Earnings Call: Q3 2015

Oct 21, 2015

Quarterly report

Good day, and welcome to the Texas Instruments 3Q15 earnings release conference call. At this time, I would like to turn the conference over to Dave Pahl. Please go ahead, sir. Good afternoon, and thank you for joining our third quarter 2015 earnings conference call. As usual, Kevin March, TI's Chief Financial Officer, is with me today. For any of you who missed the release, you can find it in relevant non-GAAP reconciliations on our website at ti.com/ir. This call is being broadcast live over the web and can be accessed through TI's 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 expectation. 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. I'll start with a quick summary. Revenue declined 2% from a year ago. While our overall demand remained weak, most areas were stronger than we had expected, especially wireless infrastructure and industrial. In addition, our demand for automotive continued to be strong. I'll elaborate in a few moments. Even in this environment, each of our core businesses of Analog and Embedded Processing grew year-over-year. Together, they comprise 85% of third quarter revenue and have delivered nine consecutive quarters of year-over-year growth. Earnings per share were $0.76. With that backdrop, Kevin and I will move on to the details of our performance, which we believe continues to be representative of the ongoing strength of TI's business model. In the third quarter, our cash flow from operations was $1.4 billion. We believe that free cash flow growth, especially on a per share basis, is most important to maximizing shareholder value in the long term. Free cash flow for the trailing 12-month period was $3.6 billion, up 4% from a year ago. Free cash flow margin was 28% of revenue, up from 27% a year ago, and consistent with our targeted range of 20%-30% of revenue. We continue to benefit from our improved product portfolio and the efficiencies of our manufacturing strategy, the latter of which includes our growing 300 millimeter Analog output and the opportunistic purchase of assets ahead of demand. We also believe that free cash flow will be valued only if it's returned to shareholders or productively invested in the business. For the trailing 12-month period, we returned $4.2 billion of cash to investors through a combination of stock repurchases and dividends. Analog revenue, which achieved a record level in the quarter, increased 2% from a year ago. The growth was due to High Volume Analog & Logic. Silicon Valley Analog also grew. Power Management was about even, and High Performance Analog declined. Embedded Processing revenue increased by 2% from a year ago due to microcontrollers and connectivity. Processors declined. Our investments in embedded are translating into tangible results as this quarter's revenue is also a record. In our other segment, revenue declined 19% from a year ago, primarily due to custom ASIC products and DLP products. Compared with a year ago, distribution resales increased 6% and inventory decreased by less than one week to just below four weeks. We believe this inventory level continues to reflect an environment of good product availability due to healthy TI inventories and stable lead times, which together drive high customer service metrics. As a reminder, inventory in our distribution channel has decreased over the past few years because of our consignment program. Now I'll provide some insight into this quarter's revenue performance by end market versus a year ago. Automotive remained strong with all sectors growing and three of the five sectors growing double digits. Industrial revenue was about even, with about half of the 14 sectors growing and about half declining. Personal electronics was up because of demand from one customer. Excluding that one customer, personal electronics was down. Communications equipment was down, driven by wireless infrastructure, which was down about 30% from a year ago. Although weak, it did grow sequentially. Finally, enterprise systems declined primarily due to DLP projectors. We continue to focus on making TI stronger through manufacturing and technology, the breadth of our product portfolio, the reach of our market channels, and our diverse and long-lived positions. These four attributes, taken together, are at the core of what puts TI in a unique class of companies capable of long-term free cash flow growth. Kevin will now review profitability, capital management, and our outlook. Thanks, Dave, and good afternoon, everyone. Gross profit in the quarter was $2.00 billion, or 58.2% of revenue. Gross profit declined 2% due to lower revenue. Operating expenses were a total of $750 million, down $45 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. Acquisition charges were $83 million, almost all of which were the ongoing amortization of intangibles, which is a non-cash expense. Operating profit was $1.16 billion, or 33.9% of revenue. Operating profit was down 1% from the year-ago quarter. Operating margin for Analog was 37.2%. Operating margin for Embedded Processing was 24.0%, eight percentage points higher versus a year ago, as we focused our investments on the best growth opportunities. Net income in the third quarter was $798 million or $0.76 per share. Let me now comment on our capital management results, starting with our cash generation. Cash flow from operations was $1.41 billion in the quarter. Inventory days were 111, down 15 days sequentially. This reduction was the combination of lower factory starts, as well as higher-than-expected revenue in the quarter. As