Chit Chat Stocks - Texas Instruments (Ticker: TXN) with Andrew Sather and Dave Ahern

Episode Date: October 12, 2023

Andrew Sather and Dave Ahern run the "Investing For Beginners" podcast. You can find it wherever you get your podcasts. Texas Instruments Incorporated (TXN) is a leading semiconductor company, supplying analog and embedded processing products to various industries while navigating market cycles and supply chain complexities. Listen as Brett and Ryan ask Dave and Andrew questions about the company, its business model, and valuation. Enjoy the show! ***************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney  Subscribe to our Substack to receive free show notes and charts for our Tuesday episodes: https://chitchatmoney.substack.com/ Listen to Investing For Beginners: https://open.spotify.com/show/3sIN6k0aT6cCWP2AJRvHEK Contact us: [e-mail] Timestamps Texas Instruments | (3:00) Direct to Consumer | (13:03) Capex | (22:59) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome into Chit Chat Money. My name is Brett Schaefer, and I'm joined as always by Ryan Henderson. This is Thursday, and if you're a longtime listener or consistent listener, you'll notice that usually Ryan does these intros, but today he has his backup microphone, so we're trying to make it as high as quality as possible, so I'm going to be doing this. Today we have two guests on, Talking Texas Instruments. It is Andrew and Dave from the Investing for Beginners podcast. we actually just did a little bit of a cross a little switcheroo we went on theirs too and which will be out as the time you're uh listening to this as this is out theirs will be out as well we have a link to their show notes again as their title says is an investing for beginners podcast so if you're new to learning about investing that's a perfect show for you link will be in

the show notes we're talking texas instruments uh we've had we did a show on them i think about two years back or a little while back i can't really remember but it's a perfect time to update them were doing. They have a major capital expenditures boost here. That's a really big bet from them. They have trends from the EV industry. It's a fascinating company that has put up really solid returns for investors of the long-term. Ryan, anything to add before we kick it off to the interview? No, I think Andrew and Dave do a really good job simplifying things. I think that's why their show is so popular for beginners is because they make things sound very simple, even complex topics. And Andrew has a background in electrical engineering, so he's got some experience in the semiconductor industry as well, which was nice to hear him explain some of the more complex topics as well.

All right. Yeah, this was a perfect interview. I learned a lot. I think any listener will as well. Let me try to copy Ryan's intro here. Without further ado, here's our interview with Andrew and Dave. Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital. And Arch Capital may have positions in the securities discussed in this podcast.

Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. All right. Welcome in, everyone. My name is Brett Schaefer. I am doing the intro today because Ryan has his backup mic. So we're going to have him talk as little as possible. But we have our friends from the Investing for Beginners podcast, Dave Ahern and Andrew Sather. I made sure we practiced beforehand, so I made sure to get that right. We're talking Texas instruments today. So guys, welcome to the show. And maybe I'll ask both of you, what got you interested in Texas instruments? Well, thank you, Brett and Ryan. We appreciate it. Even though Ryan's not

going to be talking much, we're still glad he's here with us today. I'm going to be honest with you I got interested in Texas Instruments because Andrew got interested in it. He was the first one of the two of us that discovered the company. And he recommended it for his Value Spotlight investment service. And after reading his write-up and talking through the investment with him, I was intrigued. And so I ended up doing my own research and kind of fell in love with the company as well. So that's kind of how I found it. Andrew, do you want to tell them how you found it? well i actually went to school as an electrical engineer and i worked at three different semiconductor companies one company i worked at twice ironically i've only bought one of those

companies out of the three i've worked for even though they're all great companies um so you know i've always been like a self-taught investor um but for whatever reason when it came to semiconductor companies, I don't know why I held off for so long. I should have bought probably a lot more semiconductors than I did. But Texas Instruments is one of those where I think from an investing standpoint, it's a lot easier to understand than someone that's a high flyer like AMD or NVIDIA. Those businesses are starting to mature a little bit more, but Texas Instruments is definitely a lot more matured. And so their financials remind you

of a lot of kind of industrial stocks more so than even semiconductor companies. And when you start to dig into the business model, the competitive advantages also can be a little more similar and just a little less techie. And so I think that's what drew me to the company most. And the more I learned about it,

