Good morning. My name is Jennifer, and I will be your conference facilitator. At this time, I would like to welcome everyone to Analog Devices Fourth Quarter and Fiscal Year 2015 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Ali Husain, Treasurer and Director of Investor Relations. Please proceed.

All right, great. Thanks, Jennifer, and it feels good to say good morning everyone. Thank you for joining ADI's Fourth Quarter and Fiscal 2015 Earnings Conference Call. You can find our press release and related financial schedules on our investor page at investor.analog.com. As usual, this morning, I'm joined by ADI's CEO, Vince Roche; and ADI's CFO, Dave Zinsner. The agenda for this morning is as follows. First, we'll provide a brief overview of our fourth quarter and fiscal '15 results, and then we'll provide our current thinking and our outlook for the first quarter of 2016, and finally, Vince will capstone the prepared remarks, following which we'll open up the lines for Q&A. So before we start, let's get through the important disclosures we have to make every quarter. Please note the information we're about to discuss, including our objectives and outlook includes forward-looking statements. Actual results may differ materially from these forward-looking statements as a result of various factors, including those discussed in our earnings release and our most recent 10-K. These forward-looking statements reflect our opinion as of the date of this call, and we undertake no obligation to update these forward-looking statements in light of new information or future events. Our comments today will also include non-GAAP financial measures, which we have reconciled to their most directly comparable GAAP financial measures in today's earnings release, which we have posted on our IR page at investor.analog.com. So let's get started. As you've likely seen from the press release, ADI had another very strong quarter. Revenue in the fourth quarter totaled $979 million, increasing 13% sequentially and 20% year-over-year. These results were above the high end of our guidance range, primarily due to strength in Portable Consumer Devices, and to a lesser extent, from some recovery in the…

Thanks, Ali. Good morning, everyone, and thank you for joining us. The fourth quarter was once again a very strong and profitable quarter for ADI, and we set records for quarterly revenue, earnings per share and cash flow generation. Revenue this quarter increased to a record $979 million, and diluted earnings per share was $1.03, with both results above the high end of our guidance. Gross margins this quarter were 65.7%, which was in line with our guidance, and down 40 basis points from the prior quarter primarily due to mix. Days of inventory in the fourth quarter decreased to 114 days from the prior quarters 128 days primarily on higher revenue. And dollars of inventory decreased $12 million over the prior quarter. Weeks of inventory and distribution were approximately 7.5 weeks, which was consistent with the prior quarter. Total end customer orders decreased in the fourth quarter as compared to the third, which is quite typical in advance of a seasonally slow first quarter and our book-to-bill was below 1. Operating expenses in the fourth quarter increased 6% sequentially, lagging well behind the 13% sequential increase in revenue as we continued to manage operating costs very tightly, allowing us to gain more operating leverage in our model. As a percent of sales, operating expenses in the fourth quarter declined over 200 basis points compared to the prior quarter, and declined over 300 basis points compared to the same period a year ago. Operating profits before tax increased to $351 million or 35.9% of sales, which is 170 basis points higher compared to the prior quarter and 270 basis points higher than the same quarter in the prior year. Other expense in the fourth quarter was approximately $4 million and represented the net interest expense on our debt. Our annual…

Thank you, Dave, and good morning, everyone. As Dave and Ali have highlighted, fiscal '15 was a very good year for ADI in terms of our financial performance. Our strategy, which emphasizes technology innovation and platform reuse across a diversity of applications, proved itself once again. Thus, even though the uncertain macro economy impacted industrial and automotive, and cyclical headwinds reduced communications infrastructure sales, these were more than offset by significant uptake of our signal processing technology in portable consumer devices. It was also an excellent year in terms of key accomplishments. In 2015, we successfully integrated Hittite and expanded available opportunities that we believe will deliver strong revenue synergies starting in 2017. Our integration teams and processes are finally tuned and have successfully achieved our 2015 cost synergy targets, which are expected to accelerate further in 2016. During the year, we continued to align our investments to critical strategic priorities, streamlining our management structure, while making investments to support our future growth. But as we take stock at the end of this fiscal year, I think it's important to look at our past performance over a longer period and provide investors some context on where we have come from and where we want to take our company. Over the last 3 years, despite an uneven macroeconomic backdrop, we have grown our revenue at an 8% annualized growth rate, and we have converted this top line growth into 14% diluted earnings per share growth. We've also been committed to returning cash to our investors. Over the last 3 years, we have grown our dividend at a 10% annualized rate while returning $2 billion to shareholders in dividends and share buybacks. And our annualized TSR over this period is 16%, which is in fact higher than the S&P 500 return over…

Great. Thanks, Vince. For those listeners interested in learning more about ADI and the IoT space, we recently webcast a 45-minute presentation that actually goes in with this topic in much greater detail. You can find all that information on our IR page. Okay. So let's talk quickly about how we run the Q&A session. [Operator Instructions] With that, operator, let's go to Q&A.

