Good day, ladies and gentlemen. And welcome to the Texas Instruments first quarter 2020 earnings release conference call. Today's call is being recorded. At this time, I would like to hand things over to Mr. Dave Pahl. Please go ahead, sir.

Good afternoon and thank you for joining our first quarter 2020 earnings conference call. 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. A replay will be available through the web. This call will include forward-looking statements that involve risks and uncertainties that could cause TI's 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 TI's most recent SEC filings for a more complete description. Given the likelihood of a significant economic recession due to COVID-19, we are changing the format for this quarter's earnings call. In addition to Rafael Lizardi, our CFO, we will be joined by Rich Templeton, our Chairman and CEO. Rich will be covering a broader frame of how we are approaching the current environment. I will then provide a summary of first quarter and Rafael will wrap up with the financial details of the first quarter and our outlook for the second quarter. Our prepared remarks will be longer than usual as we hope to cover a range of anticipated questions. Let me turn it over to Rich.

Thanks Dave. At the highest level, to understand how we will approach a likely significant recession resulting from COVID-19, I remind you of the three ambitions that for decades have driven all decisions inside of TI. These ambitions are, first, we will act like owners who will own the company for decades; second, we will adapt and succeed in a world that is ever-changing; and third, we will be a company that you are proud to be part of and would be proud to have as a neighbor. When we pursue these ambitions, our employees, customers, communities, and owners will all benefit. These guiding ambitions have served us well for decades, but they are enormously valuable in these times because they help simplify many decisions in an uncertain environment. Like many companies in the COVID-19 crisis, we have acted aggressively keeping our people safe and able to support their families. We have kept operations running to support our customers with special emphasis on our medical customers. And in the communities where we operate around the world, we have provided direct financial support and medical supplies to provide some relief. The list of actions is lengthy. So starting with the economic framework. No two economic recessions are identical, but the 2008 financial crisis provides us the most recent significant recession and therefore is the best example to study and inform decisions on operating plans, revenue forecasts, and investment and spending plans. As a reminder, if you look back to 2008 and specifically to September 2008, all new orders turned off overnight. This led to a 26% sequential drop of revenue in the fourth quarter of 2008, and an additional 16% sequential decline in the first quarter of 2009, and then a rapid snapback for the next six quarters. By the second quarter of 2010, or within two years of the start of the sharp decline, revenue moved back above the level of the third quarter of 2008. With the benefit of hindsight, our customers overcorrected to the downside and we then spent a year-and-a-half chasing back up to support demand. With this in mind, we are not trying to predict this economic recession and recovery, but instead, we want to ensure that we have the highest degree of optionality so that we can deal successfully with any outcome. Therefore, regarding our operating plan, looking at the patterns from pre and post 2008 and the second quarter of 2020 and quite likely the third quarter of 2020, we will be running our factories at about the level they ran in the first quarter of 2020. This will likely result in an increase in inventory during the second quarter, but this will be important to support our customers during a time when they have limited ability to forecast. Our product portfolio of primarily long-lived products makes this an easy decision and maximizes our optionality. Regarding second quarter revenue guidance, Rafael will elaborate in a minute. With reduced visibility of customer demand, we have used the historical transitions that I mentioned from 2008 and adjusted for seasonality. We are not implying precision but explaining the assumptions. We are using an expanded range to account for the current uncertainty. Regarding spending and investments. First, research and development spending will be essentially unchanged as these are five to ten-year time horizon decisions. We will continue to make ongoing portfolio adjustments, but these are unlikely to make meaningful changes to investment levels. On SG&A, we will maintain critical investments in new capabilities, such as strengthening ti.com because these are important times to gain ground. Where we can minimize expense, we are and we will certainly continue to do so. On capital spending, our plans are generally unchanged because the bulk of capital spending is driven by roadmap capacity needs in the 2022 to 2025 time frame. We will continue with previously announced construction plans that are underway for the next generation 300 millimeter analog wafer fab in Richardson, Texas. Lastly, regarding how we are operating in the current environment. We were fortunately prepared for the unforeseen disruptions that COVID-19 has presented. We updated our customers in late March that our lead times remain short and unchanged, and that we could respond to short-term demand. This is because we invested in inventory and have a robust business continuity plan and invested in a geographically diverse internal manufacturing footprint. Our manufacturing teams are operating throughout the world, including countries like Malaysia and the Philippines, where local restrictions have resulted in partial operations. We have adopted protocols quickly to keep our people safe and minimize any disruptions. Our team was prepared and is comfortable getting our work done remotely. We continue to actively work new design wins with customers via virtual selling processes that we instituted several years ago. On most days across TI, we are averaging a peak of 10,000 VPN connections and two million meeting minutes per day, which is about four times higher than normal. We all look forward to things getting back to normal, but in the meantime, we are focused on execution. Let me hand things back to Dave.

