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Mike Beckman: Welcome to the Texas Instruments Third Quarter 2025 Earnings Conference Call. I'm Mike Beckman, Head of Investor Relations, and I'm joined by our Chief Executive Officer, Haviv Ilan, and our Chief Financial Officer, Rafael R. Lizardi. 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 our website. In addition, today's call is being recorded and will be available via replay on our website. This call will include forward-looking statements that involve risks and uncertainties that could cause Texas Instruments' results to differ materially from management's current expectations. We encourage you to review the notice regarding forward-looking statements contained in the earnings release published today as well as Texas Instruments' most recent SEC filings for a more complete description. You likely saw last week we announced that the board of directors has elected Haviv Ilan as chairman of the board beginning January 2026. Haviv succeeds Rich Templeton, who will retire as chairman after a 45-year career with Texas Instruments. I'm sure you will join me in congratulating them both. Today, we'll provide the following updates. First, Haviv will start with a quick overview of the quarter. Next, he will provide insight into third-quarter revenue results with some details on what we are seeing with respect to our end markets. Lastly, Rafael will cover the financial results, give an update on capital management, as well as share the guidance for the fourth quarter of 2025. With that, let me turn it over to Haviv.
Haviv Ilan: Thanks, Mike. I'll start with a quick overview of the third quarter. Revenue came in about as expected at $4.7 billion, an increase of 7% sequentially and an increase of 14% year over year. Analog and embedded both grew year on year and sequentially. Analog revenue grew 16% year over year, and embedded processing grew 9%. Our other segment grew 11% from the year-ago quarter. Let me provide a few comments about the current market environment. The overall semiconductor market recovery is continuing, though at a slower pace than prior upturns, likely related to the broader macroeconomic dynamics and overall uncertainty. That said, customer inventories remain at low levels, and their inventory depletion appears to be behind us. We are well-positioned with capacity and inventory and have flexibility to support a range of scenarios. Now I'll share some additional insights into third-quarter revenue by end market. First, the industrial market increased about 25% year on year and was up low single digits sequentially following a strong result in the second quarter. The automotive market increased upper single digits year on year and around 10% sequentially, with growth across all regions. Personal electronics grew low single digits year on year and grew upper single digits sequentially. Enterprise systems grew about 35% year on year and grew about 20% sequentially. And lastly, communications equipment grew about 45% year on year and was up about 10% sequentially. With that, let me turn it over to Rafael to review profitability and capital management.
Rafael R. Lizardi: Thanks, Haviv, and good afternoon, everyone. As Haviv mentioned, third-quarter revenue was $4.7 billion. Gross profit in the quarter was $2.7 billion or 57% of revenue. Sequentially, gross profit margin decreased 50 basis points. Operating expenses in the quarter were $975 million, up 6% from a year ago and about as expected. On a trailing twelve-month basis, operating expenses were $3.9 billion, or 23% of revenue. Operating profit was $1.7 billion in the quarter, or 35% of revenue, and was up 7% from the year-ago quarter. Income in the quarter was $1.4 billion or $1.48 per share. Earnings per share included a $0.10 reduction not in our original guidance. This includes $0.08 of restructuring charges related to efforts to drive operational efficiencies to support our long-term strategy, including the plant closures of our last 250-millimeter fabs. Let me now comment on our capital management results. Starting with our cash generation, cash flow from operations was $2.2 billion in the quarter, and $6.9 billion on a trailing twelve-month basis. Capital expenditures were $1.2 billion in the quarter, and $4.8 billion over the last twelve months. Free cash flow on a trailing twelve-month basis was $2.4 billion. This includes $637 million of CHIPS Act incentives, including a $75 million payment received in the third quarter related to the direct funding agreement. In the quarter, we paid $1.2 billion in dividends and repurchased $190 million of our stock. In September, we announced we would increase our dividend by 4%, marking our twenty-second consecutive year of dividend increases. This reflects our continued commitment to return free cash flow to our owners over time. In total, we returned $6.6 billion to our owners in the past twelve months. Our balance sheet remains strong with $5.2 billion of cash and short-term investments at the end of the third quarter. Total debt outstanding is $14 billion with a weighted average coupon of 4%. Inventory at the end of the quarter was $4.8 billion, up $17 million from the prior quarter, and days were 215, down sixteen days sequentially. We have executed well on building an inventory position, which we believe will allow us to consistently deliver high levels of customer service. Turning to our outlook for the fourth quarter, we expect Texas Instruments' revenue in the range of $4.22 billion to $4.58 billion and earnings per share to be in the range of $1.13 to $1.39. Our fourth-quarter outlook includes changes related to the new U.S. Tax legislation and now assumes an effective tax rate of about 13%. In addition, expect our effective tax rate in 2026 to be about 13 to 14%. In closing, we will stay focused in the areas that add value in the long term. We continue to invest in our competitive advantages, which are manufacturing and technology, a broad product portfolio, reach of our channels, and diverse and long-lived positions. We will continue to strengthen these advantages through disciplined capital allocation and by focusing on the best opportunities, which we believe will enable us to continue to deliver free cash flow per share growth over the long term. With that, let me turn it back to Mike.
