David Pahl - VP and Head of IR Kevin March - SVP, CFO Rafael Lizardi - Co-CFO

Harlan Sur - JPMorgan Chris Danely - Citigroup Joe Moore - Morgan Stanley Romit Shah - Nomura Ross Seymore - Deutsche Bank Stacy Rasgon - Bernstein Research Vivek Arya - Bank of America Merrill Lynch John Pitzer - Credit Suisse Ambrish Srivastava - BMO Capital Markets Toshiya Hari - Goldman Sachs

Good day, and welcome to the Texas Instruments’ 4Q'16 and 2016 Earnings Release Conference Call. Today's conference is being recorded. At this time, I’d like to turn the conference over to Dave Pahl. Please go ahead.

Good afternoon and thank you for joining our fourth quarter '16 and 2016 earnings conference call. For any of you who missed the release, you can find it on our Web site at ti.com/ir. This call is being broadcast live over the Web, and can be accessed through our Web site. 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 managements’ 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. As usual, Kevin March, TI's Chief Financial Officer is with me today. Also with me is Rafael Lizardi, who will become our Chief Financial Officer, February 1st. Rafael joined TI in 2001, and was named Vice President in 2010, followed by Corporate Controller in 2012. He holds a Bachelors degree in Electrical Engineering from the U.S. Military Academy of West Point, and Masters in Business of Administration from Stanford University. As you know, Kevin, who has been our CFO for 13 years, plans to retire later this year. During his tenure as CFO, TI's free cash flow per share has grown in average of 13% annually. Our dividend has increased by a factor of 24%, and our share count has been reduced by 42%. We’ve all benefitted and learned a lot from his disciplined financial management and his commitment to ensure that owners of TI's shares get a good return on their investment. Kevin will continue to be with TI until October 2017 to transition his duties between himself and Rafael. I don’t want to get too sentimental, but as this is Kevin's final earnings call, I want to say what a pleasure it's been for me to know and to work with him. TI is clearly a better Company because of his leadership. I will say he has an outstanding successor. I worked with Rafael for the past decade, and look forward to continue to work with him in his new role as CFO. With that, before I review the quarter, let me provide some information that’s important to calendars. We plan to hold a call to update our capital management strategy on February 8th at 10:00 AM Central time. Similar to what we've done in the past, Rafael and I will provide some insight into our strategy. In today's earnings call, Rafael, will cover the capital management portion of our prepared remarks and Kevin and I will cover the rest. Now, let's start with the quick summary of our financial results. Revenue for the fourth quarter increased 7% from a year-ago, as demand for our products remained strong in the automotive market. The improvement we saw in the third quarter in the industrial market continues. Demand in personal electronics market was down slightly from a year-ago. I'll elaborate more on our end markets in a few moments. In our core businesses, Analog revenue grew 10% and Embedded Processing grew 6% compared with the same quarter a year ago. Operating margin increased in both businesses. Earnings per share were $1.02, and included $0.14 for items that were not in our original guidance for the quarter. With that back-drop, I will now provide details on our performance, which we believe continues to be representative of the ongoing strength of TIs business model. In the fourth quarter, our cash flow from operations was $1.4 billion. We believe that free cash flow growth, especially on a per share basis, is most important to maximizing shareholder value in the long-term. Free cash flow for the trailing 12-months period was $4.1 billion, up 6% from a year ago. Free cash flow margin was 30.5% of revenue, up from 29.6% a year ago. We continue to benefit from an improved product portfolio that is long-lived and diverse, and the efficiency of our manufacturing strategy, which includes our growing 300 millimeter Analog output and the opportunistic purchases of assets ahead of demand. We also believe that free cash flow will be valued only if it's productively invested in the business or returned to shareholders. In 2016, we returned $3.8 billion of cash to owners through a combination of dividends and repurchases. Turning to our segments, Analog revenue grew 10% from the year ago quarter. Revenue increased due to power management, high-performance Analog, and Silicon Valley Analog. High-volume Analog in logic was about even. Embedded Processing increased 6% from the year ago quarter due to processors and micro-controllers. Connectivity also grew. In our other segment, revenues declined 9% from a year ago quarter due to royalties and custom ASIC products. DLP products and calculators were about even. For the year, in total, Analog was up 2% and Embedded was up 8%. Combined, they grew 4% on broad-based growth and were 86% of TI’s revenue for the year. We’ve recently simplified the product lines inside our two business segments, Analog and Embedded. To align by product categories, our customers think about. Making it easier for customers to search and select products is becoming increasingly important in all of our markets, but particularly in industrial. Analog is now comprised of three product lines instead of four. These are power, signal chain and high-volume Analog in logic. Embedded goes from three product lines to two. Connected MCU, which merges connectivity and micro-controllers and processors, which is essentially unchanged. All of these changes are at the product line levels. Nothing changes at the segment level. To help you understand this structure, for 2016 within our Analog business, power would have been about 45% of Analog revenue, signal chain would have been about 35% and high volume in Analog and logic would have been the remaining 20%. Inside our embedded business, connected MCU would have been about 55% of embedded revenue with processors comprising the remaining 45%. Starting in our first quarter '17 earnings call, we’ll use these product lines in describing the performance of our business segments. Now, let me describe our performance by end-market for 2016. This is a reminder we annually provide an estimate of TI’s revenue by end markets. We breakeven to six categories; industrial, automotive, personal electronics, where this includes products such as PCs, mobile phones, tablets and TVs, communications equipment, enterprise systems and other, which is primarily calculators. Specifically, in 2016, industrial comprised 33% of our revenue, up 2 points from 2015. Automotive was 18% of our revenue, up 3 points. Personal electronics was 26%, down 4 points. Communications equipment and enterprise systems were 13% and 6% respectively, both year and to last year, while other was about 4%. We did not have a customer that was more than 10% of our revenue in 2016. For those of you who have followed TI for several years, you know that we’ve been highly focused on a strategy where we’ve been allocating our capital and we’ve been driving initiatives to increase our market share and industrial and automotive. This is based on a belief that industrial and automotive will be the fastest growing semiconductor markets due to their increasing semiconductor content, and that they provide the diversity and longevity of products which translates to high terminal value of the portfolio. In 2016, industrial and automotive combined made up 51% of TI’s revenue, up from 44% just two years ago. We have established momentum in these markets, but we are far from satisfied, and are continuing to make improvements, such as aligning our product lines in the way our customers search and select for TI products. With that, I'll turn it over to Kevin.