Thanks Rich. I will provide some standard comments on first quarter revenue by end market and then I will add some additional insight about the quarter in light of COVID-19. First, for highlights on first quarter revenue by end market versus a year ago. Industrial increased mid single digits from a year ago quarter and it improved compared to the fourth quarter. Automotive declined mid single digits and decelerated in the quarter as our customers' factory shutdowns impacted demand. Personal electronics declined mid single digits, but by sector was a mixed bag. Mobile phones declined low double digits, while by contrast PCs increased low double digits. Communications equipment declined about 50% as expected due to a comparison against a very strong first quarter 2019. Communications was up sequentially. And lastly, enterprise systems increased double digits on strong data center demand. For additional insight, the first quarter ran as expected into Chinese New Year, but was slow coming out of the holiday as Chinese factories struggled to come back due to COVID-19. In early March, we saw a pickup in orders from most markets as supply chain disruptions led to increased customer concerns about being able to secure supply. This increase in demand that we experienced in March continued into early April with the exception of automotive as manufacturers' plant closures reduced consumption. This increase in orders has steadily abated in April but returned to levels we saw in early March. The midpoint of our range assumes that this decline continues through the quarter as customers have reduced visibility to end-demand. Rafael will now review profitability, capital management, and our outlook.

Thanks Dave and good afternoon everyone. Revenue was $3.3 billion, down 7% from a year ago. Gross profit in the quarter was $2.1 billion or 63% of revenue. From a year ago, gross profit decreased due to lower revenue. Gross profit margin decreased 20 basis points. Operating expenses in the quarter were $794 million, about even from a year ago and about as expected. On a trailing 12-month basis, operating expenses were 23% of revenue. Over the last twelve months, we have invested $1.5 billion in R&D. Operating profit was $1.2 billion or 37% of revenue. Operating profit was down 10% from the year-ago quarter. Net income in the first quarter was $1.2 billion, or $1.24 per share, which included a $0.10 benefit for items that were not in our prior outlook, as we have discussed. Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $851 million in the quarter. As a reminder, the first quarter is typically the seasonally low point for cash flow from operations due to the payout of profit sharing and bonuses. Capital expenditures were $161 million in the quarter. Free cash flow on a trailing 12-month basis was $5.6 billion. In the quarter, we paid $841 million in dividends and repurchased $1.6 billion of our stock for a total return to owners of $2.5 billion. In total, we have returned $6.6 billion in the past 12 months, consistent with our strategy to return all free cash flow. Over the same period, our dividends represented 55% of free cash flow, underscoring their sustainability. Our balance sheet remains strong with $4.7 billion of cash and short-term investments at the end of the first quarter. In the quarter, we issued $750 million of debt with a coupon of 1.375% due in five years. This resulted in total debt of $6.6 billion with a weighted average coupon of 2.81%. Since then, we have repaid $500 million of debt due in the second quarter and we have no further debt due this year. We have $550 million of debt due in 2021. Regarding inventory, TI inventory dollars were flat to fourth quarter and days were 145. Distribution-owned inventory declined again in the first quarter by about $50 million, the sixth consecutive quarter of planned reductions, as we continued the transition of our channel to have fewer distributors and bring more customers direct. We had about four weeks of distribution inventory, the lowest since the third quarter of 2017. Tactically and strategically, we are very pleased. We have steadily decreased total inventory dollars while increasing the percent of inventory concentrated inside TI and therefore in fewer places. This enables us to maintain short lead times and high availability, which is critically important in an environment where end-demand visibility for our customers will be limited. With a recession likely upon us, as Rich mentioned earlier, we are using the 2008 financial crisis to inform our second quarter outlook. To reflect the increased uncertainty, we have also expanded the range. For the second quarter, we expect TI revenue in the range of $2.61 billion to $3.19 billion, and earnings per share to be in the range of $0.64 to $1.04. Regarding our operating plan for running our factories, we expect that customers in this recession, similar to past recessions, will overcorrect in the short term as their visibility of their end demand drops. We believe it will be an important advantage to maintain consistent lead times and to offer customers high levels of product availability. Our product portfolio of mostly long-lived parts affords us to have a steady hand. Therefore, we will be running our factories in the second quarter at approximately the same level we ran them in the first quarter of 2020. TI inventory will likely grow during the second quarter, while distributor-owned inventory will likely drain. In closing, we continue to invest in our competitive advantages in making our business stronger. History has shown us that in times like this, we can make the most strategic progress. With that, let me turn it back to Dave.

