David Pahl - Vice President and Head of Investor Relations Kevin P. March - Senior Vice President, Chief Financial Officer, Finance & Operations.

Christopher B. Danely - Citigroup Global Markets, Inc. (Broker) John William Pitzer - Credit Suisse Securities (USA) LLC (Broker) Ross C. Seymore - Deutsche Bank Securities, Inc.

Vivek Arya - Bank of America Merrill Lynch Harlan Sur - JPMorgan Securities LLC Ambrish Srivastava - BMO Capital Markets (United States) Christopher Adam Jackson Rolland - FBR Capital Markets & Co. Craig A. Ellis - B. Riley & Co. LLC Doug Freedman - Sterne Agee CRT.

Good day and welcome to the Texas Instruments 4Q 2015 and 2015 Earnings Release Conference Call. At this time I would like to turn the conference over to Dave Pahl. Please go ahead, sir..

industrial; automotive; personal electronics, where this will include products such as PCs, phones and TVs; communications equipment; enterprise systems; and other, which is primarily calculators and royalties. Industrial and automotive combined were 46% of TI's revenue, up a couple of percentage points from last year due to automotive strength.

Specifically, industrial made up 31% of TI's revenue, automotive 15%, personal electronics 30%, communications equipment 13%, enterprise systems 6% and other 5%. Of note, Apple, whose revenue is within personal electronics market, contributed approximately 11% of our revenue in 2015.

Kevin will now review profitability, capital management and our outlook..

Thank you, Dave, and good afternoon everyone. Gross profit in the quarter was $1.87 billion, a decline of 2% versus a year ago due to lower revenue, partially offset by lower manufacturing costs. As a percent of revenue, gross profit set a new record of 58.5%.

Operating expenses for the quarter totaled $711 million, down $29 million from a year ago, primarily in SG&A. The decline reflects continued cost management across the company, including the previously announced targeted reductions in Embedded Processing in Japan, partially offset by higher compensation-related costs.

Acquisition charges were $81 million, almost all of which were the ongoing amortization of intangibles, which is a non-cash expense. Restructuring charges other was $68 million, which included gains on sales of two properties.

It also included a $17 million charge in preparation for the closure of a site, which we announced today in our earnings release. We anticipate about $2 million of quarterly charges through the fourth quarter of 2018 for a total charge of about $40 million.

We expect the transition to more cost-effective 200 millimeter fabs to take about three years and result in annualized savings of about $35 million per year. Operating profit was $1.14 billion, or 35.8% of revenue. Operating profit was up 4% from the year-ago quarter. Operating margin for Analog was 38.0%.

Operating margin for Embedded Processing was 23.4%, 6 percentage points higher than a year ago as we continue to focus investments on our best growth opportunities. Net income in the fourth quarter was $836 million, or $0.80 per share.

As a reminder, earnings per share included a $0.05 net tax benefit primarily due to the reinstatement of the federal research tax credit, and a net benefit of $0.04 from restructuring other charges. I'll now comment on our capital management results, starting with our cash generation. Cash flow from operations was $1.43 billion in the quarter.

Inventory days were 115, up 4 days sequentially and down 2 days from a year ago. We plan to provide an update on our inventory model in our capital management call on Tuesday, February 9. Capital expenditures were $164 million in the quarter. In 2015, cash flow from operations was $4.27 billion, up 10% from the same period a year ago.

For the year, capital expenditures were $551 million, or 4% of revenue. As a reminder, our long-term expectation is for capital expenditures to be about 4% of revenue, which includes the expansion of our 300 millimeter analog capacity, on which we will provide an update in our capital management call in February.

Free cash flow for the year was $3.72 billion, up 6% from a year ago. Free cash flow margin was 28.6% of revenue, up 170 basis points from a year ago. Our free cash flow growth reflects the continued strength of our business model.

As we've 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's returned to shareholders or productively reinvested in the business.

As we've noted, our intent is to return 100% of our free cash flow plus any proceeds we receive from exercise of equity compensation minus any net debt retirement. In the fourth quarter, TI paid $386 million in dividends and repurchased $627 million of our stock for a total return of $1.01 billion. Total cash returned in 2015 was $4.19 billion.

