Good day, and welcome to the Texas Instruments 4Q 2016 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 Paul. Please go ahead.
Good afternoon, and thank you for joining our Q4 2016 2016 earnings conference call. For any of you who missed the release, you can find it on our website at ti.com/ir. This call is being broadcast live over the web and can be accessed through our website. A replay will be available through the web. This call will include forward looking statements that involve risks and uncertainties that could cause TI's results to differ materially from management's current expectations.
We encourage you to review the notice regarding forward looking statements contained in the earnings release published today as well as TI's most recent SEC filings for a more complete description. 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 1. Rafael joined TI in 2001 and was named Vice President in 2010, followed by Corporate Controller in 2012. He holds a bachelor's degree in Electrical Engineering from the U.
S. Military Academy at West Point and a master's in Business 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 an 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 benefited and learned a lot from his disciplined financial management and his commitment to ensure that owners of TI 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, 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've worked with Rafael over 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 your calendars. We plan to hold a call to update our capital management strategy on February 8 at 10 a. M. 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 I'll start with a quick summary of our financial results. Revenue for the 4th quarter increased 7% from a year ago as demand for our products remains strong in the automotive market. The improvement we saw in the Q3 in the industrial market continued.
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 backdrop, I'll now provide details on our performance, which we believe continues to be representative of the ongoing strength of TI's business model. In the Q4, our cash flow from operations was $1,400,000,000 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 month period was $4,100,000,000 up 6% from a year ago. Free cash flow margin was 30.5 percent of revenue, up from 29.6 percent 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 return to shareholders. In 2016, we returned $3,800,000,000 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 and logic was about even. Embedded processing increased 6% from a year ago quarter due to processors and microcontrollers. Connectivity also grew. In our other segment, revenue 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 recently simplified the product lines inside our 2 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 3 product lines instead of 4. These are power, signal chain and high volume analog and logic.
Embedded goes from 3 product lines to 2, connected MCU, which merges connectivity and microcontrollers and processors, which is essentially unchanged. All of these changes are at the product line level. Nothing changes at the segment level. To help you understand the 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 Q1 2017 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. Just as a reminder, we annually provide an estimate of TI's revenue by end markets. We break these into 6 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 even 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 in 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 2 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 $2,130,000,000 or 62.5 percent of revenue. Gross profit increased primarily due to higher revenue and lower manufacturing costs. From a year ago, gross profit margin increased 400 basis points. Operating expenses were $754,000,000 or 22.1 percent of revenue.
Over the last 12 months, we've invested $1,370,000,000 in R and D, an important element of our capital allocation. Acquisition charges were $80,000,000 all of which were the ongoing amortization of intangibles, which is a non cash expense. Restructuring charges and other was a $20,000,000 net benefit, which included a gain related to an intellectual property agreement and a charge associated with the realignment of our product lines, which Dave previously mentioned. Operating profit was $1,320,000,000 or 38.6 percent of revenue. Operating profit was up 15% from the year ago quarter.
Operating margin for analog was 42.8%, up from 38.0 percent a year ago. Embedded Processing was 28.2%, an improvement of 480 basis points from a year ago. Our focused investments on the best sustainable growth opportunities with differentiated positions enabled both businesses to continue to contribute nicely to free cash flow growth. Also, we signed several intellectual property agreements, which had a total benefit of $228,000,000 in the quarter. We recognized $188,000,000 in other income and expense or OI and E and $40,000,000 in the restructuring charges of other.
Neither revenue nor gross profit was impacted by these agreements. Net income in the 4th quarter was $1,050,000,000 or $1.02 per share, which included a $0.14 benefit for items not in our prior outlook. These included a $0.14 benefit for several intellectual property agreements, a $0.01 tax benefit related to the new accounting standard for stock compensation and a $0.01 restructuring charge. This quarter, we adopted a new GAAP standard that changes where we report the tax consequences of employee stock compensation. When employee stock options are exercised or when restricted stock units vest, either an excess tax benefit or deficiency may be 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 income taxes on the income statement, impacting net income and EPS. In the Q4 of 2016, this created a benefit of $0.01 per share and for the year a benefit of $0.13 per share. I will also note that this accounting standard increases the diluted share count calculation by about 5,000,000 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 $1,390,000,000 in the quarter. Inventory days were 126, consistent with our long term model of 105 days to 135 days. Capital expenditures were 110,000,000 In 2016, cash flow from operations was $4,610,000,000 up 5% from the same period a year ago.
