Q4 2020 Texas Instruments Inc Earnings Call
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Good day, everyone and welcome to today's Texas instruments, Q4, 2020 earnings release Conference call at this time I'd like to turn things over to Mr. Dave Pahl. Please go ahead Sir.
Good afternoon, and thank you for joining our fourth quarter and 2020 earnings Conference call Raphael was already Ti's Chief Financial 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 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.
First let me provide some information that's important for your calendars.
We plan to hold a call to review our capital management on February 4th at 10, a M central time.
Similar to what we've done in the past Raphael and I will summarize our progress and provide some insight into our business and approach to capital allocation.
For today's call, let me start by summarizing what Rafael and I will be reviewing.
First I'll start with a quick overview of the quarter and next I'll provide some insight into fourth quarter revenues results.
And as we've done the past few quarters, we will provide details by end market, including sequential performance.
It's more informative at this time.
I will also provide the annual summary of revenue breakdown by end markets.
And lastly, Raphael will cover the financial results some insight into onetime items and our guidance for the first quarter of 2021.
So starting with a quick overview of the fourth quarter, the company's revenue increased 7% sequentially and 22% year over year, driven by strong demand in automotive personal electronics and the industrial markets.
Analog revenue grew 9% and embedded grew 11% sequentially.
On a year over year basis analog revenue grew 25% and embedded grew 14%.
Our other segment grew 4% from a year ago quarter.
Moving on I'll now provide some insight into the fourth quarter revenue by end market.
First the automotive market continued its rebound following the second quarter bottom with 19% sequential growth and 25% year over year growth.
The industrial market was up 7% sequentially and 16% from the year ago. The.
The strength was seen across most market sectors.
Personal electronics was up 11% sequentially.
And up 39% compared to a year ago.
The strength was broad based across sectors and customers within personal electronics.
Next as expected communications equipment was down 28% sequentially and down 8% from the year ago.
Enterprise systems was down 2% sequentially and down 13% from a year ago.
And lastly, as we do at the end of each calendar year I'll describe our revenue by end market for 2020.
We break our end markets into six categories that are grouped by their life cycles and market characteristics.
The sixth and markets are industrial automotive.
Personal electronics, which includes products such as mobile phones, Pcs tablets and Tvs.
Communications equipment enterprise systems and.
Other which is primarily calculators.
As a percentage of revenue for the year industrial was 37% at.
Automotive, 20% personal electronics, 27%.
The indications equipment, 8% enterprise systems, 6% and other was 2%.
Looking at the changes versus 2019 industrial increased one percentage point automotive.
<unk> declined.
One 1% personal electronics increased for communications equipment declined three enterprise systems was even and other declined one percentage point.
In 2020, industrial and automotive combined made up 57% of Ti's revenue about even with last year and up 42% in 2013.
We see good opportunities in all of our markets, but we placed additional strategic emphasis on industrial and automotive.
Our industrial and automotive customers are increasingly turning to analog and embedded technology to make their end products smarter safer more connected and more efficient.
These trends have resulted and will continue to result in growing chip content per application, which will drive faster growth compared to our other markets.
Rafael will now review profitability capital management, and our outlook, Thanks, Dave and good afternoon, everyone.
Gross profit in the quarter was $2 6 billion or 65% of revenue from a year ago gross profit increased primarily due to higher revenue.
Gross profit margin increased 230 basis points.
Operating expenses in the quarter were $786 million down, 2% from a year ago and about as expected.
On a trailing 12 month basis operating expenses were 22% of revenue.
For the year, we have invested $1 5 billion in R&D, an important element of our capital allocation. We are pleased with our disciplined process of allocating capital to R&D, which we believe will allow us to continue to grow our top line over the long term.
Acquisition charges and non cash expense were $47 million in the fourth quarter Act.
Acquisition charges will remain at about this level through the third quarter of 2021.
Operating profit was $1 8 billion or 44% of revenue opt.
Operating profit was up 45% from the year ago quarter.
Other income and expense was $162 million in the quarter due to a onetime benefit related to the signing of a multi year royalty agreement.
Net income in the fourth quarter was $1 7 billion or $1 80 per share.
Which included a <unk> <unk> benefit that was not in our prior outlook, primarily due to the royalty agreement, we just mentioned.
Let me now comment on our capital management results, starting with our cash generation cash.
Cash flow from operations was $2 1 billion in the quarter capital expenditures were $212 million in the quarter.
Free cash flow on a trailing 12 month basis was $5 5 billion down 5% from a year ago.
In the quarter, we paid $937 million in dividends, we have increased our dividend per share by 13%, marking our 17th year of dividend increases.
We repurchased $15 million of our own stock for a total return on cash to owners in the fourth quarter of about $1 billion.
On a year 2020 with returned $6 billion on.
System of our strategy to return all free cash flow to our owners.
Over the same period, our dividends represented 62% of free cash flow underscoring its sustainability.
Our balance sheet remains strong with $6 6 billion of cash and short term investments at the end of the fourth quarter total debt was $6 8 billion weighted average coupon of 277%.