[Operator Instructions] Our first question comes from Romit Shah with Nomura Securities.

Dave, just historically, April has been one of your better periods in the year. I think, on average, probably up mid to high single digits, but now that consumer is such a more significant portion of the business, how do you think about seasonality in the April period?

Thanks, Romit. I think you're right in that, obviously, when we are more concentrated in industrial, we would have seen a much bigger ramp seasonally in the second quarter, which we expect to see that seasonality in the second quarter for industrial, but consumer now is a larger portion of our revenue. It's a bit of a wildcard. I think that, that quarter is generally seasonally down a little bit. Obviously, we don't have any visibility into the quarter yet, but that would mute a little bit the sequential increase that you would typically see in the second quarter. But as you know, this is a semiconductor business, and you never really know how things will pan out until you're really up on top of that quarter and can make a better determination.

Our next question comes from Chris Danely with Citigroup.

So look, what happened in October and January, a little more revenue volatility than historical at ADI. So I guess to continue on Romit's question, how do we think about seasonality in 2016? And with that $980 million quarterly revenue bogey, what gives you confidence you guys can exceed $980 million in either the July or the October quarter in 2016? Maybe just talk about just visibility on the consumer front.

Yes. I mean, this is -- we'll have obviously a larger consumer business. Generally, the second half of the year is much stronger than the first half of the year at least from a fiscal year basis for us, given that that's generally when new product launches happen, Christmas builds happen and so forth. So that will definitely change the seasonality a bit for the overall company. My guess is that typical seasonality for ADI is going to be relatively similar sequential increases every quarter for different reasons. Obviously, the second quarter will be more of an industrial story. The third and fourth quarter will likely to be more of a consumer story. And what was your other question, Chris? I missed it.

Just talk about visibility on the consumer front. How do you feel about maintaining market share there in the second half of the year? Will this exceed $980 million in revenue?

Well, again, we have real confidence in revenue when we actually have orders. We have orders usually out about through the following quarter. So it's difficult for me to say what's going to happen over the next few quarters. But I would say our position with all of our large customers is very strong, and we expect to have a strong position with all of those customers out for the distant future.

Your next question comes from John Pitzer with Crédit Suisse.

I guess another question on the consumer side. If you look at the revenue ramp over the last several quarters, the vast majority of that's been driven by force touch. You guys are a relatively new supplier for a new application that the customer feels is important enough that they actually highlighted in kind of their advertising, and we know there's been some yield issues on the module away from you. And if we kind of try to get back into your sort of revenue coming from force touch and try to equate that to a unit number for your customer, it does appear that you're over shipping. And so Dave, I was wondering if you could help us understand, when you look at the January quarter, do you think you are over shipping to your customer right now? And when you look at the guidance for consumer, in the January quarter, do you get most of that back in January, so you feel more comfortable that you're not over shipping the demand right now?

All right. Let me start by saying that, obviously, we don't talk about individual products and individual customers. Our customers don't appreciate that, and it's really up to them to start talking about what their end markets are doing and their applications are doing, but I'll talk to specifically about our consumer business. Clearly, the first, -- or the back half of this year had a very good ramp. And that was driven not by one single product, and quite honestly, not by one single customer. We did announce in our 10-K, we had a 13% customer for the year. So obviously -- and that's unique. So obviously, we do have one customer that did quite well. But there are a lot of things that did very well for us in the consumer business in the back half of the year. So that's one thing, I think, everyone should keep in mind. Clearly, when you have a big ramp like we did in the fourth quarter, and we telegraph a decent sequential decline in the first quarter, that would indicate something is going on, and I think it's safe to assume that there probably was inventory that built in the fourth quarter for reasons that are specific to those customers and how they want to manage their supply chains and so forth. But I don't think it was anything out of the ordinary. That, I think, is relatively typical for how those customers manage their inventory, and as is the first quarter decline, which I think starts to digest that inventory. I don't know how long it takes for that whole thing to kind of smooth out, a consumer business of this size, particularly driven off of portables is a bit different for us than we have historically had a position in. So you want to kind of see how it goes, but we'll -- my guess is that it picks back up in the third and fourth quarter and does quite well. And all of that stuff will make sense to all of you guys to try to back into end consumption and so forth.

And your next question comes from Craig Ellis with B. Riley.

