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Texas Instruments Incorporated (NASDAQ:TXN)
Q2 2018 Earnings Conference Call
July 24, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Please stand by. Good day and welcome to the Texas Instruments second quarter 2018 earnings release conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Dave Pahl. Please go ahead, sir.

Dave Pahl -- Vice President and Head of Investor Relations 

Thank you. Good afternoon and thank you for joining our second quarter 2018 earnings conference call. Rafael Lizardi, TI's Chief Financial Officer, is with me today. 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.

You likely saw that last week we announced that Rich Templeton had resumed the roles of President and CEO along with his current role as Chairman. Rich has successfully led TI for 14 years and under his continuing leadership, we look forward to making TI even stronger and better.

I've met with Rich several times over the last couple of weeks and I can tell you he's excited to be back. He'll be attending several conferences in the near future and will be meeting with investors over the next few months. As you might imagine, he's fully engaged and busy doing what he does best. That's executing our strategy, strengthening our competitive advantages, and running our operations with laser focus.

Turning to this quarter's results, I'll start with a quick summary. Revenue for the second quarter increased 9% from a year ago as demand for our products remains strong in the industrial and automotive markets. In our core businesses, analog revenue grew 12% and embedded processing revenue grew 9% compared to the same quarter a year ago. Operating margins increased in both businesses. Earnings per share were $1.40, including a $0.03 discreet tax benefit not in our original guidance.

With that backdrop, I'll provide some details on our performance, which we believe continues to be representative of the ongoing strength of our business model.

In the second quarter, our cashflow from operations was $1.8 billion. We believe that free cashflow growth, especially on a per share basis, is most important to maximizing shareholder value in the long-term. Free cashflow for the trailing 12-month period was $5.7 billion, up 42% from a year ago. Free cashflow margin for the same period was 36.6% of revenue. We continue to benefit from the quality of our product portfolio that's long-lived and diverse and the efficiency of our manufacturing strategy, the latter of which includes our growing 300-millimeter analog output.

We believe that free cashflow will be valued only if it's productively invested in the business or returned to owners. For the trailing 12-month period, we returned $5.6 billion of cash to owners through a combination of dividends and stock repurchases. Our commitment to return all of our free cashflow to owners remains unchanged.

I'll now provide some details by segment. From a year ago quarter, analog revenue grew 12% due to power and signal change. High volume decline. Embedded processing revenue increased 9% from a year ago quarter due to about equal growth in both processors and connected microcontrollers. In our other segment, revenue declined 7% from a year ago, primarily due to custom ASIC.

Now, I'll provide some insight into this quarter's revenue performance by end market versus a year ago. Industrial and automotive demand remain strong due to broad-based growth. We continue to be pleased with our investments, which are directed across 14 sectors in industrial and 5 sectors in automotive and continue to deliver broad-based and diverse revenue growth.

Personal electronics grew low single-digits with increases across several sectors and customers. These increases were offset by declines at some customers. Communication equipment declined from a year ago and declined low to mid-single-digits sequentially. Lastly, enterprise systems grew.

In summary, we continue to focus our strategy on the industrial and automotive markets, where we've been allocating our capital and driving initiatives to strengthen our position. This is based on a belief that industrial and automotive will be the fastest-growing semiconductor markets. They have increasing semiconductor content and these markets provide diversity and longevity. All of this translates to a high terminal value of our portfolio.

Rafael will now review profitability, capital management, and our outlook. Rafael?

Rafael Lizardi -- Chief Financial Officer

Thanks, Dave and good afternoon, everyone. Gross profit in the quarter was $2.62 billion or 65.2% of revenue. From a year ago, gross profit increased primarily due to higher revenue. Gross profit margin increased 90 basis points. Operating expenses in the quarter were $825 million, a 2% increase from a year ago and about as expected.

On a trailing 12-month basis, operating expenses were 20.6% of revenue within a range of expectations. Over the last 12 months, we have invested $1.53 billion in R&D. We are pleased with our disciplined process of allocating to R&D that allows us to continue to grow our topline and gain market share.