Inventory days were 123 down 21 days from a year ago and down 14 day sequentially.
Now, let's look at some of these results for the year in 2020 cash flow from operations was $6 1 billion.
Capital expenditures were $649 million or four 5% of revenue.
Free cash flow for 2012 was up $5 5 billion or 38% of revenue on.
Our cash flow reflects the strength of our business model.
As we have said, we believe that growth of free cash flow per share is the primary driver of long term value.
And after accretive investments in the business. The remaining cash will be returned over time via dividends and share repurchases.
Over the last 12 months, we paid $3 4 billion in dividends and purchased $2 6 billion of our shares reducing our outstanding share count by one 4% in 2020.
Turning to our outlook for the first quarter, we expect Ti revenue in the range of $3 79 to 4.11 billion.
<unk> earnings per share to be in the range of $1 44 to $1 66.
We expect our 2021 annual operating tax rate to continue to be about 14% and our effective tax rate of about a percentage lower than that a percentage point lower than that.
In closing, we will stay focused in the areas that add value in the long term, we continue to invest in our competitive advantages, which are many factor on technology broad product portfolio reach of our channels and diverse on long lived positions. We will continue to strengthen these advantages through disciplined capital allocation and by focusing on that.
Best market opportunities, which we believe will enable us to continue to improve and deliver free cash flow per share growth over the long term with that let me turn it back to Dave.
Okay. Thanks, Raphael operator, you can now open the lines for questions.
In order to provide as many as possible an opportunity to ask a question. Please limit yourself to a single question and after year.
Our response, we'll provide you an opportunity for an additional follow up operating income.
Thank you and if you do have a question that will be starwood at this time.
Go first today to John Pitzer with credit Suisse.
Yes. Good afternoon, guys. Thanks for letting me ask the questions. Congratulations on the solid results David Raphael I'm wondering if you could talk a little bit about just the current demand backdrop I mean, clearly we're hearing about lead times stretching out of the semi industry. Many of your peers are talking about raising pricing I guess, specifically to you guys can you help us understand what your lead times are doing what you.
You guys are thinking about doing around pricing and I guess more importantly, given your inventory strategy.
The fact that you ran your fabs a little bit Fuller last year do you think the current results represent your ability to gain some incremental share share as some of your peers just are having a harder time supplying customers right now.
Yes, John Let me, let me take you covered a lot of groundwork that first question. So let me take some pieces of it Rafael if you want to add anything in.
If I Miss any John will give you a chance for the follow up but.
On the first one.
And certainly we've read the same reports.
<unk> seen the same releases from our peers on.
On on the supply constraints in <unk>.
Raising prices the short answer are we doing that the short answer is no.
And I think that that brings us to one of our foundational competitive advantages is manufacturing and technology and that really provides two benefits. One is the obvious which is lower cost, but the second is just greater control of our supply chain. So it's really times like this and really throughout 2020.
That greater control of your supply chain really become.
<unk> advantage.
Yes, I'll just add on the inventory angle of your question on John.
Remember our long term objective for inventory as we have talked about many capital management goals is to maintain high levels of customer service, while we minimize inventory obsolescence now part of the reason we can do that is that we are strategically positioned the way we run the company our business model on competitive advantages, where we are parts of our main.
On the catalog parts that sales.
Selling to industrial and automotive are focusing on those with very long product life cycles. So we can build inventory ahead on demand, we can position that inventory well that served us well in 2020 on will continue to serve us well from a business model standpoint in order to maintain the high levels of customer service.
Our customers.
So I think we've got most of the pieces John.
Follow up or other pieces, we had touched on it just a quick follow up Raphael Raphael I know you don't specifically guide gross margins, but I was wondering if you could give us some parameters around the opex for the next couple of quarters I mean, we're heading into a strong cyclical recovery in revenue.
What was kind of an unusual expense year last year with Covid and so as we think about the March quarter can you help us kind of frame the period cost around SG&A and R&D that we should be thinking about if you want to give us a gross margin target that would be great, but I know you tend to avoid that.
Yes on a gross margin like we have said before and just think of 70% to 75% fall through.
Youll figure out what what revenue.
Incremental revenue you want to play in and just fall that through at 70% to 75% you'll get you'll get a good plays over along the right at any one quarter can be a little higher or lower right on.
Opex.
We've talked about we can operate between joining on 25% the last simple.
Three or four years, we have been between 'twenty, one and 'twenty two pretty much right. So I don't want to narrow that range, but but that's what we've been running on I would expect to stay somewhere in that neighborhood portfolio in <unk>, 'twenty and 'twenty everything to Arizona five rates right.
Thank you John and we'll go to the next caller. Please.
That will come from Vivek Arya with Bank of America.
Thank you for taking my question congratulations on on the strong growth.
Just wanted to follow up on the demand question and Im curious, even if you are able to supply.
Because of your very strong strategic capacity do you think your customers, especially on the automotive side might be constrained with other parts of the building the data that they get some others that maybe.
Those become bottlenecks I'm just.