Thanks, Dave and good afternoon, everyone. Gross profit in the quarter was $2.13 billion or 62.5% of revenue. Gross profit increased primarily due to higher revenue and lower manufacturing costs. From a year ago, gross profit margin increased to 400 basis points. Operating expenses were $754 million or 22.1% of revenue. Over the last 12 months, we’ve invested $1.37 billion in R&D, an important element of our capital allocation. Acquisition charges were $80 million, all of which for the ongoing amortization of intangibles, which is a non-cash expense. Restructuring charges and other was $20 million net benefit, which includes a gain related to intellectual property agreement and a charge associated with realignment of our product lines, which Dave previously mentioned. Operating profit was $1.32 billion or 38.6% of revenue. Operating profit was up 15% from the year-ago quarter. Operating margin for Analog was 42.8%, up from 38.0% a year ago. Embedded Processing was 28.2%, an improvement of 480 basis points from year ago. Our focused investments on the best sustainable growth opportunities with differentiated positions enable both businesses to continue to contribute nicely to free cash flow growth. Also, we signed several intellectual property agreements, which had total benefits of $228 million in the quarter. We recognize $188 million in other income and expense or OIE, and $40 million in the restructuring charges and other. Neither revenue nor gross profit was impacted by these agreements. Net income in the fourth quarter was $1.05 billion or $1.02 per share, which included a $0.14 benefit for items not in our prior outlook. These included $0.14 benefit for several intellectual property agreements, one set tax benefit related to the new accounting standards for stock compensation, and $0.01 restructuring charge. This quarter, we adopted a new GAAP standard that changes where we report tax consequences of employee stock compensation. When employee stock compensations are exercised or when restricted stock units test, either in excess tax benefit or deficiency maybe generated. The previous standard required that amount to be recognized in equity on the balance sheet. The new standard requires that amount to be recognized in incomes taxes on the income statement, impacting net income and EPS. In the fourth quarter 2016, this created a benefit of $0.01 per share and for the year a benefit of $0.13 per share. I’ll also note that this accounting standard increases the diluted share count calculation by about 5 million shares. I’ll now ask Rafael to comment on our capital management results.

