarter, considering that we entered the quarter with 62 days of inventory where depreciation was calculated under the prior accelerated method.

So in summary, 2005 overall was a milestone year for TI.

We set new records for annual revenue, operating margin, operating profit and cash flow from operations in the year.

We are very encouraged with the financial health and strategic direction of the Company.

We believe actions such as the divestiture of our sensors and control segment, and the recently announced acquisition of Chipcon that bolsters our high performance analog capabilities, will continue to evolve TI into a company that will produce superior revenue and earnings growth on a sustained basis.

I should also note that our Board's recent authorization to reinvest an additional $5 billion in repurchases of TI common stock that was announced today.

This is a statement of confidence in the opportunities ahead for TI, and our ability to translate these opportunities into solid financial results.

With that, let me turn it back to Ron.

Thanks, Kevin.

At this time, I will 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?

[OPERATOR INSTRUCTIONS].

Our first question is coming from Mike Masdea of Credit Suisse.

Okay, thanks a lot.

Maybe Kevin, real quick.

On the comments you said about depreciation, I think a lot of us assumed kind of a straight line impact per quarter for the year in terms of the benefit from changing depreciation accounting.

It sounds like it's going to be -- is it going to ramp throughout the year and less than a penny in the first quarter in terms of the positive impact?

Is that the right ballpark?

Yes, and that's the right way to think about it.

And the reason it ramps through the year is because as we spend capital later through the year rather than it being depreciated under the accelerated basis, it's depreciated under a straight line, so that the impact for the year actually grows throughout the year.

For the first quarter, the delta, due to this change in method of $35 million, only about $10 million will make its way to the P&L in the first quarter.

It just takes about two months for the depreciation to travel through the inventory.

Great.

That helps compare with what was out there.

And I guess on the follow-up, Ron, we at least heard from a lot of semiconductor companies talk about lead times stretching out a little bit, about expedited orders, and it sounds like the good times are back.

But help us understand that the impact it's having on your business.

Are you seeing expedited orders?

Are you handling that and trying to avoid inventory builds, and how sustainable is that?

Well, I'd certainly describe things as a bit more hectic in terms of the operations, Michael.

You know, probably -- there are some areas where lead times have moved out.

You know, for example, isolated products in high performance analog that are high demand where they've totally depleted the die bank inventory, They've had to move lead times out.

But even in high performance analog, I would say overall we try to keep lead times stable.

And in some areas -- for example, standard logic, where you recall last quarter we said we had to move lead times out a couple weeks, we have been able to get back on top of that and bring lead times back in by a couple of weeks.

Now the same time, Mike, let's say our delinquencies are up.

So we are not -- you know, by a few days, I would say we are not fully meeting the lead time that we have committed to customers in terms of those deliveries; and in fact, those delinquencies will carry over into first quarter, and that's we're trying to have -- what we are focused on trying to get on top of today.

But in terms of overall lead time extensions, we have not made those moves at this point.

And, Ron, just make sure we're clear, is this driven by demand spreading upside, or the lean supply chain, or some combination?

I would say a combination.

Demand remains solid; and even through, you know, first quarter up to this point I would just describe that it's remaining strong.

You only have to look at order increases; but even more telling would be the book-to-bill up 1.05 that we ran for semiconductor in the fourth quarter.

So that's saying demand is remaining solid.

If you look at what change -- probably say versus our mid quarter update in early December -- at that point we were planning on certain capacity expansions in assembly test that, frankly, we just weren't able to get equipment in on time and per our plan.

So that created probably some more supplier related constraints than we had expected at that point in the quarter.

Thanks a lot.

Thank you, Michael.

Thanks.

Next caller, please.

Thank you.

Our next question is Adam Parker of Sanford Bernstein.

Yes, hi.

Just trying to understand that last point you made.

What was the impact of that back end tightness you referenced in Q4 in terms of revenue, and when will this be resolved, that, you know, give, than book-to-bill, you know, it's still impacting here at Q1?

Or how can you explain your revenue guidance a bit more clearly, please.

Yes, I would say -- you know, I don't know that we can completely quantify it other than just say, you know, where we landed in the quarter relative to our midpoint we were below, and we can fully explain that gap and probably more due to some of the slippage in expansion of that assembly tech capacity from our plan.

Does it carry over into first quarter?

Yes.

We are trying to bring on early in the quarter additional assembly test capacity and we are trying to get our output back to realign with the customer demand in the first quarter.

Yet at the same time, our ability to do that -- certainly the demand trends will be a factor.

If we get some seasonal slowing in demand, we will make more progress.

If demand continues to build on us, then, you know, that will mean that we might carry higher levels delinquencies than -- certainly than we'd prefer.

So does that help with the explanation?

Yes, yes, generally.

Okay.

And then the second question is just really the operating expenses, and there's a couple pieces here; but first of all, can you provide '06 SG&A guidance?

You know, unless I missed it -- you had RD and CapEx, but no SG&A.

Yes, Adam, we don't typically do that.

We'll just give you CapEx, depreciation and R&D, and we don't typically offer SG&A guidance for you.

Is it reasonable to assume your revenue growth will exceed your SG&A growth, or maybe just answer that over the long-term?

I think over the long-term that you are exactly on the same kind of thinking that we're on, because that's the best way for us to expand our overall earnings.

Okay, and then the one last thing.