I'm just trying to reconcile the very strong demand backdrop that we are hearing from the orders is on your outlook versus all the news around auto supply chain facing more constraints. What is the true sense of kind of supply and demand across your customer base would be very helpful to hear your views.
Sure Vivek.
Thats a great question, we see the same.
Ports that you are seeing and I think the best way to maybe describe what we're seeing in.
In the in the automotive market is just.
Adjusted time on our supply chain.
Restarting from essentially a full stop that that happened in second quarter.
And just as a reminder, what we saw in third quarter was 75% sequential increase.
<unk> by this last quarter with a 20% sequential increase so.
What I'll say is that.
Those reports are fairly widespread.
And but we aren't seeing demand signals that would.
Show Us that there is.
Anything thats consistent with.
Any of those constraints.
That youre pointing out or that are in press releases.
We have a follow on.
Yes, Thank you Dave.
Good to see the growth in the embedded segment and I know you made some changes in that business last year do you think you will start to see the benefits of that.
2021, because they also tend to be.
Somewhat stickier markets. So I'm just curious if you could give us an update on.
What are you doing specifically to regain market share and do you think we can start to see our embedded business start to grow in line with the other analog business. This year. Thank you.
Yeah, I'll give you a few more fee on those ones. So first we're pleased with the progress we're seeing in embedded our plan has called to first stabilize the business and then.
Start to prove that we can resume our long term on consistent growth.
We're leveraging our competitive advantages, particularly building a broad.
<unk> is a more diverse product portfolio that can then deliver long term on a sustainable growth I think it was in second quarter of 'twenty, where we announced the.
We had a restructuring charge related to the embedded and we reallocated resources from some product lines.
Increased investment some we decrease other stayed about the same and we're seeing the beginning of that stabilization on that front.
Okay. Thank you Vivek and we'll go to the next caller. Please.
Well hear next from Craig Kevin Barker with Morgan Stanley.
Yes. Thank you Dave just following up on your comments around autos and particularly the just in time inventory angle.
Certainly 2020 was a challenging year for the supply chain and we're dealing with some of those repercussions now, but do you think youll see some changes to that over time in terms of how they operate from an inventory perspective or something that.
It might be difficult to next couple of quarters, but kind of gets back to that just in time.
Yes, Craig.
I don't want to speak for our customers or how they're managing their inventories I think.
As you've seen us and how we've managed our business and our operations.
We would just work very hard to.
Try to have capacity in place.
To support our customers' needs.
You saw the decisions that we made earlier in the year too.
Try to keep.
Hi service and Optionality in place.
And.
We will just continue to.
Try to support our customers' needs.
Whatever their supply chains looked like so and whether that's in the automotive market or the other market. So.
We just we try to make them happy.
What we're trying to do so you can follow on.
I do thanks, and then just looking at analog up 25% year over year I know that comes off of a difficult year in coming out of a down cycle until that some of it but just curious at a high level just to get your thoughts of just the type of strength Youre seeing and how you feel about what the demand is out there.
Can you can you clarify that a little bit for me Craig just so I make sure I answer the question.
Yeah, So just with the analog business up 25% year over year.
That's coming off of that an easy comp if you will coming out of the down cycle. So I think that some of it but just curious I know on some of these calls you've talked about just your view of just pay our supply and demand equilibrium or how you feel like demand is relative to how your business is trending right now.
Oh well yeah.
Yes, I think that.
When you look at.
Where that business is I think that we've just come.
Through a.
From a cyclical indicators in those types of things.
So you would even have to go back to 2018 when the industry had had reached a cyclical peak then you throw in the sprinkle on top of COVID-19.
And it was really.
At the beginning of <unk>.
At the end of last year.
At the beginning of <unk>.
2020 that we had begun to see signs of stabilization before.
Covid had hit so.
Inventories really warrants a problem at that point in time, and we had said at that point in time.
Our shipments we are beginning to reflect what customers, we're beginning to ship overall so.
Again, I think that.
What we are shipping today is reflective of what customers are asking us to ship.
We have.
Good availability of product.
Because of the decisions that we've made.
And our lead times have remained remained stable.
It doesn't mean of course that we don't have hotspots.
That we're working.
And we always have hotspots.
But.
That's kind of where we are today.
Thank you Craig and we'll go to the next caller. Please.
We'll hear next from Harlan sur with Jpmorgan.
Good afternoon, congratulations on the strong execution amidst a strong demand environment as we all know foundry capacity is pretty tight both leading edge and lagging edge and I know that Ti outsourced is about 20% of its wafer requirements most of it with your embedded products MCU mcu's. So.
Because of the foundry tightness as the team also somewhat constrained on your embedded products either Q4 or here in Q1 and also the same thing from an assembly test perspective, or I think about 40% of your assembly and test requirements are outsourced to the sub causes.
Constraining, maybe some of your shipments near term.
On a high level.
We have long term agreements.
With this suppliers like we do with all their suppliers, even though we only our stores are relatively small part of our of our loadings were still being a big company Thats still.
A good amount of loadings right. So we still get some some decent leverage.
