Texas Instruments Inc. (TXN) Q3 2020 Earnings Call Transcript

Texas Instruments Inc.  (NASDAQ: TXN) Q3 2020 earnings call dated Oct. 20, 2020

Corporate Participants:

Dave Pahl — Vice President and Head of Investor Relations

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

Analysts:

Toshiya Hari — Goldman Sachs — Analyst

Craig Hettenbach — Morgan Stanley — Analyst

Stacy Rasgon — Bernstein Research — Analyst

Timothy Arcuri — UBS — Analyst

Harlan Sur — JPMorgan — Analyst

John Pitzer — Credit Suisse — Analyst

Ross Seymore — Deutsche Bank — Analyst

Tore Svanberg — Stifel — Analyst

Ambrish Srivastava — BMO — Analyst

Presentation:

Operator

Good day and welcome to the Texas Instruments 3Q ’20 Earnings Release Conference Call. Today’s conference is not being recorded.

At this time, I would like to turn the conference over to Dave Pahl. Please go ahead, sir.

Dave Pahl — Vice President and Head of Investor Relations

Good afternoon and thank you for joining our third quarter 2020 earnings conference call. For any of you 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.

Our Chief Financial Officer, Rafael Lizardi is with me today, and we’ll provide the following updates. First, I’ll start with a quick overview of the quarter. Next, I’ll provide insight into the third quarter revenue results with more details and usual by end market, including some sequential performance since it’s more informative at this time. And then lastly, Rafael will cover the financial results, capital management and our guidance for the fourth quarter of 2020.

Let me start with a quick overview with three key points. Revenue was higher than expected and grew 18% sequentially with notable strength from the rebound of automotive and growing demand from personal electronics. Revenue increased 1% from the same quarter a year ago. In April and again in July, we explained we would maintain high optionality with our operating plan so we could support customers, particularly during a time when their ability to forecast will be limited. This approach has served us and our customers well and will continue this posture in the fourth quarter.

Finally, while visibility for the near-term demand has improved, we remain cautious as the broader economic impact of the global pandemic could continue for several years. Our approach in an environment like this is to maintain high optionality with our operating plan in the short-term to continue critical investments in R&D and in new capabilities like those for ti.com and, finally, to invest to ensure long-term manufacturing capacity, particularly for the 2022 to 2025 timeframe. We’ve made these decisions with our overall ambitions in mind, which include running the company with the mindset of a long-term owner. These decisions have continued to serve us well.

Looking at our segments, Analog grew 18% and Embedded Processing grew 19% sequentially. On a year-over-year basis, Analog grew 7% and Embedded Processing declined 10%. Our other segment declined 19% from a year ago, primarily due to lower calculator sales, where COVID-19 impacted back-to-school sales.

Moving on, I’ll now provide some insight into our third quarter revenue by end market. First, the automotive market rebounded with about 75% sequential growth and returned to levels similar to a year ago. Revenue has grown from the bottom we saw in May, as North American and European automotive assembly plants resumed operations.

Next, the industrial market was down low-single digits sequentially, roughly a sequential decline and about even from a year ago. Not surprisingly, there were areas of strength and there were areas of weakness. The diversity within industrial results in relative stability, reinforcing the attractiveness of this highly diverse market. Personal electronics was up more than 20% sequentially and up about 15% compared to a year ago. The strength was broad-based across personal electronics combined with TI being in a position to support unforecasted demand in the third quarter.

Next, comms equipment was down about mid-single digits sequentially and up mid-single digits from a year ago. And enterprise systems was down in both comparisons. Lastly, I’ll note a housekeeping item. We simplified our analog business structure into our Power business and our Signal Chain business. Starting this quarter, our reporting will reflect these changes.

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

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

Thanks, Dave. And good afternoon, everyone. Third quarter revenue was $3.8 billion, up 1% from a year ago. Gross profit in the quarter was $2.5 billion, or 64% of revenue. From a year ago, gross profit margin decreased 60 basis points.

Operating expenses in the quarter were $793 million, up 2% from a year ago and about as expected. On a trailing 12-month basis, operating expenses were 23% of revenue. Over the last 12 months, we have invested $1.5 billion in R&D. Operating profit was $1.6 billion in the quarter, or 42% of revenue. Operating profit was up 1% from the year ago quarter. Net income in the third quarter was $1.4 billion or $1.45 per share.