Thanks, Kevin. Let me start with our cash generation. Cash flow from operations was $1.39 billion in the quarter. Inventory days were 126, consistent with our long-term model of 105 to 135 days. Capital expenditures were $110 million in the quarter. In 2016, cash flow from operations was $4.61 billion, up 5% from the same period a year ago. For the year, capital expenditures were $531 million or 4% of revenue. As a reminder, our long-term expectation for capital expenditures is about 4% of revenue. This includes the expansion of our 300 millimeter Analog capacity. Free cash flow for the year was $4.08 billion or 30.5% of revenue. Free cash flow was 6% higher than a year ago. Our cash flow reflects the strength of our business model. As we have said, we believe free cash flow growth, especially on a per share basis, is most important to maximizing shareholder value in the long-term. And will be valued only if it is productively invested in the business, or returned to shareholders. Our intent overtime remains to return all of our free cash flow, plus any proceeds we received from exercises of equity compensation minus net debt retirement. This commitment is unchanged. In the fourth quarter, we paid $499 million in dividend, and repurchased $475 million of our stock for a total return of $974 million. Total cash return to owners in 2016 was $3.78 billion. This combined return demonstrates our confidence in our business model, and our commitment to return excess cash to our owners. Over the last 12 months, we paid $1.65 billion in dividend or 40% of trailing 12 months free cash flow. Outstanding share count was reduced by 1.5% over the past 12 months, and by 42% since the end of 2004 when we initiated a program designed to reduce our share count. In fact, we have reduced shares every quarter year-on-year for 51 consecutive quarters. In the fourth quarter, we passed an important milestone, reducing our outstanding share count to fewer than 1 billion shares, or more specifically, 996 million shares. Our cash management and tax practices are fundamental to our commitment to return cash. We ended the fourth quarter with $3.49 billion of cash and short-term investments, with our U.S. entities owning about 80% of our cash. This on-shore cash is readily available for multiple uses. I will now turn it back to Kevin to close out our prepared remarks.

Thanks, Rafael. Our orders in the quarter were $3.44 billion, up 11% from a year ago. Turning to our outlook, we expect TI revenues to be in the range of $3.17 billion to $3.43 billion in the first quarter. We expect first quarter earnings per share to be in the range of $0.78 to $0.88, which includes a $0.04 tax benefit related to the adoption of the new GAAP standards that I mentioned earlier. Acquisition charges, which are a non-cash amortization charges, will remain about even and holds about $80 million per quarter through the third quarter of 2019. It will then declines about $50 million per quarter for two additional years. Our expectation for our annual effective tax rate in 2017 is about 30%, and this is the tax rate you should use for the first quarter and for the year. In closing, I'll note that growth in our industry in 2016 was moderate again this year. However, our advantages in manufacturing of technology, portfolio grade to market reach and diverse and long-lived product positions, enabled important milestones in the year. These include solid revenue growth in our core businesses of Analog and Embedded, expansion of 300 millimeter Analog production, gross margin improvement of 340 basis points, operating margin improvement of 300 basis points, free cash flow margin improvement of 90 basis points, and continued free cash flow per share growth. We will continue to feed advantageous through disciplined capital allocation by focusing on the best growth opportunities, which I believe will enable us to continue to improve and deliver free cash flow per share growth for our very long-time to come. Before, I turn it back to Dave and start the Q&A I want to say it's been a pleasure to work with all of you. I thank you for the time you've invested in understanding TI’s performance and strategy, and I wish you all the best. While you will continue to have the benefit of working with our industry's finest Investor Relations Director, I'm confident when I say that you will also come to appreciate Rafael's integrity and intelligence as our new CFO, and you will come to truly enjoy working with him as well just as I have for all these year. With that, let me turn it back to Dave.

