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Capital management strategy
Over the past few years, TI has undergone a strategic transformation, which has focused the company on better opportunities and markets, namely Analog and Embedded Processing. These continue to be some of the best opportunities inside of the semiconductor market, offering compelling financial characteristics, growth, diversity and stability. They also offer the best exposure to the growing opportunities inside of the industrial and automotive markets.
With our most difficult strategic actions now behind us with the wind down of our Wireless business, we now have a company with more than 75 percent of our revenue coming from Analog and Embedded Processing. These technologies have the added benefit of having low capital requirements because their manufacturing equipment and process technologies are long lived. In addition, in recent years, we’ve been able to acquire manufacturing assets opportunistically, thereby reducing our capital spending levels to historically low levels. As a result, we’ve been able to buy the assets well ahead of demand, with low carrying costs. Because of this, we expect to be able to maintain our capital expenditures at about 4 percent of revenue until we exceed $18 billion in annualized revenue.
We have a business model that consistently generates cash, and the sustainability of this business model gives us confidence in our ability to return more of that cash to shareholders in the form of higher dividends and additional share buybacks.
Specifically, our business model enables TI to consistently convert 20-25 percent of our revenue to free cash flow. And importantly, we are employing a capital management strategy designed to return 100 percent of our free cash flow – less debt repayments – to our shareholders in the form of dividends and share buybacks. This strategy reflects management’s confidence in our business model and importantly, our commitment to shareholder returns.
Because of our strong balance sheet, we have access to low-cost debt. With interest rates at historical lows, we plan to continue to hold debt as long as it makes economic sense. In addition, our tax strategy allows us to have more than 80 percent of our cash owned by U.S. subsidiaries, and this means that it is available to return to our shareholders.
Our ability to both generate and return substantial cash to shareholders puts TI in a uniquely strong class of growing companies, especially when compared with other technology companies.
More details about our capital management strategy, which was first presented on a February 22, 2013, conference call, are listed here:
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