Good day, and welcome to the Texas Instruments Capital Management Strategy conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dave Pahl. Please go ahead, sir.
Good morning. Thank you for joining our 2017 Capital Management call. Rafael Lizardi, TI's Chief Financial Officer, is with me today. This call is being broadcast live over the web and can be accessed through our website at ti.com/ir. 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 our most recent earnings release, as well as our most recent SEC filings for a more complete description. During today's presentation, we will begin with a quick recap of our capital management strategy and our scorecard for 2016.
We'll provide a historical summary of our capital allocation, as well as deeper insight into specific areas of investment and a view of our free cash flow per share performance. We'll wrap up with a look at our cash returns. We believe the key points that investors can take away from our discussion today are, first, we remain focused on consistent execution of our capital management strategy. Secondly, our disciplined allocation of R&D is delivering growth from the best markets, industrial and automotive. We also have great diversity across all of the sectors within these markets. Our 300 millimeter analog manufacturing strategy is a unique advantage and continues to drive free cash flow margin. We remain committed to returning free cash flow to owners. By the way, our updated dividend model provides a more robust, longer term framework for return of free cash flow to owners.
These key points are consistent with what we've been doing over the last several years. As a reminder, we believe TI is in a unique class of companies that can grow, generate, and return significant cash. We are focused in the best semiconductor markets, analog and embedded. These are large, fragmented markets used across a diverse set of applications and customers. While we have leading positions in both markets, we can continue to expand market share. Obviously, one of the most attractive aspects of these markets is that they are very profitable and can generate significant amounts of cash. Finally, our strategy is designed around four competitive advantages that, in combination, provide tangible benefits and are difficult to replicate.
They are our manufacturing and differentiated technology, the broadest portfolio of analog and embedded products, the reach of our market channels, and diverse and long-lived positions, which result in a high terminal value. With that, I'll turn it over to Rafael, and he will review our capital management strategy. Rafael?
Thanks, Dave. Good morning. First, I want to remind everyone we have had great consistency with our capital management strategy, and that is something that will not change. As the controller of Texas Instruments over the last four and a half years, I have been an integral part of the design and execution of this strategy. I am a fervent believer that it has worked well and will continue to work well for our company and for our long-term shareholders. As we have said, our capital management objective is to maximize long-term growth of free cash flow per share, which I believe is the best metric to judge our financial performance and to drive higher intrinsic value for the owners of the company. We do this through the disciplined allocation of our resources to generate the best returns.
As a reminder, our capital management strategy begins with a great business model that focuses on analog and embedded, which, as Dave mentioned, are the best markets in the semiconductor space. We have designed a business that is capable of growing, generating, and returning significant amounts of cash to our shareholders. It comprehends cash availability with an effective tax strategy, a strong balance sheet, and investments to strengthen our competitive advantages. 2016 was another year of good progress. For instance, free cash flow margin expanded to 30.5%, consistent with our belief that we can sustain 30% free cash flow margins in good markets. Inventory closed at 126 days within our range. Cash retained in U.S. entities closed at about 80%. Cash levels, pensions, and debt are on target, and the targets are unchanged. Capital expenditures were on target at about 4% of revenue.
Finally, we returned $3.8 billion of cash. In summary, our capital management strategy continues to serve us and our owners well. Free cash flow per share continues to grow steadily while we continue to invest in our long-term competitive advantages. Now, I would like to provide additional insight on our capital allocation, and I'll give you updates on several of our important investments. Over the last 10 years, we have allocated about $73 billion of capital. We think it is helpful to look at all categories to which we allocate capital and to look at our allocations over time to give you some perspective. In this chart, we have summarized 10 years of capital allocation and broken it down into four categories. R&D, sales and marketing, CapEx, and changes in inventory, share repurchases, dividends, and acquisitions.