Dave, on the gross margin outlook, with the sequential decrease, can you just frame up some of the gives and takes? Because it would seem like mix would be a tailwind to gross margin, but volume looks like a headwind. What was utilization in the quarter and where do you think it is from the outlook? And what is your ability to control the inventory mean for the gross margin trajectory as we look out to the April quarter and beyond?

Yes. So I think I talked about utilization was in -- help me out, Ali. What...

Utilization in the quarter was about 70%.

Yes, it's 70%

But we're bringing it down to about 60% in the first quarter.

Right, and so that's -- that obviously will drive most of the gross margin decline. There is a bit of a mix also, as you point out, that is driving a little bit of the gross margins. I would say that the mix decline, fourth quarter to first quarter, has a little bit more to do with, believe it or not, mix within the industrial space, not mix within our broader business categories. And so that's what will drive the gross margins on the -- after that, obviously, we'd expect to be bringing back our utilization. Hopefully, seasonally, we see a strong industrial ramp in the second quarter and that would certainly drive better volume within the factories and should get the gross margins back up to the levels that we see today.

Our industrial business today, Craig, is about 10-odd-percent off of its revenue peaks that we achieved back in sort of the third quarter of 2014. So I think our goal here is to really get the inventories in good shape, which we're trying to do here in the first quarter with pretty low utilization rates precisely for that reason, to get inventories in good shape for what we hope will be sort of a seasonal second quarter. Obviously, it's too early to call that at this stage. But if we do see sort of seasonality in the second quarter, then industrial generally does better, and we should see some pretty good gross margins and drop through at earnings. So I hope that answers the question and let's get to the next caller.

Our next question comes from Tore Svanberg with Stifel.

Yes. So your backlog is up 16%. Is there anything I can read into that number? And I'm thinking especially, since your backlog is obviously for several months further out, if we sort of take the consumer out of that equation, does that number sort of signal that your industrial and communications business is strengthening?

Well, I think -- yes, most of it is, I think at the midpoint of our guidance, we're looking at 8% year-over-year. Because if I'm not mistaken, the backlog that you're talking about, Tore, in the 10-K, is a comparison of the backlog coming into last year versus the backlog coming into this year. And we are predicting revenue to be up 8%. So it's not surprising that backlog would be up. The other thing is, I think in some cases, the consumer business, which will be up year-over-year probably pretty meaningfully, gives us a little bit more visibility than some of the other markets. And so from a mix perspective, that actually helps on the visibility in terms of backlog. But it really isn't extending the visibility at all. It's still all shippable within the quarter and for the most part and really doesn't influence how we would think that the second quarter would pan out.

And let me just, Tore, give you a little bit of color. You mentioned specifically industrial and communications infrastructure. So let me just give you a little bit of color around the bookings in the quarter. For industrial, we saw August quite weak as it generally is seasonally in that month. September was actually quite stable, which is a bit of an anomaly, really, in the industrial business. Generally speaking, September comes back quite nicely. This time around, it was actually quite stable to August levels. And I think if you remember back, there were some pretty screaming macro headlines at that point in time. Interestingly then, the October month actually was quite strong for the industrial business. And November seems to have leveled off here a little bit. And I think we're feeling pretty good about the environment, generally thinking about a pretty seasonal sort of environment for the first quarter for industrial. We haven't mentioned it yet, but the weeks of inventory and distribution were 7.5 weeks, consistent with the prior quarter. Our deferred gross revenue balance, which was a pretty good proxy for inventory in the channel of revenue dollars, was down 2% in the quarter. So I think it's all sort of hanging together there as far as we can tell here for the next quarter, and that's sort of -- definitely in our guidance. On the Communications Infrastructure side, it was up 12% sequentially this quarter in terms of revenue. Wireline was down somewhat, so the implication there is that wireless actually did better than the 12%, which it in fact did. I think most of that we told you last quarter that we felt that we were under shipping end demand in that space. I think a lot of that this quarter in terms of revenue performance was a result of inventory coming back in line with end demand. We're starting to see some good base station deployment activity there, although still, it's obviously early to call. But in terms of the order flows in comms during the quarter, we actually saw better order flow every month of the quarter in the comms space. So that's where we're at. I hope that answered the question, and let's get to our next caller.

Our next question is from Craig Hettenbach with Morgan Stanley.

Yes. Just wanted to discuss your approach to capital allocation. If I look at it, you've had a healthy mix. You're certainly focused on dividend increases, the Hittite deal, opportunistic M&A. On the M&A front and especially as the industry consolidates, just how you approached that relative to the return of cash and any type of metrics you're most focused on.