our business model evolves, we continue to evaluate our inventory model. We plan to provide an update on our inventory model to you in our capital management call next February. Capital expenditures were $139 million in the quarter. As a reminder, in the second quarter, we retired $250 million of debt and issued $500 million of five-year debt at a coupon rate of 1.75%. In August, we retired an additional $750 million of debt. As a result, we have reduced net debt by $500 million this year, which is consistent with our practice over the past few years. This leaves total debt of $4.125 billion, with a weighted average coupon rate of 2.3%. On a trailing 12-month basis, cash flow from operations was $4.11 billion, up 8% from the same period a year ago. Trailing 12-month capital expenditures were $512 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, as discussed in our capital management call earlier this year. Free cash flow for the past 12 months was $3.60 billion, or 28% of revenue. Free cash flow was 4% higher than a year ago. 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 invested in the business. As we've noted, our intent is to return 100% of our free cash flow, plus any proceeds we receive from exercises of equity compensation, minus net debt requirement. In September, we announced a quarterly dividend increase of $0.04 per share, a 12% increase. This was the 12th consecutive year in which we've increased the dividend to our shareholders. We also announced a $7.5 billion increase to our share buyback authorization. In the third quarter, TI paid $348 million in dividends and repurchased $790 million of our stock, for a total return of $1.14 billion. Total cash return in the past 12 months was $4.23 billion. Outstanding share count was reduced by 3.5% over the past 12 months, and by 41% since the end of 2004. 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. We ended the third quarter with $2.74 billion of cash and short-term investments, with TI's U.S. entities owning 82% of our cash. Because our cash is largely onshore, it is readily available for a variety of uses, including paying dividends and repurchasing our stock. TI orders in the quarter were $3.44 billion, up 3% from a year ago. Turning to our outlook, we expect TI revenue in the range of $3.07 billion to $3.33 billion in the fourth quarter, which includes about a $35 million negative impact from changes in foreign currency exchange rates versus a year ago. We expect fourth quarter earnings per share to be in the range of $0.64 to $0.74. Acquisition charges, which are non-cash amortization charges, will remain about even and hold at about $80 million-$85 million per quarter until 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 2015 remains about 30%, and this is the tax rate that you should use for the fourth quarter and for the year. In summary, we believe our third quarter results demonstrate the strength of TI's business model. 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 an opportunity to ask a question, please limit yourself to a single question. After our response, we will provide you an opportunity for an additional follow-up. Operator? Thank you. At this time, if you'd like to ask a question, please press the star and one on your touchtone phone. You may withdraw your question at any time by pressing the pound key. Once again, to ask a question, please press the star and one on your touchtone phone. We'll take our first question from Vivek Arya with Bank of America. Your line is now open. Thank you for taking my question. I guess for the first one, I'm a little curious when you said demand was weak, but the revenue was strong. You mentioned that industrial, I think you said, Dave, was even year-over-year, but was stronger than you expected. If you could just give us some more color around the demand environment, because you have such wide exposure, what is better or worse versus three months ago? What does it really mean that demand is weak, but your revenue is strong? Well, what we're saying, Vivek, is that if you look, our revenue declined 2% from a year ago, and we obviously would describe that as a weak demand that's actually similar to what we saw last quarter. Inside of that, certainly it was stronger than what we had expected. There were a couple of areas that were stronger than we had expected. Wireless infrastructure and industrial were both stronger than what we had expected. That's really what we're trying to say. We continue to operate in what we would consider to be just a weaker macroeconomic environment, and that's where we came in. Do you have a follow-up? Yeah. Thanks, Dave. On gross margin, I understand that sequentially they were sort of flattish because I assume you took some utilization down. Why are they sort of flat to down versus last year? Because I assume throughout this period, there's been a mix shift towards your core Analog Embedded Processing markets and a mix shift, I guess, towards more 300 millimeter capacity. Why aren't gross margins up versus last year? Yeah, Vivek, the short answer is that our wafer starts were down in the quarter versus last quarter and also versus last year. Underutilization was a little bit higher than it was a year ago. Okay, great. Thank you, Vivek, and we'll go to the next caller, please. Our next question comes from John Pitzer with Credit Suisse. Your line is now open. Yeah, good afternoon, guys. Congratulations on the strong result. Kevin, just to follow up on that gross margin comment, utilization went down in the third quarter. I know you're saying you're going to update