The logic behind grouping R&D, sales and marketing, CapEx, and changes in inventory together is that they are the investments we make to drive organic growth. Combining them together is consistent with our approach of funding strategies, not projects. For simplicity, we have not included changes in net debt, which over this period was $2.6 billion. There are two key points on this slide. First, with $73 billion of capital allocated over the past 10 years, you can quickly appreciate why capital allocation is a job we take quite seriously, and one that has a significant impact on shareholder returns. Second, most questions from investors on capital allocation typically focus on the cash used for acquisitions, buybacks or dividends, all of which are important, and we will provide some insight into those investments and returns during today's presentation.
Like many companies, the largest category of capital that we allocate cash to is R&D, sales and marketing, capital expenditures, and inventory. These are the investments we make to generate organic growth. Therefore, we spend significant time ensuring these investments are delivering long-term competitiveness and generating returns greater than our cost of capital. We have a clear purpose for this investment. As we already said, R&D, sales and marketing, CapEx, and inventory are for organic growth of our business. Share repurchases are intended to generate the accretive capture of future free cash flow for long-term investors. Dividends help us appeal to a broader set of investors. Acquisitions are for inorganic growth. If you drill down to the next level, we also have a very clear focus for each of these investment areas. For R&D, sales and marketing, CapEx, and inventory, focus drives significant actions across the company.
We invest in new products like inductive sensing or in new process technologies like FRAM, gallium nitride, or new isolation processes, with particular focus on the industrial and automotive markets. We invest in capabilities that strengthen our long-term competitive advantages. This could be 300 millimeter manufacturing, enhancing ti.com, or developing system solutions to help our industrial customers solve their problems and get to market quickly. We invest to expand our product portfolio and adjust our portfolio investments, which will be described later. Finally, we have great focus on execution, which can simply be thought of as getting more output per dollar of input. This includes continued improvement in product execution or free cash flow generated as a % of property, plant, and equipment, plus inventory or sales productivity. Share repurchases are focused on consistent repurchase when the present stock price is below intrinsic value using reasonable growth assumptions.
Dividends are focused on sustainability and growth for obvious reasons. Finally, acquisitions are evaluated through two primary factors. First is strategic match, meaning catalog analog focus with high exposure to industrial and automotive. Second is financial results that generate a return greater than our weighted average cost of capital within about 4 years. With that framework set, let me now examine several of these areas. I will first focus on our R&D investments that we allocate to higher value growth opportunities. As you may recall, our broad portfolio of analog and embedded products is an important competitive advantage. This breadth of portfolio brings more customers to ti.com each year than any other competitor's website. It is also critical that we continually grow and strengthen this portfolio with highly differentiated products that are developed with an eye on the best market opportunities over the next 10 years.
At the highest level, we see growth. We see good opportunities in all of our markets, but we believe that industrial and automotive will be the best opportunities over the next 10 years. This is primarily because semiconductor content in industrial and automotive will significantly increase as companies make their equipment smarter, more connected, safer, and more efficient. This chart summarizes the direction of our R&D investments across end markets and also provides the revenue breakout for 2013 through 2016. In industrial and automotive, we continue to increase investments broadly, and we're excited to see the continued progress of revenue growth as this market now comprise more than half of TI's revenue, up from about 42% in 2013. Personal electronics is an important market, and while investment level in total is down, we do invest selectively.
In communications equipment, we announced two years ago that we were reducing our embedded investment, but we continue our investment in the analog growth opportunity. Our investments in enterprise systems and other have been flat and at low levels. We will now talk through our manufacturing advantage. On this call two years ago, we introduced our plan to have two 300 millimeter wafer fabs supporting our analog business. When both of these fabs are fully utilized, they will be capable of producing about $8 billion a year in analog revenue on 300 millimeter. As a reminder, for those who are not familiar with the semiconductor industry, 300 millimeter is a significant competitive advantage, and we remain committed to strengthening this advantage for the long term.
We made good progress on this plan in 2016 as DMOS6 had its first year of analog production, and we continue to increase factory loadings in our fab. In 2016, we utilized about 30% of our combined 300 millimeter capacity, which means we have roughly $2.5 billion of 300 millimeter analog revenue, up from about $2.2 billion in 2015. As a reminder for those not as familiar with the semi industry, a product made on 300 millimeter costs about 40% less than a product built on a 200 millimeter wafer, providing a great competitive advantage. The reason it is an advantage is because 300 millimeter wafer has 2.25 times more area, which in turn means we can get about 2.3 times more chips per wafer. The 300 millimeter wafer only costs about 40% more than 200 millimeter.