Outstanding share count was reduced by 3.4% over the past 12 months and by 41% since the end of 2004, when we initiated our repurchase program designed to reduce our share count. These returns demonstrate our confidence in TI's business model and our commitment to return excess cash to our shareholders.

Fundamental to our commitment to return cash are our cash management and tax practices, which are designed to make cash available for a variety of uses, including paying dividends and repurchasing our stock.

We ended the fourth quarter with $3.22 billion of cash and short-term investments, with 82% of that cash onshore, making it available to return to shareholders. TI orders in the quarter were $3.10 billion, down 2% from a year ago. Turning to our outlook, we expect TI revenue in the range of $2.85 billion to $3.09 billion in the first quarter.

This includes significantly weaker demand within the sector of the personal electronics market. Specifically, we expect a year-over-year decline of about $150 million within the sector of our personal electronics revenue. Except for this area of weakness, our expectations for the remainder of our business are about even with the year-ago quarter.

We expect first quarter earnings per share to be in the range of $0.57 to $0.67. Acquisition charges, which are non-cash amortization charges, will remain about even and hold at about $80 million per quarter through the third quarter of 2019. They will then decline to about $50 million per quarter for two additional years.

Our expectation for our annual effective tax rate in 2016 is about 30% and this is the tax rate that you should use for the first quarter and for the year. In closing, I'll note that growth in our industry in 2015 was slower than we expected when we came into the year.

However, our unique advantages in manufacturing and technology, portfolio breadth, market reach, and our diverse and long-lived product positions enabled important milestones in the year.

These included expansion of 300 millimeter analog production, gross margin improvement of 130 basis points to a new record level, operating margin improvements of 260 basis points, and free cash flow margin improvement of 170 basis points to a new record level.

We will continue to feed our unique advantages through disciplined capital allocation and focus on the best growth opportunities, which I believe will enable us to continue to improve. With that, let me turn it back to Dave..

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

Operator?.

Thank you. And we'll go to our first question from Chris Danely with Citi..

Hey thanks, guys. Can you just divulge to us the market on personal electronics that is causing all the weakness? And if it is handsets, which probably doesn't come as a huge surprise.

Maybe also comment on the other end markets, especially PCs where some of the other semiconductor companies have talked about a little bit of weakening in PCs and what you guys are seeing in that end market..

Okay, Chris. The sector where we saw the weaknesses you were guessing is mobile phones and we did see that sector weaken late in the quarter, in the back half of the month of December. If I just take and look at for the year how our end markets did, I'll put that into perspective. I'll start with an area of strength in automotive.

That grew in the mid teens. Most of the sectors inside of that growing, growing double-digits. Industrial revenue was about even for the year and we had about half of the sectors there were increasing, offset by the others. Personal electronics, as we've just talked about, grew single-digits.

I'll note that we had certainly growth in one customer that grew significantly that year, but that was primarily offset by declines in others. So therefore our percentage of our revenue in personal electronics really didn't change too much. It went from 29% last year to 30% this year. Communications equipment was down 20%.

And that was primarily driven by wireless infrastructure and that was down around 30% for the year. And then finally, enterprise systems was down slightly due to projectors. So with that said, Chris, I think as we talked about earlier in our prepared remarks, outside of that one area of weakness, everything else came in about as we had expected.

So that would be inclusive of PCs and the other areas that you talked about.

You have a follow on?.

We'll go next to John Pitzer with Credit Suisse..

Okay, Chris, if you have – go ahead, John..

Yeah thanks, guys. Just to follow up, you talked about Apple being an 11% customer for the full year. I'm wondering if you could talk about the linearity of that percentage as the year progressed.

Did they exit the year as a larger customer? And as you think about the weakness in Q1 in smartphones, do you feel like you're at a build level that's significantly below sell-through so Q1 will represent a bottom in that weakness? Or how do you handicap that?.

Yeah, so our revenue profile inside of personal electronics obviously will be more back half-weighted. As that customer did well in the marketplace, obviously our revenues would be reflective of that.

I could point out that we sell very diverse set of products to that customer and in fact, hundreds of products to it and products in every major platform.