Is your R&D shortfall versus your earlier guidance -- or the lower R&D versus what you [INAUDIBLE], you mentioned some vacations and holidays.

Did the number of vacations or holidays surprise you, or what caused that lower R&D versus your plan all year long?

Well actually, it was -- we had a little bit more vacation; but quite candidly, we also had a number of R&D [redical] sets that were scheduled to be released that didn't quite make it in the quarter and now they'll overflow into first quarter.

Okay.

So you put those together and it took us a bit under -- it averages down a little bit versus what we expected.

So we should take up our first quarter number by that shortfall?

Yes.

We would expect our spending to go back up, because these redicals just missed a quarter and they'll come in the first quarter.

And in fact, both of those factors, Adam -- certainly the seasonal element of holidays and vacations will come back in the first quarter and then the redicals just slip from fourth into first.

Okay, thanks, guys.

Thank you, Adam.

Next caller, please.

Thank you.

Our next question is coming from Glen Yeung of Citigroup.

Thanks.

Just a point of clarification.

When I look at your semiconductor guidance for the first quarter on a revenue basis, down just a little bit, you know, you can calculate now a bunch of different ways.

How you feel about your guidance relative to normal seasonal for the first quarter?

I think actually we are performing quite well relative to seasonality.

And the only thing you have to be -- you have to watch carefully is, you know, what do you mean by seasonality.

I mean, when we look at, you know, for example, just the last -- the last -- I think it's ten years of semiconductor seasonal patterns, you know, it's ranged anywhere from -- excuse me while I get the number in front of me.

It's ranged anywhere from -- for the sequential fourth to first transition -- a down of 19 to a plus of 12%.

Right.

So, you know, when you talk about what's the -- that -- call it normal and average sequential decline or seasonal decline, I'm not sure it's very telling in terms of being able to use it as a forecasting guideline.

But you know, the other comparison is just -- you have to consider a couple of things.

One, over the course of time, wireless has become a bigger part of our revenue, as well as areas like DLP.

So in general, the more we become aligned with consumer oriented purchases, you're probably going to see more of that fourth to first, and even third to fourth seasonality in our revenue trend.

And then the other consideration would just be, if you look at last year as a most recent example, we were down 7% sequentially in the first quarter.

So you know, we feel pretty good with the numbers that we are putting out here for first quarter.

And Ron, in 2005, you made the point that DLP was down about 8% for the year on the back of the inventory concerns to start the year.

As we are looking at 2006, we don't seem to have same inventory issues.

Do you expect DLP to be a positive grower this year, and should we look at that as a positive for gross margin?

Yes, I don't have specific numbers; but certainly it would be our expectation to be able to grow that DLP revenue.

And, frankly, on both fronts.

I mean, the front projector market is a fast growing market and one where -- we have about 50% share in that market.

So it probably becomes increasingly difficult to gain share; yet at the same time, we've got a market that, generally we believe and analysts believe is growing on the rate probably about 30% per year in terms of units.

So that's a -- and keep in mind, that's 70% of our DLP revenue.

In the TV space,we ar e still very, very early in that trend towards digital television and deployment of HDTV in general.

We've got a great technology, a great position in the market.

Highly competitive, but one that we believe we'll succeed in and will be a nice contributor to growth in 2006 as well.

That's great.

Hey, can I just -- I have a follow-up on the first question, I forgot to tack on another part, which is, you've got a good book-to-bill to start the quarter.

What is your sense about any double ordering that went on in the quarter or that you are experiencing now, given that you've had tightness in the back end and that where the book is pretty strong?

That's always an unknown.

So you know, might there be some book to -- some double ordering in there?

Could be.

But you know, Glen, in general, we think customers are -- they have given us more coverage; so they've extended their backlog and visibility out through first quarter.

Not really so much out beyond 90 days compared to what we've seen over the course of the last year, but we're certainly, we believe, entering in the first quarter with more visibility than what we have seen, and we think in general the customers are using that as their means of securing deliveries as opposed to playing the double booking game.

But you know, there could be some of that as well, and we don't have a great way to distinguish between, what's double booking versus true end demand.

Thanks, Ron.

Thank you.

Next caller, please.

Thank you.

Our next question is coming from Cody Acree of Stifel Nicolaus.

Thanks.

Ron, can you maybe go back to last year on that question about DLPs.

When was it that you started to run into the problems where you've noticed that you had some inventory issues at DLP, and are we at that point in the quarter?

I think it was -- when we -- when we really became aware of it was probably once we got into first quarter.

And you know, again, that's where we understood sell through and all that.

When we look back -- and I'm saying that's when we realized it, not when we built the excess inventory.

If you look back at fourth quarter, we saw television revenues down; but I would say most of that -- some of that could have been associated with inventory, some of it probably was normal seasonality.

I would say it was really first quarter came before we were fully aware of what we were looking at in terms of inventory correction.

So do you believe that what you are seeing in DLP now, especially in the television side of things, that you've got better visibility this year than you did last?

Oh, certainly.

And Cody, when I say first quarter, I don't mean the third month of the quarter.

At this point in first quarter last year, we knew and we were discussing with you guys that we were facing an inventory correction in DLP.

So certainly we don't believe that there is excess DLP inventory out there to any significant level on the front projector side or the television side at this point.

So from a visibility standpoint, what we saw last year that was a problem we don't think we're facing this year, relatively consistent with end demand and normal customer inventory trends for this part of the television selling season.