Acquisition charges and non-cash expense were $79 million. Acquisition charges will be about $80 million per quarter through the third quarter of 2019 then declined to about $50 million per quarter for two remaining years. Operating profit was $1.71 billion or 42.6% of revenue. Operating profit was up 16% from the year ago quarter.

Operating margin for analog was 47%, up from 44.7% a year ago. And for embedded processing, it was 35.4%, up from 31.2% a year ago. Our focused investments on the best sustainable growth opportunities with differentiated positions enabled both businesses to contribute nicely to free cashflow growth. Net income in the second quarter was $1.41 billion or $1.40 per share.

Let me now comment on our capital management results, starting with our cash generation.

Cashflow from operations was $1.83 billion in the quarter. It increased $909 million from the year ago quarter, primarily due to a lower tax rate as well as higher revenue, which includes more 300-millimeter analog revenue. Capital expenditures were $249 million in the quarter. Free cashflow was $5.73 billion on a trailing 12-month basis, up 42% from a year ago.

In the second quarter, we paid $606 million in dividends and repurchased $1.02 billion of our own stock for a total a return of $1.62 billion in the second quarter. We have returned $5.6 billion to owners in the past 12 months, consistent with our strategy to return to owners all of our free cashflow. Over the same period, our dividends represented 41% of free cashflow, underscoring their sustainability.

Our balance sheet remains strong with $5.13 billion of cash and short-term investments at the end of the second quarter. In the quarter, we'll retire $500 million of debt as we begin to and raise $1.5 billion of 30-year debt with a coupon of 4.15%. We currently have total debt of $5.1 billion with a weighted average coupon of 2.77%. Inventory days were 135, up two days from a year ago and within our expected range. We continue to believe there is strategic value in owning and controlling our inventory.

Turning to our outlook for the third quarter, we expect revenue in the range of $4.11 billion to $4.45 billion and earnings per share to be in the range of $1.41 to $1.63, which includes an estimated $10 million discreet tax benefit. We continue to expect our ongoing annual operating tax rate to be about 20% in 2018 and 16% starting in 2019. Just as a reminder, the higher tax rate this year is due to non-cash charges. More details of our expectations for taxes can be found on our website under financial summary data.

In closing, I'll note that the strength of our business model was demonstrated throughout our financial performance over the last few years, from topline growth and margin expansion to free cashflow generation. We continue to invest in our competitive advantages, which are manufacturing and technology, portfolio breadth, market reach, and diverse and long-lived products.

We will continue to strengthen these advantages through disciplined capital allocations and by focusing on the best products, analog and embedded products, and the best markets, industrial and automotive, which I believe will enable us to continue to improve and deliver free cashflow per share growth for a long time to come.

With that, let me turn it back to Dave.

Dave Pahl -- Vice President and Head of Investor Relations 

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?

Questions and Answers:

Operator

Thank you. If you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is *1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.

And we'll take our first question from John Pitzer from Credit Suisse.

John Pitzer -- Credit Suisse -- Managing Director

Hey, guys. Congratulations on the solid results. Dave, my first question is just on the high-volume analog segment. I think in your prepared comments, you'd mentioned that it declined year over year in the June quarter. I'm curious -- to what extent was that by choice as you pruned the portfolio? To what extent do you think that's just a handset phenomenon as the builds last year for product cycles were more robust than this year? And to what extent do you feel that might be a leading indicator for maybe some excess in the "cycle?"

Dave Pahl -- Vice President and Head of Investor Relations 

Yeah, John. Thanks for asking that question. I think what we're seeing there is a result of how we've been allocating our resources in R&D. If you remember back in February at our capital management call as we went through that, we've got a pretty disciplined process.

Essentially, what we're trying to do is steer more money to long live revenue opportunities where we've got some level of differentiation and we'll have that for some time. So, I think when you look at the results overall, revenue grew 12% year over year. That's inclusive of what happened inside of a high volume. Again, I think that's a result of allocating resources to the best sustainable opportunities.