the more I got excited about it. All right. And I will be chiming in here occasionally, so I'm not totally off the podcast, but let's maybe start with the basics. You mentioned the competitive advantages and all that. So we'll get to that, but why don't we start with what Texas Instruments actually does? So what products do they sell and what are their primary end markets that they're serving? And it's not calculators anymore. It's not calculators. They do analog semiconductors. The way I like to explain it to people who aren't very techie is like, if we have eyes and ears and a brain, there are semiconductors that do the same thing

in the real world, and those are analog. And so Texas Instruments does analog. analog. And instead of ones and zeros, they're processing wave functions or processing audio-visual inputs and turning that into something that computer can understand. So the end markets can be wide ranging because anything that needs to talk to a computer and eventually end up in computer code will probably touch an analog semiconductor chip. Okay, and maybe a quick follow up before we get into the details of their competitive landscape here. What are the core ed markets? I know a lot of people talk about industrials, electric vehicles, I guess, automotive in general, but what are the most important ones you think, I guess, either you guys can answer that are driving the business today? They sell 80,000 products. So where should we start? wow yeah okay maybe what industries yeah i'm making a joke for sure yeah

anywhere between uh you kind of mentioned some of it um factory and building automation and control grid infrastructure automotive infotainment safety the company segments some of that as industrial automotive they have a electronic segment and you could maybe fill in the blanks of any I'm missing, Dave? Communications and enterprise systems are kind of the last two. Those are much smaller portions of it. Right, and they're going to, yeah, so I guess as anyone can,

you know, listening here understands how big the industrial base is, how big the automotive market is, they're really touching so many parts of every different industry. Now, when people talk about them, I guess when people have kind of a generalist overview, they know that Texas Instruments, if anything, is not competing with the Samsungs and the Taiwan semis and the Intels for the

high, highly advanced stuff, the cutting edge three nanometer stuff. It's less technically intensive. And, you know, they have this industrial analog automotive bent. Who are the main competitors in that space? Or I know people talk about the patent advantage they have, but what does the competitive landscape look like? And then I think after we can talk about maybe the competitive advantages here. I guess I could start just giving you, when I originally wrote my first recommendation

for this company, I called them the big five. I don't know why I dubbed it that. I use big three and big four a lot, so why not use big five? If you include Texas Instruments, Texas Instruments, Analog Devices, Infineon, STMicro, and NXP, What makes it interesting is each of these companies might compete with one segment of Texas Instruments, but not another. So you do have this tangled mess of industries and segments that Texas Instruments, for example, competes with analog devices and three of Texas Instruments segments.

So depending on how the other companies want to define their segments, it's not always apples to apples, but in general, those would be the biggest big five, if you will. Okay. And then we're going to talk the financials today. We're going to talk its future growth potential management, and we'll definitely hit the new CapEx or maybe, I don't know how new it is, but the CapEx projections, stuff like that. But the key for a lot of investments from, I know from all four of us is what competitive advantage does this company have? You mentioned that they have a high margin of safety there. Um, yeah, they just have a bunch of advantages. So what, what do you think those are? And can you explain that to the

listeners? I feel like they have several, maybe Dave, you want to take the first hack? Yeah. I think probably the first thing that really jumps out to me is the economies of scale and how big they are. And Andrew mentioned jokingly 80,000 products, but that's not a joke. They really have 80,000 plus products. And I guess the biggest advantage they have with those compared to other companies is those products have a shelf life of almost forever. And so even though the inventory levels may get higher for Texas Instruments compared to other semiconductors, it's not a concern because they are going to sell them. And they aren't going to go bad. They don't have a shelf life, like some of the more cutting edge chips do, that they run out of favor.

And Texas Instruments doesn't have that worry. And because they're in so many different types of vehicles and uses, they get distributed all over the world. And China is actually one of their bigger markets, which sometimes concerns me a little bit. But it's interesting that they have so much, they deliver a lot of value across a lot of different categories. And so even though, for example, the union autoworkers strike right now, it could impair their automotive division potentially for a period of time, or it may not, but because of the nature of their business, but they have so much other, I guess, tentacles out there that it allows them to kind of withstand some of those ebbs and flows. They go through cycles just like the semiconductor

industry does, but I don't feel like it's quite as severe as maybe let's say AMD would be, for example. Just to piggyback on that economies of scale thing, when I think of a company like Costco and the way that they can, I don't want to say demand, that sounds a little hostile, but they can negotiate more from their suppliers in the same way Texas Instruments can run its business in a different way than its peers have to do so. So as an example, around two-thirds of their revenue is direct-to-consumer or direct-to-customer. So they'll go direct to the OEM manufacturer

instead of using a distributor middleman like Arrow Electronics or one of the other large distributors. And that can be a big advantage. You just cut the middleman out, and the more of those relationships that Texas Instruments can create, the more that they can take some of that margin for themselves without having to deal with the distributors, which also can come with some of its own disadvantages. So I think there are a lot of ways that the economies of scale plays out.