We're seeing some hotspots here on there but to the largest degree we're getting what we need.
And I would say having.
80% of our wafer sourced internally.
Most all of our analog sourced internally.
Ed.
That is a great advantage for us overall as we've talked about that.
Lead times lead times have remained stable so.
That has been a huge advantage for us they have a follow on Harlan yeah, absolutely. Thanks for the insights there.
Can you guys just provide us with the shipment trends quarter over quarter year over year by geography, I know, let's shift to a location, but I think it's still useful to kind of understand the breadth of the overall demand profile you guys are seeing.
Sure so in the quarter.
Thank you for the preamble there so.
Repeat it.
But the year ago Asia was up and on.
All of the other regions were either flat or down.
Sequentially, all the regions, except for the U S were up.
And just as another point of color.
On where we ship our products, 90% of our revenues come from shipments outside of the U S.
And we've got about.
About 20% of our revenues that are based.
<unk> faced by customers in China. So.
Just a little bit more color on on.
The comment that you made there earlier so thank you Harlan and we'll go to the next caller. Please.
We'll hear now from Timothy Arcuri with UBS.
Thanks, a lot Raphael I guess I asked this question last quarter too but.
Again bought back next to no stock.
Totally get that you were running a head of a plant in the first half and you will certainly.
How does the 100% for the full year, but you also have a pretty strong intrinsic value model for the share repo and you've been pretty good at buying back stock. So I guess, maybe I'll ask you again to just sort of comment on that is there anything that we can read into that given that it's a second quarter growth.
What I would tell you that as we talk about during capital management. Our goal is to return all free cash flow to the owners of the company, we generated in $2025 $5 billion on free cash flow and we generated six $6 billion on free cash will have clearly.
Well above.
The cash flow generation.
Okay. So I'll follow up and then I guess, yes, yes, yes, I do I guess can you give us on update on the 300 millimeter the new fab in sort of the timing around that and I guess.
On on that.
Can you qualify for some of these subsidies coming from the government or is that mostly going to be leading edge.
Yes, sure so the update on the factories the same nothing has changed.
As far as our expectation.
New factory is being built.
We expect it to be.
We completed in 2022, so next year in fact, we should have some form some level of output in the second half.
Of next year.
So that's all going as per plan.
When it's fully.
It has the potential for a revenue of about $5 billion per year.
On your question on day incentives a lot of that is remains to be seen there too.
Legislation's, one one that was approved but not funded another one hasnt been approved the chips I think is the one that hasnt been a book, but the one that was a Brazilian unfunded.
And there is a lot of.
Uncertainties on that depending on how that comes out so with that comes I would look at it and we'll we'll decide if it makes sense for us but.
The biggest the highest level we think.
Semiconductor.
As a foundational technology on anything that the government can do.
To strengthen that and to keep us at a level playing field companies in the United States versus other countries would be would be a good thing.
Okay. Thank you, Tim and I think we've got time for one more caller. Please.
That will come from tore Svanberg with Stifel.
Yes, Thank you and congratulations on the results first question Rafael I typically wouldn't ask you. This because I know you get a lot of these but the royalty this quarter was pretty material $162 million.
Can you maybe add any color on that and should we expect.
Hi, simple things like that going forward as well.
Yes, so it was it.
It was about inside a 160 day was more most of that 162.
We recognize that based on on accounting rules, the cash actually comes in not quite like that but it comes in over time, but it just is on licensing agreement and we've had those for many years.
They have become the minimums and the.
Hi.
A level frankly, though.
I don't expect that to change from a cash standpoint is it's about $100 million a year.
So.
From the revenue our net income recognition standpoint, sometimes they come in.
As Bob says, what you saw but the cash which is really what matters is more stable on that and again like I said, it's about $100 million per year, and I don't expect that to change much.
Follow on Tori.
Yes, Thank you Dave.
So I know your long term.
Goal is to grow capex at 6% of rigor to spend 6% of your revenues in Capex I think last year. It was four five.
Was there sort of any COVID-19 related issues that slowed things down and as we look at 2021 do you think it will come in close to that that that range sort of 6%.
Yeah. So I'll go ahead and take that so yes, our guidance at 6% our guidance continues to be 6%.
Capex is present on revenue that's a long term.
Guidance includes everything that goes into into Capex as far as building and equipment now of course that number can fluctuate right. Like you pointed out we just we just fluctuated down and Duane Duane to $4 five so I wouldn't be supplier for surprises is a little higher than 6% for for a year or two but for your model I would suggest.
You stick with 6% out into the future is just.
Is simpler that way and it gets the point across.
Thank you so much.
Thank you Tori that concludes the call. So let me finish with a few comments on key items that we believe that we believe deeply first we run the company with the mindset of being a long term owner, we believe that growth of free cash flow per share is the primary driver on a long term value our ambitions on values are integral to how we built the stronger.
When we are successful in achieving this ambition to our employees customers communities and shareholders all win.
Okay and thank you all for joining US a replay of this call will be available shortly on our website good evening.