If you drop down into there in the prepared comments, obviously, industrial and automotive continue to do well. Inside of [inaudible], you'd see that industrial and automotive did well as well. It just doesn't make up as much of a percentage of that revenue. So, we're pleased with that outcome and not surprised by it.

Do you have a follow-on, John?

John Pitzer -- Credit Suisse -- Managing Director

Yeah, Dave. That was helpful. Rafael, my follow-on, I know it's probably better to look at the business trends on a year over year basis rather than sequential and on a year over year, you showed really good operating margin leverage in the embedded business, but sequentially, it was flat on up revenue and there's still that gap between embedded op margins, analog op margins. How do you think about the leverage in the embedded market from here? Will we ever close that gap between embedded and analog?

Rafael Lizardi -- Chief Financial Officer

So, let me step back and take you back to our capital management strategy and some of the things we say there and how we think about driving value for the owners of the company. To us, it all comes down to growing free cashflow per share. It's not operating margin, it's not gross margin, it's not analog versus embedded -- it's all about growing free cashflow per share. Both of those businesses are and we expect to continue to be contributors to that free cashflow per share.

So, the focus is growing the topline as we continue to invest in what we think are the best markets -- industrial, automotive, and in the case of analog, as we continue to expand our 300-millimeter footprint where we have a structural cost advantage.

Dave Pahl -- Vice President and Head of Investor Relations 

Okay. We'll go to the next caller, please.

Operator

And we have Timothy Arcuri from UBS on.

Timothy Arcuri -- UBS -- Managing Director

Thank you very much. I had a question on the guidance. The June numbers were a little bit below seasonal and I know that seasonal is hard to really figure out what's actually normal. That was kind of coming off more difficult Q1 comps. But if I look at the September quarter guidance, it's a few hundred basis points below seasonal and it's up like 300 basis points year over year, which is the lowest in a couple years. Is there any element of more difficult comps or is there in fact some kind of channel inventory headwinds? Thank you.

Dave Pahl -- Vice President and Head of Investor Relations 

Yeah, Tim, I'd just say that when we put together our guidance, the two strongest signals that we see are orders that we get from customers as well as the demand fees that we get through our consignment programs. I would just say that if there was something specific to call out as we have in the past, there was a specific customer or specific end market or something like that that was changing, we would let you know about that.

As an example, lead times remain stable. Cancellations remain low. Reschedules remain low. We look at inventory and the channels. That remains steady at about four weeks. So, we really don't see any changes from that standpoint.

The other thing, as you pointed out, when you look at a couple of data points, it's hard to describe what is exactly seasonal. So, if you look over the last five years, we've had a 9% sequential growth. Three of those five years has been at 6%. If you look over a 10-year period, it's 7%. So, certainly, our guidance form a seasonal standpoint is certainly within the range of things that we've seen in the past. Do you have a follow-on?

Timothy Arcuri -- UBS -- Managing Director

Thanks. I guess as a quick follow-on, Dave, can you give what orders and book to bill were?

Dave Pahl -- Vice President and Head of Investor Relations 

I can give that. Let me just find it. So, book to bill -- orders were up 10% sequentially. Book to bill was 1.06. I'll point out it was 1.06 a year ago and 1.03 last quarter. I always feel the need to comment on book to bill with about 60% of our revenue going through consignment programs where we don't get any orders in advance pulled from that demand. So, book to bill isn't as strong of a signal or at least as clear of a signal as what it used to be in the past. So, thank you, Tim, and we'll go to the next caller, please.

Operator

And we'll take our next caller from Ross Seymore from Deutsche Bank.

Ross Seymore -- Deutsche Bank -- Analyst

Thanks for letting me ask a question. Dave, I just wanted to ask not necessarily from a fiscal point of view, but from a macro point of view, with all the discussions of trade wars, tariffs, etc., I know you haven't called out seeing anything, per your answer to the last question, but how does TI in general think about that dynamic as potentially impacting your business and are you, in fact, seeing any impact as of yet?