And then on the delinquencies, you said you are still running with some delinquencies now.

Are they starting to clean themselves up?

Are you -- How do you feel about your -- those capacity constraints, and are they going to linger into this first quarter.

Yes, Cody, I'll go ahead and try to take that one.

Delinquencies are still lingering.

They have come down a bit, but they have not come down anywhere near enough to meet the customer service requirements that we have in mind.

Our objective is to get enough back end capacity in place and assembly and test capacity in place to clear those and actually begin building some finished goods inventory and get a little bit ahead of this demand so we can meet these short order cycle times that we've got from some of our customers.

And Cody, again, there are two variables on that.

One is our own capacity expansion, which is coming online as we had hoped thus far in the current quarter; and then the second variable is customer demand.

And you know, that one is remaining strong.

So we are not getting help from the customer demand side; but frankly, that's not a bad issue to be facing right now.

So will you build a little inventory then this quarter?

I think that we would tell you that we'd like to; but again, as Ron pointed out, it's a function of the demand.

And if the demand keeps running strong as it is, we're going to have to keep working hard just to keep up.

All right, thanks.

Thank you, Cody.

Next caller, please.

Thank you.

The next question is coming from Chris Danely of J.P. Morgan.

Okay, thanks, guys.

Capacity constraint are always a good problem to have.

I guess given the capacity constraints, I'm just curious as to why the CapEx wouldn't be a little higher this year and a little more front end loaded?

Chris, actually you've hit the nail on the head.

They will be higher in equipment terms and they will be front end loaded.

If you take a look at last year, we spent a little over $1.3 billion we and guided for about $1.3 billion this year.

But keep in mind, last year we spent nearly $300 million on our new fab in Richardson, and that drops off significantly in 2006.

So that money is diverted instead into equipment expenditures.

We ordered a lot of assembly test equipment in fourth quarter.

And of course, it takes it awhile and it has to arrive before it turns into capital expenditures, and you will see that CapEx number bump up in the first quarter as a result.

Oh, okay.

And I guess a little bit more of a longer term question, now that you guys have done the fab light thing for a couple years and it's worked well in certain times -- very well in certain times -- and you got caught a little bit in Q4, do you have a different view on that?

I mean, do you think that you will rely maybe a little bit less on foundries in the future?

Or more, or how do you look at that and how do you think it will be going forward?

Yes, Chris, I wouldn't -- the foundry strategy had no impact on us in the fourth quarter.

This is an assembly test problem.

It was really a question of starting the wafers in the uniform pattern to meet our assembly test back end capacity.

And the fact of the matter is we had to expand the back end much faster than we expected because we're -- again, we drained finished goods in third quarter.

We didn't build any finished goods in the fourth quarter.

We did build work in process a fair amount; but we still have not been able to get it to the back end to begin to build up finished goods.

So it's not a wafer problem at this stage; it is an assembly test [INAUDIBLE].

Yes, a lot of that whip that you saw built in the fourth quarter is -- you can assume it's probably sitting in front of the assembly test equipment trying to work its way through that final stage of the manufacturing flow -- which, again, is the bottle neck we're facing.

It is not by any means either our own wafer fab capacity or availability from foundries.

Okay, thanks, that's helpful.

And as my follow-up.

Would you guys care to update your long-term gross and operating margin targets, given that -- given the sale of the S&C Group?

Well, I think what we will see with the sale of the Sensors & Controls business is our gross profit margin should actually increase a little bit, given that S&C was below overall TI.

The operating margin of the PFO percent will be -- you know, call it flat to maybe slightly up.

If you looked in the first half of 2005, Sensors & Controls' operating margin was a little bit better that semiconductor.

If you look in the second half, and you see this -- semiconductor was better than Sensors & Controls, we would expect to continue that kind of performance in the future.

If we look out, you know, further in time, we just achieved some long held goals of getting ourselves to a 50% gross and 25% operating.

Of course, that excludes the impact of stock options expenses when we set that.

I think it would be fair for us to say that we would like to learn how to get to those same kind of operating margins as we work through time by absorbing the stock option expense over time.

Okay, thanks a lot, guys.

Thank you.

Next caller, please.

Thank you.

Our next question is coming from Tom Thornhill of UBS.

It just got asked.

Was looking for some more explicit guidance here on gross margins because of the changes.

But can you elaborate a little bit on that, on what we should be looking for in the March quarter, given that depreciation is coming down, the S&C is coming out, and both of the operating businesses you have were running above 50% gross margins in the quarter you just finished.

Yes, Tom, we don't actually guide between the lines as we give revenue and we give EPS, and we don't really break out much between.

But I could suggest that you might model it by taking a look at Sensors and Controls and fourth quarter and you can subtract out $30 million for RFID from that revenue line.

Figure that was in the low to mid single digits on operating profit; so back that out and recompute and see what comes out of TI to try to get to that if you want to model those kind of numbers.

All right.

You mentioned book-to-billed.

It sounds like business stayed strong right through the end of the fourth quarter and has continued at that rate through the first part of Q1.

Is that accurate?

I there, is any read at all in early part of Q1 in terms of trend?

No, I think you've got it -- you've got it right, Tom.

Certainly we were also curious to see the transition once we got over into the new year; and, you recall even at mid quarter update we indicated at that point that we really needed to get into January to get feedback from our customers on sell through and see any kind of adjustments that they might make to their bill plans and backlog associated with either excess inventory, or, if there was such a thing.