That said, I think that the revenues of that customer reported to be somewhere around two-thirds of it is in smartphones, and you'd expect, since we've got a pretty diverse position across the customer, our revenues would be very similar.

So, and certainly, I think that whenever you have a fairly significant change in demand of any customer, their supply chain considerations where you've got different pieces of inventory sitting inside of that supply chain, we happen to be on the beginning part of that supply chain. So I won't try to handicap where that is.

That's where we think the demand will come in in first quarter and we'll see. We'll make a prediction on second quarter later..

Yeah, I might just add on that demand profile. We did discuss that we expect about $150 million year-over-year decline attributable to this particular sector in personal electronics. The rest will be about even with last year..

Right, good point.

John, do you have a follow-up?.

Yeah, Kevin, just to follow-up on that. With the rest of the business even from last year, there's clearly a lot of investor angst about the macro in general. And clearly, if you look at your business profile throughout 2015 and excluded Apple, you saw some weakness in the rest of your business starting in the June quarter.

You'd had a couple of quarters of year-over-year declines in total revenue, even as personal electronics has done strongly.

And so when you look at the macro concerns that are out there, do you feel like that that's been fully reflected in the June, September, December numbers, and that you're now coming out of this? Or how do you handicap our macro concerns onto your forward-looking guidance?.

John, I think that at the highest level, we think we're continuing to operate in a relatively weak macro economy as we have been for the last couple of years. So nothing terribly exciting in the economy as a whole.

If we kind of look at the comparison we're talking about, recall that a year ago, we were seeing sharp declines occurring in communications infrastructure and we're also seeing some pretty stiff headwinds in the form of foreign exchange where if the rate of exchange moving against us from the US dollar strength standpoint.

So despite that, when you take a look at all that, we actually see aside from this one sector of personal electronics, the balance of it's going to be about even on a year-over-year basis.

So again, the headlines that we're seeing on the macro front and a lot of the angst that you mentioned certainly sounds real, but actually from a demand signal standpoint from our customers, it's consistent with what I just said. We continue to operate in a weak macro environment, with lots of cross currents going on.

Again, last year's weakening in comms infrastructure, very strong auto, foreign exchange issues that we were dealing with. This year, we don't see where those things are coming into play right now..

Yeah, and I'll just add that I think that inside of that weak macro economy, just the diversity of our products and the business model, we continue to operate extremely well inside of that environment. Thank you, John, and we'll go to the next caller, please..

We'll take our next question from Chris Danely..

Hey, Chris..

Thanks for letting me ask the follow up. I thought you had something against short people. Just a quick one, so Kevin, as you mentioned, it's kind of a flat environment. You still managed to grow earnings 8% in 2015.

So in 2016, if things are flat to down, maybe talk about some of the leverage you guys have or would pull to try and keep earnings flat or could we see earnings be down again? Or excuse me, be down in this year..

Yeah, there's a lot of assumptions inside there, Chris. But let me just remind you as to the moving parts that are going on here. And you can spot it if you take a look at the release that we just put out there. I think the most apparent number you can see on there is the decline in depreciation beginning to occur.

And clearly, just from an accounting standpoint, that increases our gross profit margin and falls through to EPS. That depreciation will continue its glide path down in 2016, consistent with the fact that a lot of those purchases that we made five years ago are now reaching the end of their depreciable life.

In addition to that, we're seeing a growing portion of our chips being produced in our 300 millimeter capacity and as you know, it costs us about 40% less per chip, or about 20% less per device to manufacture on 300 millimeter versus 200 millimeter. So as that mix improves, that will also fall through to the bottom line.

And then the third element that I'd just point out is that we continue to see a mix shift in the source of revenue into industrial and automotive which tend to have higher overall margins and certainly stickier revenue margin profiles over time.

So collectively, those should help our overall margin and earnings performance, notwithstanding whatever direction revenue takes us through over the next 12 months.

In addition to that, from an EPS standpoint, as we have been doing for eleven years now, as long as the intrinsic value of the company is higher than the market value, we will continue to be buyers of TI shares. We reduced our share count 3.4% this past year.

And certainly at current prices, it says we should continue to be active accumulators of TI shares. So combined, we certainly would have momentum in our favor, notwithstanding a significant change in our revenue profile to continue to help us with earnings per share..