Mike Beckman: Thanks, Rafael. Operator, you can now open the line for questions. In order to provide as many of you as possible an opportunity to ask your questions, please limit yourself to a single question. Afterward, we'll provide you an opportunity for an additional follow-up. Operator?
Operator: Thank you.
Mike Beckman: We will now be conducting a question and answer session.
Operator: If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.
Timothy Arcuri: Thanks a lot. Haviv, I'm wondering if you can talk about the linearity of bookings through the quarter. I know, in the June quarter, things had softened throughout the quarter, but this quarter, it seemed like things got a little better as you move through the quarter. So can you talk about that as you sort head into see Q4?
Haviv Ilan: Yes. I'll give some high-level comments, and I please add anything with more details. Yeah, this quarter was kind of came in as expected and nothing not similar to what we saw in Q2. It was a little bit hectic with, you know, tensions related to trade and tariffs. We a lot of change through the quarter. This was more of as expected quarter through the quarter in July, August, and September. And Mike, anything to add on that one? We we had talked about, you know, the turns portion of the business had kinda started out strong at the beginning of second and had moderated near the end. We didn't see that same behavior again. And and third, it really you know, that portion kinda followed what you'd expect to see in a kind of a cyclical recovery that we're saw in third. Do you have a follow-up?
Timothy Arcuri: I do. Yeah. Ross, I wanted to ask about loadings that are assumed in the fourth quarter. I know you usually come in at the high end, but if we assume the midpoint of the guidance, and I assume that depreciation grows it has the past few quarters, Gross margin, if I exclude the depreciation, so on a cash basis, it's down, like, to sub 67. So hasn't been that low in, like, ten years. And you are already sitting on a lot of inventory. I don't think you wanna build more. So sort of what's the path to get cash margins on a better path here? I mean, it's below where it was seven to eight quarters ago when revenue was 6 to $700 million, you know, lower than where it is today. Thanks.
Rafael R. Lizardi: Yeah. Let me try to answer that. There were several questions there, so let me see if I can if I can hit most of them. First, your question is maybe fundamentally on inventory, so let me start there. We're very pleased with our current inventory position. That objective for inventory is to support customers to keep lead time short, and have just great customer delivery, customer satisfaction. So that we are achieving, and we're pleased with where the inventory is. Now given where revenue, the midpoint of our revenue, in order to continue to maintain those levels of inventory and where we want to be an inventory, we're adjusting the loadings down. Into fourth quarter. We did some of that in third quarter, and we're gonna do some more into fourth. So as we do that, and as you pointed out, when you look at fourth quarter, you have lower revenue, you have higher depreciation, you have the hit on the lower loadings. So that's how you get to the EPS range that we have.
Timothy Arcuri: Alright. We'll move on to the next caller.
Operator: Thank you. Our next question comes from the line of Chris Danely with Citibank. Please proceed with your question.
Chris Danely: Thanks, guys, and, thanks for pronouncing my last name correctly, operator. Hey, guys. Could you just talk a little bit more about the restructuring? Maybe what was the catalyst for it? And then any benefits to expenses, either gross margins or OpEx, going forward?