Thank you, Kevin. Operator, you can now open the lines for questions. In order to provide as many of you as possible an opportunity to ask question, please limit yourself to a single question. After our response, we will provide you an opportunity for an additional follow-up. Kevin.

Thank you [Operator Instructions]. We’ll take our first question from Harlan Sur with JPMorgan. Please go ahead.

Your automotive business grew 23% in 2016, obviously very solid results. Can you guys just help us understand, of the five sub-segments within the auto, what areas drove the more strength?

And as you noted, automotive did grow over 20%. The great news is that wasn’t due to one segment. And I can see that that growth was very diverse, it was diverse across the five sectors that we saw. It was diverse across customers, and is also was very diverse across different product lines. So, we really are excited about the opportunity of both automotive and industrial, and we’re just very pleased that the investments that we made are really kind of providing a base from which we can grow upon. Do you have follow on?

Yes, I do. Thank you for that. If I look at the recent SIA industry data, total analog is likely to be up above 5% this year, above $47 billion -- in 2016, your analog business was up about 2% last year, but obviously the growth was impacted by a largest customer that have an inventory correction last year. If you shift this out, does the team think that they gained analog market share, and if so in which of the sub-segments? Thank you.

I think that when we look at our peers with the publicly reported data, we actually believe that we’ve performed quite well. So, we’re probably earlier in the reporting season, so we’ve got a few more to of our peers to put their numbers up. But we’re very confident that we performed very well. So, thank you for that question. And we’ll go to next caller please.

We’ll go next to Chris Danely with Citi. Go ahead please.

Hey, thanks guys. And Kevin congratulations on the next Phase, thanks for being patient -- I think the real reason you’re leaving is you’ve got tired of winning for TI to hit my $12 stock price, so -- that’s a joke for all of you who are listening. If you could just list, I guess, the margin drivers and maybe rank them from here as far as how much room or how much leverage you have in terms of mix versus 300 millimeter versus utilization rates versus depreciation?

I hope not to revisit that $12 stock price you’re talking about. Margin drivers, going forward, I think that there will be several things happening. I think we’ve enjoyed the last couple of years. Depreciation coming down same time that 300 millimeter starts to be going up. And those sort of have been tailwinds for us in the last couple of years. As we go forward, depreciation is probably going to begin to flat out there on a quarter-over-quarter basis. They’ll still be down next year versus 2016, but nearly as much that we’ve seen. What's the lot more important is the continued expansion of 300 millimeter production, as well as the continued improvement of the mix of products that we are shipping. You heard us again talk for a number years about focusing our investments in auto and industrial. And frankly, the margin opportunities in those spaces are very attractive. And still between the mix of products, but importantly, the increasing starts of products on 300 millimeter capacity, there is still room for us to continue to see overall margin growth. And that’s before we even talked about revenue growth, where this revenue growth just gives us leverage on that capacity that we’ve been investing for these past couple of years. And with depreciation being as low as I was talking about, what that really means is under-utilization charges of negligible. And so really, it's just about fall-through from revenue straight to the bottom line, and that will especially happen to cash flow.

And so my follow-up longer term question on OpEx. So, if we look at year-over-year, your SG&A trended down a little bit. R&D was up. You guys have said you were going to -- little more money into R&D, assuming revenue continues to grow. What can we expect from R&D and SG&A on a yearly basis? Do you feel comfortable with the level of R&D as it is right here, and could we expect SG&A to continue to trend down as a percentage of revenue, assuming overall revenue growth?

