Investor Presentaiton
FORM 10-K
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
We design, make and sell semiconductors to electronics designers and manufacturers all over the world. Our business model is
carefully constructed around the following attributes:
• Industry's broadest portfolio of differentiated analog and embedded processing semiconductors. Our customers need
multiple chips for their systems. The breadth of our portfolio means we can solve more of these needs than can our
competitors, which gives us access to more customers and the opportunity to generate more revenue per system. We
invest more than $1 billion each year to develop new products for our portfolio.
A strong foundation of manufacturing technology and low-cost production. We invest in manufacturing technologies that
differentiate the features of our semiconductors, and we do most of our own production in-house, as opposed to
outsourcing it. This ability to directly control our manufacturing helps ensure a consistent supply of products for our
customers. We produce billions of semiconductors each year on a mixture of 150-, 200- and 300-millimeter wafers, and we
are able to keep costs low for manufacturing facilities and equipment because our Analog and much of our Embedded
Processing semiconductors can be made using mature assets that we acquire ahead of demand when their prices are most
attractive. In 2016, we increased factory loadings by about 15 percent for our Analog semiconductors on 300-millimeter
wafers, which have a 40 percent cost advantage per unpackaged chip over 200-millimeter wafers. The majority of our
Analog growth will be produced on 300-millimeter wafers, which will be meaningful to the growth of our cash flow over the
long term.
• Industry's largest market channels. Our global sales force is larger than those of our competitors. The breadth of our
portfolio attracts an increasing number of visits to our website, where customers often begin their initial product
searches and design-in journey. Our web presence, together with our global sales force, provides us unique access to
about 100,000 customers.
• Diversity and longevity in our products and in the markets we serve. Together, the attributes above result in diverse and
long-lived positions that deliver high terminal value to our shareholders. Because of the breadth of our portfolio, we are not
dependent on any single product, and because of the breadth of our markets we are not dependent on any single
application or customer. Some of our products generate revenue for decades, which strengthens the return on our
investments.
The combined effect of these attributes is that over time we have grown free cash flow and gained market share in Analog and
Embedded Processing. These attributes put us in a unique class of companies with the ability to grow, generate cash, and return
that cash to shareholders.
Management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with
the financial statements and the related notes that appear elsewhere in this document. In the following discussion of our results
of operations:
. All dollar amounts in the tables are stated in millions of U.S. dollars.
When we discuss our results:
о Unless otherwise noted, changes in our revenue are attributable to changes in customer demand, which are evidenced
by fluctuations in shipment volumes.
○ New products tend not to have a significant impact on our revenue in any given period because we sell such a large
number of products.
• From time to time, our revenue and gross profit are affected by changes in demand for higher-priced or lower-priced
products, which we refer to as changes in the "mix" of products shipped.
о
Because we own much of our manufacturing capacity, a significant portion of our operating cost is fixed. When factory
loadings decrease, our fixed costs are spread over reduced output and, absent other circumstances, our profit margins
decrease. Conversely, as factory loadings increase, our fixed costs are spread over increased output and, absent other
circumstances, our profit margins increase. Increases and decreases in factory loadings tend to correspond to increases
and decreases in demand.
Over time, we have been allocating resources from areas like manufacturing support and SG&A into R&D activities. As a
result, R&D expense will continue increasing in 2017.
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