Thanks, Craig. Yes, so obviously, we are focused on the dividend. We mentioned it in the prepared remarks that we would like to see that continually increase. I think we've got 12 increases in the last 11 years. So we'd like to keep on that pace. We do, do opportunistic buybacks. We think some of our shareholders do favor the buyback or at least appreciate the buyback. And so we have maintained a relatively consistent approach. It does tend to buyback more when the stock is weaker, which I think is -- provides a good return on investment for the shareholders. And then lastly, as you pointed out, Craig, we do have an M&A approach. We are -- we have a very high bar in terms of M&A. We don't -- we certainly don't look or bang the -- kick the tires on a lot of deals. We pick ones that are of very high-quality. It really starts with companies that have a high degree of innovation and where that innovation is, I guess, complementary to our own technology with our existing customer base. And so we will do deals from time to time. They generally will be in the Hittite kind of size range or probably lower in some cases. We're actively looking at things. When you look at -- when you tend to look at businesses that do have a high degree of innovation, it usually comes with really good gross margins, very good operating margins, very good returns on R&D investments and so forth. So I think from a financial perspective, those are somewhat of the outputs as opposed to the inputs. But they do -- those do tend to go hand in glove with really innovative companies.

Our next question comes from Amit Daryanani with RBC.

I guess one of the biggest things that people tend to talk about you guys recently is just the concentration issue with your largest customer at this point. So maybe if you just talk about the solution of the products you have with your largest customer, the potential to expand that into other solutions and to other vectors, be that consumer [indiscernible] different sectors. And would you ever look at M&A as a way to diversify concentration?

Well actually, we have never been more diversified as a company. We have more products in the portfolio than we've ever had. We address more customers than we've ever addressed. So we're actually, as a company, in a very, very good position on that front. With regard to the consumer market in general, we have very strong leverage from our core technology platforms. In the consumer business, it tends to be more of a precision-oriented product-development effort. And so we get very strong leverage, for example, from our industrial product base, which tends to be precision-oriented inherently. So we're looking always for areas. Innovation comes first for us. We build the core technologies. We platform-ize the technology, bring it to as many applications as we possibly can. And in the consumer area, we're picking out the very, very highest level challenges that we can possibly address, and we believe those problems are sustainable over time. Of course, time will tell whether that's well founded or not. But we believe we're in a very, very good position. And as Dave mentioned earlier, even within the -- each customer, we look for diversification of applications and products and technology, and that is the case everywhere we're playing in the consumer area as well.

And I'd just add, on the M&A front, we don't drive our M&A off of a kind of a diversification approach because we're concentrated with one customer. We do pick usually companies that have a lot of diversity. And by virtue of that, we do get a lot of diversity. But our first and foremost objective is to find really great technology that complements our existing technology.

Our next question comes from Chris Caso with Susquehanna Financial.

Yes. Question on the comps space and some of your -- follow up on some of your comments there. I guess just particularly within the wireless part of that space, do you think the excess inventory within that space has been digested at this point so that going forward, the growth in that segment should be proportional to the growth in base station deployments and obviously, understand that those base station deployments are well below their prior peak?

Yes, Chris, thanks for the question. Obviously, never say never, right? I mean, it's a lumpy market for a reason. But our sense, when we look at the order flows, when we talk to our customers, is that, that period of time where the inventories were massively drawn down is behind us. So obviously, we can't speak for other companies and other suppliers. But what we can tell for our products, what we're shipping into the space at the current moment is pretty well balanced within demand in the space. And frankly, when we looked at the order flows and we were thinking about the guidance for the first quarter, generally speaking, the first quarter is down in sort of high single digits sequentially for the comms space. And this time, if you back into the guidance, we're implying it will be fairly stable. So if you look at the regional perspective, North America has been pretty stable. China now has started to deploy TD and FD. Again, it's slow, but it has started, and so we saw some impact and some good benefit for that in our quarter. And if you look at our emerging regions, they continue to deploy. We had a particularly good quarter in India this quarter, for example. So I think things are moving. I think they're slow and steady. But at least, they're going the right direction.

Our next question is from William Stein with SunTrust.

Vince, you highlighted what sounds like what could be sort of a virtuous cycle between your comm infrastructure and market on one hand and the other 3 end markets. And I guess it sort of raises a question as to which of these you expect to grow fastest as you enter this environment or this thing you described as sort of the third wave? And I also wonder whether consolidation plays into that thinking and whether M&A sort of plays into the thinking of where to position relative to the virtuous cycle of data development.