Rafael Lizardi -- Chief Financial Officer

Yeah, Ross, I'll go ahead and take that. First, let me say TI is a long-term supporter of free trade and strong IP protection. Those are both important to TI and the broader SC industry. So, we continue to feel that way. We have stated that position for a long time and we continue to do that.

Specifically, on the tariffs that have been announced, on integrated circuits, those are still subject to public comment to the end of July. So, those are not in place yet. Once they go into effect or if they go into effect, remember, they will apply to goods that are deemed of Chinese origin that are then imported into the United States.

For TI, only about 13% of our revenue is imported into the United States. In other words, 87% of our revenue is exports, not subject to US tariffs. That 13%, only a sliver of that has Chinese origin, would be deemed as Chinese origin. So, bottom line, only about 1% of our revenue would have those tariffs applied to it. That's before we make any potential adjustments, supply chain and other things that we can do that even minimize that impact further.

At the end of the day, we don't see a major or any direct impact other than some minimal impact. That's not to say that at a macro level that couldn't have an impact, but that's a very macro comment that goes beyond TI and beyond the semiconductor industry. Free trade, anything against free trade between the two largest economies in the world, that could eventually have a macro effect that would be detrimental to everybody.

Dave Pahl -- Vice President and Head of Investor Relations 

Do you have a follow-on, Ross?

Ross Seymore -- Deutsche Bank -- Analyst

Yeah, I do. Just switching back to your product segments, it seems like analog sequentially was pretty much in line with what we've seen for the last few years, but embedded was lower and other was much higher than what we've seen. I know you guys think of things year over year, but if we look at it sequentially, are there any reasons behind the embedded being lower and the other being so much higher?

Dave Pahl -- Vice President and Head of Investor Relations 

Yeah. I think if you look at embedded, it has a higher percentage of comps equipment. So, it was impacted by that. Then in other, don't forget that calculators sit inside of that business, so we've got strong seasonality in second and third quarter. Thank you, Ross, for those questions. We'll go to the next caller, please.

Operator

We have our next question from Amit Daryanani from RBC Capital Markets.

Amit Daryanani -- RBC Capital Markets -- Analyst

Thanks a lot. Two questions from me as well -- first off, could you quantify the revenue impact you've had from product rationalization or product optimization that you guys went through in the join quarter? Does that revenue headwind if you may flow into the second quarter as well, to some degree?

Dave Pahl -- Vice President and Head of Investor Relations 

Amit, can you clarify what you mean by product rationalization?

Amit Daryanani -- RBC Capital Markets -- Analyst

I think that when you talked about the consumer-centric markets, you talked about how some of the revenue declines there were driven by the fact that you just decided not to participate in some of these markets, a reflection of how your R&D budgets are tracked over time. Is that fair? If so, how much was that revenue impact driven by?

Dave Pahl -- Vice President and Head of Investor Relations 

Well, I think if you look -- we shared this back in February on our capital management call -- we looked at allocating resources across markets and specifically in personal electronics. When you compare our spend there versus five and ten years ago, it's lower. Now, it's not zero. There's still good opportunities that we find inside of personal electronics and continue to invest. We're just looking for sustainable growth opportunities inside of that space. So, that's really what we're talking about.

So, again, the first question came in specifically about one of the businesses inside of our analog segment. I think you have to judge the efficiency of our capital allocation by the total results and that we're quite pleased with. Does that help to answer your question?

Amit Daryanani -- RBC Capital Markets -- Analyst

That's helpful. If I could just follow-up, you guys have had multiple quarters of gross margin expansion very consistently on a year over year basis. As you think about the back half of '18, could you maybe talk about what are the levers that can enable gross margin to continue to expand from here and do you feel comfortable that gross margin should expand in the back half?