us on your inventory targets, but I think the one that's outstanding right now is about 105 to 115, and you got there pretty quickly, sequentially. I'm kind of curious, how do I think about utilization going into the December quarter, and what kind of impact should I expect on the gross margin line? Yeah, John, as we look into the fourth quarter, we're expecting our wafer starts will probably be roughly flat to what they were this quarter. No significant change in starts there. Keep in mind that the wafers that we start in fourth quarter, other than for the first few weeks of the quarter, are mostly for what we expect in follow-on quarters. We build quite a bit forward to our expectation of when that inventory actually gets sold. That's helpful. Kevin, as my follow-up, you guys probably were one of the first to start the trend of M&A with the acquisition of National several years back. There's been a lot of speculation in the marketplace about more M&A within the semi space. I know you've talked about this in the past, but I'd kind of be curious about kind of getting some updated thoughts from your perspective about the advantage from here, given your already hefty scale of M&A and how you guys are sort of thinking about that. Yeah, John. I guess it'll take me a second to kind of go through those thoughts there. Of course, we acquired National Semiconductor back in end of 2011, we probably got ahead of the game, versus where people are at today. We spent the intervening time period really driving hard to accelerate four attributes that we think in combination are pretty unique to TI and differentiate us quite a bit from our competitors, which may in fact be impacting some of their thinking about how they approach their markets. Those four attributes are our approach to low-cost manufacturing and advanced technology, the sheer breadth of our overall product portfolio, the reach we have to our customers, through our market channels, especially with arguably the largest sales force of anybody out there, and the diversity and long-lived positions that we enjoy in the markets with the products that we have. When we look at what most companies are doing today from an M&A front, it appears that some of them may be changing their focus, and some of them may be trying to build scale. We already have what we believe a significant scale advantage, and we believe we're focused on the two best opportunities that are out there today, being Analog and Embedded Processing. Those two reasons aren't motivating us to think differently about M&A. When we do think about M&A, our approach is really to focus on the right strategic fit, one that can generate long-term returns and excess free cash flows. We really do focus on the numbers that acquisition might lead us to. By strategic fit, I'm talking really our bias is towards Analog. If we were to look at an acquisition, it'd probably be a company that's going to be broad in catalog, have a diverse customer base, have a large percentage of its revenue coming from industrial and automotive, probably have a very talented R&D team. Those would be the sort of attributes we'd look at from a strategic standpoint. From a return standpoint, we'd look at several metrics, including really making sure that the return on our investment is accretive to our weighted average cost of capital within, say, four years or so. We also want to make sure that whatever we acquire can continue to expand our free cash flow. With all that said, and we take a look at what's out there, we have been actually buying our favorite semiconductor company, I know you don't like to hear it that way, but through our own stock buybacks. Today, by buying back those shares, we're getting a 7% free cash flow yield on those acquisitions of those shares, and we don't have any integration risk and no banker fees, and just a whole lot easier way to run the business and focus on customers. Okay. Thank you, John. We'll go to the next caller, please. Our next question comes from Stacy Rasgon with the Bernstein Research. Your line is now open. Hi, guys. Thanks for taking my questions. For my first question, I'd like to follow up on the industrial market. You said half of your markets were kind of up year-over-year, half of them were down. That's pretty similar to the same as last quarter, but you do seem to be seeing upside versus expectations. Within industrial, can you give us some idea of which end markets you're actually seeing relative strength versus weakness versus those expectations? Talk a little bit about how your end markets within industrial are concentrated or not. Yeah. Great question, Stacy. We've got 14 different sectors that make up our industrial market, I'll just go through some of those because I think some investors, if they focus on industrials, that we mean something different than that. It includes things like factory automation and control, medical and healthcare, building automation, smart grid, and energy, test and measurement, motor drives, display, space avionics. Appliance, power delivery systems, point-of-sale lighting, industrial transportation, and then a bucket of just other really small stuff. Last year, as you know, Stacy, industrial was 31% of our revenues. The largest sector inside of there was 4%. You can see it gets very diverse very quickly. Even inside of each of those sectors, we've got multiple end equipments that make each of those up. It was very similar to last quarter, where we did see about half of the sectors up and the other sectors down, together flat. There weren't really any really huge movements in either