The net result is that a chip built on 300 millimeter wafers costs about 40% less than if built on 200 millimeter. To understand how a 40% less expensive chip impacts gross margin, it is easiest to use an example of a part built on 200 millimeter compared to 300 millimeter. This example shows a theoretical part that sells for $1 with a gross margin of 60%. The chip itself would cost about $0.20 built on 200 millimeter, and this would reduce to $0.12 on 300 millimeter. In this example, the remaining costs of assembly and test are the same regardless of the size of the wafer. The net result is that gross margin improves by eight percentage points. As this simple example illustrates, our 300 millimeter manufacturing capability and the resulting cost structure provide a unique competitive advantage for TI.
We will now go through our free cash flow growth and outlook. As we described at the beginning, our overall objective is to maximize long-term free cash flow per share. We believe this is not only the best metric to judge our performance, it is also the one that owners ultimately care about. Over the past 12 years, our free cash flow per share compounded annual growth rate has been 12%. In 2016, free cash flow margin increased 90 basis points to 30.5% of revenue. We reduced share count by 1.5%, and free cash flow per share increased 9%. Going forward, we should have three drivers to continue the growth of free cash flow per share. Top-line revenue driven by analog and embedded, incremental free cash flow margin increases, and additional share count reduction depending on the stock price.
Our free cash flow margin also stacks up pretty well against the S&P 500. Over the last 12 months, our free cash flow margin of 30.5% places us in the top 15% of the S&P 500. Generating cash is obviously important, but it is only valued if it is invested wisely, which we've already discussed, or it is returned to investors. In comparing our cash returns of dividends and buybacks, we are in the top 10% of the S&P 500 in terms of cash returns as a percentage of revenue. Our objective in buying back shares is the accretive capture of free cash flow for long-term investors. We focus on consistently buying back shares when the intrinsic value of the company exceeds its market value.
By using realistic discount factors and reasonable growth assumptions to calculate the intrinsic stock value, we're aiming to have confidence that investments made in stock buybacks are in fact earning rates of return greater than our cost of capital. While the ultimate assessment of ROI depends on the future cash flow stream, the track record of this approach is encouraging. If you make the very conservative assumption that TI's future free cash flow remains flat for the next 10 years, we will be earning about 10% annualized return on all stock repurchases made to date since 2004. We have reduced shares outstanding 42% since 2004, including the 1.5 reduction in 2016, bringing our share count to fewer than one billion shares, or 996 million, to be exact. In fact, we have reduced shares every quarter, year-over-year for 51 consecutive quarters.
We ended 2016 with $5.8 billion in open authorizations and bought back $2.1 billion in 2016, including $475 million in the fourth quarter. We will now move on to dividends. As we commented earlier, our objective with dividends is to appeal to a broader set of investors, and our focus is on both growth and sustainability. We have now raised the dividend for 13 consecutive years, including the 32% increase made in Q4 2016. We have increased the dividend at a compounded annual growth rate of 23% over the last five years, compared with the S&P 500 dividend increase of 8% over the same time frame. To make our decision on dividend increases, we start by looking at our four-year average trailing free cash flow. This ensures that a single year's results, either good or bad, don't overweight the dividend decision.
This approach, combined with our consistent growth of free cash flow, resulted in our dividend in 2016 consuming only 40% of free cash flow, supporting our objective of sustainability and growth of dividends. I will wrap up my prepared remarks with a few summary comments. TI is in a unique class of companies that can grow, generate, and return cash. We are focused on the best parts of the semiconductor business, analog and embedded, and the best end markets of industrial and automotive. Our business model is designed around four competitive advantages that deliver tangible benefits unique to TI and are difficult to replicate by our competitors: manufacturing and technology, breadth of products, broad reach of our channel, and diversity and longevity of products and positions in the market. We focus on growing free cash flow per share.