Let me now comment on our capital management results starting with our cash generation. Cash flow from operations was $1.4 billion in the quarter. Capital expenditures were $146 million in the quarter. Free cash flow on a trailing 12-month basis was $5.2 billion. In September, we announced we would increase our dividend by 13%, marking our 17th consecutive year of dividend increases. In the quarter, we paid $825 million in dividends and repurchased $15 million of our stock. In total, we have returned $6.4 billion in the past 12-months or a 123% of free cash flow. Over the same period, our dividends represented 64% of free cash flow, underscoring their sustainability. Our balance sheet remains strong with $5.5 billion of cash and short-term investments at the end of the third quarter.

Regarding inventory, TI inventory dollars were down $64 million from the prior quarter and days were 137. Distribution-owned inventory declined in third quarter by about $100 million, the eighth consecutive quarter of planned reductions as we have continued the transition to have fewer distributors and bring more customers direct. As a reminder, as we build closer direct relationships with our customers, we further strengthened one of our competitive advantages, the reach of our market channels. Tactically and strategically, we are pleased with the progress of the transition and the impact for our customers.

For the fourth quarter, we expect TI revenue in the range of $3.41billion to $3.69 billion and earnings per share in the range of $1.20 to $1.40. Our annual operating tax rate has not changed much, but now ramps up to 14% from the year. And that’s what you should use for your models in the fourth quarter. For next year, we expect our annual operating tax rate to remain at about 14%.

In closing, we continue to invest to strengthen our competitive advantages and making our business stronger.

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 the lines for questions. In order to provide you as many 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

[Operator Instructions] And we’ll go ahead and take our first question from Toshiya Hari with Goldman Sachs.

Toshiya Hari — Goldman Sachs — Analyst

Hi, guys. Good afternoon and thanks for taking the question. Rafael and Dave, my first question is on automotive. You guys saw very strong results in the September quarter. I think you spoke to a 75% sequential increase in revenue in the automotive end market. What’s your view on December as it relates to automotive and how are you thinking about sustainability into the early part of 2021? And then I’ve got a quick follow-up. Thanks.

Dave Pahl — Vice President and Head of Investor Relations

Sure, Toshiya. Yeah. I think that 75% sequential obviously was very strong, but is probably best explained looking at the previous quarter. And as we talked about last quarter, the majority of the automotive revenue is on consignment. So, as the North American and European manufacturers had closed plants, that revenue reacted very quickly and we were down 40% sequentially and year-on-year. And so, as those factories opened up, we saw the bottom in May and we expected revenue to grow. And as they opened up, obviously that revenue reacted very quickly in the other direction. So that’s really the story that we saw in third quarter.

Again, as we’ve given color last quarter on the automotive market and talked about how that was moving pretty significantly. In the fourth quarter, we’re not breaking out any particular end market or specific color on that front. So, there is not a reason to as we look into the fourth quarter.

So you have a follow-on?

Toshiya Hari — Goldman Sachs — Analyst

I do. Thanks, Dave. My follow-up question is on gross margins in Q3. Rafael, you mentioned that gross margins were down 60 basis points on a year-over-year basis. And I was just trying to better understand what the puts and takes were. Overall revenue, I think, was up 1%. Your mix of businesses improved with analog up 7% year-over-year, embedded processing down 10% and 12-inch versus 8-inch, I’m guessing 12-inch was up year-over-year. So, I’m just trying to understand what the negatives were on a year-over-year basis that drove gross margins down a little bit. I appreciate you guys don’t run your business for gross margin, but just curious. Thank you.

Dave Pahl — Vice President and Head of Investor Relations

Yeah, happy to answer that. So, yeah, on a year-on-year basis, revenue was up 1%, gross margin dollars were up, but a little less than that, maybe 0.5% or so. So — but when you look in at such big numbers, then the delta is so small. It’s difficult to look at the fall through like we normally look at it, right. So, in the big scheme of things, revenue was up a little bit and gross margin dollars were up a little bit. But having said that, I would also point out that the mix of personal electronics revenue was higher in third quarter than it’s been — whether it was the same quarter last year or even second quarter.

Toshiya Hari — Goldman Sachs — Analyst

Great.

Dave Pahl — Vice President and Head of Investor Relations

Thank you, Toshiya. And we’ll go to the next caller, please.

Operator

We’ll take our next question from Craig Hettenbach with Morgan Stanley.

