Investor Presentaiton
FORM 10-K
We own and operate semiconductor manufacturing facilities in North America, Asia, Japan and Europe. These include both wafer
fabrication and assembly/test facilities. Our facilities require substantial investment to construct and are largely fixed-cost assets
once in operation. We own much of our manufacturing capacity; therefore, a significant portion of our operating cost is fixed and
changes in factory loadings can cause short-term variations in profit margins. 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. Our
operating focus is more on maximizing long-term free cash flow than minimizing short-term variations in profit margins caused
by factory loadings. To this end, we seek to maximize long-term free cash flow by keeping capital expenditures low through
opportunistic purchases of facilities and equipment ahead of demand.
We expect to maintain sufficient internal manufacturing capacity to meet the vast majority of our production needs. To supplement
our manufacturing capacity and maximize our responsiveness to customer demand and return on capital, we utilize the capacity of
outside suppliers, commonly known as foundries, and subcontractors. In 2016, we sourced about 20 percent of our total wafers
from external foundries and about 40 percent of our assembly/test services from subcontractors.
Customers
We estimate that we sell our products to about 100,000 customers. Our customer base is diverse, with more than one-third of our
revenue deriving from customers outside our largest 100.
Sales and distribution
We market and sell our semiconductor products through direct sales and distributors, and online. We have sales or marketing
offices in more than 30 countries and we continue to expand our online presence. About 60 percent of our sales are fulfilled
through distribution channels. Our distributors maintain an inventory of our products and sell directly to a wide range of customers.
They also sell products from our competitors.
Inventory
Our inventory practices differ by product, but we generally maintain inventory levels that are consistent with our expectations
of customer demand. We carry proportionally more inventory of products with long life cycles and a broad customer base.
Additionally, we sometimes maintain product inventory in unfinished wafer form, as well as higher finished-goods inventory of
low-volume products, allowing greater flexibility in periods of high demand.
About 60 percent of TI revenue is fulfilled from consignment inventory programs that we have in place for our large customers
and distributors. With these programs, we own inventory that is stored at our customers' and distributors' locations, and we
recognize revenue when the product is pulled from consigned inventory. These consignment programs give us improved insight
into demand, allowing us to better manage our factory loadings. About 65 percent of our distributor revenue is generated from
sales of consigned inventory.
Backlog
We define backlog as of a particular date as purchase orders with a customer-requested delivery date within a specified length
of time. Our backlog at any particular date may not be indicative of revenue for any future period. As customer requirements and
industry conditions change, orders may be subject to cancellation or modification of terms such as pricing, quantity or delivery
date. Customer order placement practices continually evolve based on customers' individual business needs and capabilities, as
well as industry supply and capacity considerations. Further, our consignment programs do not result in backlog because the order
occurs at the same time as delivery, i.e., when the customer pulls the product from consigned inventory. Our backlog of orders
was $1.09 billion at December 31, 2016, and $0.95 billion at December 31, 2015.
Acquisitions, divestitures and investments
From time to time we consider acquisitions and divestitures that may strengthen our strategic position. We also make investments
directly or indirectly in private companies. Investments are focused primarily on next-generation technologies and markets
strategic to us.
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TEXAS INSTRUMENTS • 2016 FORM 10-KView entire presentation