Right, okay. Thanks so much, Chris. I'm sorry about the difficulty there. And operator, we can go to the next caller, please..

We'll take our next question from Ross Seymore with Deutsche Bank..

Hi, guys. Thanks for letting me ask a question. Kevin, why don't we just continue with the topic you talked about as far as earnings drivers. The OpEx continues to impress. I think for the second year in a row OpEx dropped by 5%. And I know you had some specific closures in Japan, et cetera.

If we were to look forward on OpEx, are there any unique drivers, such as closing businesses that are really going to impact that? Or how should we think about OpEx relative to sales?.

Yeah, Ross, I guess the way I'd answer that is that there are no nobs on the horizon right now of any measure that were similar to what you've seen in the last couple of years.

As you pointed out, we had some restructuring actions that we took in Japan, and also in certain parts of Embedded Processing over the last two years, and those have removed quite a bit of OpEx cost. And those are about done now. They pretty much finished up in the middle of last year.

As we look forward, what we would expect to see is what we've talked about in the past, that our OpEx should operate somewhere between 20% and 30% of revenue. In a weak market, it might be pushing 30%. In a reasonably strong markets, it might be pushing 20%. I think we're in the low 20s right now, 23% for 2015.

So again as I look forward, I don't see any real material changes to the OpEx profile.

I will just remind you that we do always have a seasonal pattern in our OpEx, just like OpEx was down 3Q to 4Q because of holidays such as Thanksgiving and Christmas, OpEx will be up again in 1Q versus 4Q because of the absence of those holidays, and also the annual pay and benefits increases that we instituted across the company in the first quarter.

And just to kind of give you some parameters on that, it's probably in the 4% to 5% range increase, 4Q to 1Q on OpEx..

Any comment on that?.

I do. On the communications equipment side of things, you mentioned it was down about 20%. That's not a huge surprise. You mentioned the wireless cause of that.

Can you talk a little bit about what that segment did sequentially in the December quarter and what sort of outlook do you have for it heading into 2016?.

Yeah, I think, if you look at that sequentially, it was down around mid teens, but from a year ago, it was down mid teens, but actually did see some growth. That was the second quarter in a row that we had growth inside of there. So I think that business continues to be one that over the last couple of decades has been very, very choppy.

That characteristic probable won't change. But we're on a position where we've got a couple of quarters of growth. I think that when we look at it longer term, we do believe that carrier CapEx won't grow. It certainly won't drop to zero either. But we do think that it will get smaller slightly in time. Okay thanks, Ross.

And we'll go to the next caller, please..

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

Thank you for taking my question. So last year you expanded gross margins by about 120 basis points, which is very impressive given the flat, the macro environment.

But if I had asked you a year ago where would gross margins go given all the levers, right, because it moved from 200 to 300 millimeter, the lower depreciation, the mix shift towards industrial and automotive, do you think you would have thought gross margins would be even stronger than right, what you might have than what you actually achieved? So my question really is that as we look forward, what is a bigger driver of gross margins? Is it top line growth and wafer starts or do you still think that 200 to 300 millimeter, that move is being underappreciated in terms of a gross margin driver?.

Okay. First off, let me just make sure we've got the scorekeeping going on correctly here. I think we're talking about 130 basis points of improvement this past year..

Sorry, yes, 130..

Don't want to miss out on that extra 10 there. As I look into 2015, clearly any meaningful revenue growth will incrementally have a much stronger impact than any other piece of the P&L on improving overall gross margins.

But independent of margin growth, I'd go back to what I talked about a few minutes ago on Ross's question, and that would be really the increasing mix improvement on 300 millimeter, the mix to industrial and auto and then just the decline in depreciation as we continue to march through 2016.

It's pretty tough to handicap which one would be the biggest contributor, or how to sequence those. But I think that they will all collectively be quite meaningful as we move into 2016 and I think we'll probably pleasantly please ourselves again for another year..

Yeah, and I'll just add to that, Vivek, that on essentially flat revenues, all of that came down to free cash flow growing by 6%, right.