Craig Hettenbach — Morgan Stanley — Analyst

Yes, thank you. Maybe just follow-up on the last point, on the strength in personal electronics. Really as you look out to Q4, Dave, how you feel about kind of inventory versus — and demand sell through? And then, as part of that and perhaps for the segments as well, how you think about Huawei in terms of perhaps kind of last shipments there and then how you’re seeing that as you go forward?

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

Let me go ahead and start and then Dave can address the Huawei question or anything else. But at the highest level, we are very well positioned to handle whatever comes at us, whether it’s personal electronics or any other market, but personal electronics is one that by having the inventory strategy that we have followed having that optionality that we have talked about for now 180 days or so, the last two quarterly releases, has put us in a really, really good position.

Now that is not just having that kind of tactical strategy, it’s also — or tactical position, it’s also having the strategic position of being the supplier of catalog parts that are highly diversified that sell to many, many customers. We have over 100,000 different customers, sell 80,000 different parts. So it put us in a position where we can build the inventory, have the asymmetric bet so that if revenue is strong, we can support it; if it’s not, then we hold inventory a little longer than usual. But that’s okay, just a little working capital.

With that, I’ll also want to make a point that inventory, we think, very — is a strategic asset. As we have talked about earlier, we’re comfortable holding high levels of inventory. And in fact, we’re going to update — we’re going to give you an update on our range on inventory at the next capital management call in February. Dave?

Dave Pahl — Vice President and Head of Investor Relations

Sure. Yeah, I’ll make the comment on Huawei. So, Huawei was about 2% of our revenue in the third quarter. That was a little higher than what they were in the first half of 2020. So, certainly we’re in compliance with US export restrictions and stop shipping to them on September 14th. And they are not included in our fourth quarter revenue guidance. So, you have a follow-on, Craig?

Craig Hettenbach — Morgan Stanley — Analyst

Sure. Thanks for all the color there. I guess, just how you think about as the business rebounds, just from an opex perspective, any puts and takes there for Q4 and into next year?

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

Nothing significant, that I would point to. In opex, of course, R&D is a big part of that, about $1.5 billion a year. That’s a big component of our competitive advantage of having the broadest portfolio in the industry. We continue to put out some of the best products, catalog products that go into automotive, industrial, personal electronics, communications markets. So we’ll continue to strengthen that advantage.

Another one that goes into opex in the G&A portion — in the SG&A portion is the investments that we’re making in ti.com to strengthen the reach of our channels. So we continue to strengthen that tool, that ability to reach channels, reach customers better and keep them engaged longer and selling more and more products to those customers. So, at the highest level, opex has been running $3.1 billion, $3.2 billion a year on a trailing 12-month basis. I would expect for that to run at above that level. Maybe over time up 1% or 2% year-on-year, but in that neighborhood.

Dave Pahl — Vice President and Head of Investor Relations

Great. Thank you. And we’ll go to the next caller, please.

Operator

We’ll take our next question from Stacy Rasgon with Bernstein Research.

Stacy Rasgon — Bernstein Research — Analyst

Hi, guys. Thanks for taking my questions. So, the first one I wanted to touch on the strength from PE. I wanted to know if you can give us a little more color on how much of that would be PCs versus smartphones. I know that you had talked about some of that strength coming from your ability to satisfy unexpected demand. I assume that was maybe more a PC statement. But any color you can give us on sort of the relative mix and growth of those two sub-end markets would be helpful?

Dave Pahl — Vice President and Head of Investor Relations

Yeah, Stacy. I’d say that as the pandemic first started back in March, and even in last quarter, a lot of the strength was initially driven by PCs and tablets. But we have seen that, that strength broaden. So, even the TVs and smart speakers and other things that are used in the home. So, our best estimate of — or guesstimate of what’s going on is that, as people are spending more time at home, they’re upgrading the things that they’re using more. So that spend is broadening beyond just the PC. And as Rafael was talking about, our portfolio of products serves us well and puts us in a position to be able to support that demand.

Do you have a follow-on?

Stacy Rasgon — Bernstein Research — Analyst

I do. Thank you. So I know you talked about continuing to hold high inventory levels and maintaining high service into Q4 and beyond, and I get that. I just wanted to know if you could give us any color on what that implies for utilization and loadings [Phonetic]. But I’m assuming utilization was up sequentially in Q2, and in Q3, I mean. Please let us know if that was the case and what are your plans for utilizations, factory loadings as we go into Q4 and the end of the year?