that we would call out to say that it was unusual. That's what it looked like. You have a follow-on, Stacy? I do. Thank you. Around your OpEx, it seems like you came in fairly light in the quarter versus expectations. Why was that, and where do you see OpEx going next quarter? Stacy, on OpEx, if you compare it to a year-ago quarter, that was really, we just had continued cost management going on across the company, and we also had the benefit on a year-ago comparison to the actions that we previously announced in Embedded Processing in Japan, and those are now done. We get that benefit year-over-year. As it relates to sequential even, as you say, coming in a quarter a little bit better than expected, that's really just cost management continuing. Also in the second quarter, there were a few items that didn't recur in second and third quarter, and that gave us a good little benefit second to third. Okay. Thank you, Stacy. We'll go to our next caller, please. Our next question comes from Harlan Sur with J.P. Morgan. Your line is now open. Good afternoon. Thanks for taking my question. In Q2, Embedded Processing was up year-over-year for the first time. Actually, no, Q2 Embedded Processing was down year-over-year for the first time, I think, versus the prior 10 quarters. It inflected higher in Q3. I know you guys said MCU and connectivity drove the growth, but what end markets helped to return this business back to year-over-year growth? Also, what drove the 450 basis point improvement in operating margins? Okay. I guess two questions there. I'll take the first one. As you said, Embedded Processing was driven by microcontrollers and connectivity, and both of those businesses tend to be very broad market exposures, high exposure to industrial. We also have some exposure inside of processors to automotive. What drove the weakness in the second quarter and the reason why processors declined year-over-year was the exposure to wireless infrastructure, is probably the simplest way to say that. On operating margin, Harlan, the short answer is we had announced at the end of 2012 some restructuring actions inside Embedded Processing that would wind up last year. In fact, they have. A lot of that cost is out, as a result, their operating margins are coming through very nicely. Great. Yeah. Thanks, Robin. We'll let you squeeze in a third question, but we'll make an exception for you on this one. I appreciate that. Last quarter, you guys indicated you were bringing down utilizations in the third quarter to try and reduce inventories. Looks like you guys executed to that. Should we anticipate gross margins in Q4 down in line with the lower utilizations in Q3? Harlan, I'm not going to try to forecast individual lines of the P&L, but I'll just bring you back to what I had mentioned when John asked his question. We expect starts to be about even in the fourth quarter versus third quarter. We don't expect starts to actually change. The starts were already down third quarter versus second and third quarter versus a year-ago quarter, and we'll maintain those starts about even going into the fourth quarter. Okay. All right. Thank you. Certainly the other consideration with fourth quarter is what happens to revenue overall. That will have less revenue, that'll impact gross margins. Okay. Thank you, Harlan, we'll go to the next caller, please. Our next question comes from Chris Danely with Citigroup. Your line is now open. Great. Thanks, guys. If we look at just some sort of normal or reasonable projections for Q4. For 2015, your revenue's going to be flat, your gross margins will be up, your OpEx will be down. If we assume the sort of blah environment continues into 2016 revenue is sort of whatever, around the flattish or something like that, is there any way that gross margins could go up and OpEx go down again? Can you just kind of take us through the puts and pulls for next year on those? I'll go ahead and take you through on those sort of things, Chris. First off, I'm hoping that you're wrong in your theory revenue being flat again next year. Me too. I want to keep my job. Under that scenario, I doubt that we'd see a whole lot of change in operating expenditures other than just normal annual pay and benefit increases. On the margin side, on the gross margin side, we'll probably continue to see benefit as we see more and more of our production move into 300 millimeter, which, as you recall, gives us about a 40% chip cost reduction. From an overall cost of goods standpoint. That will certainly benefit our gross margin line. In addition to that, we continue to see an expansion of revenue that's coming out of the industrial and automotive space as a percent of the total, and those tend to come through at higher gross margins, as well as just overall catalog products versus custom products inside our mix. The last item is that, as we've talked about for a couple of years now, our CapEx has been running under our depreciation by a couple of points, and that is slowly beginning to close. In fact, you can even see that gap closing just in this past 12-month comparison period. As we look out into 2016, you'll see that gap close a bit more. Those in combination will give us continued tailwind on the gross margin line, should follow all the way through to the operating margin. Yeah. I'd just add too, that even with this year, if the revenue projections come in, as you said, Chris, that our free cash flow margin continued to expand. That's really what we're focused on. Do you have a follow-up, Chris? Yeah. If we look at what revenue did sequentially in Q3 and what