Haviv Ilan: Chris, high level, it's related to actually two things. First, I think we announced several years back that we are winding down our six inches fab, the 150-millimeter fab. We have one in Sherman, the old site the old spot in the site and one in Dallas. Both of them have actually started the last wafer this month. And we will see a gradual reduction in cost related to this to two factories. Peru, I think the '26, We are just taking the hit on the restructuring cost in Q3 as we had predictability and the amount was clear to us in terms of the size of it. Regarding the other part of it, this is an ongoing work that we're doing. We always look at the efficiency gains. We had some areas where we felt that our R and D machine is not generating returns that we would expect on the long term, and we decided to consolidate some sites. That is also going to take place in the next couple of quarters for the company.
Mike Beckman: Do have a follow-up, Chris?
Haviv Ilan: And Rafael, is there anything that just on the OpEx side that you want to mention, Rafael, on?
Rafael R. Lizardi: No, I would just say, technically, for fourth quarter, expect OpEx to be about flat to third quarter and that's Saviv alluded to the benefits from the restructuring. They don't all come in immediately, so it just takes a little while for that to happen. And there would be benefits in both COR as well as OpEx.
Haviv Ilan: Do have a follow-up, Chris?
Chris Danely: Yes. Hey, thanks, Mike. Think you guys said industrial was up low single digits sequentially and auto was up I think it was high singles or something like that sequentially. That sounds like a bit of a bit of a change from what you said last quarter and intra quarter. Is that true? And then, you know, why do you think industrial is slowing down and auto is a little better than expected?
Haviv Ilan: Let me take a first, Chris, you remember, we only guide at the company level. We don't guide by market. We did say, I think on the industrial side that we had a very strong Q2. So kind of indicate that we assume Q3 will taper off, right? And actually, to me, that low single digit growth sequentially was good, I'm pleased with the result. Remember, very strong growth in the second quarter. The automotive side, I would say, look, automotive was kind of sequentially up and down and up and down, but all in a very similar level, right? The recovery in automotive, at least for Texas Instruments, was very the trough was shallow, and now, you know, it's kind of back to where it used to be, so I would not read too much into it. It came in more or less as expected I think, Mike, it grew across the regions in automotive. It did. Yeah. I agree.
Mike Beckman: Sequentially across all the regions. All the regions. So Ten years. No surprises there, Chris, for market perspective, at least.
Haviv Ilan: Yeah. And Andrew has it within industrial, a second to third transition usually actually down. If you just look across the averages over history, it's actually down a little bit. So an up low single digit, is is actually not an an unusual result if you're in a recovery. Alright. I'll move on to the next caller. Thanks, Chris.
Operator: Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.
Joe Moore: Great. Thank you. I guess I continue to get a lot of questions about pricing for you guys. Anything unusual happening there? I think you alluded to kind of an ongoing learning curve kind of price declines, but anything happening where any markets are sort of different on the pricing side?
Haviv Ilan: Short answer is no. And again, for the year, I think our assumption coming into the year was kind of a low single digit decline like for like on the pricing side and I think that's how we are trending you today. So I expect the year to to end at that low single digit price reduction in 2025. Your follow-up, Kjell?
Joe Moore: Yeah. And just your any on lead times? Are you still in the range that you talked about? Any areas where lead times are getting longer?
Mike Beckman: I'd say across the portfolio, very consistent with what it was. The quarter prior. So not much of a change in that. And and, you know, our lead times right now are competitive. We worked very hard to make sure that our inventory position allows us to do that. And we're we're happy with the the lead time position we have. Yeah, not a lot of change on a sequential basis.
Haviv Ilan: Joe, just a little bit more color on lead times. I think we always talk about inventory part by part, the technology by technology, package type by package type. I think as Rafael mentioned, the third quarter was a very good quarter for us because we reached our milestone of where we need to be. We had a few areas where we were still catching up. So that's now behind us and we are now prepared to any scenario As Mike said, we are serving our customers through a growth issue of mid teens with no issues. So very strong support from Texas Instruments. We are hitting our metrics and exceeding them even And customer service is continuing to be very high for the company. Which explains some of the low visibility we are seeing. In terms of turns business, as Mike mentioned before.