Rafael Lizardi -- Chief Financial Officer

Yes. I'll go ahead and take that, Amit. As we talked about it in capital management and in other settings, our focus for value creation for the owners of the company is free cashflow per share. It's not gross margin. It's not operating margin. It's dollars of free cashflow per share. So, the opportunity for expanding that and continuing to grow that are simple.

The topline, as we continue to invest in the best products and the best market and the best market because that's where the semiconductor comes in and is expanding. We continue to gain share there. Then 300-millimeter -- we have talked about that for a number of years. As of last year, about $4 billion of our revenue went through 300-millimeter, four out of ten in the analog space, that leaves a lot of room for continued expansion on 300-millimeter and continuing to grow that free cashflow per share.

Okay. Thank you, Amit. We'll go to the next caller, please.

Operator

We'll take our next question from Harlan Sur from J.P. Morgan.

Harlan Sur -- J.P. Morgan -- Analyst

Good afternoon. Solid job on the quarterly execution and strong free cashflow generation. Your focused markets -- automotive, you've got 5 subsegments, industrial, you've got 14 subsegments. Could you guys just give us a sense on the breadth of the year over year growth in these markets where a majority of these subsegments are up year over year? Any color here would be helpful.

Dave Pahl -- Vice President and Head of Investor Relations 

Yeah. I'm sorry, Harlan. When you look at that growth, we're really pleased with it. It's very broad-based. When you look at all of the sectors, out of the 19 combined that we had, 18 of them actually grew. So, it's very broad-based.

I think when you look across different products, different investments, and we look at our design-ins and our pipeline, those continue to be very broad-based. So, that gives us confidence in the sustainability of that growth. Of course, it doesn't mean that we won't see cyclical headwinds at some point when you look at it from a five and 10-year standpoint. We feel really good about the progress that we've made.

Do you have a follow-on, Harlan?

Harlan Sur -- J.P. Morgan -- Analyst

Thanks for the insights there. To follow-up on that maybe from a geographical perspective, I think last quarter, all regions -- I know this is ship-to data, but still nevertheless important -- but last quarter, I think all regions were up except for Japan. What did you see this quarter?

Dave Pahl -- Vice President and Head of Investor Relations 

That is the same story. My friends in Japan, I've talked to them a couple of times. I give a shout out to them. The revenue is down, but when you look at it, we've got some reporting tools that will allow us to look through what we call channel-independent reporting. As you mentioned, it's a ship-to. They're continuing to make progress with the customers there. A lot of that revenue ends up shipping either somewhere in Asia or it ships in Europe or in the US, even though it's designed in there. But the actual measurement that we have is the shipping label on the box. So, unfortunately, they're still called on the conference call, which I know they're not happy about.

Thank you, Harlan. We'll go to the next caller, please.

Operator

We'll take our next question from Vivek Arya from Bank of America.

Vivek Arya -- Bank of America Merrill Lynch -- Managing Director

Thanks for taking my question and congratulations on the good execution. For the first one, your CapEx I think was over 6% in Q2. I think trailing four quarters, it's 5.5%. Depreciation is now below CapEx. So, where are all these incremental investments going and what is the right long-term model we should assume for CapEx and depreciation?

Rafael Lizardi -- Chief Financial Officer

Yeah, let me take that. First, let me step back to remind you what the objective is for CapEx. It's to invest to support new technology development and revenue growth and specifically to extend our low-cost manufacturing advantage, including 300-millimeter, which maximizes our opportunity to grow free cashflow per share for the long-term.

So, the percent of revenue is an interesting metric to have in mind, but the real driver is the long-term growth of free cashflow per share. So, in periods of sustained strong demand, that CapEx tends to go up. That's part of what you're seeing. That CapEx is primarily to support 300-millimeter. There are other things. There's assembly test. There's even other factories where we invest some of that CapEx, but predominately, it's to continue to expand that footprint of 300-millimeter within our factories and existing factories.

Before you go to the next question, I want to go ahead and make a point on free cashflow growth. In the trailing 12 months, free cashflow grew $1.7 billion from about $4 billion to $5.7 billion. That was a 42% increase. So, what drove that?