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

Sure. So, Stacy, as you know, we only talk about utilization when there’s a big inflection point or something unusual. So we did talk about it in April, going into second quarter, because most people — most of the growth [Phonetic] competitors decrease their loadings, and instead we kept them flat at that point to first quarter to maintain that option or do have that optionality that frankly has served those tremendously well during these last six months.

Since second quarter, we have bias up our loadings. So we did that from second to third a little higher. And third and going to fourth, we’re probably bias that up. We are biasing that up higher, is nothing significant. But is bias up so that we maintain that optionality and we can maximize revenue and support our customers with any potential upsize that they have that are — that would be unsupported otherwise.

Dave Pahl — Vice President and Head of Investor Relations

Okay. Thank you, Stacy. We’ll go to the next caller, please.

Operator

We’ll take our next question from Timothy Arcuri with UBS.

Timothy Arcuri — UBS — Analyst

Thanks a lot. I guess, my first question is on the share buyback. It was quite small, even lower than in the depths of the financial crisis back in a way, yet your business has already snapped back a lot. What’s the thinking there? You’ve always been pretty astute about the intrinsic value of your stock, so how should investors sort of read that? Thanks.

Dave Pahl — Vice President and Head of Investor Relations

Yeah. No. First, let me step back and remind everybody how we think about cash returns and we talked about during capital management every year in February and when we meet with investors. But when we think about cash returns, the objective there is to return all free cash flow to the owners of the company via buybacks and dividends, we use both. And if you look at in the last — on a trailing 12-month basis, which is the best way to look at that, we have generated $5.2 billion of free cash flow and have returned $6.4 billion. So. $1.2 billion more than the generation, so well ahead of the generation the return has been. Do you have a follow-up?

Timothy Arcuri — UBS — Analyst

I do, I do. So I wanted to double-click just a little bit on the drop through in analog. It seemed like the drop through in embedded was fine, but you’re still a little below where the at margin was back in sort of the late 2018 time frame at sort of similar levels. Is there something going on with mix, is that maybe the PE mix that you were talking about before within analog? Thanks.

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

There’s nothing unusual there to comment. Clearly, analog is the biggest segment that we have. So anything that we come in at the company level applies — likely came from analog. So — and they have a fair amount of PE. In fact, the disproportion amount of personal electronics given that embedded, it doesn’t have much personal electronics.

Dave Pahl — Vice President and Head of Investor Relations

Yeah. And embedded is essentially industrial and automotive for the most part by 90%, those two. So that’s where that growth would come from. So, thank you, Tim. And we’ll go to the next caller, please.

Operator

We’ll take our next question from Harlan Sur with JPMorgan.

Harlan Sur — JPMorgan — Analyst

Good afternoon. Great job on the quarterly execution. Can you guys just give us the quarter-on-quarter and year-over-year trajectories by geography? I know there is just ship two [Phonetic] locations, but I think it’s still useful as a proxy for demand and overall economic activity just depending on the breadth of the participation?

Dave Pahl — Vice President and Head of Investor Relations

Sure. Harlan, yeah, year ago, Asia was up and all of the other regions were down. And sequentially all of the regions were up, and Japan growth was down. Do you have a follow-on?

Harlan Sur — JPMorgan — Analyst

Great. Yeah. So, you guys mentioned last quarter that there may have been some industrial customers that we’re building some inventory to potentially buffer against future supply chain disruptions and just prudent business continuity planning. Did you guys continue to see that in Q3 or are these customers starting to work down these inventories or just sustaining to higher levels as we head into the winter months and flu season?

Dave Pahl — Vice President and Head of Investor Relations

Yeah. Harlan, I think our comments, last quarter, we’re one just more of an observation of history in our industry. That basically has taught us that whenever we’ve seen supply constraints that customers react by building some inventory. So, it’s just our belief that it would be naive that this would be the first time that that wouldn’t happen, right. So, I think that those supply constraints in our industry still exist. So, to that extent that could still be the case. And now our lead times have remained stable.

Our product availability is still very high. I think, today, you can go to ti.com and get immediate availability of over 40,000 different devices. So — and that doesn’t mean that we don’t have pockets of delivery problems. We’ll always have that at any time. But overall, our lead times are very solid and availability is high, but that’s not true for the industry. So, yeah, I think it just would be naive to believe that that wouldn’t be the case.