you're projecting for in Q4, it's pretty even with last year. It sounds like even though business is still kind of flat, it's getting a little bit better. Would you characterize the environment overall as kind of normal? If it's not normal, then where would be your biggest area of concern or weakness? Yeah. Chris, if you look at the midpoint of our guidance, it would suggest that our revenues would be down 2% from the year ago. That's similar to the number that we just turned in, as well as what we saw in second quarter. We just described the environment really hasn't changed very much. We just believe that we're operating in a weak macro environment and we continue to focus on execution, and I think the business is showing the results of that focus and the strength of the business model. In general, that's really what we believe that we're operating in. Okay. Thanks, Chris. We'll go to the next caller, please. Our next question comes from William Stein with SunTrust. Your line is now open. Great. Thanks for taking my question. I wonder if you had a 10% customer in the quarter, or if you had any meaningful change in revenue from a single customer that would've affected the overall trend in the business during the quarter. Yeah, Will. If we look at last year, our largest customer was 8% of revenue. We don't give customer size by quarter, but we expect that customer, as they've done well this year, that they could come in around 10% of our revenue. I'd say, just as we look at that customer, we sell them hundreds of devices across multiple products. If I contrasted that to the last time that we had a customer that was more than 10%, most of that revenue was concentrated in just a few parts in a single application. Even more specifically than that, it was really one function that maybe was at different generations. We really just had one function at that customer. Even inside of this customer, we've got quite a bit of diversity. Do you have a follow on, Will? Yeah. It's sort of related to this. The company exited the wireless apps processor and baseband business a few years ago, I suppose the answer is around the concentration at the part number level. Does what looks like a growing exposure to the handset market through at least one, but probably multiple customers, does that concern the company in a similar way that caused you to exit some products previously? Yeah. Will, I'd say that when you heard Dave's opening remarks that we saw growth in personal electronics, without that one customer growing, personal electronics would've been down. I think that's also telling us that as handsets overall grow, they're really becoming the larger piece of the personal electronic space. What's important is to have a lot of different chips that you're selling into a lot of different customers who sell into that space. That's exactly what we have. From that standpoint, if we're going to participate in personal electronics, you're going to be participating in handsets, and there are a lot of very attractive chip opportunities inside handsets. Unlike what we had a number of years ago, as you remembered with baseband and processors, where those parts were basically standardized and commoditizing, your ability to differentiate was diminished, therefore your ability to attract profits from selling those parts was diminished. Consequently, I see this as quite a bit different today, given the diversity of products that we're talking about here, than the example of when we were baseband and processors five-plus years ago. I'd add to that, if you look across personal electronics and you add smartphones and tablets and PCs and TVs and things like that, if you added all those together, you're probably scaring 2.4, 2.5 billion units. Even though that unit pool probably isn't going to grow much, as Kevin said, there's opportunities to find products that will live through multiple generations that you can sell to multiple customers, and places where we'll continue to try to steer our investments overall. Thank you, Will. We'll go to the next caller, please. Our next question comes from Blayne Curtis with Barclays. Your line is now open. Good afternoon. Thanks for taking my question. Really two related questions. One is just a clarification. You said the upside in the quarter came from wireless infrastructure and industrial. It seems like High-Voltage was up a lot. Was that part of what you were calling industrial? Then maybe bigger picture from a geographic perspective, there's obviously been some negative data points in kind of the U.S. industrial market. Just any change, over the summer it was China. Now you're seeing some U.S. issues. Just any perspective from a geographic basis? Thanks. Let me answer your first question, which, if you look at High-Voltage, High-Voltage will have a high exposure to automotive, which will help drive those revenues. It'll also have exposure to personal electronics as well. It does have some industrial exposure, but, I think those are the areas that will drive that revenue. You had a follow-up? The question was just what you're seeing from a geographic perspective. Obviously, China was weak. Yeah. Yeah. If I just look at our regional results, year-over-year, revenue was down in Asia, Europe, and U.S. In Japan, it was up. If you look at the broader China market, it really wasn't down differently than what broader Asia was, and that was kind of down consistent with our overall revenue. Really didn't see much different. The second thing I'll add is that, a lot of times we're asked by investors what our exposure to China is or to a