Yes, Chris. That’s a really good question. The last couple of years OpEx has on annual base run about 23% of revenue, and as you noted we have been internally reallocated resources pretty more percent to the R&D areas. That will continue for next couple of quarters and begin to stabilize, and I would expect in 2017 all things being equal will still up at around 23% of OpEx of revenue. Keep in mind that -- we expect our OpEx to probably fluctuate between 20% and 30% on very weak markets and that'd be as high as 30%. And in very strong markets, I might be wrong as low as 20% kind of stable markets we're in right now. I think the OpEx percent you've seen in the last two years is what you expect to get forward for the next year or two.

Right, thanks Chris. And we’ll go to the next caller please.

We'll go next to Joe Moore with Morgan Stanley. Go ahead please.

I wonder, if you talk about the change to the analog sub-segments as in particular Silicon Valley Analog is a category going only. Does that signify any from a business standpoint in terms of the integration of the old national business? Should we think if there being any structural change to goes along with that?

It has nothing to do with analog business, that’s simply a question of realigning our products to the way that we have come to understand and our customer preferred to look for them when they trying to find products here at TI. And so, if you look at the categories that we've lined up with up as Power, we have Signal Chain and we have High Volume Analog & Logic. And that’s really how we have learned our customers preferred to sort of fine products at TI. And so that’s allows us to give them better and faster support. The Silicon Valley Analog products along with High Performance Analog that's been reallocated among those segment of those new products lines that we've just talked about. So consequently, the best way to think about this is how do we react faster and more thoroughly to increase and searches for products in our portfolio. For the balance portfolio like ours, it's really important for us to be sure that we are aligned as efficiently as possible for customer to get to the parts they need more.

Okay, great that’s helpful. That’s helpful thank you. And then just returning to the growth in autos, I guess we see the peer group is growing sort of high single digits maybe little bit better, so obviously you are growing quite a bit faster in autos than other analog companies. Should we think of that is being sort of sustainable gains? Or just how do you -- is anything you kind of help us understand why that was such a good number? And what should we expect going forward?

Joe, this isn't -- as you know and you have been tracking our revenues inside of that market for some time. It's not something that is capping this quarter, right. We have been having very strong growth inside of automotive and that is a result of how we allocate capital. We have for some time been directing investments and increases both in automotive and industrial. And that’s because we think that those are the two markets that are going to provide growth, not just for us but in our industry. So -- and as you know, these are long tail type of design wins and revenue strength. And we are very intentional as I mentioned earlier trying to direct our investments, so we are not just seeing growth in one sector or at one customer. So, that’s what we are trying to do. So thanks for that question. We will go to the next caller, please.

We'll go next to Romit Shah with Nomura. Go ahead please.

Yes, Kevin, congratulations on your retirement, all the best. I wanted ask Dave, did you gave us channel inventory, how much supply your distributors are carrying in the quarter?

I haven’t but I would certainly can, inventory was even with the Eureco [ph] and decreased by about a half of week sequentially. And it's still running at around four weeks in the channel. And I just also have a reminder that that number benefits because of our consignment programs that we have in place with our distributors.

You guys talked about moderate growth again last year, but there has been I guess talk more recently about stimulus better GDP growth under the new administration. And I'm curious, how do you think your distributors would react under that scenario? Do you think it's -- do you guys think about it as your distributors restocking as a major driver for this year?

Romit, I don’t think that we're quite that precise on that kind of thinking as how distributors might react. We look at the talk of stimulus with some anticipation of the positive boost to the economy, but frankly we think it's probably too early to figure out what that might be and how might manifest it itself. A lot of that stimulus seems to be focused towards infrastructure, and so if in fact just wind up there that with the further benefit on our industrial portfolio. More important to us as to watch what's happening on the tax front, and hopefully we will finally get some tax relief out of Washington, which will be a significant benefit to our shareholders.