And what I would say is we really haven't seen any downward revisions of -- when I say any, maybe some isolated cases -- but overall, our customers have not gone through and made downward adjustments that would indicate to us they see any kind of inventory issue either in their own operations or inside of their channels.

So the strength that we saw coming out of fourth quarter, you're exactly right, carried right over into the first three weeks of January here.

By point in time would it be normal that your customers would be making those adjustments if they had inventory at year end that carried over into Q1?

Certainly no deadline.

They can make those adjustments any time they want.

But I think, you know, as it relates to the Christmas holiday sell through, I think we have -- and our customers have pretty good indications that that didn't present an issue.

You know, of course, you had Asian holidays coming up here shortly that will be another checkpoint.

But at least as it applies to the other holidays end of the year holidays in 2005, I think we have a pretty good indication at this point.

Thank you.

Thank you, Tom.

Next caller, please.

Our next question is coming from Jim Covello of Goldman Sachs.

Good evening, thanks so much.

First question on DLP, Ron, I'm not sure if you said it was up 10% in Q4 over Q4 or year-over-year for a full year '05.

Q4 compared to Q4, full year growth was 8% in DLP.

Okay, so do I have that right then that -- and I could very well be doing my numbers wrong.

But does that mean it was flat quarter over quarter?

That's correct.

And, Jim, let me correct. 2005 compared to 2004 was down 8%, not up 8% as I said.

And you're exactly right.

Third quarter to fourth quarter was flat; and frankly, that's processed a little better than we had expected in October.

And the reason is front projectors.

Televisions were down sequentially, as we expected, which would be the -- when I say as expected, really as expected just from a seasonal pattern, because again you have to keep in mind there is a pretty long channel between TI and the end consumer purchase there.

But front projectors grew, and grew a little better than what we had expected.

Terrific.

Thank for that clarification.

And then couple other quick questions.

For longer term modeling purposes, when do we think about a depreciation in [INAUDIBLE] when we think about depreciation kind of bottoming out and then picking back up a little bit?

Jim, what you'll begin to see is that, you know, in 2007 we will probably expect depreciation to see a little bit more of a decline again and that's because the large capital expenditure bill that we had in 2001 rolls off.

And then after that you will start to see CapEx and depreciation to begin to be pretty easy to model, when we start -- begin to go into straight line would be easier just take and divide by five and get to your numbers until you start seeing flattening of that, or a mirroring of whatever our capital expenses are at that point in time; but it will [INAUDIBLE] depreciation much easier as a modeling basis.

Okay, and then a final question for me.

Relative to margin leverage in the model, you all have done a terrific job of doing different things to create much higher normalized margins, if you will.

Anything you can do at the current levels to drive incremental leverage from the current levels, which is kind of right at your peak?

Mike?

First of all, when you describe peak, you are saying --

Well, historical levels.

Yes, yes, comparing TI to wherever it was back then.

I guess another way to say it will be to relevant to current levels, you know, what do you think you can do to drive incremental margin leverage in the model?

Maybe that's a better way to ask it.

A couple of things I'll throw out, and we'll let Kevin add to it, is you know, you certainly see benefit as revenue grows and how that translates first of all to leverage on OpEx.

Second, and I think Kevin said, we would expect to grow under normal expectations for revenue growth, SG&As below the rate of revenue growth.

Another consideration would be product mix.

Somebody asked the question earlier and I don't know that I addressed it, but certainly DLP, for example, runs above corporate average margins, HPA tends to run above corporate margins; so to the extent that we see good growth in those areas -- and frankly, we didn't see that kind of growth in 2005, so hopefully comes back in 2006 with respect to DLP and certainly HPA the trend we seen there, you know, we fully intend to keep marching forward into 2006 being with being above market revenue growth.

And then -- and so utilization is a factor.

Product mix is a factor.

And just revenue growth and leverage on OpEx.

And so frankly, it's a lot of things that you have seen from TI the last couple years; and then in addition, you know, the Sensors and Controls sale certainly will help at least on the gross margin line.

Kevin, anything else you can think of?

You've covered it all.

I mean, I guess my final final question would then be, I mean, we had -- you know, obviously the revenues were kind of flattish sequentially in Q4, but we had a lot of those things present in Q4 of '05 and the margins were, you know, flat to down a little bit.

So what would change relative to -- you know, other than kind of seasonality in the business?

Well, I think, you know, Jim, when you look at, first of all which -- you are saying margins were flat sequentially?

Well, yes, I mean, obviously gross margins -- operating income was -- operating margins were flattish kind of quarter over quarter.

For the company.

But keep in mind, that reflects the seasonality in our calculator group.

I mean, you are taking out a lot of highly profitable revenue.

If you look at semiconductors, operating margin went up a point and a half sequentially.

Gross margins held about the same; but I really -- the only thing on gross margins when you look at sequential comparisons, you can get noise-type factors.

For example, third quarter depreciation was down a little bit.

Fourth quarter depreciation was up a little bit, for -- If you want to look at it from an incremental margin standpoint, I really encourage kind of year on year type of comparisons.

So I think you get some of those kind of noise factors entering in to the sequential comparisons.

Great, thank you so much.

Thank you, Jim.

Next caller, please.

Thank you.

Our next question is coming from David Wu of Global Crown Capital.

Great quarter, folks.