So thank you, Harlan. We’ll go to the next caller, please.

Operator

Our next question comes from John Pitzer with Credit Suisse.

John Pitzer — Credit Suisse — Analyst

Yeah. Good afternoon, guys. Thanks and let me ask the questions. Congratulations on the solid results. Dave, if you look at kind of your guidance over the last two quarters, it looks like you sort of rightfully discounted kind of what the bottoms up bookings was telling us. You said as much when we guided for the June quarter. And just given the magnitude of be it in September, it kind of feel the same way. And that to me, it seems to make sense in the midst of a global pandemic.

I’m just kind of curious, you’re guiding the December quarter to plus or minus about seasonal, inclusive of what sounds like a 200 basis point headwind from Huawei. But I guess, I could argue, maybe phone build started a little bit later this year that should help December. I guess, as you forecast the December quarter, was seasonal kind of the metrics you were going for and are you discounting kind of your bottoms up in the December quarter as much in hindsight as you did in June and September?

Dave Pahl — Vice President and Head of Investor Relations

Yeah. No, I think, you’ve covered a lot of good points, John. And like you point out, in any quarter, there is puts and takes. You’ve got the headwind of Huawei. We’ve got the unwind of the distributor program, which — and in fact, we’ve actually won that up this past quarter. And just with the growing demand in the inventory needs and positions that we’ve essentially completed that. So we depleted about as Rafael, I think, mentioned about $100 million worth of inventory in that quarter. So you’ve always got puts and takes. But I’ll tell you that the most important thing that we see and the most important input that we get is the demand that our customers tell us they want. And we get that from the orders in the backlog that our customers provide us as well as demand fees that we get through consignment. And so that is really what drives an informed outlook that we provide.

So, do you have a follow-on, John?

John Pitzer — Credit Suisse — Analyst

Yeah, Dave. It’s fair to say that there has been nothing typical this year, but you and I’ve talked about this in the past. If you look at the year-over-year growth discrepancy between analog and embedded, it’s fairly wide. I’m wondering now that we’re 90 days more into this kind of — difference in year-over-year growth. Is there a good explanation in your mind? And importantly, as we look forward, when do you expect the embedded business to kind of catch up to analog on a year-over-year basis?

Dave Pahl — Vice President and Head of Investor Relations

Yeah, sure. I think that certainly the embedded businesses and performing the way that we would want it to over the last multiple quarters. And I think that, if you look over the most recent quarter here, certainly we’re encouraged by the progress or the numbers that that would show. But we’ve been working very hard on turning that business around and getting it performing like we would like it to be performing. And we’re making investments there because we believe that it will be a great contributor in the coming years. So — and so, we’re busy building that business stronger and — but it will take time in success in that business will be not measure over this quarter or even over a couple of quarters, but that will be measured over time.

So, thank you for that, John. And with that, we’ll go to the next caller, please.

Operator

Our next question comes from Ross Seymore with Deutsche Bank.

Ross Seymore — Deutsche Bank — Analyst

Hi, guys. I want to follow up on that same last question of John’s on the embedded side of things. Dave, last quarter where embedded was sequentially weak and year-over-year, we — you talked about the over-indexing to automotive and industrial. But given that automotive was up 75% sequentially, I’m a little surprised embedded was basically the same as analog from a sequential perspective, where there are some offsets in that business. I know you said industrial was down a little bit, but it doesn’t seem like it would be enough to offset that over indexing on the industrial — or excuse me, on the automotive side?

Dave Pahl — Vice President and Head of Investor Relations

Yeah. Well, embedded grew a little faster than analog. And essentially just as last quarter, as you pointed out, Ross, that it didn’t have any offsets to the business. Essentially all you have left is industrial. So it’s those two end markets. And so, with the return of revenue, it’s performing about the same as analog is. So, those are the two — those are really the two components driving that.

Ross Seymore — Deutsche Bank — Analyst

Yeah. So it doesn’t have nearly as much PEO. And in fact, hardly any [Phonetic] personal electronics and personal electronics was a big contributor to growth in the third quarter sequentially.

Dave Pahl — Vice President and Head of Investor Relations

That’s right. That’s right.

Ross Seymore — Deutsche Bank — Analyst

Good. I guess, my follow-up was…

Dave Pahl — Vice President and Head of Investor Relations

Yeah.