Yes, Romit, I'll just add that if you look as I said inventory was even with where we ended last year, it was actually down sequentially. So reflected in our numbers really has no restocking inside of it. And I would just say that the inventory levels that they have, the inventory levels that we have, just reflect an environment where we've got good product availability. And because of our investments in capacity ahead of demand, if these things do show up and turn into more significant growth going forward, we're ready to be able to support that. So, thank you Romit and will go to the next caller please.

We'll go next to Ross Seymore with Deutsche Bank. Go ahead please.

Thanks for letting me ask the question. And first Kevin congrats and to Rafael too congrats on the promotion. Looking at the Analog business in the fourth quarter Dave, it was up 10% year-over-year, but you said HVAL was flat. I was little surprised that that side being flat and the remainder must have been up a good 13% to 15% year-over-year. Can you talk a little bit about what the drivers were that created such a delta between those segments?

Yes, so I think if you look at year-over-year by end market, personal electronics was down slightly due to mobile phones. So, if you back out mobile phones the actually personal electronics was up slightly, so that was the main reason that we saw that. You could kind of see that inside of our Analog. And that weakness in mobile phones was not just inside of HVAL, but you've saw that to a lesser extent inside the Power.

On the OpEx side of your equation, I know, Kevin, you answered some questions about the R&D remaining elevated. If we think in the first quarter traditionally that goes up for just beginning of the year reasons by about 5%. Is that about the right area we should think OpEx changing sequentially in 1Q or is it different issue due to that reallocation.

No, I wouldn’t expect anything particularly different. The reallocation is mostly coming out of SG&A as we go forward, so it's just the mix coming out of that. So, total OpEx will continue to increase as you know seasonally in first quarter because of the absence holidays in the fourth quarter as well as the annual pay and benefit increases that we fully across our company in first quarter.

We'll go next to Stacy Rasgon with Bernstein Research. Go ahead please.

Around the gross margin drives particularly 300 millimeters, you seem to be talking about that is probably the biggest driver on a go forward basis structurally. Can you talk to about us in terms of where you are on 300 millimeter utilization versus a year ago particularly given the amount of extension that you are doing? How much I guess room do you still have to grow there? And how does that compare to where you were a year ago?

Yes, Stacy, I think that we have talked about between Richardson factory, which we call RFAB and the PMOS6 in Dallas location. If combined, we have about $8 billion of revenue generating capacity in those factories combined. We have continued to increase starts meaningfully on 300 millimeter for analog. And that is really going to be picking up pace more and more the new products that we are released and are being released on 300 millimeter. And the economics as you all aware are very compelling, I mean the bottom line is the chip costs are about 40% less from 300 millimeters versus 200 millimeters. So, the total finished products about 20% less, which add meaningfully, not only to gross margins but especially free cash flow. So that’s a small space, we want to repeat it. So, again our starts continue to increase, and we continue to have a lot of capacity available to us. But more importantly, we have a lot of new devices and the pipeline being released onto 300 millimeter, and that all coming together will probably continue to accelerate the rate of starts and therefore we also will get from that manufacturing market.

I'll just add Stacy as a seamless plug for our capital management call. Rafael and I'll cover more that detail in our capital management call.

For my follow-up, I want to touch a bit on the accounting changes, and it seems to be influencing both the earnings as well as the share count. The diluted share count went up this quarter for the first time, and for everybody it sounds like, it was boosted by 500 million shares or so like because of the accounting change. So how should we think about that I guess going to 2017? Is it still something like a $0.03 or $0.04 per quarter benefits that's going to sort of sustain kind of into perpetuity? And in terms of share count, was it sort of like a one-time step-up? And should we still think about shares declining going forward even given I guess the increased dividends to reduced buybacks?