Thanks Rafael. Operator, you can now open the lines up 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. And after our response, we will provide you an opportunity for a follow-up. Operator?

We will take our first question today from Vivek Arya at Bank of America.

Thanks for taking my question. For my first one, I understand visibility is low and I understand the way you are predicting Q2. But just a few weeks into Q2, have your orders or bookings played out the same way as it did during the financial crisis? Does your consignment program now provide you better visibility than last time? I am just curious what you have actually seen so far in the quarter so that we can get a better handle on the outlook that you are giving?

Yes. So let me start, and Dave, you want to chime in on that. But as we have said in the remarks, April has, in fact, behaved very differently than 2008 in the comparison, not only April but March. March was strong coming out of Chinese New Year. As we said in the prepared remarks, we came out a little slowly, but then things strengthened into April, and then things have abated in the second half of April. But we think that is due to the concern that many customers have on supply disruptions. So our range and particularly the midpoint of our range implies an expectation that demand will drop as customers internalize better their end demand and frankly they are going to have very low visibility. We expect them to have very low visibility of demand. That's why the important point here is that we are keeping high optionality throughout this process, so that if things snapback, we can support that. We can support that on the other side of this. Dave?

I think that's well said. Do you have a follow-on to that?

Yes. Thank you. You mentioned that you are continuing to run your factory loadings in Q2 at the same level as Q1. I am curious if you can give us some color around what your modeling days of inventory to be exiting Q2? Is there a certain maximum limit to the amount of inventory or in terms of days or dollars that you are willing to build before you have to start taking actions?

Yes. Thanks for that question. So Vivek, just as you framed them, I am glad you framed it that way, it is a capital allocation decision. So we are allocating capital in the form of inventory. Capital is going to go into inventory instead of going to other places, and the inventory will increase. We expect very likely to increase into the second quarter. But that's what gives us the optionality that I mentioned, having that inventory on hand. The key thing to remember, and you know it very well, is that the vast majority of our products are long-lived. They are highly diverse. They sell to many, many customers. They live a long time on the shelf, and the customers' product lifecycle are very long. So that inventory will not go back. So it's an option. We have a fairly low-cost upfront to have that option.

That's great. Thank you Vivek. We will go to the next caller please.

Next up, we will hear from Stacy Rasgon, Bernstein Research.

Hi guys. Thanks for taking my question. For the first one, if I go back to 2008, I think the decline was a lot quicker. But if I look from Q3 2008 peak to Q1 2009 trough, revenues fell about 40%. This cycle has been longer, but if I take maybe the peak was Q3 2018 to your guide in Q2 2020, you would be down about 30%. So that suggests that maybe there is still a little more to go for following the same kind of trajectory? And I guess, also if the decline from peak to trough is longer, does that suggest that you might be thinking about the increase off the peak also being longer? How do we compare the two situations?

Yes, I will take that question.

Stacy, this is Rich. Given the recollection of 2008, I would be careful of too much precision in where you are trying to draw that to. I do think that valid comparison and I think you know this very well from the history, is that 2008 was a reasonably, 2007 and first half of 2008 were reasonably hot semiconductor markets. It's not overheated, but pretty hot. And clearly 2019 and the first quarter of 2020, we are cooler compared to the heat of 2017 and 2018. So when you try to get peak to trough, that's a little more complex. We just tried to basically look through what did we think demand was doing for a couple of years prior and that was what helped inform and help set where we put the operating plans.