Two quick questions.

Number one is, Ron, can you tell me where does the DLP business actually grow on a seasonal basis?

And second question I have is, these wonderful things that are sitting in front of your test and assembly equipment, won't the delinquency, if you make them up in Q1, such as that a couple -- some of these revenues that you miss in Q4 will show up in Q1 revenues?

Do you make that kind of assumption in your guidance?

Well, I think certainly as we are preparing our guidance we are well aware of the delinquencies we are carrying over into the quarter; and to the extent that we are able to reduce those delinquencies going out of first quarter then that says, yes, those -- that benefit is in the first quarter and it's in the guidance.

But to what extent will still have to be determined.

I'm sorry, David, could you -- the other question?

The DLP business --

Seasonal growth, when we might expect it?

How does the seasonality grow in the four quarters of a year.

Because we had last year a distortion from excess inventory in the channel, and this year it's kind of partly unwinding of that problem.

Agreed.

And if you look at years before that, we've just kind of been on a secular bill trend that a lot of times blew through whatever underlying seasonality.

Seasonality prior to '05.

Yes, I don't -- the answer is, I don't have -- we don't have the history to be able to lay out and say this is what you can typically expect from DLP through the quarters of the year.

So you know, unfortunately we're probably going to have to have a little more history behind it to be able to talk about how that works for the blended business there.

Okay.

Can you just clarify one thing, which is -- you said at the mid quarter update that you were going to get into the third quarter to get customers' feedback on sell through.

Were you specifically thinking about the very large OEMs and cell phones and the DLP kind of business?

Or do -- can you get a read on the broader based customers as well?

Certainly the big customers, we have their production planning systems tied in to our production build systems, and we have really good visibility there, as you move out to small customers, certainly we would have a less visibility.

I would say we have generally good visibility at demand at distribution, and certainly inventories and distribution.

And, you know, let me just comment, inventories and distribution declined again in the fourth quarter.

So we know those channel inventories are low, and all of those, you know, generally point to good things.

I mean, frankly, in distribution, we and the distributors probably would preferred have inventories at a little higher level than where they are coming out of fourth quarter.

But, they're caught up in this whole issue of, as we are putting product out, are we sending it to customers that are ready to put that in a system or are we putting it -- sending it to a distributor that's going to put it in inventory?

So it's taking us a little more time to get that inventory built back to desired levels in distribution.

But certainly the demand is there; and if you go into 2006, I think we believe we're going to be well served by having lean inventories in that channel.

Still talk about seven times turns, right, like we said before?

That's correct.

Turns are seven or maybe slightly above I believe.

Okay.

Let's move on to the next caller; and our backlog of callers is growing even faster than our constraints and assembly tests, so I really will ask each of you to limit yourself to the two questions, please.

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

Thanks.

Ron, if you could comment on OMAP.

I mean, you talked about the strength year-over-year, et cetera.

Just give us a picture of what you are seeing just from a competitive landscape perspective attach rates-- pricing trends, et cetera, just give us a feel for how that business is going, please.

OMAP is doing very well.

I mean, it -- if you look at our wireless revenue and our 3G revenue in 2005, it was roughly 55% OMAP, 45% baseband.

I think I said earlier that we doubled our OMAP unit shipments in 2005 compared to '04 for that 3G space.

So it's doing very well.

The encouraging thing is if you go back probably to 2004, almost all of our OMAP revenue was tied to the Japanese market and NTT DoCoMo's program specifically.

That has moved out to a broader base of customers and service providers in 2005, so it's diversified nicely and has grown nicely.

We certainly -- in terms of ASPs, I would say -- you know, they are coming down, but holding up well with respect to our expectations.

You know, still in the 15 to $20 range that we described overall for 2005.

But more in the lower part of this range, coming out of the year than where it would have been at the beginning of the year.

Did you have a quick follow-up, John?

Just real quickly.

Utilization expectations for Q1?

We don't have specific numbers to share.

What I can say is, utilization in fourth quarter of our back of our fab -- so wafer capacity was about even with where it was third quarter, but I don't have a specific outlook number to provide you in first quarter.

Thank you.

Thank you, John.

Next caller, please.

Thank you.

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

Hey, Ron, I didn't hear the answer and maybe you didn't answer it when Michael asked earlier on about lead time.

You said high performance lead times have stretched out, could you please quantify that?

No, I said overall high performance analogs have been stable, although I would characterize it as four to six weeks.

There are isolated cases where the die bank inventory was depleted and we've had to move lead times out, but those really are isolated cases versus what we are doing overall in high performance analog.

Okay, thanks.

Thanks for the clarification.

Second question, very good free cash generation.

You're buying back.

Why not increase the dividend?

Ambrish, we have -- if you take a look over the last year and a half or so and what we've done on dividends and buy-backs, we have actually increased the dividend several times.

And I think the first sizable buy back that we announced was back in September of 2004, and at that time we increased our dividend by 17%.

We had a second buy-back that we announced a year ago, a third buy-back that we announced in July of this past year -- and at that time, another 20% increase in dividend -- and then our most recent buy-back.

So we have, in fact, been increasing the dividends; and the Board does review our dividend policy on an ongoing basis, and to the extent warrants are appropriate, we will make changes in the future based upon their evaluation.

What I should read into that, Kevin, is we should expect an increase sometime soon.

You know, Ambrish, I knew as I was saying that you were going to go there.