And again that will conclude today's conference. Thank you all for joining us.
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Yes.
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Good day, everyone and welcome to today's Texas instruments, Q4, 2020 earnings release Conference call. At this time I would like to turn things over to Mr. Dave Pahl. Please go ahead Sir.
Good afternoon, and thank you for joining our fourth quarter and 2020 earnings Conference call. Raphael is already Ti's Chief Financial 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 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.
First let me provide some information that's important for your calendars.
Plan to hold a call to review our capital management on February 4th at 10, a M central time.
Similar to what we've done in the past Raphael and I will summarize our progress and provide some insight into our business and approach to capital allocation.
For today's call, let me start by summarizing what Rafael and I will be reviewing.
First I'll start with a quick overview of the quarter and next I'll provide some insight into fourth quarter revenues results.
And as we've done the past few quarters, we will provide details by end market, including sequential performance since it's more informative at this time.
I'll also provide the annual summary of revenue breakdown by end markets and.
And lastly, Raphael will cover the financial results some insight into onetime items and our guidance for the first quarter of 2021.
So starting with a quick overview of the fourth quarter, the company's revenue increased 7% sequentially and 22% year over year, driven by strong demand in automotive and personal electronics and the industrial markets.
Analog revenue grew 9% and embedded grew 11% sequentially.
On a year over year basis analog revenue grew 25% and embedded grew 14%.
Our other segment grew 4% from a year ago quarter.
Moving on I'll now provide some insight into the up fourth quarter revenue by end market.
First the automotive market continued its rebound following the second quarter bottom with 19% sequential growth and 25% year over year growth.
The industrial market was up 7% sequentially and 16% from a year ago the.
The strength was seen across most market sectors.
Personal electronics was up 11% sequentially.
And up 39% compared to a year ago.
The strength was broad based across sectors and customers within personal electronics.
Next as expected communications equipment was down 28% sequentially and down 8% from the year ago.
Enterprise systems was down 2% sequentially and down 13% from a year ago.
And lastly, as we do at the end of each calendar year I'll describe our revenue by end market for 2020.
We break our end markets into six categories that are grouped by their life cycles and market characteristics.
The six end markets are industrial automotive.
Personal electronics, which includes products such as mobile phones, Pcs tablets and Tvs.
Communications equipment enterprise systems and.
Other which is primarily calculators.
As a percentage of revenue for the year industrial was 37% at.
Automotive, 20% personal electronics, 27%.
The indications equipment, 8% enterprise systems, 6% and other was 2%.
Looking at the changes versus 2019 industrial increased one percentage point automotive declined one 1% personal electronics increased for communications equipment declined three enterprise systems was even and other declined one percentage point.
In 2020, industrial and automotive combined made up 57% of Ti's revenue about even with last year and up 42% in 2013.
We see good opportunities in all of our markets, but we placed additional strategic emphasis on industrial and automotive.
Our industrial and automotive customers are increasingly turning to analog and embedded technology to make their end products smarter safer more connected and more efficient. These trends have resulted and will continue to result in growing chip content per application, which will drive faster growth compared to our other markets.
Rafael will now review profitability capital management, and our outlook, Thanks, Dave and good afternoon, everyone.
Gross profit in the quarter was $2 6 billion or 65% of revenue from a year ago gross profit increased primarily due to higher revenue.
Gross profit margin increased 230 basis points.
Operating expenses in the quarter were $786 million down, 2% from a year ago and about as expected.
On a trailing 12 month basis operating expenses were 22% of revenue.
For the year, we have invested $1 $5 billion in on.
Randy on important element of our capital allocation. We are pleased with our disciplined process of allocating capital to R&D, which we believe will allow us to continue to grow our top line over the long term.
Acquisition charges and non cash expense were $47 million in the fourth quarter.
Position charges will remain at about this level through the third quarter upcoming in 'twenty one.
Operating profit was $1 8 billion or 44% of revenue.
Operating profit was up 45% from the year ago quarter.
Other income and expense was $162 million in the quarter due to a onetime benefit related to the signing of a multi year royalty agreement.
Net income in the fourth quarter was $1 7 billion or $1 80 per share.
Which included a 16% benefit that was not in our prior outlook, primarily due to the royalty agreement, we just mentioned.
Let me now comment on our capital management results, starting with our cash generation.
Cash flow from operations was $2 1 billion in the quarter capital expenditures were $212 million in the quarter.
Free cash flow on a trailing 12 month basis was $5 5 billion down 5% from a year ago.
In the quarter, we paid $937 million on dividends, we have increased our dividend per share by 13%, marking our 17th year of dividend increases.
We repurchased $15 million of our own stock for a total return on cash flow owners in the fourth quarter of about $1 billion.
On a year 2020 would returned $6 billion.
On system of our strategy to return all free cash flow to our owners.
Over the same period, our dividend represented 62% on free cash flow underscoring its sustainability.
Our balance sheet remains strong with $6 6 billion of cash and short term investments at the end of the fourth quarter total debt was $6 8 billion weighted average coupon of 277%.