Got it. For my follow-up, I know you generally don't have tons of visibility into what true end demand is doing. But is there any way to gauge, just given the amount of pull-forward that we might be seeing right now, whether it's gauging the pace of rush orders or anything like that? Is there anything that you can give us to try to gauge how much of the strong near-term demand might be pull-forward versus anything else?

Yes. Stacy, as you would imagine, I don't think we have any precision on that. I think as we saw after the Chinese New Year is that we saw strength. We believe that that was due to the customer concerns. It's hard to have any precision around what percentage of that was due to that concern with any degree of accuracy. But, yes, Rafael, you want to add to that?

Yes. I agree. The only thing I would add is that we know the channel is clean, the distribution channel, because as we said, we are four weeks, we drained about $50 million on the channel and we plan to continue draining for the next three quarters or so about another $200 million or so plain drain as we convert more and more customers to go direct. So the channel, we know is clean and will continue to be clean. But as Dave alluded to, we really don't know the end customers when they pull, how much of that is true end demand versus stocking up for potential disruption.

Yes. And I might add too that, as you know Stacy, 65%, 70% of our revenue is on consignment. So we are not turning backlog, but we see plans that are in our customers' factories. But as they have reduced visibility, all those plans are not updated. So those updated plans are rolling through, and that's what's creating the uncertainty as you would imagine.

Okay. Thank you, Stacy. And we will go to the next caller please. Next up from Morgan Stanley is Craig Hettenbach.

Yes. Thank you. I appreciate the color on the OpEx side of things. Any additional thoughts around just kind of variable compensation? And as revenue comes, some mitigation in terms of EPS impact over the next couple of quarters?

Sure. So as we said in the prepared remarks, in general, OpEx will be relatively unchanged. So R&D, those are long-term investments. SG&A, we also have some investment areas there with ti.com. In other places, we frankly run the company pretty tightly to begin with, but wherever we can tighten them more, we do. On your specific question on variable compensation. That tends to be a profit-sharing and bonus. Profit sharing moves according to a formula, so it's very formulaic. So depending on what happens, that adjusts. And bonuses are determined by the Board depending on routing performance on one to three years on several metrics.

You have a follow-on, Craig?

I do. Thanks. And understanding the different cadence by geography in terms of China was weak, then came back and Europe and North America maybe weaker now. But would just love to get your thoughts just for Q2 on how you are expecting kind of things within your guidance from a geographic perspective?

Yes. I always give caution when asked about geographical revenue. Sometimes we can see distinct patterns, but where we ship our product is rarely where it's actually consumed, as you know. So we ship a product that ends up in a phone built in China, it may end up, but in Europe. So if there was something distinct in our guidance that was impacted by geography, we would share that. And we don't have anything specific to share with that right now.

Thank you Craig. And we will go to the next caller please. Our next question is Ross Seymore, Deutsche Bank.

Hi guys. Thanks for all these additional details, especially with Rich on the line. Maybe one for Rich. In your comments earlier, you said you wanted to use 2008 as a template and that is about as fair a template as I could imagine as well. You also laid out about how the pattern was a steep fall, then a steep rise back. Given that you are behaving, your actions are very different this time, where you are keeping utilization flat, etc., is that because you view this cycle as being any different, short duration, matching the same one as a decade ago? Or is it simply just the optionality side of the equation at the end of the day that you are trying to maintain?

Let me have Rafael.

Ross, just to help on that, I think Rafael covered this in some ways. If you think back to 2008 and you know and a bunch of folks know, we were very much different. We had a large wireless business. We had portfolio re-profiling we had to do. We had a high percentage of our product that wasn't exactly custom, but it behaved a lot like custom. So building inventory was a much more difficult game. And the beauty about where we are today is, as Rafael pointed out, is that a high percentage of the portfolio is long-lived products. We have got our R&D and our resources well deployed in the areas that we want to be long term. And that's what really puts us in the wonderful position where the cost to have maximum optionality is actually pretty low on our particular case in 2020 versus where it was back in October 2008.

Okay. Thank you for that. And I guess as my follow-up, just switching over to the cash return side of the equation. It looks like you guys had pretty much the second biggest buyback in a single quarter you have had in a decade. Can you just remind us on how you guys are thinking about the ability to return cash? I know your long-term policy of returning 100% of your free cash flow, and it's not just dictated by any single quarter. I appreciate that as well. But this was significantly above what you guys generated in a single quarter and maybe even in a couple of quarters of free cash flow. So just talk about how much leverage you are willing to put on the balance sheet to take advantage opportunistically of a pullback in your stock when it's below what I guess you view to be your intrinsic value?