It is the ultimate objective, we believe it leads to the highest growth in shareholder value. We have a disciplined process and culture to ensure that we are strengthening our competitive advantages and generating the maximum return for the investments we make. Thank you. With that, I'll turn it back to Dave.
Thanks, Rafael. Operator, you can now open up the lines 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 you an opportunity for an additional follow-up. Operator?
Thank you. If anyone does have a question, please press the star key followed by the digit 1 on your touchtone telephone. Once again, that is star one if you have a question. We'll go first to Ross Seymore with Deutsche Bank.
Hi, guys. Thanks again for doing this call. Rafael, one follow-up on the free cash flow generation side. You mentioned, the drivers for free cash flow growth going forward, one of the three was free cash flow margins increasing. I know you're slightly above your 30% target rate. Is there a new target that the company has, or was the word incremental an important part of that statement that you made?
Thanks for that question, Ross. First, let me highlight the premise in your statement. That is correct. Margins is going to be one of the key drivers for increasing free cash flow per share. The other two are revenue growth, that's the number one driver as we continue to grow our core businesses of analog and embedded. The other one you didn't mention is reducing the share count as we continue to buy back shares to reduce the share count of the company. On your specific question, there's always noise in any one quarter. We're currently at 30%. We still have plenty of work to do before we feel that is sustainable. At this point, our focus is to grow free cash flow, particularly on a per-share basis, because we think ultimately that's what drives higher value to the long-term owners of the company.
I'll just add, Ross, that when you look at the drivers of that margin and of free cash flow, and you look at the manufacturing footprint we've got, as we've just said, we've only used about 30% of our 300 millimeter capacity. As revenue grows, if we built that even on 200 millimeter, that would help margins expand. Because of the competitive advantage we have with the lower cost, of course, that will be even more accretive. Do you have a follow-up?
Just quickly, it's also a margin-related one, but switching over to the R&D side, where you guys gave the bucket as the organic investment category. R&D spending has increased the last couple of quarters after a number of years of decreasing. Can you talk a little bit about how you guys measure and strategically put in place those increased dollars, as it looks like a little bit of a change in strategy over what we've seen in the last three years or so?
Ross, at the end of the day, we're allocators of capital. That's one of the most important things we do. In this case, on R&D as well as sales and marketing, for example, and CapEx, it's all about organic growth of the business. We're focusing on the best opportunities. It could be new products and technologies. We mentioned gallium nitride, for example, and isolation technologies. It's also about strengthening the competitive advantages. Demand creation is another one where we're allocating more capital to. We're also improving our execution. At the end of the day, all of that is just about making TI a stronger company, strengthening our competitive advantages so we can generate more free cash flow and then return all of that free cash flow to the owners of the company.
Yeah. I'll add too, Ross, I think as we focused on industrial and automotive markets, our product portfolio continues to last longer just by the nature of those markets. There's actual efforts in place to take existing products and repurpose them into other sectors and sometimes even other markets, and that helps with the sustainability of that portfolio over time. It is, as Rafael is saying, going into new technologies and new areas that even some over-the-horizon type investments, but even more near-term investments of repurposing those products.
The other comment I'll add is just in the big scheme of things, OpEx as % of revenue, our guidance is 20%-30%. In good times, we can be on the lower end of that. In fact, in both 2015 and 2016, in both years, we were at 23%. This has just been an allocation of capital, of resources within the company to drive the best results to continue driving higher growth of free cash flow.
Okay. Thank you, Ross. Next caller, please.
Next, we'll go to Stacy Rasgon with Bernstein Research.
Hi, guys. Thanks for taking my questions. I wanted to ask first about 300 millimeter capacity. I was actually a little surprised to see only about $300 million in incremental 300 millimeter revenue in 2016, which suggests that of the gross margin upside that you have seen. Very little of it was actually as a result of the mix toward 300 millimeter. I was wondering if you'd give us a little more color on how we should think about how that mix shift from 200 to 300 should progress going forward, in terms of both, I guess, new products ramping in as well as potentially volume that's currently on 200, maybe ramping down while complementary products are ramping up on 300.