I don't want the past to be pulled out to the future, but I just did want to point out the fact that we have been increasing it and we continue to look at that.

To the extent that it makes sense we will make adjustments.

Take your follow-up question, Ambrish?

You know, my follow-up, Ron, was a little bit on the wireless business.

You talked about -- and you've talked about in the past -- about the growth in the low end instead of the high end.

What do you think is the percentage of the two businesses relative to what it was in '05?

What would you expect in '06?

Thanks.

I would say when you are talking about percentage, are you talking about market growth?

No, not market growth, because I guess that's -- I guess part of that is more dependent on where the market goes.

But when you look at your business and you look at '06 versus '05, where would you expect the low end phones to come as a percentage of your total wireless business?

Yes, I don't have a specific number there.

And part of this is trying to come up with an exact definition of low end.

We know the lower priced products that are going into those lower price hand sets generally; but there is not a real -- kind of call it bright line definition of where low end ends and mid range begins.

What I can say is the trend is exactly as we described, where if you look at -- I think we gave some of the numbers in the case of 3G -- 3G represents a quarter of our wireless revenue in 2005.

You know, that likely will increase in 2006.

And at the same time, this trend that we are seeing on the low end, we would expect will continue as well.

I don't have a market growth market for you on '05 or '06 on the low price segment.

But I can say our market share is really strong and we are engaged with those familiar players that are quite vocal about their own successes in that segment of the market.

So I think it's suffice to say we expect that to continue to be a growth driver in '06 as well.

Okay, thanks, guys.

Next caller, please.

Okay, our next question is coming from Mark Edelstone of Morgan Stanley.

Good afternoon.

I guess, guys, on that point, you're probably just going to walk through the high end and the low end.

If you net it out and look at 2006, are you expecting that units and revenues and wireless will grow at roughly the same pace?

Or do you think there is more content increase overall when you net it out?

That's a good question, Mark, and I don't have an answer for you, because it really depends on the mix.

If in fact, the growth from 3G absolutely is -- if you call blended ASP, blended ASP -- the ASP on 3G is higher than our average ASP.

The ASP on low priced, where there's a lot of unit growth happening, is below, so what this nets out is going to be dependent upon the relative growth of those two segments of the market.

If you look at '05, you know, we had good solid wireless growth of 14% compared to '04.

But that was probably a little bit below what handset units grew in '05.

So where it goes in '06 really is going to depend upon which segment of the market grows faster.

And then just a follow-up.

If I'm reading between the lines correctly, Kevin, it sounds like you are going to a five year straight line depreciation.

Can you confirm that and then just talk about where you expect royalties to trend in '06 before versus what you saw in '05?

Mark, you read between the lines correctly.

We do -- we're keeping the lines as they happen in five years, so it will be just a simple five year straight line depreciation going forward.

On the question of royalties, we are in the process in 2006 of negotiating new contract with various parties. 2006 is a -- is the period in which we begin to see some of those tenure licenses we had back in the mid-90s begin to come up for renewal.

And so some will be expiring and some already be replaced -- renewed.

Some new people are already signing on.

So we're going to expect to see, you know, royalties continue to be a reliable income stream for us in 2006 and beyond.

It probably wouldn't be appropriate for me to comment as to what amounts that we might see on that.

And as we go into 2006 and go into negotiations with various people, we may see certain catch-up adjustments and so on for some that may expire [INAUDIBLE] a quarter or two before they get renewed.

But that's the pattern we were looking at in 2006.

And again, keep in mind that royalties to total TI have dropped down well below 5% level now, so it's really not quite as big a component as it was for us.

Is there a risk here though, Kevin, that at least as you go through some of the quarters this year that the royalty income in any particular quarter is lower than what it was in 2005?

It's conceivable that something -- in a particular quarter we could see a shift like that.

If we anticipate something like that, Mark, we will make it clear in our guidance what's happening.

But right now, I have nothing like that that I would offer to you to work into your models or anything.

Okay, thank you.

And I would say that the reasons may be different; but frankly, Mark, as you are well aware, if you go through the history of our royalties they have always -- I mean, there are a lot of factors there, including, you know, licensee's revenue.

Any catch-up, things like that.

Those numbers have tended to move around pretty much quarter to quarter anyway.

I know, for example, I think it was second to third quarter last year, we had something like a $50 million transition.

So all I'm saying is historically those numbers have moved around a lot.

Okay.

Let's move to the next caller, please.

Our next question is coming from Chris Caso, Friedman, Billings.

Yes, hi, thanks.

Guys, with your high performance analog segment, typically with some of the our guys in the high performance segment, they show a strong first quarter as the industrial market tends to kick in.

And not sure of the profile of your business -- is that something that you guys are expecting as well as far as the HPA group in the first quarter?

Chris, I think -- without being specific to our expectations, I think you can expect that in general, TI seasonal pattern high performance analog will be very closely aligned with with a you see from our three primary competitors in that space.

Okay, fair enough.

And as far as some of the delinquencies you guys have been talking about, could you give some clarity as -- with respect to what segments delinquencies are in?

Are they kind of pretty much broad along the product line, or are they concentrated in the catalog business?

And then more specifically, are there delinquencies the wireless business as well?

Chris, I would say that they are broad based.

They include the catalog area.

They include some of the big verticals, including wireless.

So it was quite a bit across the board.