Ross Seymore — Deutsche Bank — Analyst

If I can pivot over to the industrial side, just a higher level question. You guys seem to be flat to up year-to-date in your industrial segment. How do you explain the actual growth in that segment versus the global GDP and the general economic activity dropping. It doesn’t seem like the inventory concerns are as high as what you had last quarter where you first said it would be naive to think. Otherwise it seems like some of those concerns have gone by the wayside. But you’re still nonetheless outperforming that the global economy. If it’s not inventory, I guess, what is it?

Dave Pahl — Vice President and Head of Investor Relations

Well, the longer-term thesis, of course, is the content is expanding inside of those markets. And I think if you look below, we talked about the areas of strength and the is areas of weakness. So, if you look at certain markets like aerospace and defense, that is obviously weak. People aren’t taking deliveries of planes as an example. There is other areas of strength like appliances, if anyone that’s listening on the call that is doing any home renovations, like my wife is. You have to wait multiple months to get home appliances. And so, we’re seeing very, very strong strength in those types of areas. So — but I think the diversity of that market coupled with the content expansion, I think, just proves out why it’s such an attractive market for us. And our products are really tailor-made and well-positioned to take advantage of that market.

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

Right. And the other thing I would add is, listen, we have 100,000 different customers, 80,000 different products, the vast majority of those sell into industrial, that is the most diverse end market. So, it’s impossible for us to know what those customers are doing and what that adds up to. The important part is the way we run the company to give ourselves the highest possible optionality, so that if it is driven by the secular trends, so asset is driven by the secular trends over the long haul. Maybe any one quarter you could or two quarters it could oscillate and it could be inventory build in. But over the long-term, the secular trends are there. And we put ourselves in a good position tactically to have that inventory available to support customers. And if we have a correction — inventory correction, or something of that sort, we will go through that and the inventory will not go back — will not go back, we will have it in storage for years and then we’ll sell it at the other end of that — whatever correction we may have.

Dave Pahl — Vice President and Head of Investor Relations

Okay. Thank you, Raf. Now we’ll go to the next caller, please.

Operator

Our next question comes from Tore Svanberg with Stifel.

Tore Svanberg — Stifel — Analyst

Yes. Thank you. I wanted to ask John’s question a bit differently. Does it feel like bookings are not going to back to reflecting true end demand? Obviously, this year everything has been abnormal, right. But as I think about your fourth quarter guidance, is it safe to say that bookings are now running very much aligned with end demand?

Dave Pahl — Vice President and Head of Investor Relations

Well, Tore, that’s always a question that we don’t have precise insight to, right. We don’t have a system that tells us that. I think you have to even go back to third quarter ’18 where the market had turn. We’re going through a classic inventory cycle. We worked our way through that through ’19. And just as we’ve bottomed out and saw signs of inflection COVID-19 had. So that kind of change things, but certainly we started this year with inventories at lower levels. And so that — certainly that’s where we started the year, right. So — but inventories and demand are certainly tied together. And so, I don’t believe that they were ever largely disconnected over time.

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

And so much of our business is on consignment, or just in time demand that the bookings versus revenue trend is really not that meaningful.

Dave Pahl — Vice President and Head of Investor Relations

That’s right. Yeah. So it’s almost what — what inventory our customers have that’s downstream. And so that’s why I think that we, from an optionality standpoint, try to ensure that we’ve got product available that if things want to continue to strengthen from here, we’re in a position to support it. And that’s the posture that we’re taking. If it doesn’t, we certainly know what to do in the other direction as well. Do you have a follow-on, Tore?

Tore Svanberg — Stifel — Analyst

Yeah, that’s fair. Thank you. So, I know communications is smaller for you and it may even be less of a strategic end market for you, but it did take a sequential breather. It was still up year-over-year. Directionally do you have any views on where that market is headed?

Dave Pahl — Vice President and Head of Investor Relations

Well, I think that our longer-term thesis is that, it’s not a structural grow, or just there is not new subscribers being added to the network overall. We’ve made investments in 5G and we’ll benefit from it. But as you say, it’s just not a very large portion of our revenues. Certainly there is noise in this quarter’s numbers with Huawei, but growth will resume. And as it always does, I think everyone in the industry describes it as a choppy market. And that doesn’t make it a bad market, it just makes it choppy. So we’ll continue investments there. It’s a good market for us. And we’ll continue to make investments in it. And we continue to like it.