Inventory days were 123 down 21 days from a year ago and down 14 day sequentially.
Now, let's look at some of these results for the year in 2020 cash flow from operations was $6 1 billion.
Capital expenditures were $649 million or four 5% of revenue.
Free cash flow for 2012 was up.
Up $5 5 billion or 38% of revenue or cash flow reflects the strength of our business model.
As we have said, we believe that growth of free cash flow per share is the primary driver of long term value.
And after our accretive investments in the business. The remaining cash will be returned over time via dividends and share repurchases.
Over the last 12 months, we paid $3 4 billion in dividends and purchased $2 6 billion of our shares reducing our outstanding share count by one 4% in 2020.
Turning to our outlook for the first quarter, we expect revenue in the range of $3 79 to 4.11 billion.
And earnings per share to be in the range of $1 44 to $1 66.
We expect our 2021 annual operating tax rate to continue to be about 14% and our effective tax rate of about a percentage lower than that a percentage point lower than that.
In closing, we will stay focused in the areas that add value in the long term, we continue to invest in our competitive advantages, which are manufactured on technology broad product portfolio reach of our channel and diverse on long lived positions. We will continue to strengthen these advantages through disciplined capital allocation and by focusing on that.
Best market opportunities, which we believe will enable us to continue to improve and deliver free cash flow per share growth over the long term with that let me turn it back to Dave.
Okay. Thanks, Raphael operator, you can now open the lines for questions.
In order to provide as many as possible an opportunity to ask a question. Please limit yourself to a single question and after year.
Our response, we'll provide you an opportunity for an additional follow up operating.
Yes.
If you do have a question that will be starwood at this time.
We will go first today to John Pitzer with credit Suisse.
Yes. Good afternoon, guys. Thanks for let me ask the questions. Congratulations on the solid results David <unk> I'm wondering if you could talk a little bit about just the current demand backdrop I mean, clearly we're hearing about lead times stretching out on the semi industry. Many of your peers are talking about raising pricing I guess, specifically to you guys can you help us understand what your lead times are doing well.
You guys are thinking about doing around pricing and I guess more importantly, given your inventory strategy and the fact that you ran your fabs a little bit Fuller last year do you think the current results represent your ability to gain some incremental share share as some of your peers just are having a harder time supplying customers right now.
Yes, John Let me, let me take you covered a lot of ground with that first question. So let me take some pieces of it Rafael do you want to add anything.
If I Miss any John will give you a chance for the follow up but on.
The first one.
And certainly we've read the same report and <unk>.
Seeing the same releases from our peers on on the supply constraints and in raising prices. The short answer are we doing that the short answer is no.
I think that that brings us to one of our foundational competitive advantages is manufacturing and technology and that really provides two benefits. One is the obvious which is lower cost, but the second is just greater control of our supply chain. So it's really times like this and really throughout 2020.
That greater control of your supply chain really becomes.
A great advantage.
Yes, I'll just add on the inventory angle of your question on John.
Remember our long term objective for inventory as we have talked about in many capital management goals is to maintain high levels of customer service, while we minimize inventory obsolescence now part of the reason we can do that is that we are strategically positioned the way we run the company our business model on competitive advantages, where we our parts.
Mainly catalog parts that.
Selling to industrial and automotive are focusing on those with very long product life cycles. So we can build inventory ahead on demand. We can now position on that inventory well that served us well in 2020 on will continue to serve us well from a business model standpoint in order to maintain the high levels of customer service.
Our customers so.
We get most of the pieces John you have a follow up or other pieces. We can touch on just a quick follow up Raphael Raphael I know you don't specifically guide gross margin, but I was wondering if you could give us some parameters around the opex for the next couple of quarters I mean, we're heading into a strong cyclical recovery in revenue.
What was kind of an unusual expense year last year with Covid and so as we think about the March quarter can you help us kind of frame the period cost around SG&A and R&D that we should be thinking about if you want to give us a gross margin target that would be great, but I know you tend to avoid that.
Yes, yes on a gross margin like we have said before and just think of 70% to 75% fall through so youll figure out what led revenue.
Incremental revenue you want to play in and just fall that through at 70% to 75% Youll get.
<unk> got a good place over a long day right any one quarter can be a little higher or lower right.
On Opex.
We talked about we can operate between joining on 25% in the last.
Three or four years, we have been between 'twenty, one and 'twenty two.
Right, So I don't want to narrow that range, but.
But that's where we've been running and I would expect to stay somewhere in that in that neighborhood corporately.
<unk> 'twenty and 'twenty everything depends on if I heard.
Right right. Okay. Thank you John and we will go to the next caller. Please.
That will come from Vivek Arya with Bank of America.
Thank you for taking my question congratulations on on the strong growth.
I just wanted to follow up on the demand question and Im curious, even if you are able to supply.
Because of your very strong strategic capacity do you think your customers, especially on the automotive side might be constrained with other parts of the <unk> data that they get some others maybe.
Those become on bottlenecks I'm just.