For the year, capital expenditures were $531,000,000 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 $4,080,000,000 or 30.5 percent 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 value only if it is productively invested in the business or returned to shareholders. Our intent over time 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 4th quarter, we paid $499,000,000 in dividends and repurchased $475,000,000 of our stock for a total return of $974,000,000 Total cash return to owners in 2016 was $3,780,000,000 This combined returns demonstrate our confidence in our business model and our commitment to return excess cash to our owners.
Over the last 12 months, we paid $1,650,000,000 in dividends 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 2,004 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 4th quarter, we passed an important milestone, reducing our outstanding share count to fewer than 1,000,000,000 shares or more specifically 996,000,000 shares. Our cash management and tax practices are fundamental to our commitment to return cash.
We ended the 4th quarter with $3,490,000,000 of cash and short term investments with our U. S. Entities owning about 80% of our cash. This onshore cash is readily available for multiple uses. I will now turn this back to Kevin to close out our prepared remarks.
Thanks, Rafael. Our orders in the quarter were $3,440,000,000 up 11% from a year ago. Turning to our outlook, we expect TI revenue to be in the range of $3,170,000,000 to $3,430,000,000 in the 1st quarter. We expect Q1 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 standard that I mentioned earlier. Acquisition charges, which are non cash amortization charges, will remain about even and hold about $80,000,000 per quarter through the Q3 of 2019. It will then decline to about $50,000,000 per quarter for 2 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 Q1 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 and technology, portfolio breadth, 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 3 40 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 our advantages 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 a very long time to come. Before I turn it back to Dave and start the Q and 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'll 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'll come to truly enjoy working with him as well just as I have for all these years. 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 a question, please limit yourself to a single question. After our response, we'll provide you an opportunity for an additional follow-up. Kevin?
We'll take our first question from Harlan Sur with JPMorgan. Please go ahead.
Good afternoon and great job on the quarterly execution and growth. Your automotive business grew 23% in 2016, obviously very solid results. Can you guys just help us understand of the 5 sub segments within auto, what areas drove the most strength?
Yes, Harlan, thanks for that question. And as you noted, automotive did grow over 20%. The great news is that that wasn't due to one segment. I can say that that growth was very diverse. It was diverse across the 5 sectors that we saw.
It was diverse across customers, and it 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 a 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 about 5% this year, about $47,000,000,000 I'm sorry, in 2016. Your analog business was up about 2% last year, but obviously the growth was impacted by your largest customer that had an inventory correction last year. If you strip this out, does the team think that they gained analog market share?
And if so, in which of the sub segments? Thank you.
Yes, Harlan. 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. And but we're very confident that we performed very well. So thank you for that question.
We'll go to the next caller, please.
We go next to Chris Danely with Citi. Go ahead please.
Hey, thanks guys. And Kevin, congratulations on the next phase. Thanks for being patient. And I think the real reason you're leaving is you got tired of waiting for TI to hit my $12 stock price. But anyway, that's
a joke for all of you
who are listening. Just 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?
Sure, Chris. I hope not to revisit that $12 stock price you were talking about.
I put a 0 after it now.
That's better. I like that a lot better. Margin drivers going forward. I think that there'll be several things happening. I think we've enjoyed the last couple of years depreciation coming down at the same time that 300 millimeter starts have been going up.
Those have clearly been tailwinds for us in the last couple of years. As we go forward, depreciation is probably going to begin to flatten out a on a quarter over quarter basis. It will still be down next year versus 2016, but not nearly as much as we've seen. What's a 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've heard us again talk for a number of years about focusing on our investments in auto and industrial.
And frankly, the margin opportunities in those spaces are very attractive. And so between the mix of products, but importantly, the increasing starts of products on 300 millimeter capacity, there's still room for us to continue to see overall margin growth. And that's before we even talk about revenue growth. Of course, revenue growth just gives us leverage on that capacity that we've been investing in for these past couple of years. And with depreciation being as low as I was talking about, what that really means is underutilization charges are negligible.
And so really, it's just about fall through from revenues right through the bottom line, and that will especially happen to cash flow.
Great. And for my follow-up, longer term question on OpEx. So if we look at year over year, your SG and A trended down a little bit, R and D was up. You guys said you were going to pile a little more money into R and D. Assuming revenue continues to grow, what can we expect from R and D and SG and A on a yearly basis?
Do you feel comfortable with the level of R and D as it is right here? And could we expect SG and A to continue to trend down as a percentage of revenue, assuming overall revenue grows?