So, Stacy, just a little more background on this gap change, it's going to impact all companies beginning $11 implemented being in the first quarter 2017 reported. So, we are basically only adopted by one quarter. The idea is trying to help with the better comparability for 2016 or '17. That being said, it does cause reported earnings to increase because of this tax benefit. It also met medical requires you compete with your share count differently and so added about 5 million shares to the share count just complaint to new calculation rules. In 2016, had we applied to the same gap at the beginning of the year, it would have added $0.04 to the first quarter, $0.03 for the second quarter, $0.04 for the third quarter and added a penny to the fourth quarter for total of $0.13 for the year. The way that we would recommend that you model for purposes of analyzing a company going forward is somewhat we are doing and that is just look at what happened last year and used that same sort of assumption for next year. I am pretty sure that will wind up be in different when we close the books on those assumptions, but that’s the best way to model. So consequently, we had $0.04 that would have occurred in the first quarter 2016, and the guidance that we just offered for the first quarter 2017 is included $0.04, and we would suggest as it same thing.

Stacy, let me just add to that that are -- for looking at next year our commitment, our capital management strategy and the discipline execution of that strategy remains unchanged. Our target is to return all of our free cash to the owners of the Company. And with the dividend model that we announced last quarter, it provides a more reverse framework to adjust allocation between -- of that return between dividend growth and share repurchases.

We'll go next to Vivek Arya with Bank of America Merrill Lynch. Go ahead please.

Thanks for taking my question. And I wanted to wish congratulations and good luck to Kevin and welcome to Rafael. So my first question, I know it's early days, but can you share any views on impact from any potential borrowed tax rate change or conversely any lowering of the U.S. corporate tax rate? What would TI do differently, if either of these two things were to happen?

Vivek, this is very speculative at this stage because clearly you can see just from reported press, so there is difference with opinions as to what kind of tax policies to employ between the President and the Congress. So, I think it's little bit hard for us to be able to characterize what that might do. What I can say is that any form of relief will be beneficial directed to our shareholders because that will simply expand our free cash flow. And as Rafael just commented, our commitment remains as it has been, best to return on 100% of free cash flow to our shareholder through dividend and stock not buybacks. So, any form whether it's borrower tax adjustments or actual lowering of the overall tax brackets clearly will be beneficial to our shareholders, and I am looking forward to seeing that happen.

You have follow on to that?

Yes, thanks Dave. Last quarter, you mentioned that it's seems like it's been in at 3% to 4% growth, but then you grew 7% in Q4 and you are guiding to 10% plus in Q1. I understand part of it is probably just normalization at one of your larger customers. But what is driving the upside, is it sustainable? Are we now in a 7% plus growth or like what's the change this year to deter us from that kind of growth trajectory?

Yes. So, first Vivek, I’ll just point out that when we look at the overall microenvironment, we really don’t see something that has significantly changed in sometime. So, we continue to believe that we're operating in a very similar microenvironment that we have, that we haven't been If you look at inside of the quarter, demand came in stronger, really across most markets in businesses. The only notable exception as I talked about before was personal electronic came in about as we expected. And to your point, we are seeing choppiness in particular markets. Some of that more recently has been driven by one large customer. You can go back to clock not too long ago into last year we saw some choppiness in comps equipment before that we had a PC, XP refresh cycle that came to an end. And none of those were really tighter the overall economy, there was just very specific things going on within specific market. So, that's really the environment that we thing that we're operating in now. So, thank you and we'll go to next caller please.

Next is John Pitzer with Credit Suisse. Go ahead please.

Thanks for letting me ask the question and I'll chime in with my congratulations to Kevin. Kevin, I guess my first question is just looking at the up margins on the embedded business. You did a great job throughout calendar year 2016, as you grew that business to drive leverage and upside to the operating margins, but there is still a pretty healthy gap between the up margins and embedded and those in Analog. Is that still just the matter of getting more scale in the embedded business? Or how do we think about those up margins closing overtime.

John, I think that's quite I think about it is, but we have been talking about for number of years, which means you set up investments in that area in number of years back. And then we readjust the investments especially for the base stations marketplaces, and since then we think we've got the investment that was about right. So, it really is a question of continuing to get leverage from revenue grown. Falling always through to up margins you pointed up, but again what we focused on that falls through on a free cash flow, and that's a real focus. So, there is nothing inherent that keeps it from continuing to improve in fact I would not be surprise to see as the team there continue to improve on that as they to put me understand where leverage capability they have on the investment base they have right now.