And I think the distributor versus direct model is a very tangible thing to me where I can say, wow, this makes a lot of sense. They're using their scale and it helps them create this kind of a sustainability that may or may not be present. And to Dave's point, give it a little bit less cyclicality than you might see with a semiconductor company that maybe doesn't have their own fab or has to rely on distributed relationships. In Toronto, every arrival is a statement and nothing says it better than this. Cadillac Optic was the number one selling luxury EV in Canada for 2025. Find your rhythm across a seamless 33-inch

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on hulu on disney plus click or tap the banner to sign up now all right so i have two follow-ups for each of those. But I think the first one here is the direct sales on ti.com, I think that's what it's called. That's grown. I was really surprised to see how much that has grown. Is that going to further, you think, give them that advantage from going direct to consumer? Does that matter at all? Because I know they highlight that a lot for investors. They do. I mean, the optimist in me wants to say, yeah, of course, it totally will. Then it's interesting, another, I think, detail that's pertinent to this whole discussion is what they sell is generally really low. I mean, I don't want to say pennies, but it's not big on a per unit basis.

But so when customers are price shopping, it's not necessarily let me get the very, very best price that I can get. Maybe they want to get a large volume and make sure that I know that this is going to ship in time. And so to me, that actually lends more credence to the direct model because when you're direct, you have more control of that whole supply chain. And if customers are wanting that convenience and the timeliness and all of the things that a direct model can provide in a better way than maybe using middlemen, I think it would only strengthen and become something that feeds on itself. But it's no guarantee like anything else in investing in

business, but it is something that does make them unique. Are there big switching costs from the customer's point of view? If I'm one of the OEMs, is it hard for me to say, I'm going to ditch Texas Instruments and go with this new provider? How does it work for the customer's end i'll start one of the things for them and again another thing that makes texas instruments different is they have contracts that can be seven years ten years or even longer than that and so just embedded in some of these purchase order contracts is a recurring nature that would make it harder to switch it's hard to give a blanket statement because of how many customers. I mentioned 80,000 products. There's also over 100,000 customers. And so it's hard to

say that, yeah, this is the stickiest product out there. And so I guess I can't give you a 100% answer on that part. Dave, do you have anything to add there? No, I think that's probably the best way to, because of the large amount of customers that they have and the large amount of products they have. I don't know that there's necessarily switching costs beyond the contracts that Andrew was talking about. There may be some inherent production issues. You think about a car assembly line. I've never worked in those lines, but I would imagine changing out the parts and how you different parts that you use for those i can't imagine that's like super easy to do and so there there might be some you know we've been buying it from texas instruments for the last 27

years why are we going to break why are we going to stop now there's probably there's probably a fair amount of that going on um the other i think the other advantage that texas instruments has is because they have so many products and because they can build up an inventory and hold it for a while i think that makes it easier for their customers to know that if they do need the product they can go to texas instrument so like andrew was saying earlier the competition between the different segments that texas instruments operates in they probably have a bit of an advantage in that that they they know that if adi runs out of the product they can go to texas instrument and get it pretty easily so that probably gives them another advantage as well right that's a good

point i they do highlight the fact that they're always going to have or try to at least maybe during the pandemic they got away from them because of the supply chain stuff but that's out of their control they're always going to have the parts on hand if you want them to before we move on to the financials i just wanted to highlight maybe and just correct me if this is wrong where the reason that texas instruments can be so profitable and why they have this low capital intensity but a long shelf life for all their instruments is that when a company say random manufacturing company has in their factory a sensor that needs a texas instruments part eventually after five ten years or whatever the shelf life is it's gonna break it

or it's gonna you know run out right it's gonna stop working and then they need the same part to go in and it's not really gonna change that much over the years as compared to a nvidia which is working on all these crazy you know as we all know like there's this new market that pops up with ai Is that the best way to put it while Texas Instruments, you know, or NVIDIA is going to be selling or whatever the most advanced stuff is, is going to change throughout the decades where Texas Instruments might be selling the same part to a factory that they were in 1990? I think that's fair. Yeah, I think that's fair. That's fair. I, I, you know, I, this is obviously not the correct visual, but sometimes the way I think

of it is their inventory is like going into a wine cellar and then walking farther and farther and farther back into the wine cellar. And soon you're back into the wines from 1970s and it's still the same wine and, but it's got cobwebs on it and it's a little dusty and whatnot. I know it's not like that at Texas, but that's kind of the visual I have. And that's, I think that that helps me understand, okay, that they may be sitting on this part for a while, but it is something to your point, Brett, that at some point it's going to wear out and they know they can go get it from them.