So there's some things going on with accounting rules of on the gross margin line, but really we're focused on growing that gross margin, or on the free cash flow growth specifically and it clocked in pretty nicely as well.

So you have a follow on?.

Yes, thanks Dave. The question is on your Other segment where you have the DLP and calculators and ASICs. So that was down about 14% if I ignore the legacy wireless piece. Why was it down so much and how should we think about that segment in 2016? Thank you..

Sure. And if you look for the year, it was down, I'm not sure if your question was for the year or for the quarter. It's actually the same reason. It's down primarily due to custom ASIC products. If you remember, those products have a very high exposure to wireless infrastructure and that's where we saw the headwind.

It was also down because DLP, and DLP had a very good year in 2014, so very, very difficult compare on that front..

Good year because there was a strong World Cup demand pulling through DLP..

And how to think about it for 2016?.

Yeah, so I think that if you look, last year was in the mid teens. If you go back several years, it's actually been in that same range. Previous years were primarily driven from the exit of the wireless business. But as we go into next year and as we look, essentially that we've got some long-term growth potentials inside of DLP.

I think calculators have been flat to slightly down and we would continue to expect to see that. Growth in royalties, royalties have been about 1% of our revenue and we'd expect them to continue to run in that area. And then we've got ASIC that will shift over time into our Embedded Processing as we pick up that functionality.

So we'd expect that mid teens to slow somewhere in the mid to low single digit declines going forward. Okay. Thank you, Vivek. And we'll go ahead and move on to the next caller, please..

We'll go next to Harlan Sur with JPMorgan..

Good afternoon. Thanks for taking my question. On the strength in your Embedded segment in December, you also had a good growth in the September quarter as well. I'm focused on the MCU products here.

Can you just help us understand what are the end markets and trends that have been driving the strength here in the MCU biz? I'm assuming most of it was auto and industrial, but love to get your insights..

Yeah, so I think when you look at the Embedded sector, if I look for the year, the increase was due to connectivity and microcontrollers. And both of those product lines I would say have a very diverse customer footprint, and so there's really not one sector or market that's driving it. Collectively, you're right.

It's in industrial as well as automotive, but probably has a bias to industrial, just because of the diversity of those customers and where they're winning designs. So very, very broad based, and that's part of the reason why we're encouraged with that business and the growth.

And I think that also you see how that contributes to the bottom line and the profitability of that sector, or that business for the year..

Thanks for that color..

Have a follow-on, Harlan?.

Yeah. On your broad catalog analog business, it's a high gross margin business. I think the team has done a good job of continuing to improve the breadth and the access to the portfolio.

So I guess the question is did the catalog business outgrow the overall Analog business in 2015 and do you expect it to outperform overall Analog this year as well?.

Yeah, so we don't really have our business so much lined up by catalog or not. I'd say that the majority of the products by number certainly are more catalog-based as we've got tens of thousands of products. But we're not quite organized that way.

I mean we've got the four businesses of the high volume analog and logic, which will be more application-specific products. And even there, even though they're application-specific, many of those products are available to multiple customers and even sometimes multiple markets, even though they're application-specific.

Something like motor drivers, as an example, sell into multiple markets and multiple sectors. We got power and then high performance analog and SVA. So we just don't have a cut between that. Okay, thank you, Harlan. And we'll go to our next caller, please..

We'll go next to Ambrish Srivastava with BMO..

Hi, thank you very much. Dave and Kevin, I wanted to go back to the overall environment, and in the past you guys have been very good about giving us essentially sign post metrics. Dave, I think if I remember correctly, rate of cancellations and a few others.

Could you please remind us what those metrics are telling you about the overall health of TI's business? And then I had a quick follow up..

Sure. I think, Ambrish, as we just look at our business and as Kevin mentioned before, we believe that we've been operating in a weaker environment and that that will continue from some time. We've had some people ask us if we think a semiconductor cycle is underlying what we're seeing and we just haven't seen those signs of a traditional cycle.

So there are things like our lead times continue to remain short. Our cancellations remain very low. Our distribution inventory continues to hold around 4 weeks. And we continue to deliver our products on time to our customers when they're asking at very, very high service levels.

So those are some of the bigger ones that come to mind, that you would see some movement if you were moving through a bottom or a top of the cycle, and we just haven't seen that in quite some time..