Mike Beckman: Right. Thanks, Thank you. Move on to our next caller, please.
Operator: Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question.
Stacy Rasgon: Hi, guys. Thanks for taking my questions. For my first one, I just wanted to dial in on the gross margin expectations explicitly for Q4. So you talked about loadings and and everything else. You talked about the tax rate coming up. Seems that you're guiding it down, I don't know, maybe 250 bps, something in the ballpark of 55%. I just wanna know, is is that the right number to think about And then given that baseline, like, how much cost I be expecting comes out of the model due to the six inch of fab closures in the first half?
Rafael R. Lizardi: Yeah. So Stacy, high level in the ballpark. You know, we let the EPS guide speak for itself, but you have lower revenue, you fall that through, you have increases in depreciation, for the year is $1.8 billion to $2 billion. So you know, but it should be an increase second to third similar to third to fourth should be similar to second to third. So so you do that and you have a higher higher levels of depreciation. And then as Saviv said, we're very pleased with our inventory levels, doing what they're supposed to. So now we are moderating those wafer starts, those loadings, and as those come down, we get the the impact on gross margins. Let me just also step back and stress that we run the company with the mindset of a long-term owner and the to grow free cash flow per share over the long term. And that is gaining momentum. On a trailing twelve-month basis, our free cash flow is up 65%. From last year. And it has the potential to accelerate and grow even faster next year as we have outlined in our framework back in the capital management.
Mike Beckman: Do you have a follow-up, Stacy?
Stacy Rasgon: I do. Thanks. So your Q4 guide is down about 7% sequential off the slightly higher than expected Q3 base. My math suggests that down 7% or so is pretty much seasonal, like, on, like, on on a pre-COVID basis. I know post-COVID seasonality has been over the place, all over the place. But pre-COVID it typically was down, call it, like, high single digits. You seem to be on a seasonal trend now, and and maybe that's consistent with customers no longer draining inventory. What if how do I should I think about normal seasonality, like, pre-COVID levels for Q1? My under my my feeling is it's typically down sequentially. Like, what is I'm not asking you to guide it, but just, what what is normal for Q1, at least on a on a pre-COVID basis? If we're running more of a seasonal pattern from here.
Haviv Ilan: Before we talk about Q1, let me just add a little bit more color on Q4. As you said, I look at it as a roughly seasonal guide, as you said. And the reason is, there is a recovery, but it's a very in a moderate pace, right? So that's what guides our call it seasonal view into Q4. I also mentioned and that's what we're seeing. This is part of the way we do business days. More customers are direct, more customers are on consignment. Customer inventories are low, and I think they've gone through this depletion process, okay, that's behind us. So So we are going to be just seeing it real time as it comes and hence our guidance. Now, Q1, Mike, you could comment if Sure. Yeah.
Mike Beckman: It's not unusual to see you know, fourth to first just historically. This is not a guide for what we're gonna see, but what historically has done is typically down, just a slightly sequentially. It's not unusual to see. Alright. Stacy, thank you for the questions. Move on to the next caller, please.
Operator: Thank you. Our next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.
Ross Seymore: Hi, guys. Thanks for asking. A couple of questions, Haviv. Congratulations on the Chairman role as well. I wanted to go back to the gross margin side. Rafael, you talked about all the reasons it was going to drop and the rough range from the prior question. Just wondered how does that flow through into next year? From the perspective of depreciation? Is there any change to the range you gave before? And if you're flat to slightly down in the first quarter, does that flow through? And the utilization dynamic, does that have to flow through inventory, etcetera, in lead to a headwind as we go into the first half of next year as well? Yes. So a couple of things. First, on depreciation, no change.
Rafael R. Lizardi: To our guidance, 1.822 for this year. So you come back into fourth quarter. As I answered to Stacy a second ago. And for next year, we've said $2.3 billion to $2.7 billion but to be on the lower end of that range. So that should give you enough to model that. Beyond that, we'll go we'll forecast one quarter at a time. It's going to depend on revenue and demand. So this by by lowering the loadings now puts us in a good position to have the level of inventory that we think is required. And I think that's to put us in a good position going into 2026.