First and foremost, our profit before tax grew about $1 billion in that comparison. So, that is higher revenue, more revenue driven by industrial automotive, which again, drove the majority of the revenue growth, and more 300-millimeter, which to the question earlier, that continues to help with the expansion of free cashflow.

Then second and obviously, tax reform -- so, in the United States, we had tax reform, as we have talked about. That did lower our tax rate in 2018 versus the previous year in a significant way. Additionally, we had about $200 million year to date of one-time tax-related benefits that are also associated with tax reform. So, that also plays a factor in that comparison.

Dave Pahl -- Vice President and Head of Investor Relations 

Okay. Vivek, do you have a follow-up?

Vivek Arya -- Bank of America Merrill Lynch -- Managing Director

Yes. Thanks, Dave. Beyond just the trade issue, I know there's been talk of shortages of ASIC components. I know you guys don't supply that, but your peers do. Have you seen your customers behave in a different way, stock-up, stock-down on various things that might impact your trajectory just because your customers might be short of other components to help complete their systems?

Dave Pahl -- Vice President and Head of Investor Relations 

Yeah, Vivek. I think one thing that we've spent a lot of time trying to do and remain focused on is keeping lead time stable. For the vast majority of our products, they continue to remain stable. That doesn't mean that we don't have hot spots. Of course, we'll work with customers to close those gaps as aggressively as we can.

The other important metric that we looked at inside of that is on-time shipping performance. So, you can have a stated lead time and if you're not shipping inside of that, customers tend to get nervous. That has continued to remain at very, very high levels. We can't see any bottlenecks from customers not being able to get to a product from other places that shows up in the order book, specifically. Could it be there? It certainly could be, but it's not something that we would have visibility into.

So, I think if we just remain focused on what we can control, which is the lead times and shipping performance, customers can have confidence in getting product from us.

Okay. We'll go to the next caller, please.

Operator

And we'll take our next question from Stacy Rasgon from Bernstein Research.

Stacy Rasgon -- Bernstein -- Analyst

Hi, guys. Thanks for taking my questions. I first wanted to ask about the nearer-term OpEx trajectory. Normally, in Q3, you'd probably be down a little bit sequentially. Are there any drivers or anything that could be going on that would make things in this Q3 different than what we might ordinarily see given some of the historical trends that we've seen leading into this?

Rafael Lizardi -- Chief Financial Officer

Stacy, as you know, we give revenue guidance and EPS guidance and stop it that unless there were any unusual trends in between the lines. If so, we would point that out. We're not pointing that out because there's nothing unusual. So, you should expect our usual trends within reasonable ranges.

Dave Pahl -- Vice President and Head of Investor Relations 

Do you have a follow-on, Stacy?

Stacy Rasgon -- Bernstein -- Analyst

I do. Thank you. There's an earlier question on CapEx. We know it's elevated now because you guys are out looking for other assets. At the same time, as you continue to grow, you're filling up 300-millimeter and that's a margin benefit. Do you think over time the benefit from increasing penetration in 300-millimeter more than offsets the depreciation expense on your gross margins?

Rafael Lizardi -- Chief Financial Officer

So, the way I like to look at this is from a cash standpoint. So, I think of that investment as an investment, cash going that, the first cell on your spreadsheet. Then after that is return. I don't think about it for those purposes from a depreciation standpoint. So, as we continue to invest on 300, we think those are very good long-term investments that will last for a long time. Anytime we put any of these tools in place, then the cash fall through on those investments is pretty high.

Dave Pahl -- Vice President and Head of Investor Relations 

Okay. Thank you very much, Stacy. I think we have time for one more caller.

Operator

And we have one more question from Joe Moore from Morgan Stanley.

Joseph Moore -- Morgan Stanley -- Analyst

Thank you. I know you said that some of your personal electronics markets were up and some were down. Can you give me a little bit more color on which? I know smartphones in particular grew in Q1 as smartphones continue to grow into Q2. Thanks.