Sure. So let me first, you alluded to it but let me just remind everybody on the call that our objective when it comes to cash return is to return all free cash flow to the owners of the company. We do that through buybacks and dividends. So for example, on a trailing 12-month basis, we generated $5.6 billion of free cash and we returned $6.6 billion. So obviously, all free cash flow there has been returned. And then you mentioned debt and we have debt on our balance sheet as we said on the call, $6.6 billion. we finished. On a net basis, it is $1.8 billion because we have $4.7 billion of cash on the balance sheet. But we use debt to increase the rates of return with some leverage when it makes sense. So that's how we view the returns and the debt for many, many years, as we have talked about on capital management.

Okay. Thank you Ross. We will go to the next caller please.

Next up is John Pitzer, Credit Suisse.

Yes. Good afternoon guys. Thanks for letting me ask a question. Dave, I just want to go back to your comments in your prepared remarks about booking swelling as we have been coming to the end of April. Was there any end market distinction you can talk about? And I am particularly interested in kind of understanding how auto and industrial is behaving at the beginning of this pandemic versus maybe things like PC, data center, and comms?

Yes. John, I would say that when we looked at the last quarter, it was very distinct but we saw strength. We saw strength in PCs. We saw strength in data center. We saw a distinct slowing in auto as we talked about. I would say that the relative strengths in orders that we saw in the quarter that happened in March and continued into April were broad-based generally and was across the board with the exception of auto. And then the slowing, I would say that it is also broad-based. You have a follow-on?

Yes. Just as my follow-on, returning to Ross' question about capital allocation and return. Rich, since you are on the call, you guys have always been good at sort of zagging what everybody else is zigging and you have got a longer duration out there. I am kind of curious about how you are viewing the current environment relative to M&A? And is that sort of an arrow in your strategic quiver as we go through the next couple of quarters, much clearer than when you were in recession?

John, if you think about it, and you can even, you have watched us for a long time. You can go back to 2008 and then look at what we did through 2009, 2010, 2011 and such. And clearly if you think about capital allocation, the things that I stepped through, keeping on the right R&D investments, keeping out the right capital expenditures, making the right capability investments on things like ti.com, that's where you get just very excited about. We will be getting stronger during this period and those strengths will help us even as the secular trends of more semiconductors in your life are growing. To the degree that we have an opportunity to buy used equipment or used factories or potentially M&A, as with anything on capital allocation, I think that one just goes down to the it depends type comment, meaning it would have to be probably a more prolonged downturn. If you think about what the mood was in 2009, 2010, and 2011, that mood had to be there for a while before opportunities became available. But we are certainly, we try to just be wise over the long term.

Okay. Thank you John. We will go to the next caller, please.

And we will go to Chris Danley, Citigroup.

Hi. Thanks guys. And Rich, thanks for making the cameo. My first question. Rich, do you think or do you anticipate any longer term structural changes in the business, either in terms of end markets or anything you are looking at as a result of this pandemic?

Chris, I think it's early. I think I know your world tries to get ahead on trying to guess what will happen. I, in general, think that the secular trends that we have seen with semiconductors and more semiconductors coming into people's lives, are going to continue, okay. And I think somewhat as John alluded to in his question, it's obvious in the near term, but server sales and PCs are going to do well as working from home continues. But I just think longer term you look at industrial products, industrial equipment, and even automotive, even though on the near term, people will see SAAR numbers come down. The secular trend on semiconductor growth inside of automotive is going to make it a great market to be in for the long term. So no, I don't think from that point there will be a big structural change. I do think we have got a great advantage of having structural channel advantage. So the changes that we have been working towards for a number of years of building closer, direct relationship with customers, things that you now see playing out with a higher percentage of inventory being in our hands to where we can be more efficient, that's going to be a fantastic trend and TI is well-prepared to take advantage of that with our breadth of channel reach through the industry.

Thanks. So I can follow up?

Yes. Sure. Go for it, Chris.