This assembly test bottleneck that we've been experiencing was not favored in any one particular product family, as the business managers in Santiago will tell you.

They are all suffering from the same constrained.

Okay, thank you, Chris.

Let's move to the next caller, please.

Thank you.

Our next question is coming from Tim Luke of Lehman Brothers.

Your line is currently live.

Our next question is from Michael McConnell of Pacific Crest.

Thank you.

Question on the bottleneck and its assembly test, was curious if this has caused some revisions in the supply chain with respect to some of your partners?

I'm not sure, Michael, what you mean by revisions with our partners.

Well, you know, the bottleneck -- I was looking at it from the wafer standpoint.

You know, just with respect to Q1, it's a mere forecast of your partners, and with this bottleneck if you had to make some revisions to some of your suppliers?

No.

If you are talking about our wafer suppliers, the answer is no.

If you are talking about our assembly and test equipment suppliers, we certainly are trying to prioritize some of them to help us relieve those.

And part of it is just a logistics challenge of trying to bring the various parts together.

For example, a tester with the right handlers, so that we can actually bring those to the line at the same time and run the product through that.

Just those kinds of logistical challenges that we're having to balance out.

And really only a few days off, but enough that it was causing us to leave the quarter with some delinquencies and missed revenue opportunity.

Okay.

And then just maybe this is for Ron.

Just, Ron, if you kind of characterize Q1 kind of what you are seeing - in the wireless [INAUDIBLE] customers in general.

You know, seasonality -- if this tends to be normal seasonal, and make some characterizations between demand, both at the high end relative to the low end, please?

Michael, we really don't break down our outlook into all the various sub-businesses below the semiconductor segment levels.

So let me leave my statements as I made them as they apply to the semiconductor business overall as opposed to breaking it down into wireless or various sub-elements below that.

Okay, thanks.

Thank you, Michael.

Next caller, please.

Thank you.

Our next question is from Joseph Osha of Merrill Lynch.

Wow, I made it.

My question on wireless was already asked.

In terms of the profit sharing for 2006, Kevin, can you give me a sense as to how that's going to work?

Yes, Joe, it's going to work the same way it did in 2005.

Recall that we modified the formula coming into 2005 so that it's purely a function of operating margin, whereas previously it was a function of both operating margins and revenue growth rates.

So we saw that reduce fairly significantly on a year-over-year basis into '05 and really smooth itself out and take it out a little.

It's no longer causing noise like it was in the past.

So we would expect that going into 2006.

I don't have a dollar value or percent value for you to work in there.

But it will run on the same sort of trend that you see our operating margins running on.

Has the hurdle rate changed at all and is the hurdle rate calculated taking the options expensing into account?

The options expensing run through the operating margins, so that does depress, if you will, the overall profit sharing computation.

All right, so the implication is then that we might see perhaps a smaller impact there this year than we have in the past as a result of that?

Are you assuming our operating margins decline as a result of stock based compensation?

Meaning '06 in total compared to '05 in total?

Well, I don't know yet.

But I mean, certainly they tend to have a depressing effect, right?

That's two points of revenue.

Sure.

To that extent it would; but to the extent that operating margin is higher, including stock based option expenses in '06 than the operating margin as we reported it in '05 with happier stock base compensation expense, profit sharing will go up a little bit.

Joe, let me just remind you on that so as not to forget.

With the depreciation dropping as much as it is on a year over year basis, that will also lift -- have a positive impact on operating margin.

As the year progresses.

Yes.

Okay.

And then just very quickly, Ron, to return to the wireless.

Did you say earlier on that you were thinking 3G revenue could double in dollar terms this year?

Is that what you said?

Actually, I think what I said was we believe -- and I think most analysts that are forecasting that segment of the market believes that WCDMA handsets will double again in '06.

So roughly going from about 50 million units in '05 to about 100 million units in '06.

And I will tell you, our expectation in term of our own market share is that we hold if we don't -- we hold it if we don't even expand it in '06.

So, you know, of course you have pricing that offsets some of that unit growth.

But we think it will be a nice growth engine for us again in '06.

Okay, one -- just a follow on that and then I will go away.

Are you able it give me a sense as to how the APS processor versus the baseband mix might progress?

I remember you were showing this chart around -- I think showing your [INAUDIBLE], or it might have been for fiscal year '04?

Sure.

You know, if you look at OMAP revenue last year, it was about 55% of the 3G revenue, 45% being modems.

And that's '05 you are referring to?

In '05.

And what I said was the modem units tripled, the OMAPs doubled.

So, you know, that will at least give you some data points to be able to make your own assumptions and extrapolate into '06.

The modem shipments have been increasing faster than the OMAP shipments in '05.

Understood.

Thank you very much.

Thank you, Joe.

Next caller, please.

Thank you.

Our next question is coming from Tim Luke of Lehman Brothers.

Can you hear me?

Yes, we can.

Go ahead, Tim.

Apologies earlier.

With respect to the mix in wireless, is it fair to say that these are your perceptions going into the quarter, that the WCDMA market may have strengthened, or was it largely as you thought it would be, and maybe how you see it the first quarter?

And I was also wondering with respect to the challenges in assembly and test, were they most felt by wireless relative to HPA, as such that the sequential growth rate would have been similar to HPA?

Or was that not really a factor?

And I had a brief follow-up.

Okay, and on the latter, I'd say, not really a factor.

You know, wireless got hit a little bit.