Yes, Chris, that's actually a really good question. The last couple of years OpEx has on an annual basis run about 23% of revenue. And as you noted, we have been internally reallocating resources, putting more efforts into the R and D areas. That will continue for the next couple of quarters and then begin to stabilize. And I would expect in 2017, all things being equal, we'll still operate around 23% of OpEx to revenue.
Keep in mind that on the long call, we expect our OpEx to probably fluctuate between 20% 30%. So in very weak markets, it might be as high as 30% And in very strong markets, it might be as low as 20%. In kind of stable markets where we're in right now, I think the kind of OpEx percent you've seen in the last 2 years is what you should expect going forward for the next year or 2.
Great. Thanks, Chris. And we'll go to the next caller, please.
We'll go next to Joe Moore with Morgan Stanley. Go ahead, please.
Great. Thank you. I wonder if you could talk about the change to the analog sub segments, I guess in particular Silicon Valley analog as a category going away. Does that signify anything from a business standpoint in terms of the integration of the old national business? So just should we think of there being any structural change that goes along with that?
Yes. That Jim has nothing to do with the old analog business. That's simply a question of realigning our products to the way that we have come to understand that our customers prefer to look for them when they're trying to find products here at TI. And so if you look at the categories that we've lined up with, we now have power, we have signal chain and we have high volume analog and logic. And that's really how we've learned our customers prefer to try to find products at TI.
And so that allows us to give them better and faster support. The Silicon Valley analog products along with high performance analog have been reallocated among those segments, those new product lines that we just talked about. And so consequently, the best way to think about this is how do we react faster and more thoroughly to customer inquiries and searches for parts inside our portfolio. With a vast portfolio like ours, it's really important for us to be sure that we're aligned efficiently as possible for customers to get to the parts they need and want.
Okay, great. That's helpful. Yes, 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 a little bit better.
So obviously, you're growing quite a bit faster in autos than other analog companies. Should we think of that as being sort of sustainable gains? Or just how do you is there anything you can do to kind of help us understand why that was such a good number? And what should we expect going forward?
Yes. And Joe, this is as you know, you've been tracking our revenues inside of that market for some time. It's not something that just happened this quarter, right? We've 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 2 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 streams. And we're very intentionally, as I mentioned earlier, trying to direct our investments. So we're not just seeing growth in one sector or at one customer.
So that's what we're trying
to do. So thanks for
that question. We'll go to the next caller, please.
We'll go next to Ramesh Shah with Nomura. Go ahead,
please. Kevin, congratulations on your retirement. All the best.
I wanted to ask, Dave,
did you give us channel inventory? How much supply your distributors were carrying in the quarter?
I haven't, but I certainly can. It inventory was even with the year ago and decreased by about a half a week sequentially. And it's still running at around 4 weeks in the channel. So, and I just also just 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's 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 re stocking as a major driver for
this year? Ramin, I don't think that we're quite that precise on that kind of thinking as to how distributors might react. We look at the talk of stimulus with some anticipation of a positive boost to the economy. But frankly, we think it's probably too early to figure out what that might be and how it might manifest itself. A lot of that stimulus seems to be focused towards infrastructure.
And so, if in fact it does wind up there, that will further benefit our industrial portfolio. More important to us is to watch what's happening on the tax front. And hopefully, we'll finally get some tax relief out of Washington, which will be a significant benefit to our shareholders.
Yes. And Romet, 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, Rohit, and we'll go to the next caller, please.
We'll go next to Ross Seymore of Deutsche Bank. Go ahead, please.
Thanks for letting me ask
a question and first Kevin congrats and to Rafael too congrats on the promotion. Looking at the analog business in the 4th quarter Dave, it was 10% year over year, but you said HVAL was flat. I was a little surprised that that side being flat and the remainder must have been up a good 13%, 15% year over year. Can you talk about 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, actually personal electronics was up slightly. So that was the main reason that we saw that. You could kind of see that inside of analog.
And that weakness in mobile phones was not just inside of HVAL, but you saw that to a lesser extent inside of power. Yes,
I do. On the OpEx side of the equation, I know Kevin you answered some Is that about the right area we should think OpEx changing sequentially in 1Q? Or Is that about the right area we should think OpEx changing sequentially in 1Q or is it different this year due to that reallocation?
No, I wouldn't expect anything particularly different. The reallocation is mostly coming out of SG and A as we go forward. So it's just a mix inside that. So total OpEx will continue to increase, as you know, seasonally in Q1 because of the absence of holidays from the Q4 as well as the annual pay and benefit increases that we play across our the company in the Q1.