Haviv Ilan: Ross, the only color I'll add and then Rafael touched upon it, we do think that the way we run the place on free cash flow per share We have made an excellent progress on ramp and qualifying our Sherman new site We are winding down to six inch fabs. Our investments in Utah, in Lehi 2 are continuing as planned. So our eyes on free cash flow per share growth and start with free cash flow, right? So when you get to the right level of inventory, when you execute on your expansion plans, I think we are now well prepared for any scenario. And as you remember, we have framed 2026 not on GPM, but on free cash flow And that's where our site is on. Okay?
Mike Beckman: Do have a follow-up, Ross?
Ross Seymore: Yeah. I do. I just wanted to also talk about margins, but on the OpEx side, clarification first, then the question. The clarification for Rafael, you talked about OpEx being flat in the fourth quarter. I assume that's excluding the charge in the third quarter. And then as you look forward, in the past, you've had years that OpEx was flat year over year. You just some restructuring. You're consolidating R and D sites, you said. How should we think just generally about OpEx, whether it's relative to revenue or absolute levels? Do you plan to grow at low single digits? Is it something higher than that, like this year? Any sort of color about how you're approaching OpEx as you look into next year?
Rafael R. Lizardi: Yes. So a couple of things. First, on the first part of your question, when I think about OpEx, I do not include restructuring in that. That is a separate line. So that $85 million of course, it's not going to repeat. So that put that out and the OpEx the the the regular OpEx, I expect it to be above flat third to fourth quarter. Beyond that, on R and D and SG and A, strategy broader more broadly speaking, we have a disciplined process of allocating R and D and SG and A to the best opportunities and the best investments that both primarily on the R and D space, but even in the SG and A strategies such as ti.com to strengthen our competitive advantages.
Haviv Ilan: Yes. And on the R and D side, Ross, look, today I'd like to talk about and we are seeing the data center market becoming larger opportunity over the last several years and I think that continues into future. So when I think about industrial, automotive, data center, the amount of opportunity to expand our portfolio is high. We have a lot of good investments to make there and we plan to to grow our portfolio in these three areas. We care about all markets. All five markets, but these three will have really a long-term growth opportunity ahead of them and Texas Instruments can do more to sell these markets. So I expect to see that in 2026 and beyond.
Mike Beckman: Thank you, Ross. Move on to our next caller, please.
Operator: Thank you. Our next question comes from the line of Jim Snyder with Goldman Sachs. Please proceed with your question.
Jim Snyder: Good afternoon. Thanks for taking my question. Was wondering if you could maybe give us a little bit of color in China and what you're seeing there. I think last quarter you called out some pull in activity. I'm curious whether you saw a reversion there in terms of orders or whether orders were ending up ended up better than you expected and sort of what you're seeing on a real-time basis heading into Q4?
Haviv Ilan: High level in Q3, China came back to normal, and I expect that to continue into Q4. Mike, anything specific on the China business? Yes. And maybe add, as we probably talked about last quarter, there was potential for pull forward in second. And if you look at industrial and and China, you know, that was one of the only markets that didn't grow sequentially. But if you look on a year on year still up about 40%. But I think you're looking at where it essentially didn't We didn't see that same level of pull forward, at least evidence of it. Can't confirm that. With certainty, but it doesn't appear that same pull forward trend repeated itself in third just based on that. But we'll have to see how it plays through. But that's the only thing I would add.
Mike Beckman: Okay. Okay. So nothing special to report there, Jim. Okay?
Jim Snyder: Do you have a follow-up? Yes, please. I know when you get to the beginning of next year, you'll give us an update on the Capital Management Day. But I'm just sort of curious as we think sit here today in light of the slower recovery you seem to be talking about right now or you're seeing right now can you maybe give us a sense about whether you expect that your CapEx for next year will be toward the lower end of the range you sort of outlined at the beginning of this year?