I'm just trying to reconcile the very strong demand backdrop that we are hearing from your results on your outlook versus all the news around auto supply chain facing more constraints on what is the true sense of kind of supply and demand across your customer base would be very helpful to net yogurts.
Sure Vivek, Yes, I think Thats a great question, we see the same rich.
That you are seeing and I think the best way to maybe describe.
What we're seeing in.
In the in the automotive market is just.
Adjusted time supply chain.
Restarting from essentially a full stop that that happened in second quarter.
And just as a reminder, what we saw in third quarter was 75% sequential increase.
Follow by this last quarter with a 20% sequential increase so.
What I'll say is that.
Those reports are fairly widespread.
And but we aren't seeing demand signals that would.
Show Us that there is.
Anything thats consistent with.
Any of those constraints.
That you are pointing out or that are in press releases.
We have a follow on.
Yes, Thank you Dave.
Good to see the growth in the embedded segment on I know you made some changes on that business last year do you think we will start to see the benefits of that.
2021, because they also tend to be.
Somewhat stickier markets. So I'm just curious if you could give us an update on.
What are you doing specifically to regain market share and do you think we can start to see our embedded business start to grow in line with your analog business. This year. Thank you.
Yeah, I'll give you a few more fee on those who on so first we're pleased with the progress we're seeing in embedded our plan has called to first stabilize the business and then sorry.
Start to prove that we can resume our long term on consistent growth.
We're leveraging our competitive advantages, particularly building on a broad.
<unk> is a more diverse product portfolio that can then deliver long term on a sustainable growth I think it was in second quarter of 'twenty, where we announced.
We had a restructuring charge related to the embedded and we reallocated resources from some product lines.
Increased investment in some we decrease other stayed about the same and we're seeing the beginning of that stabilization on that front.
Okay. Thank you Vivek and we'll go to the next caller. Please.
We'll hear next from Greg Heckman Bock with Morgan Stanley.
Yes. Thank you Dave just following up on your comments around autos and particularly the just in time inventory angle.
Certainly 2020 was a challenging year on the supply chain and we're dealing with some of those repercussions now, but do you think youll see some changes to that over time in terms of how they operate from an inventory perspective or something that yes. It might be difficult to next couple of quarters, but book kind of gets back to that just in time.
Yes, Craig.
I don't want to speak for our customers or how they're managing their inventories I think as.
As you've seen us and how we've managed our business and our operations.
We would just worked very hard to.
Try to have capacity in place.
To support our customers' needs.
You saw the decisions that we made earlier in the year too.
Try to keep on.
Hi service and Optionality in place.
And.
We will just continue to.
Try to support our customers' needs.
Whatever their supply chain look like so and whether that's in the automotive market or the other markets. So.
We just we try to make them happy.
What we're trying to do so you can follow on.
Thanks, and then just looking at analog up 25% year over year I know that comes off on the difficult year and coming out of a down cycle until that some of it but just curious at a high level just to get your thoughts of just the type of strength Youre seeing and how you feel about what the demand is out there.
Can you can you clarify that a little bit for me Craig just saw it make sure I answer the question.
Yes, so just with the analog business up 25% year over year.
That's coming off of that an easy comp if you will coming out of the down cycle. So I think that some of it but just curious I know Anthony calls you've talked about just your view of just hey, our supply and demand equilibrium or how you feel like demand is relative to how your businesses is trending right now.
Oh well yeah.
Yes, I think that.
When you look at.
Where that business is I think that we've just come.
Through a.
From a cyclical indicators in those types of things.
So you would even have to go back to 2018 when the industry had had reached a cyclical peak then you throw in the sprinkle on top of COVID-19.
And it was really.
At the beginning of <unk>.
At the end of last year.
At the beginning of <unk>.
2020 that we had begun to see signs of stabilization before.
Covid had hit so.
Inventories really warrants a problem at that point in time, and we had said at that point in time.
Our shipments were beginning to reflect what customers were beginning to ship overall so.
Again, I think that.
What we are shipping today is reflective of what customers are asking us to ship.
We have.
Good availability of product.
Because of the decisions that we've made.
And our lead times have remained remained stable.
It doesn't mean of course that we don't have hotspots.
That we're working.
And we always have hotspots.
But.
That's kind of where we are today.
Thank you Craig and we'll go to the next caller. Please.
We'll hear next from Harlan sur with J P. Morgan.
Good afternoon, congratulations on the strong execution on.
The strong demand environment as we all know foundry capacity is pretty tight both leading edge and lagging edge and I know that Ti outsources about 20% of its wafer requirements most of it with your embedded products MP use MCU.
So because of the foundry tightness as the team also somewhat constrained on your embedded products either Q4 or here in Q1 and also the same thing from an assembly test perspective, where I think about 40% of your assembly and test requirements are outsourced as a sub causes this constraining maybe some of your shipments.
Tom.
On a.
High level.
We have long term agreements.
With this suppliers like we do with all their suppliers.
Even though we only our stores are relatively small part of our of our loadings were still being a big company Thats still a good amount of loadings right. So we still get some some decent leverage so we're seeing some hotspots here on there but to the largest degree we're getting what we need and I would say having.