Okay. Thanks. And then Rich, to the extent you can, if you could give us any insight into what the customer conversations are like? What are they asking? What are their big concerns? And I guess at the root of it, you guys talked about and I thought about this, why aren't we seeing this sort of fall off in orders yet? Has everybody just kind of frozen in place out there? Why is that happening?

Chris, I think if you and Dave, I thought was very direct with what he described, we saw orders rise, starting to peak at first, second week of March. You saw them rise up. You have seen them start trend down. They are still at that level we saw approximately ending February and in early March. I think that's starting to filter through. For us, especially, Dave will have the number where we are 60%, 70% consignment. It takes a while for those consignment feeds to really get updated because companies have got to start getting better numbers on that front. So I think customers are just still processing through what their customers are telling them and we will see that play through. It's why we have made the assumption that May would be down from the April and June down versus April as well for the range.

Okay. Thank you Chris. We will go to the next caller please.

Next up is Tore Svanberg, Stifel.

Yes. Thank you. And I appreciate the wide range of the guidance in this environment. But can you maybe elaborate a little bit on what the assumptions are sort of at the low end and at the high end of the range?

Yes. So I will give you my take. Frankly, there is no science on that. As we talked about earlier, we are using 2008 as the model for that. Again, it doesn't imply precision, nor even similarity. It's just that it's the most recent exogenous event that we can use. So we are using that. And the midpoint is the closest thing to that adjusted for seasonality. What you normally would see on our first, second quarter transition, now you are seeing a negative 13% at that midpoint. But the entire range and the other reason we widened or the reason we widened the range is to reflect the great level of uncertainty that we have going on. As Rich mentioned, many customers right now, they are still processing what's happening, and we have actually heard some of them haven't been able to update their feeds to us, right. So they have got to go through all that process. And so that's embedded in that wide range. The biggest point I want to make, and we made it a couple of times already, is the optionality that we are going to get based on how we are running the factories, right. So this thing can go multiple ways for the second quarter and third quarter and beyond. But we have just great optionality due to the way we are running the business, both strategically, the type of parts we build and the end product and so forth. But tactically, the way we are running the factories and inventory in the second quarter.

Do you have a follow-on, Tore?

Yes. Thank you Dave. The other question goes back to what you just mentioned there. So I am sure your customers are probably thinking about this too and maybe they are perhaps building some inventory too to be able to respond to an eventual demand. If that should be the case, how long would you be willing to have this optionality or perhaps run the inventories a little bit longer than normal?

You know, it's going to depend on a number of factors that today we don't know, right. And I think we and the world and the industry will learn over the coming weeks and months, and then we will adjust if necessary. I think the advantage we have with the way we are set up strategically, with the type of parts we build and the type of customers we have and the type of end markets is that we can afford to have this optionality, right. These parts are not going to go bad. It is very different in a custom part centric world in personal electronics type of centric world. That's not the case with the way we structured in the company. So we have great optionality to go through this beyond the second quarter.

Okay. Thank you Tore. We will go to the next caller please.

And next from BMO is Ambrish Srivastava.

Hi. Thank you. Rich, good to hear your voice. I am sure that nobody really wanted to hear you in this kind of a forum. I had a question back on capital allocation and going back to the 2008, 2009 template or playbook. You raised the dividend in the fourth quarter, back then it was a small percent, but it was on a percentage basis was pretty meaningful. So as we compare where we are heading now versus I am sure nobody had any idea what next quarter was going to be, what's the right way to think about capital allocation? Based on the comments you and Dave and Rafael are making, it sounds like no change in 100% free cash flow back, divvy plus buyback, no change to that. So just kind of help us understand the thinking or scenarios that you are playing out that might lead to a near-term modification on that, Rich? And then I have a follow-up.

Yes. So I will set up and I will let Rafael cover it. The answer is no change, Ambrish, because we really have tried to have a very thoughtful long-term plan. But I think it's helpful for Rafael to summarize some of those plans.

Yes. So just to comment and Ambrish, as you said and Rich just confirmed that, yes, there has been no change in the way we think of our capital management and our long-term objectives. So as I said earlier, cash return, return all free cash flow. On dividend specifically, as you alluded to, the objective is to provide a sustainable and growing dividend to appeal to a broader set of owners. And as a reminder, on a trailing 12-month basis, our dividend was a 55% of our free cash flow now. Of course, as a backward-looking metric, I understand that. But it's a great place to start. Frankly, few companies are at that level in our industry and in the S&P 500. So it's a great place to start. But that objective of providing a sustainable and growing dividend has been and continues to be very important for us.