Actually, HPA has its own -- you know, it's probably there -- more related to die bank inventory as opposed to assembly test.

But, you know, both were for -- somewhat constrained in the quarter.

Probably the only area that really came out of the quarter clean without such constrains at all will be DLP.

The mix of wireless -- Tim, I'll have to tell you, if I just go through the quarter, wireless overall did probably a little better than what we expected in October.

It was a little under what we expected at the mid quarter update, first week of December.

And the reason it was a little under was because of the assembly test constraints that Kevin described.

As to the mix turnout, you know --

How did it finish?

How did it finish -- you gave an outlook at the mid quarter -- ?

I didn't understand what you just asked, Tim.

Could you repeat it?

You mentioned how it was at the mid quarter update, it was a little soft than expectations because of the assembly and test --

No, no.

What I was trying to indicate was how it finished was a little softer than what we expected at mid quarter.

We took -- mid quarter wireless expectation was up from October, and then we landed somewhere in between the two.

And the reason it softened up was just as we described already -- we didn't bring assembly test capacity on at the pace that we expected during the month of December.

But I don't have any color for you on the mix of 3G versus low end versus what we'd expect it coming into the quarter.

Now just as a follow-up.

You have -- could you give any commentary on the progress with respect to the development of your merchant solutions for the WCDMA market?

And any assessment of what opportunities may be opening up to you as some others struggle to move rapidly to make 90 and 65, and what the OEM opportunities that might open up with -- obviously from fairly high profile customers.

Okay.

Certainly, I -- you are asking a really good question and I'm probably not going to be able to provide you with as much clarity as you would like.

But I will say our progress is very good -- and for the rest of you on the phone, we are talking about the WCDMA product that TI developed in conjunction with NTT DoCoMo.

We've got you know, baseband product; we've got a -- have integrated OMAP 2 processor with a UMTS baseband, and those are merchant market solutions that we can sell to other handset vendors and service providers throughout the world.

So what I will say is, our progress is very good; but at the same time, I don't have specific customer engagements to be able to discuss.

And you know, frankly, I wouldn't suggest you hold your breath waiting for those, because generally we don't talk about such engagements until the customers are ready to deploy their products.

So it may be a bit of time before you hear specifics on who we are engaged with.

Kevin, I think you had a comment to make?

Yes, Tim, on your earlier question about the delinquencies and how it mixed across with businesses and how it impacted the businesses, obviously we didn't come in and deliver the revenue that we had expected mid quarter update, and the miss is almost entirely attributable to the fact that we had these delinquencies -- excuse me, the bottlenecks that we've been describing.

I think it's fair for you to be able to say, though, that with our wireless revenue being -- call it about a third of our total semi revenues, that being our biggest vertical, that in fact that was pretty close to the kind of delinquencies that we had -- missed opportunities that we had in wireless, if you will, because of the bottleneck problems.

So in fact, we would have seen more revenues in wireless, as well as HPA and others that Ron talked about a little bit -- a few minutes ago.

But you can pretty much figure that's going to be a similar ratio to what our total volumes revenues are for semiconductor.

Okay.

And I realize we have a long queue of callers still waiting to ask questions; but operator, let's take one last caller and then we'll wrap up the call.

Thank you.

Our final question will wrap up with Tristan Gerra of Baird.

Can you help us quantify the expected impact of your single chip solution for [INAUDIBLE] on '06 revenues?

What percentage of revenues can those chips generate by year end?

Tristan, I don't have a specific number for you, but certainly we expect that single chip solution to go a long way toward extending our leadership in that low price segment of the market.

You know, we already have better market position in low price segment than we have in the market overall.

And, frankly, a lot of what even our current position is based on is not just the fact that we have really good products and price points already that we are introducing, but the road map that we are providing those customers with that platform evolution over to single chip.

And so -- and let me just make quick note, that single chip technology will also be extended out, not just to address the low price segment of the market.

We will take that technology, you know, all up and down our product line to address, for example, even UMTS.

The concept of lower price solutions and the benefits that come along with integrating a digital radio with the baseband and the -- some of the other analog technology in a full CMOS implementation is not just going to be felt by that low price segment of the market.

So you will see it initially in '06 in handsets, we would expect, for the low price segment.

But you will also -- let me just say, stay tuned for product announcement, where you will see that moving into other technologies for handset vendors as well.

Did you have a quick follow-up, Tristan?

In terms of DLP pricing, any unusual trends lately, and what's your expectation on DLP pricing in '06 as the TD price points continue to decline?

Any variations from the normal decline that you have seen, or do you expect similar trends in '05?

I would say generally similar trends, Tristan.

You know, it's -- it's in our interest to continue to bring DLP the light engine, the chip set we provide, as well as to work with our sister suppliers to bring that cost of that light engine down so that television pricing can continue to down so that we continue to benefit from the price elasticity of the market.

That being said, it's no secret that there is a lot of price competition from other technologies out there such as LCDs, such as PDP; and yet, we also feel very confident that with DLP being based on semiconductor technology and all of the kind of normal learning that -- and cost learning that we have got a lot of experience in, and applying to that technology, we'll be able to do quite well with DLP in terms of addressing those price points.

Okay, and with that, we're going to need to wrap up.

Tristan, thank you for your questions.

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

Thank you, and good evening.

Thank you.

This concludes today's teleconference.

You may disconnect from all lines at this time, and have a great day.