Great. Makes sense, Dave. And then my follow up was on the industrial segment. And obviously I don't pay attention to the quarter-quarter, but on a full-year basis, if I recall what the number you gave us, it's flat for the year. And the year before that, it was up 10%.

So given it's such a cornerstone of your business, also your gross margin expansion, how do you explain the flat year-over-year last year and then what do you think industrial should do in 2016? Thank you, Dave..

Sure, yeah. And before I talk about industrial, I just want to remind those that may not be as familiar with us, when we talk about our industrial market, it's something that's very broad and different than what a typical investor would look from an industrial screen.

So we've got 14 sectors that makes up industrial and they'll include things like factory automation, medical and healthcare, building automation, grid infrastructure, test measurement, motor drives, electronic point of sale, space and avionics, display power delivery, appliances, lighting, industrial transportation and then a bucket of everything else that goes into it.

So slightly or very different than what most people would think of in industrials. And you're right, it had a strong year the year before. I think when we started the year, we had expected it to be stronger than what it turned out. And typically a lot of people ask us, hey, we hear the rumors in China.

We see the stocks that they follow maybe in the industrial segment are seeing very, very, very weak demand. But we turned in revenue that was consistent with what we saw after a very strong year.

And fundamentally what we think's going on inside of that is that there's more semiconductor content going into the industrial market and we think we're in the very early stages of that. And if you look at the automotive market, I think it's much easier to see that content because we know how many cars ship per year.

It's much easier to see the difference between total SAAR unit growth and what the semiconductors are shipping into it. Certainly impossible to be able to see inside of the industrial market because it's very, very broad and very, very diverse.

But that said, we believe that we've got a decade or more of runway of increasing content inside of the industrial market. So that's about all the insight I think I can share on that. Okay thank you, Ambrish, and we'll go on to the next caller, please..

We'll go next to Chris Rolland with Friedman, Billings, Ramsey..

Hey guys, thanks for the question and excuse me if this has already been asked. If you could give us a little bit more detail on the Scottish fab and what was being made there and how large was that footprint, and then also, what kind of OpEx opportunities you might have there..

Chris, the fab in Greenock, Scotland, is one that came to us with the acquisition of National Semiconductor in 2011. Most of the parts that are manufactured in there are part of our Silicon Valley Analog business.

We announced today that we are going to, I think we're putting together plans to wind down operations there and move the production to other 200 millimeter fabs that we have in Germany, Japan and Maine in the US.

These are larger, more cost effective, more technologically advanced factories that can just give us a lot better economics with those chips that are produced there. It will take us about three years to wind down those operations by our estimate right now, as it takes just that much time to requalify those parts into other factories.

And at the end of that period, we will no longer have an operation in Greenock.

We took a $17 million charge in the quarter as we began planning for that activity and we expect that we'll probably continue to incur roughly $2 million of charges per quarter each quarter through the end of 2018 as we wind it down, for total charges of about $40 million over a three year period..

Great, one more follow-up there. Why not any opportunities to move to 300 millimeter? And then also as we look at Embedded, I think we concentrated a little bit on MCUs, but maybe we can talk about connectivity and why that was up year-over-year.

And does the growth in MCU year-on-year at all change your penchant in M&A towards Embedded versus your favorite Analog?.

Dave and I are going to have to tag team that one. I'll finish off the Scottish fab one, the why not 300 millimeter. Short answer is most of those processes are dual qualed already in other 200 millimeter factories and it's just a whole lot easier to transfer into a qualified process already existing in other factories. Not all, but enough of them.

And so consequently, we'll just go ahead and put those into open capacity in 200 millimeter factories versus bringing them into 300.

And Dave, you want to take the?.

Yeah, Chris, your question on connectivity, what's driving the growth there. There we've got a very broad portfolio of products we support, about a dozen different standards from a connectivity standpoint, so low power Bluetooth to Wi-Fi to other sub-gigahertz standards.

And so if somebody wants to connect something, we have a solution that we can offer them. And so we're just seeing really good uptake of the products that we've got there. I think you rolled in a question about does it change our penchant for acquisition.