Yes, great question. So we have a long-term model for growth. We believe that the markets that we can, if you like, leverage most in terms of driving growth are at the upper end of our 2 to 3x GDP model, are the automotive and communications infrastructure areas. And I still believe that to be true. We put out some targets last year at the Analyst Day. And I think those targets are still valid there. Obviously, consumer is going to be at the upper end of that as well. I think if we can, over the long-term, -- and we have, certainly for the last 3 years, have been able to drive our industrial business at a couple of times GDP level, we'd be in very, very good stead well into the future. And what I've given you in terms of those targets is really about what we do organically rather than whether we have to buy more heft. As Dave has indicated, we're always scouting around, looking for technologies that make more of an impact to the overall solution that we deliver to our customers. And we're taking more of a strategic view rather than a financial view or an operating view of M&A. So it's more about finding those bolt-on technologies that make ADI more relevant, make our technology, product offering more powerful in the eyes of the customer. But generally speaking, I think we're in a very, very good position to organically take care of our future.

Our next question comes from David Wong with Wells Fargo.

When we look at your industrial and communications segments and year-over-year comparisons, do you reckon these numbers reflect the end markets? Or are they suppressed by any rationalization of product lines or customer action following the Hittite acquisition?

Well, I -- obviously, in the first quarter of 2015, we had Hittite. So there really -- it's a direct comparison. I mean, I guess I do -- in the communications business, we are certainly operating at what is a lower level than what we think is the normal build-out of base stations on a year-on-year basis. So it's impacted by the reduction in spending in wireless infrastructure in a couple of different markets. Granted, it is recovered from its trough, but it's not certainly at what would be considered normalized levels. I think in the industrial business, it's -- it was a relatively on a year-over-year basis, a relatively modest increase but kind of within what a GDP-like growth rate has been. So I would say that probably reflects kind of normal end demand in those -- in that market.

Yes, I will say, David, just to add a little more color, we had a record quarter with regard to the Hittite portfolio in the quarter just gone. And given our relatively depressed communications market though there was some recovery, what I've been most pleased about is the diversity of the applications we're able to target outside of the Communications Infrastructure business with that portfolio.

Our next question is from Harlan Sur with JPMorgan.

The -- I think Ali said in the prepared remarks that the auto CAGR has been going about 9% over the past few years, pretty solid performance. That's decelerated a bit, kind of flat growth here in fiscal '15. Looks like, given the guidance around Q1, that's probably going to be flat year-over-year. The team has talked about a better design win pipeline in terms of dollar cost it captured in 2016 within the automotive segment, and so I guess the question is, is the team still relatively confident about the potential for re-acceleration in automotive? And then which subsegments are you going to see more of the growth, is it in powertrain and safety? Are you going to see some growth in Infotainment as well?

Yes, good questions. So we've had a lot of inquiries over the last couple of quarters about our performance, specifically in the automotive sector. And what I'll tell you is that it's really a tale of 2 businesses during 2015. It was a relatively flat quarter. And when you extract -- I think I've mentioned before to you that our MEMS safety business has had some, no pun intended, some speed bumps along the way here. And -- but our automotive business, with the exception of MEMS safety, actually grew in the high single digits year-over-year, primarily in the areas like Advanced Driver Assistance. The predictive safety side of the business has grown at a stellar pace for the company over the last 3 or 4 years. I believe that will be the case into the future. And the powertrain, specifically the sensing part of that business and the battery monitoring control, has done well and will continue to do well. Infotainment is a very diversified area, and we tend to target the high end of that business with our digital signal processing and our data acquisition technology and algorithmic technologies. We've a new technology called A2B, which is a method of moving sound through the car essentially, speech and sound, in a way that is very efficient, very, very low latency, very low weight in terms of the wiring cables and so on. We've a lot of new sensing technology coming into play, an area like AMR, for example, where we are developing a leadership position, which will be a whole new category in that business in the future as cars electrify and become more automated. So I think what you can expect in the automotive business during this coming fiscal year is that the first half will be within seasonal pattern of the current business level. But the second half, I do expect to pick up in the growth of the overall business at the higher end of the growth model, which is 3x GDP kind of level. So we're confident, given the alignment between the products we have and customer programs that we've got, and it's an area where we have been intensively investing and increasing the investments over the past 5 years. So I think we'll return to a growth pattern towards the back end of '16 and beyond. So that's my sense based on everything that I know at this point in time.

Our next question comes from Vivek Arya with Bank of America Merrill Lynch.