Sure. Yeah, I'll start, and if Rafael wants to add something, please jump in. I think, Stacy, if you look at how we have been ramping the 300 millimeter capacity, I think this year is consistent with what we've seen in the past. We qualified our fab back at the end of 2010. 2011 was the first full year of production. Since that time, we've put in about $2.5 billion of revenue across now our fab and DMOS6. I think that is being driven primarily by new products and new introductions. As you look forward to our analog growth, you can assume that the majority of that will be on 300 millimeter. We still have capacity available on 200 millimeter.
As I talked about earlier, we've taken and continue to take some existing products and repurpose them, they still get designed into new applications. We could still continue to see those assets be very well-utilized as well in the footprint.
I would only add that this is a marathon, not a sprint. We're looking at the long term and how 300 millimeter will benefit the owners of the company over the long haul. With the example we gave, you can do the math on the flow- through and see as we continue to grow, in this case, analog, and that growth happens on 300 millimeter, how the incremental benefits will fall right through to the free cash flow bottom line, and we can then continue increasing those over time. As always, returning all of that free cash flow to the owners of the company.
Okay. Stacy, a follow-up?
I do. Thank you. To follow up on those thoughts around organic growth. I think this is the first one of these calls I've heard in a while where you're putting as much of an emphasis on discussing what you're doing to drive organic growth. Obviously, we've seen the increases in R&D and everything to go along with it. Can you talk a little bit about how you perceive your organic growth profile going forward, I guess, given what seems to maybe be at least, I don't know if it's a new focus on it, but at least a renewed focus on talking about it. Where do you think you can grow, I guess, relative to the analog industry and relative to the market, given your product and end market shift and focus at this point?
Yeah. I'll start again, Stacy. I think, hopefully it's not a new focus on growth. I can tell you there's been a tremendous amount of focus on growth here inside of the company. I think, first of all, I'd start with how you think the overall economy is going to do, because that will obviously drive the opportunity that we see inside of the market. We've been in a fairly low-growth environment. If you look inside of our analog and embedded businesses over the last 10 years, they've been growing at about an 8% compounded annual growth rate or in that neighborhood. We've seen consistent growth with that hasn't translated into top-line growth over that period, as well as we've shifted our investments to analog and embedded, and specifically into automotive and industrial.
I would say that we believe that analog and embedded will grow above the rates of the semiconductor market overall. In this low-growth environment, I think if you look over a longer period of time, I think most industry analysts would believe the semiconductor market's going to grow somewhere in the low single digits to mid-single digits. If we can continue to gain share, we'd hope to be able to have something and add a few points of growth on top of that. Lastly, I'll just make the comments that we have been shifting our investments for some time over into automotive and industrial markets, because we believe that that's really where the superior growth opportunities will come from, and that's just simply due to the increasing semiconductor content that we've seen there. You've seen some results of that.
Most recently, automotive grew 23% last year. I'd just point out that that followed several strong years of growth there, meaning you can already see some evidence of a consistent track record. That's kind of how we think about growth. With that, we'll go to the next caller, please. Thanks for that question, Stacy.
Next, we'll go to Amit Daryanani with RBC Capital Markets.
Amit?
2017, because I think lower depreciation was at least 100 basis points gross margin benefit for you guys in 2016. Just trying to think how does that work in 2017, and is there a CapEx minus D&A tailwind in 2017 as well for free cash flow?
Amit, unfortunately, the first part of your question was cut off. Could you just repeat that for us, please?
Yeah, absolutely. I was trying to think, how do you think depreciation will track through 2017? I think lower depreciation was about 100 basis point tailwind in 2016 for your model. Just trying to think, how does that work out in 2017 for you guys?
Yeah. High level, you've seen how it has declined over the last several years. We expect another step down in 2017. You can just look at 4Q 2016 and almost do the math based on that. It's just going to be a smaller decline than it was before. The key point is depreciation is a non-cash event, so we really don't obsess over that. We focus more on free cash flow, and that's the key, how we have grown free cash flow year-on-year, and what we're doing to continue growing that free cash and then returning it to the owners of the company.
You have a follow on, Amit?