Okay. Let's walk through the financials here. How much they do in revenue and then what are kind of their big costs? What kind of margins do they generate? Texas Instruments really isn't a business I'm that familiar with. So curious, what are the really big kind of inputs cost-wise that go into a business like this? Uh, okay. Well, I mean, last, last, uh, the last 12 months they've done about 18.8 billion in

revenue, uh, which, you know, it's, it's, it's a decent number, but they are down. Uh, so this, this year they're down about 3.9%. And for the last four quarters, they've kind of been trending down. So 12.9, 3.4, 10.7 and 13.1 respectively, uh, for June of 2023. So they have been trending down in revenues. Over the last 10 years, they've grown around 4.3%. Five years, 3.7%. And three years, 11.2%. But as I said, this last year has been a little bit rough. So they did really well kind of going into the pandemic. And then coming out of the pandemic, they've been a bit on the struggle bus. But this is all stuff that the management has communicated to shareholders from the get-go. They saw this coming. They saw the writing on the wall. They knew that this was

coming. And they were going to start seeing some compression in the revenues. They've also been seeing compression in the margins as well. If I go to our friends here at stratosphere, give me just a minute here. Their their margins have dropped a little bit like the gross margin has dropped. So has the operating margins here. Sorry, guys. So we got 66.3 and 45.7. Those are both down from last year. And they're both down from 2021 as well. So they've been kind of seeing a gradual decline in margins. But this is, again,

all stuff that has been communicated by management to the shareholders. They knew this was all coming and a large part of this is stemming from the CapEx that they've been spending. The cost that they kind of generate, really the majority of them are a mixture of R&D, sales SG&A, and the CapEx. Those are kind of the big cost drivers that are really driving not only investment, but also, I guess, the pressure on the free cash flow as well as their margins and revenues. All right. Andrew, anything to add there? Yeah, go ahead. Perfect. Thanks. I would just also add that something that also differentiates Texas Instruments, which we haven't touched on too much, is their integrated device manufacturer. so they not only design the chips but also manufacture them so if you think of a fabulous semiconductor company like broadcom or qualcomm they don't actually produce the chips themselves

they will design it on their eda software like cadence and then send it to somebody like tsmc who's going to manufacture it for them in the case of texas instruments they manufacture a lot of their own chips and at a higher percentage than their peers and so you do get added costs when it comes to that to dave's point about the capex it takes capex to build a fab open a fab and then you have ongoing opex to run the fab and of course all the costs of goods sold that goes along with that. So that is another part of the cost structure that you won't necessarily see with other semiconductors. But I find it interesting that despite those added costs, Texas Instruments still has industry-leading gross margin and also a really high operating

margin, especially compared to something like analog devices. Watch Wanda Bell and Leon Simmons fight to reinvent themselves in 90s Los Angeles, where the fallout from the crack epidemic fuels the rise of West Coast rap. Ambition, loyalty, and survival collide as everyone risks everything to build something lasting at FX's The Drop, a snowfall saga. Streaming September 9th on Hulu on Disney+. Click or tap the banner to sign up now. You mentioned that CapEx, and when we were doing research for the show, you can see there's been a big increase in capital expenditures over the last, I call it two years. And even on the last earnings release, management almost not bragged about it, but they highlighted that they're investing heavily right now. And I think management's probably the first to say this, it's a bit of a down cycle.

So what do you think about their choice to invest heavily in what seems like a down cycle? Does it feel risky at all? Or do you think that the demand is strong enough in the future or more predictable that it's the right move? Dave, you want to go first? Sure. I'm bullish on it. I mean, the fact that they broadcast that they were going to start doing this, that they were going to start investing. I guess the biggest expenditure of the CapEx is building out more capacity to be able to produce more. And they feel like they have the demand there that they need to do this. And so they're also expanding the 300 millimeter. So the disks are going to be producing bigger disks, which is going to give them more efficiency in what they're producing. And I think as they continue to expand on the CapEx, I'm bullish on the idea that they're investing into a down cycle as opposed to investing into an up cycle. because I think once they come out of this cycle, they're going to have a heck of a lot more capacity

and it's just going to give them more ability to really, really grow faster. And I think that's, I mean, that's what I want. And the fact that they communicated this, this isn't a surprise. It isn't like, oh my gosh, what happened? You know, I mean, they've been talking about this for quite a while now.

So everybody knew it was coming. And I do believe that the, it's not like they're talking about creating some brand new product out of thin air it's a lot of the same products they're already creating just like you said on that bigger disk to be able to build that capacity for the demand that's already there whether the demand evaporates in three months

I don't see it evaporating in the next three, five years so the demand's there you got to meet it and I think it would widen the moat between some of the other competitors who might rely more on outside fabs but it is a risk like anything else that they could be building and maybe people don't come but i'm not too worried about it based on the history of how the company has invested in the past and how the demand has naturally have been flowed for all of semiconductors for many years okay i think oh one more follow-up

i have a follow-up on return on invested capital but dave if you have a startup no that was actually what i was going to talk about so why don't you ask a question perfect perfect we're on the same wavelength here uh so i think you know for any investor who's you know maybe first time here looked at the company they think okay capex is increasing they've had really strong returns on invested capital in the past i don't have the numbers in front of me but for you know given the total returns here given whatever all the competitive advantages they clearly have had good returns on invested capital so what gives you guys confidence that that can be sustained for the next 10 20 years into the future well you know i think for me there there are several

things number one um this is not a new game plan for the management and something that i guess We'll talk more about the management, I know, but one thing I wanted to throw out there is that the average length of term of the management is around 21 years. And Rich Templeton, who just left as the CEO, he had one gig his whole life, and that was working for Texas Instruments. So he worked for them for 42 years before he stepped down just recently. And so what they're doing right now is not something new for them, and the operations and the way that they operate, the efficiency that you were mentioning with the ROICs, I don't anticipate that changing much, and it doesn't appear to be changing that much. If you look at their ROICs through this cycle, they're still in the high 40s. And if you compare that to their competitors, like ADI is running around 8% or 9% for ROIC.

So that gives Texas Instruments a huge leg up because they can reinvest this efficiently. even with lower revenue numbers and compressions on some of the margins, they're still able to generate those high returns, which means they really have their costs and their operations really dialed in and they know what they're doing. And the fact that they're tenured like that just gives me a lot of confidence that, yeah, if it drops to 42% instead of 45%, I'm not going to get too excited about that because it's still way, way, way above their cost of capital, which hovers around 8%, 9%. So even if it gets down to 30%, they're still killing it. So I'm happy with that. So Andrew, I'll throw the ball to you, sir. I think it's an important discussion and a great

question. When I look at the way that the competition has stacked up so far, I know we haven't gone super deep into it, but one of the things when you compare segment to segment, Texas Instruments has grown a little slower than some of its competitors in the different segments. But a lot of these competitors are making huge acquisitions to inject this kind of growth and try to take market share. And so what you don't see is a consistent, these companies are taking a ton of market share from Texas Instruments. instruments. And when you talk about peers with lower ROIC, I think that's where a lot of that comes in. If I buy a competitor at a really high valuation, sure, I took market

share, but was that a good move for the business? That's questionable. So for me, when I look at the competitive landscape, and I try to paint the picture of what are all the factors here. Texas Instruments has the different structural advantages that these companies don't have. And then also when you combine those with economies of scale, it makes it very hard for a competitor

to replicate all of those things, the direct-to-consumer, the extensive in-house manufacturing, and the fact that, yes, they can share temporarily, But if they have to do expensive acquisitions to do it, that doesn't necessarily mean that Texas Instruments' moat is eroding in any way. So that's one of the things I watch with a lot of the companies that I'm looking at is how is the market share is changing. And if that changes, of course, the story will change.

But until you see competitors that can match margins and sustainably take a lot of market share, I don't feel worried about the medium to long term for the company. Okay. I think anyone listening, because of some of the stuff you guys have said already, can probably get the sense that this is a pretty good business. the question it seems like right now is kind of circling back to that down cycle i think a lot of people stay away from semis because of the cyclicality of the industry and so i know this is probably an impossible question to kind of answer but do you guys have any context around like where are they seeing weakness right now do you think that's demand that will come back over time and it's kind of short-term. I guess as much as you can,

what do you think of the cyclicality so far and do you think it'll last? So let me try to answer it this way. I'm the type of crazy person to run crazy back tests in Excel and look at macros and try to see what's been going on. So for example, if you're trying to do a DCF model on something that's super cyclical, it's just not going to do anything because the results are just too varying. If you backtest a lot of the other super cyclical semiconductors, especially those that are trying to compete in cutting edge, using a DCF would have been completely worthless. But if you look at Texas Instruments and you backtest their DCF, buying when the DCF said that this company is a good value did well, like you would see other

mature companies do well with. And so because of a lot of the things we've talked about today and the way that this plays like a more mature business, a DCF model does a good job of valuing the company and taking into account those cyclical swings. And so for me, cyclicality is tough and it's a hot button. Everybody wants to talk about it with a lot of the different industries, but if I can find a company where you buy the cheap valuation through a DCF model over the longer term, if I'm okay with the company and the moat and the management, then I'm not necessarily worried about timing the very bottom of that cycle. So when it came to Texas Instruments,

when I first pulled the trigger, DCF looked great. And that's when I went for it. We can also talk about some of the recent developments, which I think are important. But I would highlight that with the context that if I'm looking to be a long-term investor, I'm probably not going to time the cycle perfectly. But if I'm going to take a contrarian approach and get it when everybody else think that this is a terrible time to buy it, I'll probably do well. And I think that's what makes this almost like a not semiconductor play because you can get away with that with Texas Instruments, or you could not get away with that with some

of the other high flyers. That's a perfect way to sum it up. Now, I guess when you lead into, or Ryan, do you have- I was going to say, Dave, anything to add there? No, I think Andrew gave a really eloquent answer. I don't think I can add anything good to that, so I won't. Okay. All right. So the next step after identifying that the stock's cheap is going to generate a lot of cash for you as an investor is what management's going to do with that. You already talked about how essentially whenever someone looks at Texans instruments,

they all fall in love. I think there's about 100% hit rate about falling in love with their management team. So what makes them so great? And what is their consistent capital return strategy through both buybacks and dividends? Well, it's pretty obvious, you know, when I looked at when I looked at their the first time, I'll give you an example here. So the first thing I did, when I started researching the company was I went to their investor relations page, which I have to

say is one of the better ones out there. And the first thing you can see exactly what's important to them right away because they list their free cash flow per share, their dividend growth, and their share count reduction. That tells you everything you want to know about how they think. And the first sentence that they include in here is that they are running the company for us. They're running the company for shareholders. And I know a lot of people give that lip service, but when you read through all of their information, that theme keeps coming back again and again and again. And at the beginning of their 10k, they have this big section about free cash flow and how important it is to them. And that's one of the metrics that

they have to measure the company. And so it's very important. And that all flows into dividends and share count reduction. I mean, they've reduced their share count 47% in 18 years. That's kind of redonkulous. So even if they didn't do anything else, they've been doing an amazing job of reducing his share count. So it's pretty obvious to me. They end every earnings call with this little phrase about cash flow and how important it is to them. They have a capital appreciation day where they have the CFO basically take analyst questions for an hour. So they set themselves up a little differently than other companies. And that to me just makes it more apparent how transparent they are and how much they're really focusing on driving value for

the shareholders. And that's, I mean, those are some things just right along kind of made me fall in love with the management. Yeah, 100%. All right. Anything else to follow up there? Because I do want to hit, Andrew, you said something about, you know, recent developments and it kind of made me realize we forgot to talk about the electric vehicle potential. I guess it's a huge industry for them. I think I might be getting the numbers wrong, but something like electric vehicles may have, and it might just be modern vehicles in general, are like three to four times as much intensive with semiconductors and all that sort of stuff with computer chips in them.

So what do you think about the industry tailwinds, maybe specifically on electric vehicles, all dealer's choice, whoever wants to answer that one? Yeah, I mean, I get really excited. I finally had an opportunity to drive a Tesla. My brother got one. And if you ask other Tesla drivers, it's just a different experience. You're not driving a car, you're driving something else. And I think people start to get used to that.

And it's interesting. I feel like this and another position I have, you have people who are kind of betting against technology. I just don't know when that's ever been a good move. If mankind has shown one thing is they have the ability to innovate and create things that make us spend money, and that includes innovation and tech and all of these things. So the prices of cars have been jumping through the roof lately. Nobody has to, I don't have to tell anybody that as they start to increase the amount

of content, electronic content, like you were saying, Brett, I think it's only inevitable. I guess the other side to the argument would be, well, we have our cell phones, so why would you need to deck out your car? And that's certainly true and that's a risk. But I think something about the Tesla thing is really convincing and the way he's really changed the game with how we approach technology and cars and the whole driving experience. So personally, I'm really bullish about automotive. I'm bullish about the industrial tailwinds, but of course, I could be wrong too. And luckily with a company like this, with a lot of free cash flows, you don't have to be 100% right to make a decent return.

All right. Anything else that you guys want to hit before we hit our risks and premortem segment? I think one, I guess one kind of quick thing that I'd like to throw out there is Texas Instruments kind of has this kind of stodgy, maybe outdated, I guess, what's the word I'm looking for? Reputation. but if you look at if you look at what they do and how they do it and i went online and looked at a youtube video of how they produce these fabs that they they create and it was state of the art it was like nasa high tech kind of visualizations and i was kind of shocked and so once i kind of really understood how high tech this company really is i was really really more impressed with the efficiency and the way that they do what they do. All right.

Now let's hit the closing thoughts here. You know, obviously you guys are very excited about Texas Instruments. You think it's a good opportunity here, but there's always risks with any investment. So you mentioned the China stuff. I think that's pretty clear for a lot of people. If there's anything else you want to add on that, go right ahead. But what could cause, you know, from these levels or wherever you're, why would this be an underperforming investment over the next five, 10 years?

I think what Dave said, the stodgy reputation, I think it's not the craziest idea. I mean, revenues haven't been insane. They've basically kept up with GDP over the last 10 years. So they're not knocking it out of the park when it comes to revenue growth, but what they're doing is positioning themselves as a crucial part of the economy itself. So I think the risks there is if the way that these competitors have been taking share through acquisition, if those synergies actually do play out and that acquisition game gets more and more heated up, and if they can take significant share from Texas Instruments, then I think you have a company that goes from maybe keeping up with GDP or outperforming GDP by a couple of percentage points to maybe something that's a little bit more matured.

So to me, the biggest risk is starting to lose market share consistently at a profit rate for competitors that allows them to do that year after year after year. And so it would not kill the business because they have a great balance sheet. They have all of this free cash flow, but it would create a mature tech business, which is something you never want to see. So that would be something to watch. All right. Anything else, guys, before we wrap things up? All right. I think that's going to do it. Why don't we talk about the Investing for Beginners podcast? Because we recently, actually, I don't know what's going to come out first. We recently did a recording with you guys.

I think it'll probably come out right around the time this one's out. So talk about the show. October 2nd. Yeah, that should be very similar to this one. So go listen to that one as well. Over on their episode, we covered a myriad of things. But yeah, why don't you guys talk about the show? How'd that get started? Well, I kind of mentioned at the beginning, I went to school as an engineer. I did not study finance at all in college. So I had to teach myself along the way. Dave and I stumbled upon each other and we created this show. And basically, as we taught ourselves, we hit record and tried to relay those lessons. And I think coming from people who didn't have a background, we had to learn things like dummies basically.

And it seems like that resonated. And then people started to ask questions and we started answering those. And now we answer questions very regularly. We also have very insightful interviews with fabulous guests like you two. And every once in a while, we get deep into the weeds with a company like Texas Instruments or Return on Invested Capital. I think we broached that at least once to probably put the beginners to sleep, but we have to do it sometimes. So that's the gist of our show. We go twice a week and just try to... We do a lot of teaching. So I don't know if that came out at all today, but we tend to explain things as we go. So as a beginner, you can hopefully follow along even as we discuss more complex topics.

All right. Yeah. And if you are a listener to the show and newer to investing, you're going to love their podcast as well. We'll leave a link in the show notes for anyone so you can easily find that. But let me hit the disclosure here. Usually Ryan does it with the guests. So maybe with the audience here, it'll be a little bit tougher.

But we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan and I are general partners at Arch Capital and clients may hold securities discussed in this podcast. Thank you, Dave. Thank you, Andrew. And we'll see you all next time. Head back to the streets and FX is the drop.

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