Again our belief is that when you acquire a company in the Embedded space, you're picking up additional architectures and additional architectures doesn't make you stronger, it just makes you bigger. And so we'll continue to look for companies that have characteristics much like a National does.

If we, when we are interested and that's the profile of the type of company. Let me just add, too, on the Greenock facility that we do expect to save about $35 million once we've completed all the transition. That's on an annualized basis, and once we do complete the transition of the products to the more cost-effective fabs. Okay.

Thanks, Chris, and we'll move on to the next caller, please..

We'll go next to Craig Ellis with B. Riley..

Thanks for taking the question, and I wanted to ask a follow-up on some of the 300 millimeter points that were made.

Kevin, can you help me understand where in the portfolio on a segment and sub-segment basis the company is having the most success with the 300 millimeter transition and therefore, what's left to go? And as you look at the opportunity, is it a fairly steady opportunity or are there some discontinuities hemming in your ability to move product over to 300?.

Well, Craig, I'd say the benefit is really happening right now in the Analog portfolio, and it's happened across all four of the business units inside Analog.

Because of it, 300 millimeter factor we have in our fab being highly automated, somewhat counterintuitively you don't have to have really high-volume parts running through there, because the automation we can actually run relatively low-volume parts through there and still gain significant cost benefit.

So what, the way we've been employing the 300 millimeter strategy is not so much to re-qual existing 200 into that factory, but instead to release new products into that factory on already qualified processes. And that's really the focus that we've had and it will continue going forward.

And we'll give a further update as to our progress to date on both the runner (42:57) fab as well as the DMOS6 fab that we're converting that we announced last year, coming on February 9 on our capital management call. So stay tuned for that. We'll give a new update on that as well..

Thank you, and then switching gears just on the competitive front. A couple of competitors in the MCU business have recently announced that they'll be getting together. Thoughts on the implications for your ability to continue to grow and take operating margins in Embedded from the mid 20s higher if there's a more consolidated landscape out there.

Thank you..

Yeah..

Yeah, go ahead, Dave..

I was just going to say that we've obviously competed with both of those companies for a couple of decades and them combining together really doesn't change much from a competitive landscape. And we believe that our four competitive attributes that make us unique, they're hard to replicate.

We'll stay focused on those and those are our approach to manufacturing, the breadth of our product portfolio, the reach of the market channels that we've got and our diverse and long-lived positions. And that's what we'll stay focused on those, and we think those have helped us gain share and they'll help us continue to gain share. Okay.

We've got time for one more caller, please..

We'll go next to Doug Freedman with Sterne Agee..

Great, guys. Thanks for taking my question. I guess if I could focus in on the fact that you did report Apple as a 11% customer.

Can you maybe talk about your expectations for the full year in terms of content? You did mention you're in many different devices, but on a like for like device there, do you believe that you're holding content, increasing content? Any guidance you can give us and maybe how we should think about that being seasonally, the impacts on that seasonality..

Yeah, Doug, we just won't provide color at that level on a specific customer. I just, overall, I think if you look at how Apple has impacted our business with their success in the marketplace, personal electronics was about 30% of revenue in 2015.

If you look at the market overall, I think if you take memory out, personal electronics is probably around 60% of the market. And so we have about half of the exposure there. So we try to find places where we've got some differentiation where we believe that those products will last more than one cycle.

Perhaps they're products that we developed that we can use in other customers or even in other markets in some cases. So that's really what we'll stay focused on overall.

So do you have a follow-on question?.

I do. It's actually probably for Kevin. Looking at, you mentioned depreciation ramping down. Can you give us a sense of how quickly? I've got you running at about a $688 million rate for the year, but your CapEx I believe around $500 million.

How quickly should we see those numbers merge together?.

Yeah, I don't think you're going to see CapEx and depreciation cross over before the end of 2016. Depreciation will continue to run down during 2016. And really the kind of gentle rollover you saw begin to occur in 2015 is your best proxy for how to model 2016..

Okay. Thank you, Doug, and thank you all for joining us. Again, please plan to join us for our capital management call on February 9 at 10:00 a.m. Central Time. A replay of this call is available on our website. Good evening..

That does conclude today's conference. We thank you for your participation..