Yes, this is my follow-on. I apologize for asking, but a lot of my questions were already asked and answered. But just on the other revenue line, maybe if you look at your revenue holistically overtime, it's become significantly less volatile but that other bucket has jumped around a lot on quarter-on-quarter. And Dave, let me be just give us some guidance from these levels how we should think about kind of seasonality or the cadence of the other rep going forward?

Yes, I think if you look for -- look at it for the full year, it decreased 3% year-on-year. And as we talked about before when you look at the history, it had decline more or like in the mid-teens and that was primarily as the legacy wireless products had on loaned. And we expect kind of going forward that we would be somewhere in a mid-single digit decline. There is seasonality inside of the other business it's driven primarily by calculators, they have a very strong seasonality due to back to school and then we also have royalties inside there that can choppy every once in a while. So those are the types of things, but overall when you look at much like this year we saw a 3% decline just probably similar to what we would expect to see going forward.

The next is the Ambrish Srivastava with BMO Capital Markets. Go ahead please.

Kevin, congratulations on your next phase of life and you've been nothing but an absolute pleasure in all the dealings we have had to do, so thank you for that. My first question Dave is on the industrial business, auto is a great business for you, over the years you have been consistently outgrowing the industry, but automotive is a $4 billion business. And I think a year ago, I had given you not really a lot of hard time, but I had asked you why the business didn’t grow last year? So that was in 2015, but you are growing this business again at a pretty decent rate almost 10%, so what are some of the areas that are driving that growth?

Ambrish, actually, if you look at the actual numbers I know you are using the rounded numbers that we've gave you. It's more like the mid-single digit, so a growth for the Europe, for industrial '16 over '15, and it good to see, good solid growth there. When we look the down into the details of the 14 sectors, we actually did see growth in most of those sectors 14 year. So again it's kind of same comments and hit on the automotive we are just encouraged that our investments are really turning to that broad based growth. Do you have a follow-on Ambrish?

I did. On the consumer side in specifically in mobile would March quarters and be up year-over-year? And would consumer be up year-over-year? All I am trying to understand is if the indigestion you had a year ago is that was supposed to bear that it will last into March or its behind us.

Yes, so we are careful try to give guidance on below the top line in any sector, but I think your instincts that will have easy compare because of the weakness we saw a year ago will probably be correct. We have got time for one last call please.

Last question will come from Toshiya Hari with Goldman Sachs. Go ahead please.

My first question is again on industrial and Dave I appreciate your comments about they're being broad based growth in the segment. But if I recall correctly, I think this is the second conservative quarter where you guys point to an improvement in the industrial market place. So just curious if there are any kind of specific regions or end market areas well that’s kind of driving that infection and in the market and industrial?

Yes, there is a -- we are seeing that really broad based growth across regions, across products and across those 14 sectors that we have got in it. So, we're real pleased with that growth. Do you have a follow-on Toshiya?

Yes, thanks Dave. This is a technical one. So the IP, the one-time benefit you guys saw in Q4 from your IP agreements. Is this one-time in nature? Or could we see this materialized again in future quarters? And also what the nature of the contractor or the agreement was for this?

Yes, it included several agreements with the several different cross licensees, but the part of that was a sale of some IP assets, and that was recognized and restructuring other lines. And then the balance was settlement of past infringement that was recognized in the other income expense model. On an ongoing basis, it tends to be multi across license agreements. So, we would expect about $20 million of annual benefit for the foreseeable future as a result of agreement to these new intellectual property contracts. It's a roughly $20 million a year annual benefit going forward.

And thank you all for joining us. Again please plan to join us for our capital management call on February 8th at 10 AM Central Time. A replay of this call is available on our website. Good evening.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation.