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Manufacturing
 We own and operate semiconductor manufacturing sites in North America, Asia and Europe. These facilities include high-volume wafer fabrication plants where we manufacture wafers, each containing tens to thousands of integrated circuits, and assembly/test sites where the wafers are cut into individual chips, tested for basic functionality, encapsulated in some type of packaging, and then tested to ensure final product specifications.
These highly specialized factories require substantial investment to construct and are largely fixed-cost assets once in operation. Because we own much of our manufacturing capacity, a significant portion of our operating costs is fixed. In general, these costs do not decline with reductions in customer demand or utilization of capacity, potentially reducing our profit margins. Conversely, as product demand rises and factory utilization increases, the fixed costs are spread over increased output, potentially benefiting our profit margins.
Our analog semiconductors typically require a lower level of investment in manufacturing processes and equipment than our digital chips, which are based on advanced CMOS logic manufacturing processes. While analog chips have unique, proprietary manufacturing processes, they typically require more mature, less expensive equipment in their production. In addition, analog processes and equipment remain usable for much longer than those required for leading-edge advanced logic manufacturing. Consequently, the level of capital spending needed to support analog semiconductor manufacturing is considerably less than is needed for advanced logic manufacturing.
Our manufacturing strategy uses the capacity of outside suppliers, commonly known as foundries. Currently, foundries provide about 60 percent of the fabricated wafers for our advanced logic products. We expect the proportion of our advanced logic wafers provided by foundries will increase over time. We also expect to maintain sufficient internal wafer fabrication capacity to meet substantially all our analog production needs, although we do use subcontractors to provide a small portion of our assembly-and-test needs. Currently, 90-to-95 percent of our analog chips are produced internally, and we believe that number will remain relatively stable in the future.
Over the years, our manufacturing strategy has continued to evolve as we strive to increase shareholder value and benefit our customers. Throughout the downturn and continuing into the recovery, we've been implementing a number of actions to ensure we have capacity in place to support future growth. Thanks to TI's strong balance sheet and robust cash flow from operations, we've been able to purchase additional capacity at the very time many of our competitors were constricting their capacity in response to the economic downturn of the past couple of years. For example, we equipped and began production in the world's first 300-millimeter analog wafer fab in Texas; we opened our first wafer fab in China; and we added a new fab in Japan. Much of this manufacturing capacity and equipment has been purchased at a fraction of its original cost. These low-cost purchases will enable us to add capacity without overly burdening our depreciation levels.
Through this series of manufacturing expansions announced by TI beginning in mid-2008, the company will collectively add capacity to support more than $5 billion of additional revenue per year when the fabs are fully operational.
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