I just wanted to clarify on this overbuild versus underbuild in consumer so we don't blow it out of proportion. So Dave, on Q4, you mentioned some slight overbuild. Is it possible to quantify that? And then as we then look at Q1, I assume there is perhaps some underbuild. So as you emerge from Q1, are you going to emerge with some signs of shipping into actual demand? And I know it's probably a little early, but how does rough visibility look like for Q2?

We have -- like I said, we got little visibility into Q2, and it's -- will be premature for me to even mention which direction it would even go. Yes, I don't want to -- and I think you've actually put -- point out a good point. I don't want to over emphasize build. Most of that -- we believe, most of the shipments were consumed. But when you have a fourth quarter to first quarter transition like we're talking about, you have to believe that there's some kind of digestion that happens for a little bit of it, which drives us to believe that on a sequential basis, consumer's going to be down, and that's why we're guiding to where we're guiding. And it will probably be down more than the corporate average. Outside of that, I can't give any more visibility. Obviously, there's a lot of moving pieces within the consumer business, and trying to identify every application and every customer that's going into and figuring out what they're all doing is next to impossible for us. We get the orders, we ship them, and we leave it to them to figure out what to do beyond that.

It's probably a good time to just reemphasize that despite all of this sort of near-term noise that year-over-year revenue growth in the first quarter at the midpoint would be 8% with double-digit EPS growth. So thanks for the question, Vivek.

Our next question is from Steve Smigie with Raymond James.

Just a quick follow up on the out-performance in the quarter. I think you mentioned that it was due to multiple products here in consumer. Obviously, there's been some discussion of force touch. Can you talk about what products other than force touch were part of the out-performance in the quarter?

I'm not even saying that was a reason of the out-performance in the quarter. All I can say, Steve, is we have several -- many customers within our consumer business. We have lots of customers in the portable side of the business, and we have a lot of different products that go into those applications. So...

Yes, to give you a sense, we -- again, the products we ship into these applications tend to be precision-oriented in areas like sensing, in audio and also in the area of image processing. So they are kind of the 3 categories you should think about when you think of ADI's position within these portable consumer applications.

Thanks, Steve, and this is Ali here. So as we're 3 minutes short of the hour, I think we're going to keep going with the questions. But I think it's probably -- the time is probably over for those who have re-queued unfortunately. So I think let's just keep going to at least get everybody's first questions in.

Our next question is from C.J. Muse with Evercore ISI.

I guess, overall, looking for your kind of big picture macro view here. What are your thoughts in terms of where we are in the cycle? Where do you see pockets of health, maybe pockets of weakness and there really speaking geographically? And how all of that shapes up in terms of the recovery picture in the first half of '16?

Yes, I'm not sure there is a cycle, by the way, anymore in our -- in the semiconductor industry, and I think a lot of the consolidation somewhat ensures that as well. So I think there is a decent match between supply and demand right at this point in time. Over the years, we've all developed methods to deal with the volatility, and we've a lot more transparency, I think, now as well into the areas of supply and demand. So I think in some ways, what you should be looking at for '16 is probably what the macroeconomic climate does, and we've started messaging our growth trajectory or the algorithm we have for growth as well on that basis, some multiple given the various markets that -- in which we play and what they're capable of delivering in terms of macro level growth and modulated by where we are with our products and technologies and our customers in these areas. So I'm not sure there is a particular cycle in our industry anymore. And probably safer to look at what the macro environment does in the various regions.

Our next question comes from Tristan Gerra with Baird.

To follow-up on your commentary about automotive. What type of market share position do you think you can have in driver assist over the next couple of years and on the basis of your design wins? And how big does it get as a percent of your automotive market?

Yes, it's a good question, Tristan. I -- off the top of my head, I don't have the numbers. But the growth rate of our advanced driver assistance business has been one of the strongest -- it's probably the strongest growth element, by the way, during 2015. It's a meaningful part of ADI's overall automotive business now at this point in time. We have some very exciting new technology built on some microwave technology that we built on a very, very advanced technology platform that we're about to -- we'll be sampling over this coming year to our customers that will change the game in radar technologies. And so I think when you look at that business overall, certainly, safety is going to continue to be a very important part, given the mandates, and everybody wants more safety. So -- and I think the capabilities that we have as a company as well in active, passive and combining those are predictive, puts us in quite a unique position, actually, to be able to look at the safety problem as a system of problems and tailor our solutions to those needs.

Our next question comes from Ambrish Srivastava with BMO.

Dave, I had a question on the CapEx guidance for the full year and also on -- along those lines, free cash flow margin, given that a higher ROI and a higher operating margin business is going to be a bigger portion of the mix, should we expect that free cash flow margin for fiscal '16 should be higher?