Okay. Thank you, Ross. And we'll go to the next caller, please.
We'll go next to Stacy Rasgon with Bernstein Research. Go ahead, please.
Hi guys. Thanks for taking my question. Around the gross margin drivers, particularly 300 millimeters, you seem to be talking about that as 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 expansion that you're 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 the Richardson factory, which we call RFAB and EMAS VI in the Dallas location. Combined, we have about $8,000,000,000 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 of the new products that we're releasing are being released on 300 millimeter.
And the economics, as you're well aware, are very compelling. I mean, the bottom line is the chip costs are about 40% less on 300 millimeter versus 200 millimeter. So the total finished product is about 20% less, which adds meaningfully not only to gross margins but especially to free cash flow because that just falls straight through unimpeded. So again, our starts continue to increase. We continue to have a lot of capacity available to us.
But more importantly, we have a lot of new devices in the pipeline being released on the 300 millimeter. And that all coming together will probably continue to accelerate the rate of starts and therefore the rate of fall through that we'll get from that manufacturing line. And I'll just add Stacy is
a shameless plug for our capital management call. Rafael and I will cover more of that detail in our capital management call.
For my follow-up, I wanted to touch a bit on the accounting changes. It seems you're influencing both the earnings as well as the share count. The diluted share count went up this quarter for the first time in forever, but it sounds like it was boosted by 5,000,000 shares or so like you said because of the accounting change. So how should we think about that I guess going through 2017? Is it still something like a $0.03 or $0.04 per quarter benefit that's going to sort of sustain kind of into perpetuity?
And in terms of the share count, was this 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 that reduce buybacks?
Yes. So Stacy just a little bit more background on the GAAP change. It's going to impact all companies beginning who haven't already implemented, beginning with Q1 2017 reported. We basically early adopted by 1 quarter. The idea is trying to help with better comparability for 2016 2017.
That being said, it does cause reported earnings to increase because of this tax benefit. It also mathematically requires that you compute your diluted share count differently. And so added about 5,000,000 shares to our diluted share count, just compliant to the new calculation rules. In 2016, had we applied the same GAAP
at the beginning
of the year, it would have added $0.04 to the Q1, dollars 0.03 to the 2nd quarter, dollars 0.04 to the 4th quarter and added $0.04 excuse me, dollars 0.04 to the 3rd quarter and added $0.01 to the 4th quarter for a total of $0.13 for the year. The way that we would recommend that you model this for purposes of analyzing the company going forward is similar to what we're doing. And that is just look at what happened last year and use that same set of assumptions for next year. I'm pretty sure that we'll wind up being 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 Q1 of 2016 and the guidance that we've just offered for the Q1 of 2017, we've included $0.04 and we would suggest that you do the same thing.
Stacy, let me just add to that that our for looking at next year, our commitment to our capital management strategy and the disciplined execution of that strategy remains unchanged. Our target is to return all of our free cash flow to the owners of the company. And with the dividend model that we announced last quarter, it provides a more robust framework to adjust the allocation between of that return between dividend growth and share repurchases. Great.
Okay. Thank you, Stacy. We'll go to our next caller, please.
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 for my first question, I know it's early days, but can you share any views on impact from any potential border tax rate changes 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?
Yes. Rebecca, this is very speculative at this stage because clearly, you can see just from the reported press that there's probably differences of opinions as to what kind of tax policy to employ between the President and the Congress. So I think it's a 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 directly to our shareholders because it will simply expand our free cash flow. And as Rafael just commented, our commitment remains as it has been and that's to return 100 percent of our free cash flow to our shareholders through dividends and stock buybacks.
So any form, whether it's border tax adjustments or actual lowering of the overall tax brackets, clearly will be beneficial to our shareholders and I'm looking forward to seeing that happen.
A follow on Vivek?
Yes. Thanks, Dave. Last quarter, you mentioned that it seems like we are in a 3% to 4% growth world, but then you grew 7% in Q4 and you're 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 will change this year to deter us from that kind of growth trajectory? Yes.
So first, Vivek, I'd just point out that when we look at the overall macro environment, we really don't see something that has significantly changed in some time. So we continue to believe that we are operating in a very similar macro environment that we have been. If you look at inside of the quarter, demand came in stronger really across most markets and businesses. The only notable exception as I talked about before was personal electronics came in about as we expected. And to your point, we've seen choppiness in particular markets.