particular market. In our 10-K, we give a very precise number of what we ship into China being 44%, but we always like to point out that if you're looking for what exposure to a particular market is, I think most investors are asking how much of our product is actually consumed there. So it's a very different number than 44. It's much lower than that, because obviously some of those products that we ship there end up getting shipped into other regions. I'll also point out that we may ship product into a tier 2 OEM that gets put into a European automobile in Europe and then shipped into China. You can't really look at any of our regional results and understand that. Overall, probably a good proxy to begin to start an analysis would be to look at what China is as a percentage of GDP and kind of start an analysis from there. Okay. Thank you, Blayne. We'll go to the next caller, please. Our next question comes from Joseph Moore with Morgan Stanley. Your line is now open. Great. Thank you. I wonder if you could talk a little bit about your customer inventories. You gave us the very helpful disti reseller inventory numbers, but just in general, you had a pretty good year in 2014, a weaker year this year, but my perception is that the customer inventory management lead time, days held, hasn't really changed. Can you just talk about whether you've seen any inflection there in the last few quarters? Sure, Joe. I'd say that, of course, the distribution inventories, as you said, that we can see very well. We've got 55% of our revenues that are on consignment. For those portions, which will include 60% of our distributor revenue. But we know for that portion of our revenue, there is no inventory, so it's actually zero. Obviously that's in really good shape. If you look overall, the classic kind of book ship carrying inventory type portion of our revenue is really about 20% of our revenue, and that's where we'll carry backlog. Customers will have inventory. We really don't see any signs that customer inventories are significantly out of whack. I'm sure you can always find pockets here and there. But we believe that they're fairly lean with very few exceptions, such as the wireless infrastructure. Do you have any follow on, Joe? Yeah, I did want to follow up on wireless infrastructure. You said it was up sequentially recovering from a lower level. Do you have visibility into whether that's sort of China deployments or Western deployments? What do you see as the trajectory for that business going forward? Yeah. Joe, I'd say that our exposure in wireless infrastructure, if you look at the major OEMs that make up the majority of that market, we'll have a different product exposure, but a fairly consistent exposure across them. If there's demand in any of the regions, we'll typically participate in that. If you look at by technology, that's oftentimes another cut that people will look at. We've got a strong position in 3G, a slightly stronger position in 4G, and even in newer areas that we expect growth in the future that we've been investing in, as an example, like small cells, we've been investing and believe we'll have a very strong position there as well. Our numbers aren't so much impacted by a specific region. Of course, we won't escape it either if there's weakness in any particular region. Okay. Thank you, Joe. We'll go to the next caller, please. Our next question comes from Ross Seymore with Deutsche Bank. Your line is now open. Hi, guys. Congrats on the strong results. I know in the past, Dave, you gave the year-over-years. I think you mentioned that the wireless infrastructure sequentially was up. I was hoping you could give the sequential direction by the other markets. I think from the math you gave earlier for last year by the end markets, it seemed to imply that the combination of industrial and your comm infrastructure, your wireless infrastructure, must have been up the better part of 15% sequentially. If you could just comment on the directional color by segment, and if those magnitudes are anywhere close, that would be helpful. I can share with you some color sequentially. The automotive market grew sequentially, led by our ADAS and infotainment sectors. Industrial, again, was about even, personal electronics was up with growth in most of the sectors that make up that market. Communications equipment was up, as we talked about earlier, due to wireless infrastructure, enterprise systems was about even. We talked about, most of those areas were stronger than we had expected, but specifically wireless infrastructure and industrial. Yeah, just on the year-over-year growth, though, I'm not sure, Ross, on the numbers you were citing there, but industrial overall year-over-year was probably only up about 1%. Then wireless- Yeah, I'm sorry, I was talking sequentially. Okay. Yeah, because wireless infrastructure was still down year-over-year. Sequential industrial was actually down about 1% overall. Then wireless infrastructure was, again, up in single digits, really not much growth there. Yeah. Okay, do you have a follow-up, Ross? Yeah, just a quick one, more housekeeping. I know you're not going to give exact guidance on the gross margin you said earlier, but as far as OpEx directionally in the fourth quarter and first quarter, I know you guys tend to have some year-end phenomenons that impact that. Kevin, any sort of color on those two quarters would be helpful. Thanks. Yeah, Ross, it's going to be pretty normal to what you've seen in past quarters. Your memory is quite correct on that. 4Q is typically down low to mid single digits