Yes, we're certainly driving the free cash flow to be higher. That is our goal. And then, the portion on the CapEx, I mean, we're striving towards 4% or so CapEx as a percent of revenue. That's really our goal. I think we had a very good year in terms of free cash flow this year. I think we can do better next year with a lower CapEx as a percent of revenue to help drive that a little bit. And there are some things -- we had to -- we did have to build inventory this year up for some ramps that occurred and some last time builds related to Hittite. Those activities are behind us in terms of building inventories. So we should get, I think, a pretty favorable working capital number for 2016, which could help drive a better free cash flow number for 2016 as well.

Yes, and if I can just add quickly, Ambrish, free cash flow for the year excluding the one-time pension payment was 29% of revenue. The model range is 28% to 32%. So I think we're within that range but certainly towards the lower end of the range. And within the quarter, we generated ex that payment, 38% of our sales in free cash flow, which was actually very, very strong, and as you know, we returned 80% of everything we generate to shareholders, either through dividend or buy back. So thanks for the question.

Our next question comes from Harsh Kumar with Stephens.

The results, great guidance, great, great results. Let me just ask quickly about wireless infrastructure. It's quite a bit off your -- off the peak that you guys had, I think, in the January part of this year. You're talking about some pretty good trends happening right now as you see it in wireless infrastructure. What is your best view of how the environment's looking as you get into next year and maybe also 2016 for comm?

Yes. As Ali said earlier on, the -- from a geographical perspective, North America was pretty flat. I think the story in terms of demand has been driven by China over the course of FY '15. The government carrier investigations have had a huge impact on the deployment of infrastructure there. So I think the pace will pick up in the -- we've seen some pick up over the last quarter. Demand has solidified and strengthened. But I think during '16, you will see a pick in the FD deployments. FTD, TD and particularly in the area of, with regard to China Mobile, small cell deployments in the second half of the year to densify the network and get more capacity. And my sense is that 4G, we've seen, for example, in India over the past quarter, some good deployments in an area where the deployment of LTE is really, really, really low and has a long way to go. And I think it will be steady in America and probably grow marginally in Europe as carriers deploy more infrastructure there to catch the networks up from -- in a lot of places still 2.5G into 4G.

So Harsh, I think it's a question of when, not if. And I think we're very well-positioned across all the carriers and all the regions. So inventories look to be in good shape. The orders, hopefully, will hold up. As you mentioned, our comms business is well off its peak, so I think, I look back and it's about 23% off of its recent revenue peak. So I think there's plenty more to go there, and it's a question of when, not if. So thanks for the question.

Our next question is from Ross Seymore with Deutsche Bank.

Had a question on the cash flow in the capital allocation side. You guys have done a great job returning cash, like you said, about 95% of free cash flow in the last year. But that comes somewhat at the expense of domestic cash, which looks like it's down about 20%, 25% year-over-year. So I guess my question is, when you guys have the domestic versus offshore cash, how do you reconcile that with both your cash return to shareholders, whether it's repurchase or dividend? And how does that impact your M&A strategy, if at all, acknowledging you were able to use offshore cash for Hittite?

Yes. It's a complicated web, no doubt. We -- I think in general, if we are returning 80% of our free cash flow back to shareholders, we don't generate at that level in the U.S. And obviously, all of that has to come from U.S. cash flow. So the U.S. entity definitely will be a borrower. And that's why you -- that's why we have $3 billion of cash and $875 million of debt today is because we lever up the U.S. balance sheet. But on a net basis, we still have a net cash position worldwide. And I think that's generally the approach. There are situations in which international cash would be utilized, and as you pointed out, one of those would be for acquisitions. There's also a number of things that we could potentially do outside of the U.S. in terms of acquisitions that -- it's not a very complicated transaction to utilize that cash. So we will use some of that cash, obviously, for M&A. But to the extent we need U.S. cash, we will use the balance -- leverage to get there.

Yes, and Ross, we have overall liquidity domestically of $1.3 billion to $1.4 billion, which obviously includes the revolver as well. But that gives us plenty of flexibility to do the things that we want to do here in the U.S. So...

Our next question is from Blayne Curtis with Barclays.

This is Chris on for Blayne. It feels like it's beating a dead horse here. But I just wanted to kind of drill in on the consumer business. And if you could just talk a little about linearity over the last couple of quarters for the core business there. You've obviously had a big ramp in the consumer wireless space. But just the existing business outside of that big ramp, how has that trended over the past couple of quarters?