I do. I guess just to follow up, could you talk about the potential for share gains as you go forward, especially given the uptick in R&D that you guys are talking about in markets like auto and industrial? I would almost imagine companies would rather partner with TI versus smaller analog companies. Should we think that share gains could possibly accelerate versus the 30-40 basis points that you've historically talked about?
I think one of the great qualities of the market opportunities that we have in analog and embedded is the diversity of the markets and its fragmented nature. It's really hard to consistently gain share, and we've been able to do that. I think if you look at that, just the sustainability of what gives us confidence of sustainability to be able to do that, I'd just highlight a few things that we think about when we think about sustainable growth. The first is, are you getting that growth across diverse set of markets and sectors as well as diversity across customers? Do you have proof that you're able to gain share, and the results translate beyond just one quarter or one year?
We're always very cautious not to get too specific on either one of those, because we think they need to show up over a longer period of time. In particular markets like automotive and industrial, is there a reasonable logic that that market is expanding? We think that there is content gains that are going there. It's very obvious to see in the automotive market, and we believe there's clear evidence inside of industrial as well. The next is, are your products differentiated? How do those products solve customers' problems uniquely as part of that differentiation? Lastly, do you have a healthy pipeline of design wins that will continue to fuel that growth? I think when we look at automotive, when we look at industrial, we feel very confident that we're actually seeing those drivers across the sustainability.
I'd say that that would translate into us having high confidence that we can continue to gain share versus looking for some type of inflection point of share gains.
Dave, let me go back to your first question. I want to stress another point, is I would encourage you, rather than looking at depreciation, look at CapEx. That is what the real cash going out the door. In our case, our target is 4% of revenue. That's what we've done for the last number of years, and that's really what determines how much cash is going out the door. The difference is what's available to return to the owners of the company. That's how we think of our allocation of capital.
Great. Thank you, Amit, for those questions. We'll go to the next caller, please.
Next, we'll go to Vivek Arya with Bank of America Merrill Lynch.
Thank you for taking my question. First one, what is the right leverage for your balance sheet in this environment? I can understand being a little cautious if the baseline is that we might be going into a downturn, but I assume that is not the baseline. Why have such an under-levered balance sheet when every other part of your business is so well optimized?
Let me take that one. I'll start by saying that in this particular question, reasonable people have different views of this, and I respect that. I'll tell you our view. We think of debt as a strategic tool. You can look at what happened in 2011 with the National acquisition. We didn't have debt on the balance sheet, and we took on debt in order to make that acquisition happen. Then we've been paying it down over time. Now the balance sheet is opening up for potential strategic options in the future. I'll also remind you, we still have debt on the balance sheet. We have $3.6 billion, which, in my book, is significant. That's how we think about debt.
You have a follow on, Vivek?
Yes. Thanks, Dave. As my follow-up, you mentioned autos and industrial are a little bit over half of your business, which is an improvement versus the last few years. At several of your peer group, it's a much higher percentage of sales. I appreciate that you guys have been doing extremely well in those markets and gaining share. Is there a target mix of autos and industrial? Can you get there organically, or do you think now is the time to look at inorganic options perhaps more than you might have looked at them in the last few years?
I'll start with that. Quite simply, Vivek, we don't look at trying to find an optimal percentage or an optimal mix. We steer investments where we see the opportunity. We see the opportunity obviously incrementally in industrial and automotive. That said, we're still making investments in personal electronics. We'll have personal electronics products shipped, there's probably 2.5 billion of them shipped every year. We'll have that for decades ahead. We'll find good opportunities inside of there. We'll continue to make investments. Same with the other markets that we have. I think what we try to do is describe incrementally where we see the best opportunities.
I'll just add to that. You alluded to M&A. Let me just comment on that. Our approach to M&A, it's not changing. It needs to have two components. First, the strategic fit. We look for analog catalog type of companies. We evaluate those from time to time. Ideally focus on industrial and automotive, because we think those are the best markets. Companies with differentiated products that then have a high GPM and high free cash flow. That's the first part. The second part, just as important, the numbers have to work. Over time they have to be accretive to our cost of capital.