percentage-wise, just because of seasonality of holidays around Thanksgiving and Christmas. First quarter is typically up in a reverse direction, again, because of the absence of holidays and also because of the implementation of our annual pay and benefits increases. I think that if you look at the past couple of years, 3Q to 4Q to 1Q, that's probably the best proxy for you to try to model into your spreadsheets for now. Yeah. Okay. Thank you, Ross. We can go to the next caller, please. Our next question comes from Tore Svanberg with Stifel. Your line is now open. Yeah, thanks. This is Eric calling in for Tore. A lot of questions have been asked, but going back to the 300-millimeter strategy, can you give us an update on that exiting the year? Maybe how much of Analog would you expect to be coming out of the fabs to support that? Hey, Eric. I'll just say that we'll give an update to that in our February call, capital management call. I can just say that part of our plan was to qualify our DMOS6 factory, so that qualification is planned to be done before the end of the year, and so we're still tracking to that. We've been releasing products to our fab or the Richardson fab for some time. We're going to continue to do that, and we still have quite a bit of capacity to be able to grow into. Do you have a follow-on? Yeah, no, thank you. That's helpful. The Embedded Processing, obviously, the operating margins looked very good this quarter. Going forward, and I know you probably don't want to give too much guidance on this, but what are the expectations for this business? Will it be lumpy in terms of the improvements? Was this a little bit more of an outsized quarter in terms of the improvement, or what are some of the expectations for that group? Yeah, Eric, I'll just tell you that that team's been working pretty hard for a number of years now to grow their revenue. We've talked about their mission over the last couple of years has really been cost containment and growing the revenue, and they are achieving very good results on that now. Importantly, they're a strong contributor to our free cash flow growth, and just as our free cash flow at the company level tends to be weaker in the first couple of quarters and stronger in the second couple of quarters, I don't think it's any different than when we take a look at how some of the business units underneath will perform on that metric, being as though they're the ones contributing to that free cash flow. We tend to look at these things over a longer period of time because quarter-to-quarter can be pretty noisy. I think that team has done a very good job of getting its margins up to where we think its entitlement is at, and they should be performing at that level for the foreseeable future. In fact, for the long-term is what we expect out of them. Yep. I'll just add that, as Kevin mentioned, the growth has been coming through from the investments that we've made. We've highlighted that they, as well as Analog, had achieved record levels of revenue, as a result of those investments. Together, Analog and Embedded have grown for nine quarters in a row year-over-year. I think there was one quarter where Embedded actually did well, but didn't grow year-over-year, and that was last quarter that had the big headwind from wireless infrastructure. The other parts of that business obviously did very well. Okay, I think we have time for one last caller, operator. We'll take our last question from David Wong with Wells Fargo. Your line is now open. Thanks very much. Just a detail of your earlier answer. You noted personal electronics was up because of demand from one customer. What about your broader segments? Would you still have seen year-over-year growth in both Analog and Embedded if it hadn't been for that same one customer? I actually don't have that data broken out between the two segments, but I think that personal electronics is mostly inside of Analog. Our personal electronics business, without that customer, obviously wasn't up. That would've impacted Analog. Well, let me remind you of the other side of that, too, that we had a significant change in foreign exchange rates at the beginning of the year. Actually, in the third quarter, and I think again in the fourth quarter, we saw and expect about a $35 million negative top-line impact due to foreign exchange rates. We can always pick out individual pieces. The beauty of the TI model is that we have tens of thousands of customers buying tens of thousands of parts into almost every electrical and electronic market that's out there. The diversity is what is really paying off for our shareholders in free cash flow generation. That's good. Great. Thanks very much. I guess you don't have a follow-up, David? Well, actually, one quick one. As you move more to 300 millimeters, are you vacating any specific 200-millimeter facilities you might be able to close down or sell eventually? Yeah. David, we put in place that 300-millimeter capacity in the Richardson fab and put together the plans inside of DMOS 6, the second 300-millimeter factory, to be able to support growth. That's why that's there. We're really releasing new products into those factories and that's what they're there for, and that'll help us maximize free cash flow. Okay. Well, thank you, David, and thank you all for joining us. I was expecting Marty McFly to actually get in the queue, but he didn't. Replay of this call is available, and you can find it on our new and improved website. Good evening. This does conclude today's teleconference. You may now disconnect. Thank you and have a great night.