Texas Instruments CEO: China's road to analog chip independence will not be smooth sailing-EEWORLD

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Recently, Texas Instruments CEO Rich Templeton attended an event hosted by UBS. At the meeting, he was asked, in the current situation of Sino-US trade tensions, China is striving to achieve self-control in semiconductors? So, what does this mean for Texas Instruments' competitive position in China in the embedded and analog business fields?

Rich Templeton responded: First of all, China's ambition to build a localized semiconductor industry and be independent of the world is not new. Looking back at China's five-year plans over the past 30 years, you will find that this has always been their desire. So this is not a new ambition. This is not a new attempt. As you pointed out, there is definitely more money behind it now because the US-China trade tensions over the past few years have driven this.

The second thing is, as you know, a lot of the investments tend to be targeted at the big, high-profile markets. So they invest a lot in memory, or try to get into processors, application processors, modems, or advanced logic products like that. But in products like analog, they are very difficult to mobilize, and that has to do with the fact that you need to develop thousands of products in this space. And you need a strong global supply chain to sell them everywhere.

We still have this fundamental belief that there are more opportunities than threats in China. If you have better products, better product features, usability, price, convenience, those products will win business in China because customers will ultimately be pragmatic in developing and delivering the best product.

When asked about the company’s investment proposition, Rich Templeton responded:

In a lot of ways, I think the assumptions or the direction that we've been driving the company in is really just around a couple of things.

First, we just look at the world from the perspective of more electronics, making products better. That's lower power consumption, easier to use, more efficient, and all kinds of features. In order to do that, you have to put electronics in there, as well as semiconductors. We just look at embedded and analog semiconductors as the best in the market.

We have an additional view that we like all of our markets very much, but the automotive and industrial markets align very well with us, and both the automotive and industrial markets are great businesses for us. They will grow averagely over the next 10 years.

And in the end, I think it's just around the belief that free cash flow per share is actually the best proxy for driving value over the long term. So we really have to be very disciplined about the competitive advantages of the business model that we have to help drive free cash flow per share.

As we invest in those areas, we're just trying to stay focused and either strengthen them or leverage them accordingly. So if that sounds like the vague messaging that you've heard from us over the last decade, that's probably a pretty good thing.

When discussing the impact of some of TI’s decisions around distribution strategy on the industry, Rich Templeton said:

First, to the higher-level strategic picture, because I really do think this is going to be one of the themes that when we talk about two, three, four and five years from now, there's a good chance that we're going to look back and say this was really a critical change that we implemented and it was really a huge advantage for us in driving growth over the long term.

It's because we simply believe that if you look at the long-term trends, customers increasingly want the convenience and productivity they get from conducting content and commerce online. Yes, backed by technically and commercially skilled talent. But it's just the way the world is going, and it's the way design engineers work. It's the way customers want to work.

So as we sit back and watch where the world is going, as you know, we've been on this path for a while now, which allows us to have a close, direct relationship with our customers. And, it will have a profound impact because you see more, you know more. So you're better able to get more business because it's not filtered or it's not flowing through other organizations.

So we've been moving in that direction for a long time, getting design wins and things like that. 2020 is the last year where we're shrinking the number of distributors and moving a lot of business to direct. Yeah, as you pointed out. I think we've been running out of distributor-owned inventory for eight consecutive quarters. So that's obviously going to be a headwind to quote revenue, but it's not going to change the actual share that you're spending at.

We're going to continue to do that. We do think that even though there may be some headwinds in the short term, these are classic decisions in the long run. But our team is already excited about the data, the data that they're starting to see and learn and the relationships that we have with our customers is really exciting for us.

Rich Templeton also mentioned in his speech that because the fabless analog competitors are smaller, they can play well and attract customers, so they will design them. This is just the charm of this aspect of the business. He also emphasized that I don’t think our analog competitors will build 300mm manufacturing because they just don’t have the revenue scale, let alone experience.

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