And some of that more recently has been driven by 1 large customer. You can roll back the clock not too long ago into last year, we saw some choppiness in comms equipment. Before that, we had a PC XP refresh cycle that came to an end. And none of those were really tied to the overall economy. There were just very specific things going on within specific markets.
So that's really the environment that we think that we're operating in now. So thank you and we'll go to the next caller please.
Next to John Pitzer with Credit Suisse. Go ahead please.
Yes, good afternoon guys. Thanks for letting me ask a question. I'll chime in with my congratulations to Kevin. Kevin, I guess my first question is just looking at the op 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's still a pretty healthy gap between the op margins in embedded and those in analog.
Is that still just a matter of getting more scale in the embedded business? Or how do we think about those op margins closing over time?
Yes, John. I think the best way to think about it is what we have been talking about for a number of years, which means we stepped up investments in that area a number of years back and then we readjust the investment especially for the base station marketplaces. And since then, we think we've got the investment levels about right. So it really is a question of continuing to get leverage from revenue growth, falling all the way through to op margins as you point out. But again, what we focus on, it falls through unimpeded free cash flow.
And that's the real focus there. So there is nothing inherent that keeps it from continuing to improve. In fact, I would not be surprised to see the team there continue to improve on that as they completely understand the leverage capability they have on the investment base they have right now. Good follow on, John?
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 you look at your revenue holistically over time, it's become significantly less volatile, but that other bucket has jumped around a lot quarter on quarter. And Dave, I'm wondering if you could just give us some guidance from these levels, how we should think about kind of seasonality or the cadence of the other revenue 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 had talked about before, when you look at the history, it had declined more like in the mid teens, and that was primarily as the legacy wireless products had unwound. And we kind of going forward that we'd be somewhere in a mid single digit decline. There is seasonality inside of the other business.
It's driven primarily by calculators that have a very strong seasonality due to back to school. And then we also have royalties inside of there that can be choppy every once in a while. So those are the types of things. But overall, when you look at it, much like this year, we saw a 3 percent decline. It's probably similar to what we would expect to see going forward.
So thank you, John. We'll go to the next caller, please.
We go next to Ambrish Srivastava with BMO Capital Markets. Go ahead, please.
Hi. Thank you very much, Kevin. Congratulations on your next phase of life and you've been nothing but an absolute pleasure in all the dealings we have had with you. 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 $4,000,000,000 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're growing this business again at a pretty decent rate, almost 10%. So what are some of the areas that are driving that growth?
Yes. Ambrish, actually, if you look at the actual numbers, I know you're using the rounded numbers that we gave you, it's more like the mid single digits. So, growth for the year for industrial 2016 over 2015. And it's good to see good solid growth there. When we look at down into the details of the 14 secondtors, we actually did see growth in most of those sectors for the year.
So, again, it's kind of the same comments and have hit on automotive. We're 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, and specifically in mobile, would March quarter then be up year over year? And would consumer be up year over year? And all I'm trying to understand is, if the indigestion we had a year ago is that was so severe that it'll last into March or it's behind us?
Yes. So we're real careful to try to give guidance on below the top line in any sector. But I think your instincts that will have an easy compare because of the weakness we saw a year ago will probably be correct. So with that, we've got time for one last caller, please.
Our last question will come from Toshiya Hari with Goldman Sachs. Go ahead please.
Great. Thank you for taking my question. And Kevin, thanks for all the help and congrats on the retirement. My first question is again on industrial. And Dave, I appreciate your comments about there being broad based growth in the segment.
But if I recall correctly, I think this is the 2nd consecutive quarter where you guys point to an improvement in the industrial marketplace. So just curious if there are any kind of specific regions or end market areas that's kind of driving that inflection in the market in industrial?
Yes. There is a we are seeing that really broad based growth across regions, across the products and across those 14 secondtors that we've got in it. So we're real pleased with that growth. Do you have a follow on, Toshi?
Sushant? Yes. Thanks, Dave. So 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 materialize again in future quarters? I just wanted to know what the nature of the contract or the agreement was for this?
Yes. It included several agreements with several different cross licensees, but the part of it was a sale of some IP assets and that was recognized in restructuring other line. And then the balance was for settlement of past infringements, and that was recognized in the other income expense line. On an ongoing basis, these tend to be multiyear cross license agreements. So we would expect about $20,000,000 of annual benefit for the foreseeable future as a result of agreeing to these new intellectual property contracts.
So roughly $20,000,000 a year of annual benefit going forward.
Okay, great.
Thank you so much.
Yes. And thank you all for joining us. Again, please plan to join us for our capital management call on February 8 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.