Haviv Ilan: Yes. We gave you the framework, Jim. And again, we gave you a 20 to 26 framework there. But of course, it can be higher or lower. I think the probability of being lower is probably more probable than higher than $26 billion, right? So at the end of the day, we'll see what it wants to do. This recovery has been so we haven't seen even the market goes back to trend line, not to mention going above trend line and customers building inventory, we just seen it. Could still happen in this cycle, it could not. The good news from a Texas Instruments perspective that we are ready for any scenario. If it wants to grow quickly, we will be able to serve it. But if it wants to continue in that moderate recovery, of course, we will be at the lower end the CapEx and free cash flow will grow. As indicated in framework, the we provided in capital management, And as February comes in, we'll have some more information. We'll have Q behind us and we'll provide more color on that, Jim.
Mike Beckman: Thanks, Jim. Thank We'll go to next call, please.
Operator: Thank you. Our next question comes from the line of Chris Caso with Wolfe Research. Please proceed with your question.
Chris Caso: Yes. Thank you. I guess first question is with regard to, you know, general conditions and the recovery And I think the words you said were that the recovery was continuing at a at a slower pace, Can you talk about, you know, what what what's changed in your mind since the last earnings call? I think earlier in the year, perhaps you were more optimistic that this would follow on to a more typical recovery, which would stronger by now. But, you know, what what what what sort of changed in the part of your customers and such you know, as compared to the last earnings call?
Haviv Ilan: Yes, sir. And I think that's related more to the first half of 2Q. I think I might mention that and we acknowledge that in July call that it had a very rapid start. We were thinking that we are sitting on a on a on a sharp slope. I think, time taught us that if you not I would not say it's just a moderate, okay? We are seeing the market getting back towards trend line, but still below trend line. And that's one of the more moderate recovery that we've seen in the history. I think you have to go back many years to see similar behavior. Could still change. And again, I don't have I cannot prove it, but I do see when I talk with customers, on the side, and if you think about investing, building new factories, putting more CapEx, There is a bit of a wait and see mode with our customers. There's just hesitant to have clarity on what exactly are the final rules. Should I put my factory in this country or another one? Even in our domain, think about it, the rules are still not finalized in terms of the rates of tariffs, for example, will they be or not? So do see this hesitancy at the customer base and I see it mainly on the industrial side. On the automotive side, it's the secular growth is continuing So just content growth allows that market to go back to the level it peaked before. And the outlier is data center. Data center, again, not a large part of our revenue, but growing more than 50% for Texas Instruments year to date. That's where we see strong investment. That's the only place where we see strong growth. Where customers are investing and moving fast and Texas Instruments wants to do more there and we are investing investing as well. But again, a smaller part of our revenue.
Mike Beckman: You have a follow-up, Chris?
Chris Caso: I do. Thank you. And as a follow-up, if you could take us through your thought process with regard to the in in in wafer starts and utilization. I mean, is it a function of what you just said that that, you know, typically, recovery was stronger at this point? And it's not there. So so you need to moderate a bit. You take us through the thought process of that and for how long you would you know, keep the the loadings at a lower level, and what would you need to see to start raising those loadings again?
Rafael R. Lizardi: Yeah. So it is you can think of it fairly mechanically. Frankly. Think of revenue was 4.7 and change in quarter. Now the midpoint is 4.4 if you run the factories the same way you were before with lower revenue, you just grow inventory and keep keep on growing inventory. We only grew $17 million in third quarter, so it was essentially flat. But at a lower revenue, same loadings, you would grow inventory. So you need to moderate that in order to keep inventory. Flat or maybe slightly down. As we go into fourth quarter. The second part of your question is gonna depend on revenue. Right? So if the higher the revenue, could be over the next six, nine, twelve months, going into 2026, then the faster we could increase the loadings back up, or we may leave them at a that level if the revenue is more moderate. So it's just it's just gonna depend on how revenue comes in.
Haviv Ilan: Yeah. Yeah. Thanks, Chris. Moving on to the next caller, please.
Operator: Thank you. Our next question comes from the line of Blayne Curtis with Jefferies. Please proceed with your question.