So — and thank you, Tore. And I think we’ve got time for one last caller, please.

Operator

We’ll take our last question from Ambrish Srivastava with BMO.

Ambrish Srivastava — BMO — Analyst

Yeah, hi. Thanks for squeezing me in. Dave and Rafael, I had a question on the industrials business as well. So, clearly it’s seemingly very resilient, if I look back at the past cycles. But is it also because — and I know you guys look at it very long-term as well — 2019 for four consecutive quarters and for the full year, it was down. So, is it because as we — and I think Dave you mentioned that in an answer to an earlier question is that there we entered the year — really it was — the supply chain was drained out of any excess because of what you have seen. And so, now we are — despite all the problems we’ve seen and the demand collapsing in certain end markets and industrials, it’s held in also because of that factor that the supply chain inventory was pretty lean?

Dave Pahl — Vice President and Head of Investor Relations

Yeah. I think we’ve just completed seven quarters of year-on-year declines. This is the first quarter of year-on-year growth that we’ve had. So, industrial has been a piece of that. I think those year-on-year declines are a good part of that was just our industry cyclicality, as you pointed out. So — but structurally industrial with its breadth. And if you look we’ve got 13 sectors that we’re investing in, all of them are — have content that’s growing. And so, I think we’re very positioned — positioned very well to be able to support that growth. So what we can’t call and what we don’t know is in the short-term, how the economy is going to behave and even in a weak environment that market has done reasonably well compared to some of the other markets.

Do you have a follow-on?

Ambrish Srivastava — BMO — Analyst

Yeah. Just a quick one on the embedded side. I think last earnings call also you mentioned that you are encouraged by the signs of stabilization. I just wanted to just help us understand what are some of the steps you’ve taken to write the business? And as you said, it doesn’t happen overnight. And you talked about investments and I know several years ago you said that you’re going to de-emphasize comms infrastructure because that’s longer term. You didn’t see growth there, at least on the comms — on the embedded side. So, is the investment profile in this business looking a little bit different as you look forward and what are some of the other steps that you guys have taken to “right the business” and get it back on track?

Dave Pahl — Vice President and Head of Investor Relations

Yeah. So, you’ve highlighted a couple of steps that we have taken in the past. I think none of those have been secrets. So, the decisions on the comms side was something that we had talked about. I think going back six, seven years ago now as we didn’t believe that comms equipment was going to be a structural grower. And specifically on the embedded side, we did believe that there was some opportunities on the analog side, so we took up investments there and we’re enjoying the benefits of those investments on the analog side today, but that did provide a headwind.

We talked about — I think, it was a couple of quarters ago. Now, some of the restructuring that you’ve mentioned inside of the embedded business and we’ve got, I think, eight different product groups and we took down some of the resources and some an up tick up some of the resources and others. And really just getting resources on to the best opportunities overall and making sure that we have resources into the places that we believe will be the best growth opportunities.

And I’d just say in general, what we’re trying to do is, leverage our competitive advantages, ensure that the products that we are investing in have a broad-based appeal and a customer base standpoint, and there’ll be products that will generate cash flow for a long time to come.

And just taking a step back, again I’d say that we’re investing in that business, because we believe it will be a great contributor when we look at the years ahead. So — and so, again, there’s a lot of effort going into building that business stronger, but it will take time. So that successful would be measured over years, not just in a quarter or two.

So with that, I’ll turn it over to Rafael to wrap this up for the night.

Rafael R. Lizardi — Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Finance & Operations

Thanks, Dave. Let me wrap up by emphasizing what we have said previously. At our core, we’re engineers and technology is the foundation of our company. But ultimately, our objective and the best metric to measure progress and generate long-term value for our owners is the growth of free cash flow per share. Our strategy to maximize free cash flow per share growth has three elements: a great business model focused on analog and embedded products and built around four sustainable competitive advantages; two, discipline in allocating capital to the best opportunities; and lastly, efficiency, which means constantly striving for more output for every dollar spent.

While we strive to achieve our objectives, we will continue to pursue our three ambitions: we will act like owners, who will own the company for decades; we will adapt and succeed in a world that’s ever changing; and we will be a company that we’re personally proud to be a part of and would one as a neighbor. When we are successful, our employees, customers and communities and owners are all benefit.

Thank you and have a good evening.

Operator

[Operator Closing Remarks]