I think -- let's just look at the last quarter here. Overall, I'd say orders, excluding the consumer business in August, were down from the prior quarter. They were slightly up in September, and October was very strong as I mentioned earlier, particularly in the industrial space, coming off of sort of a weaker September. So that's generally how it's trended. And I think we've given the guidance here for the first quarter based on what we're seeing in the order flow. So I think if you exclude the consumer business, generally, everything else is sort of trending seasonally here in the first quarter. So thanks for the question.

Our next question is from Doug Freedman with Sterne Agee.

Great. Real quickly, on the -- looking at gross margins, can you give us a sense to the range that we would see between the industrial consumer, auto and comms groups? I know you've mentioned that the industrial is contributing to a little bit of the headwind because it is soft in the guidance. But I would've thought the consumer being below average would also have been a little bit of an offset. Maybe if you could help me just magnify the range that we would see across the businesses so we have a better understanding going forward.

Yes, I'll see if I can give you any color. The industrial business, obviously, is our highest gross margin business, and that is above the corporate average. Communications is slightly above the corporate average. Consumer is slightly below the corporate average, and automotive is slightly below the corporate average. So those are kind of their -- the ranges. The only challenge in that, Doug, is that there's also the dynamic of what gets made in the factory. And so sometimes mix does play a part in kind of factory absorption and how many wafers we produce and so forth. So that's a complicating factor that drives a little bit of the gross margin. But I would just tell you, maybe stepping back from it, we had a very good year in terms of gross margins for 2015. We were 66%. We think that while focusing on innovation, we generally will get very good gross margins in the future. We've got some things that we're looking at, that we continue to execute on that help lower our cost and improve our pricing. In fact, I think over the last few years, our ASPs have been going up. So we think we have a very good opportunity to push those gross margins higher over the next few years.

Our next question is from Ian Ing with MKM Partners.

Yes. So obviously, you're addressing a lot of opportunities here in converters and amplifiers. You've got good portfolios there. But could you remind us of your view on power management? Is this an area you'd like to get into perhaps to leverage your scale in customer-facing resources? Or is it not interesting at this moment?

Well, power management as a technology for us, we have good traction in areas like communications infrastructure. For us, we are not trying to build a broad-based catalog of products. What we are doing is taking the capability that we have inside the company in terms of process, technology and in terms of circuit technology and applying that technology to build products that strengthen the overall signal chain, particularly in more kind of vertical applications, where we can get the leverage in areas, as I said, like wireless communications infrastructure. So that is the strategy for the company and power management. And we've made some very, very good progress there over the last 3 or 4 years as we have given up the ghost in trying to build a broad catalog and brand in power. But instead, targeted very, very carefully at the applications, where the interplay of power technology and signal chain technology creates a virtual cycle here.

Our last call comes from Stephen Chin with UBS.

I just wanted to ask a follow up on automotive. You gave great color over on some of the tech trends there. But just from a geographic and maybe kind of bigger, macro picture perspective, was China the only area of weakness? Or where there -- any other geographies that also showed softness in the quarter? And in addition to that, just with the potential for interest rates to increase in the coming quarters, do you think the higher cost of lending might impact auto sales as well?

Yes. I think we're not a room of economists here for sure. But let us, at least, tell you what our thinking is, Stephen. So in the quarter, the business trended really as we expected, frankly. It was up 1% sequentially. All the 3 subsegments of automotive were essentially in line and pretty stable during the quarter. When we started the year, the forecast for vehicle growth in China was 7%. And as we're ending the year here, it's down to about 1% or 2%. And China, obviously, consumes a good amount of premium vehicles. For ADI, we've done sort of the back of the envelope map -- math here on our revenue in the automotive space, and it's probably sort of mid-teens impact from sales into China. So certainly, that would have an impact on our revenue. I think when you look across the other regions, I'd say North America has been doing quite well. The European vehicle registrations every month are up. So that's generally a good sign. When you look in North America, the average age of the vehicle is greater than its historical average. Dealer inventories are below their corporate average. And China, they've recently announced stimulus programs on sales tax for automotive. So again, I'm not an economist, and I don't play one on TV either. But I guess from our sense, everything is sort of trending as we would've expected, except, I'd say, for the China region, which certainly has been weaker for the entire industry. And so certainly, we're not going to be agnostic to that. That would have an impact on our sales as well, particularly as China consumes a fair amount of premium vehicles. So I hope that answered your questions, Stephen, and I guess that's the end of our earnings call here. We're 15 minutes past the hour. As a reminder, our first quarter 2016 results are scheduled for February 17. Again, 8 a.m. press release, Eastern time, 10 a.m. earnings call. So thanks for joining us this morning. We look forward to talking to you soon.

This concludes today's Analog Devices conference call. You may now disconnect.