Dave Pahl -- Vice President and Head of Investor Relations 

Yeah, Joe. I won't go into that level of detail. We did want to give some color on what was going on inside of personal electronics that we saw multiple sectors growing inside of there. We had some customers that were growing. But I also wanted to point out not all customers were growing. So, that's what we saw.

I think what that illustrates is the power of having a diverse product portfolio and being able to sell to multiple customers. To my point earlier, when we look at the opportunity inside of personal electronics, longer-term, we don't see that as a significant growth engine for us, but it is a place that we continue to invest. We really believe the majority of the growth is really going to come from industrial and automotive.

So, incrementally, as we've taken up our spend, we've moved it more into those growth areas. But again, we're going to have handsets and PCs and those other things for decades to come. So, we find good opportunities inside of there and want to continue to invest in them.

Do you have a follow-on, Joe?

Joseph Moore -- Morgan Stanley -- Analyst

Yeah. Thanks for the color there. In terms of the longer-term question of communication infrastructure, obviously it's been soft for everyone the last few quarters. How do you think about the 5G opportunity? With the comments you made just now and repeatedly that the investment areas are industrial and automotive, do you think there's an opportunity around 5G that you need to invest in? Help us understand how that will affect TI.

Dave Pahl -- Vice President and Head of Investor Relations 

Sure. Yeah. Again, I'd refer back to our capital management presentation as we walk through that thinking. It remains consistent with that. So, from a comms equipment standpoint, I would say that our investments have shifted over time. If you look at the 5G standards and the things needed to support the new things, new frequencies being added, things like the Massive MIMO antennas that are going in for beam forming and other things like that, that is all complexity that you find in the radio itself.

For us, that translates into analog products to be able to support that. So, our spend in analog is up for supporting that 5G transition. It has been for some time when we look at our spend versus five and ten years ago. But at the same time, that same change in standards and mix really doesn't impact the digital side. So, our spend actually is down on that.

So, again, I'd describe our growth primarily coming from industrial and automotive as we look over the next decade. So, that's where we've tried to increase spending. But we will shift spending around to take advantage of things like 5G.

And I'd just say that in general, very confident in our position. We're building off of a great position inside of 4G as well. So, we are very pleased with those investments.

Rafael Lizardi -- Chief Financial Officer

Yeah, that was the last call, correct? So, before we close, I just want to make a point. It wasn't asked, but our results, among other things, demonstrate our continued discipline and execution on capital management strategy. We generated on a trailing 12-month basis $5.7 billion of free cashflow and we returned $5.6 billion of free cashflow in that timeframe. So, virtually all free cashflow generated was returned to the owners of the company. That was both through dividends and buybacks.

In the case of dividends, on that comparison, it was 41% of free cashflow. So, right between our 40% and 60% guidance, but clearly toward the lower end, that just underscores the sustainability of those dividends.

Dave Pahl -- Vice President and Head of Investor Relations 

Okay. Thank you, Rafael and thank you all for joining us. A replay of this call will be available on our website. Good evening.

Operator

And that concludes today's conference. Thank you for your participation. You may now disconnect.

Duration: 39 minutes

Call participants:

Dave Pahl -- Vice President and Head of Investor Relations 

Rafael Lizardi -- Chief Financial Officer

John Pitzer -- Credit Suisse -- Managing Director

Timothy Arcuri -- UBS -- Managing Director

Ross Seymore -- Deutsche Bank -- Analyst

Amit Daryanani -- RBC Capital Markets -- Analyst

Harlan Sur -- J.P. Morgan -- Analyst

Vivek Arya -- Bank of America Merrill Lynch -- Managing Director

Stacy Rasgon -- Bernstein -- Analyst

Joseph Moore -- Morgan Stanley -- Analyst

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10 stocks we like better than Texas Instruments
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David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Texas Instruments wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 4, 2018

Motley Fool Transcription has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.