Q3 2019 Earnings Call

Officer is with me today.

For any of you who missed the release you can find it on our website at <unk> Dot Com Slash 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 T.I.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 to published today as well as T.I.s. Most recent SEC filings for a more complete description.

For todays call, let me start by summarizing what Raphael and I'll be reviewing.

I'll be covering the following topics.

First a high level summary of the financial results for the third quarter second given the additional weakness we've seen I'll provide some comments about what we're seeing with added insight by segment and end market.

Raphael will then review profitability capital management results and then the outlook after which we'll open the call for Q1 day.

Starting with a high level summary of our third quarter financial results.

Revenue decreased 11% from a year ago and came in below the midpoint of our guidance as we saw most end markets continued to weaken further.

In our core businesses analog revenue declined 8% and embedded processing revenue declined 19% compared with the same quarter a year ago.

Both businesses year on year year growth decelerated.

Earnings per share were $1.49, including a nine cents benefit for items not in our original guidance due to discrete tax benefits.

With that backdrop I will now provide details on our performance.

In the third quarter, our cash flow from operations was $2 billion.

As we know each quarter, we believe that free cash flow growth, especially on a per share basis is most important to maximizing shareholder value in the long term.

We remain committed to returning all of our free cash flow to owners.

Free cash flow for the trailing 12 month period was $6 billion up 2% from year ago.

Free cash flow margin for the same period was 41% of revenue.

We continue to benefit from the quality of our product portfolio that has long lived in diverse and the efficiency of our manufacturing strategy. The latter of which includes our growing 300 millimeter analog output.

We believe that free cash flow will be valued only if its productively invested in the business or if its return to owners.

For the trailing 12 month period, we returned $7.4 billion of cash to owners through a combination of dividends and stock repurchases.

Demonstrating our confidence in the business model and our commitment to return all of our free cash flow to owners.

Moving on I will now provide some details on the third quarter by segment and end market.

For the year ago quarter analog revenue declined 8% due to declines in power signal chain and high volume.

Embedded processing revenue declined 19% from the year ago quarter due to declines in both product lines processors and connected microcontrollers.

All markets declined across the embedded but the declines were most pronounced in the automotive and communications equipment markets.

Other declined by 19% from the year ago quarter, due to DLP and customer facing.

Next I'll provide some comments on what we're seeing in the market and insight into this quarter's performance by the end market versus a year ago.

As we said when you look at 30 years of history.

Semiconductor cycles can vary widely but typically experienced four to five quarters of year on year decline before returning to positive growth.

We've also said that the current trade tensions could impact the depth and duration of the cycle.

We've provided these comments as context, not as a prediction about the current cycle.

With the end of this current quarter, we've now experienced our fourth consecutive quarter of negative year on year growth.

There is an increasing number of reports of macroeconomic weakness with trade tensions as the primary contributor.

Consistent with us the weakness we've seen in the third quarter was broad based across all markets and most sectors.

Industrial automotive and personal electronics, all declined upper single digits from the Europe gold as almost all 28 sectors within these markets declined.

In communications equipment revenue declined.

About 35% from the year ago, and 20% sequentially.

We saw weakness across all major customers regions and technologies.

And lastly enterprise.

Hi systems declined from the year ago quarter.

We've learned over the years sustain focused on building the company's stronger, especially in the face of a weak market provides great long term rewards.

We continue to invest in and leverage our competitive advantages.

The breadth of our product portfolio in channels to market.

Including our direct sales in applications team as well as T. Dotcom provides us the broadest reach to our customer base a unique advantage.

We've been evolving our distribution network over the years and continue to do so today.

As we build stronger direct relationships with our customers.

We remain focused on analog and embedded the best products.

We remain focused on industrial and automotive the best markets.

There will be the fastest growing semiconductor markets is they have increasing semiconductor content and also provide diversity in longevity.

All of this translates to a high terminal value of our portfolio.

Raphael will now review profitability capital management and the outlook.

Thanks, Dave and good afternoon, everyone.

Gross profit in the quarter was $2.45 billion for 65% of revenue.

From a year ago gross profit decreased due to lower road.