Great. Thank you, Vivek, we'll go to the next caller, please.
Next we'll go to Tore Svanberg with Stifel.
Yes, thank you for hosting this call. The first question is on total capacity. I think in the past you've talked about $18 billion worth of capacity on sort of a brick and mortar perspective, and then you can get to maybe 22 by adding some CapEx. Could you maybe update us on those numbers, and what type of CapEx would you need in order to go from 18 to 22?
Yeah, Tore, those total numbers haven't changed significantly. We think that we can achieve those levels of production inside of the 4%. When you look at the $18 billion footprint, we essentially have the vast majority of that equipment. There will be places that we need to augment certain flows with certain types of equipment. That is a fairly small amount, and certainly fits inside of that 4%. A large portion of that 4% goes to assembly test, and the back end manufacturing overall. I think our strategy, kind of going back to our four competitive advantages and thinking of strengthening our manufacturing and technology. We've been in the market probably every quarter since 2009, buying some pieces of equipment.
I'd say that we continue to be open to and evaluating opportunities if it presents itself to bring on a larger amount of capacity, if those things present themselves. It really is about strengthening all four competitive advantages and in this case strengthening the manufacturing and technology. You have a follow-up?
Yes, thanks for that. My follow-up is on M&A. Obviously it's got two elements. It has to be strategic, but the financials have to make sense. How do you balance those two? Because obviously there could be a really nice strategic asset out there, but sometimes the math may not work right away. How do you balance those two? Or do you basically just simply wait and you're patient to find the right time from a financial return perspective?
That latter statement resonates with me. To me, those two factors, there's an and with those, not an or. They both have to work out. No matter how good one of them is, if the other one doesn't work, then the whole thing doesn't work.
Yeah. I think it's grounded in a belief that you don't have to be bigger to be better. If you look at some of the M&A that's going on, you've got people trying to move into different markets. You've got people trying to build scale, other reasons that they're moving in those directions. We really have all those pieces in place. Being bigger isn't better. It really comes down to making sure that we've got and make the right financial decisions. With that, I think we have time for one more caller, operator.
We'll go to Ambrish Srivastava with BMO.
Ambrish.
Can you hear me?
We can hear you now. Thank you.
Sorry, I'm at an airport, so I apologize for the background noise. Dave, a lot of good questions have been asked. I just had one on market share. We've been, I think most of us on the call have been using WSTS data as a view for a while. I'm just a little bit confused, actually scratching my head. Just really wanted your perspective. I don't think there's a right answer. Analog, for the first time, you guys didn't grow. Actually, you've been taking share in analog per WSTS for a very long time. The first time you were below what the industry grew. Then if I look at the embedded, all of a sudden you're so good that you took, per our calculation, 3 to 400 basis points of market share. I'm just struggling with how to reconcile that. Thank you.
Ambrish, what I would encourage you to do is to look at our performance, look at our peers' performance, to what's publicly reported. I think when you look at that information, we believe that we've performed very well in both markets. That's what we really look at to measure. WSTS will be one input into it, but we'll pay most attention to what's publicly reported. Do you have a follow-on, Ambrish?
No, that was it, Dave. Thank you.
Okay. I'll turn it over to Rafael to make some concluding remarks.
Thanks, Dave. I just want to thank all of you for taking the time to go through our capital management strategy. To wrap up, just want to emphasize a few points. We remain focused on consistent execution of this strategy. Our disciplined allocation of R&D is delivering growth from the best markets, industrial and automotive. We have great diversity across all sectors within these markets. Our 300 millimeter analog manufacturing strategy is unique. It's a unique advantage, and it continues to drive our free cash flow margin. Finally, we remain committed, and I am committed to returning all free cash flow to the owners of the company. Thanks.
Thank you all for joining us. A replay of this call will be available on our website as well as the slides that we used in this call. Additionally, for those of you who have not joined our capital management calls in the past, we will have a comprehensive summary presentation on our website, which also cover topics discussed in our previous year's calls. Good day.
That will conclude today's conference call. Thank you everyone for your participation. You may now disconnect.