Follow-on, Ambrish?

Yes, I did, and this is more to do, I think Chris asked a good question on structural changes. Given that we are working from home, at least those of us who can afford to work from home, how is it impacting the design activity that TI engages in, in multiple geos, multiple customers, so many end markets? What's the right way to think about the changes that you are seeing there? And does it portend poorly for when we ultimately get to a more 'normal world'?

Ambrish, it's why we included in my remarks comments about how we are operating and it's one of these deals produced an update for internal. And basically, I had a bunch of people telling me, gosh, we got lucky on some things. And I explained, there is this great quote that, luck is what happens when preparation meets opportunity. And we put in place this mass-market selling, really virtual selling techniques starting three years ago. It's an instituted standard process. Our sales teams work at applications; people work at comfortable with customers. And so it's almost been like nothing has changed in terms of where we spend our time working between ourselves and the customers. They all want to do it on the phone anyhow. Our products group connecting in on that. So the readiness that we had to operate in this world is actually enormously high. Having ti.com more capable to support customers' decisions to be able to support online commerce as we are bringing more customers direct, the comfort of our product groups, design engineers, and people to work collaboratively because we have always had to do that is really very unchanged. I do think people are working more hours just because the days and hours tend to blend into one another, as I am sure everybody on this call is experiencing. But it's very impressive to watch the team performing and watching what it's getting done. We are even at that point where all the set of customer visits, even next week, where those customer visits will be virtual as well. So we are just well into the way of operating this way.

I just want to comment on a slightly different topic, but related in the spirit of preparation meeting opportunity. I just want to highlight, and we talked about it during the prepared remarks, but we were prepared for the unforeseen disruptions with a combination of our inventory strategy, our business continuity program, and our geographically diverse manufacturing footprint, which of course is part of our competitive advantages of manufacturing and technology. So we have in all of those together, we were able and continue to be able to provide our customers with short lead times and inventory availability in this time when they need it most, not now and in the coming quarters when their visibility will be impaired.

Right. Okay, I think we have time for one last caller.

And we will go to Mark Lipacis, Jefferies.

Great. Thanks for taking my question. So I had one. Our own fieldwork in the supply chain downstream from you guys indicate that inventories are indeed like normal, if not lean levels and as the virus spreads around the world to places like Malaysia and the Philippines, that the shortages of components, understanding that your inventories are at the high end of the range and not hearing anything about TI shortages. But basically, supply is being disruptive and there is a reticence to give up any excess inventories downstream for you. I am wondering if you could describe what you are seeing on your own supplier base that you want to run your factory at consistent levels here. Are you seeing any of these supply chain disruptions that your customers are seeing at other components? Are you seeing that? And how are you managing that? And there is a risk that you are not going to be able to run your capacities consistently because of your own supply disruptions? That's all I had.

Yes, we are not encountering any significant issues worth discussing on this call. There are minor challenges here and there, but nothing unmanageable. As I mentioned, our business continuity program is in place, and our focus on finished goods inventory extends to various aspects. We maintain a buffer of raw material inventory and utilize multiple sources for key raw materials. Additionally, we operate from a geographically diverse manufacturing base in countries like Malaysia, the Philippines, Taiwan, Mexico, and China, which enhances our position. This diversity also provides us leverage with suppliers, whom we pay within 30 days, reflecting our commitment to fairness and fostering long-term relationships. Overall, we feel secure with our supplier network.

Would you like to wrap this up?

Yes. So let me just wrap up by reiterating what we have said previously. History has shown us that it is times like this when we can make the most strategic progress. We will continue to invest in and strengthen our four competitive advantages which are manufacturing and technology, portfolio breadth, market reach, and diverse and long-lived products. We will also continue to pursue the three ambitions Rich mentioned. We will act like owners who will own the company for decades. We will adapt in a world that's ever-changing. And we will be a company that we are personally proud to be a part of and would be proud to have as a neighbor. When we are successful, our employees, customers, communities, and owners will all benefit. It is these ambitions that will guide our decisions in the weeks and months ahead as we navigate these uncertain times. Our best to you and your family.

And ladies and gentlemen, that does conclude today's conference. Thank you all for your participation.