Blayne Curtis: Hey. Thanks, guys. I added two questions. I just wanna follow back up on that loading, comment I mean, said that you would keep it kind of flat in December. I mean, I guess, you're not going to guide to March, but I'm just kind of curious, you've been growing inventory for many, many quarters. Is this now the way to think about it? You'll keep it flat until you see a more robust recovery in the top line?
Rafael R. Lizardi: Yeah. And I think you're referring flat inventory levels. And I said flat to down. So we are comfortable with the $4.8 billion that we have that has very of inventory. That has very low obsolescence level. We hardly ever scrap any of our inventory because it lasts a long time, both in finished goods and in terms and in chips. In chip form, in die bank. And in finished goods. So So we feel very comfortable with that level, but it's about sustainability, right? If you just keep on growing, it's not just not a good allocation of of your cash, of your capital for of owners. It's better to moderate the loadings, way you're flat to down. In the current environment and we feel that we can do that and continue to have very high levels of customer service and metrics supporting our customers. You have a follow-up, And then I guess just a follow-up, in terms of the lower loading in the December, is that all reflected in the gross margin guidance? Or does that kind of spill into March? Obviously, like I said, you're not going to guide to March, but just kind of thinking about the moving pieces. Is there any kind of part of the December cut that spills into March in addition to whatever March is?
Rafael R. Lizardi: Yeah. So we're not guiding to March as you pointed out, but the the lower loading that I'm talking about, some of that happened in third quarter, There was a step down in third quarter, second to to third, and there's another step down into fourth. That is, of course, embedded in the APS guidance that we just gave.
Mike Beckman: Alright. Thanks, Blayne. Move on on to our next caller, please.
Operator: Thank you. Our next question comes from the line of Tore Svanberg with Stifel. Please proceed with your question. Yes. Thank you, and congratulations, Pradeep.
Tore Svanberg: My first question is on the enterprise data and communications business. I I get the enterprise data that's obviously tied to data center, I'm a little bit surprised to see the communications equipment being that strong. Is is that also tied to data center and perhaps, you know, some of these cluster build outs, or is there anything else going on there?
Haviv Ilan: Oh, yes. I think it's a great question, and that's that's the reason. I think we indicated provide more color in Q1. We are planning to break out the data center as a market for the company. Right now, our data center sits mainly in enterprise, in the compute and equipment, but also on the comm side, we have there the wire, the switches and the wired comms in a rack and rack to rack. We also have the optical module business there in comms. So, they are really part of the data center market, if you will. The other part of the data center market for Texas Instruments is SIP today in industrial, think about all these high voltage power delivery, the PSUs and all that. There is also a lot of architectural change there going to high voltage DC and all that. So I think it's time that Texas Instruments calls out a data center at the top, We'll provide more color in Q1, but just for the year and then we are in the midst of collecting all the bits and pieces. But Texas Instruments is running more or less at a $1.2 billion run rate in 2025 that what we're seeing right now. And again, we'll provide more specifics in Q1, but it's also a fastest growing market. It's growing year to date above 50% for the first three quarters. And I see customers continuing to invest, as I alluded before. That's the one market that we see CapEx going into I'm not seeing any slowdown there in the at least in the foreseeable future. Know, related to our visibility at least.
Mike Beckman: Okay? Do have a follow-up, Tore?
Tore Svanberg: Yes. That was very helpful. Just a quick follow-up. I know you typically don't guide by market in Q4, but any sort of outliers one way or the other by your end markets? Into the December, please?
Mike Beckman: I'd just say there's no specific outliers to call out. As you look across our businesses, some of our end markets have higher sensitivity to seasonality than others, personal electronics being probably the most sensitive to it. But overall, there's nothing specific that I call out about fourth quarter's transition. So Tore, thank you for the And I'll hand it back over to Haviv to wrap this up.
Haviv Ilan: Thank you, Mike. So let me wrap up with what we've said. At ALCO, we are engineers at the technology is the foundation of our company, but ultimately our objective is to and the best metric to measure progress and generate value to our owners is the long-term growth of free cash flow per share. Thank you and have a good evening.