80% of our wafer sourced internally.
Almost all of our analog sourced internally.
Ed.
That is a great advantage for us overall as we've talked about that.
Lead times lead times have remained stable so.
That has been a huge.
Advantage for us they have a follow on Harlan yeah, absolutely yeah. Thanks for the insights there.
Can you guys just provide us with the shipment trends quarter over quarter year over year by geography, I know, let's shift to location, but I think it's still useful to kind of understand the breadth of the overall demand profile you guys Justine.
Sure so in the quarter.
Thank you for the preamble there so I won't repeat it.
But the year ago Asia was up.
And all of the other regions were either flat or down.
And sequentially all the regions, except for the U S were up.
And just as another point of color.
On where we ship our products, 90% of our revenues come from shipments outside of the U S.
And we've got about 20% of our revenues that are on.
<unk> faced by customers in China. So.
Just got a little bit more color on on.
The comment that you made there earlier so thank you Harlan and we'll go to the next caller. Please.
We'll hear now from Timothy Arcuri with UBS.
Thanks, a lot Raphael I guess I asked this question last quarter or two but.
Again bought back Mexican no stock.
Totally get that you were running a hedge.
We have a plan in the first half and you were certainly.
100% for the full year, but you also have a pretty strong intrinsic value model for the share repo and you've been pretty good at buying back stock. So I guess, maybe I'll ask you again to just sort of comment on that is there anything we can read into that given that it's a second quarter growth.
What I would tell you that as we talk about during capital management. Our goal is to return all free cash flow to the owners of the company, we generated in $2025 $5 billion on free cash flow and we generated six $6 billion on free cash clearly.
Well above.
The cash flow generation.
Okay.
And then I guess, yes, yes, yes, I do I guess can you give us an update on the 300 millimeter the new fab in sort of the timing around that and I guess.
On on that.
Can you qualify for some of these subsidies coming from the government or is that mostly going to be leading edge.
Yes sure.
Update on their factories the same nothing has changed.
As far as our expectation.
New factory is being built.
We expect it to be.
We completed in 2022, so next year in fact, we should have some form some level of output in the second half.
Of next year.
So that's all going as per plan.
When it's fully.
It has the potential for a revenue of about $5 billion per year.
On your question on the incentives that a lot of that it remains to be seen there too.
Legislation's, one one that was approved but not funded another one hasnt been approved the chips I think is the one that hasnt been a book, but there was no other brokers on unfunded.
And Theres a lot of.
Uncertainties on that depending on how that comes out so with that comes I would look at it and we'll we'll decide if it makes sense for us but.
The biggest the highest level we think.
Semiconductor.
As a foundational technology on anything that the government can do to strengthen that and to.
Keep us at a level playing field.
Company is in the United States versus other countries would be would be a good thing.
Okay. Thank you, Tim and I think we've got time for one more caller. Please.
That will come from tore Svanberg with Stifel.
Yes, Thank you and congratulations on the results first question Rafael I typically wouldn't ask you. This because I know you get a lot of these but the royalty at this quarter was pretty material $162 million.
Can you maybe add any color on that and should we expect.
Hi, simple things like that going forward as well.
Yes, so it was.
It was about inside out 160 day was more most of that 162.
And we recognize that based on on accounting rules. The cash actually comes in not quite like that but it comes in over time, but it just is a licensing agreement we've had those for many years they.
They have become the minimums and the.
Hi.
Level frankly, though.
I don't expect that to change at all from a cash standpoint is it's about $100 million a year.
So.
From the revenue on the income recognition standpoint, sometimes they come in as as.
As Bob says, what you saw but their cash which is really what matters is more stable on that and again like I said, it's about $100 million a year and I don't expect that to change much.
Yes follow on tour.
Yes. Thank you, Dave So I know your long term.
Goal is to grow capex at 6% of rigor to spend 6% of your revenues in Capex I think last year you said it was four five.
Was there sort of any COVID-19 related issues that slowed things down and as we look at 2021 do you think it will come in close to that that that range sort of 6%.
Yes. So I'll go ahead and take that so yes, our guidance at 6% our guidance continues to be 6%.
Capex is present on revenue that's a long term.
Guidance includes everything that goes into into Capex as far as building and equipment now of course that number can fluctuate right. Like you pointed out we just we just fluctuated down and Duane Duane into four five so I wouldn't be supplier for surprises is a little higher than 6% for for a year or two but for your models I would suggest.
You stick with 6% out into the future is just.
Is simpler that way and it gets the point across.
Thank you so much.
Okay. Thank you that concludes the call. So let me finish with a few comments on key items that we believe that we believe deeply first we run the company with the mindset of being a long term owner, we believe that growth of free cash flow per share is the primary driver on a long term value our ambitions on values are integral to how we build a stronger.
When we are successful in achieving this ambition for our employees customers communities and shareholders all win.
Okay and thank you all for joining US a replay of this call will be available shortly on our website good evening.
And again that will conclude today's conference. Thank you all for joining us.