NXPI - NXP Semiconductors N.V.

Operator: Hello, and thank you for standing by. Welcome to NXP's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Jeff Palmer, Senior Vice President, Investor Relations. Please go ahead, sir. Jeff Palmer: Thank you, Towanda, and good morning, everyone. Welcome to our third quarter earnings call today. With me on the call today is Rafael Sotomayor, NXP's President and CEO; and Bill Betz, our CFO. Also on the call with us is Kurt Sievers, who will act as a special adviser to Rafael through the end of 2025. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the fourth quarter of 2025. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2025 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section. Now I'd like to turn the call over to Rafael. Rafael Sotomayor: Thank you, Jeff, and good morning. We appreciate you joining our call today. Our overall performance during the third quarter was solid. Our revenue exceeded guidance by $23 million. We experienced sequential growth driven by broad-based improvements across all regions and end markets. We maintained good profitability and controlled operating expenses, resulting in healthy fall-through. Turning to the specifics. NXP delivered third quarter revenue of $3.17 billion, a decline of 2% year-on-year and up 8% sequentially. Non-GAAP operating margin in the third quarter was about 34%, 170 basis points below the same period a year ago and 10 basis points above the midpoint of our guidance. The lower operating margin versus the same period last year was due to lower revenue and gross profit, partially helped by flat operating expenses. Taken together, we drove non-GAAP earnings per share of $3.11, $0.01 better than guidance. Distribution inventory was flat at 9 weeks, consistent with our guidance, while still below our long-term target of 11 weeks. From a direct sales perspective, we believe our shipments into the Tier 1 automotive supply chain has approached end demand. We estimate that aggregate inventory levels of NXP-specific products at our major Tier 1 partners are below NXP's manufacturing cycle time. We believe this reflects a continued cautious approach in the automotive supply chain due to the uncertain macro environment. Overall, during the quarter, we did not experience any material customer order pull-ins or pushouts. Now I will turn to our expectations for the fourth quarter. Our outlook reflects the continued strength of our company-specific growth drivers and signs of a steady cyclical recovery in our automotive and industrial markets. We do not yet anticipate direct customer inventory restocking as one might expect off the bottom of a cyclical trough. From a channel perspective, our guidance assumes distribution inventory may fluctuate between 9 and 10 weeks as we are selectively staging additional products in the channel to be competitive. We are guiding fourth quarter revenue to $3.3 billion, up 6% versus the fourth quarter of 2024 and up 4% sequentially. At the midpoint, we expect the following trends in our business during Q4. Automotive is expected to be up mid-single digits versus Q4 2024 and up in the low single-digit percent range versus Q3 2025. Industrial and IoT is expected to be up in the mid-20% range year-on-year and up 10% versus Q3 2025. Mobile is expected to be up in the mid-teens percent range year-on-year and up in the mid-single-digit range on a sequential basis. And finally, Communication Infrastructure and Other is expected to be down in the 20% range versus Q4 2024 and flat versus Q3 2025. In summary, NXP third quarter results and guidance for the fourth quarter reflect a growing confidence in the company-specific growth drivers and that our new up cycle is beginning to materialize. This is based on the several signals we track regularly. These include continually growing customer backlog placed with our distribution partners, improved order signals from our direct customers, increased short-cycle orders and a growing number of product shortages leading to customer escalations. At the same time, we do not yet see material customer restocking due to the uncertain macro environment. Now an update on our pending acquisitions of Kinara and Aviva Links. We have received all regulatory approvals. We have closed both Aviva Links and Kinara. We are extremely excited about the long-term benefits these acquisitions will bring to our customer engagements and market position. As we have previously shared, in the short term, these acquisitions will have an immaterial impact on the revenue and financial model of NXP. We do believe the revenue impact will be material in 2028 and beyond. The 3 recent acquisitions, TTTech Auto, Kinara and Aviva Links will enable NXP's vision to be the leader in intelligent edge systems in the automotive, industrial and IoT markets. As this is my first earnings call, I would like to assure you that the strategy we laid out during our November 2024 Investor Day stays firmly in place. This includes our product innovation focus in our financial and capital return model. For the last 6 months, I've traveled globally, engaging with our customers, suppliers and development teams. My key takeaway is that NXP's strategy is compelling. We are focused on the most important customers and thought leaders. Our highly differentiated product road maps position us well to achieve our long-term goals. I will continue to work closely with the cross-functional leaders throughout NXP to accelerate our innovation and time-to-market efforts. Overall, we remain focused on disciplined investment and portfolio enhancements to drive profitable growth while maintaining control over the factors we can influence. And now I would like to pass the call to Bill for a review of our financial performance. Bill Betz: Thank you, Rafael, and good morning to everyone on today's call. As Rafael has already covered the drivers of the revenue during Q3 and provide the revenue outlook for Q4, I would like to move to the financial highlights. Overall, Q3 financial performance was solid with revenue, gross profit and operating profit all above the midpoint of our guidance range, while operating expenses were a touch above the midpoint of our guidance due to slightly higher variable compensation. Taken together, we delivered non-GAAP earnings per share of $3.11 or $0.01 better than the midpoint of our guidance. Now moving to the details of Q3. Total revenue was $3.17 billion, down 2% year-on-year and $23 million above the midpoint of our guidance range. We generated $1.81 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57%, down 120 basis points year-on-year and in line with the midpoint of our guidance range. Total non-GAAP operating expenses were $738 million or 23.3% of revenue, flat year-on-year. From a total operating profit perspective, non-GAAP operating profit was $1.07 billion, and non-GAAP operating margin was 33.8%, down 170 basis points year-on-year and 10 basis points above the midpoint of our guidance range. Non-GAAP interest expense was $91 million, while taxes for ongoing operations were $173 million or a 17.7% non-GAAP effective tax rate. Noncontrolling interest was $15 million and results from equity accounted investees related to our joint venture manufacturing partnerships was a $2 million loss. Taken together, the below-the-line items were $6 million unfavorable versus our guidance, primarily due to a slightly higher tax rate driven by improved profitability. Stock-based compensation, which is not included in our non-GAAP earnings, was $118 million. Now I'd like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $12.24 billion, up $757 million sequentially. We issued 3 new tranches of debt totaling $1.5 billion with a combined weighted cost of debt of 4.853%. During the quarter, we reduced our net commercial paper outstanding by $735 million. Additionally, we plan to retire 2 tranches of debt due in March and June of 2026, totaling $1.25 billion with a weighted cost of debt of 4.465%. Our ending cash balance was $3.95 billion, up $784 million sequentially due to the cumulative effect of commercial paper reduction, capital returns, equity and CapEx investments offset against the new debt and cash generated during the quarter. Resulting net debt was $8.28 billion with a trailing 12-month adjusted EBITDA of $4.65 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q3 was 1.8x, and our 12-month adjusted EBITDA interest coverage ratio was 15.9x. During Q3, we paid $256 million in cash dividends and repurchased $54 million of our shares, representing a 12-month total shareholder return of $2.05 billion or 106% of non-GAAP free cash flow. After the end of the quarter and through October 24, we bought an additional $100 million of our shares under a 10b5-1 program. Now turning to working capital metrics. Days of inventory was 161 days, an increase of 3 days versus the prior quarter, with inventory dollars up modestly due to prebuilds and wafer receipts from our foundry partners. Days receivables were 31 days, down 2 days sequentially and days payable were 58 days, down 2 days sequentially as well. Taken together, our cash conversion cycle was 134 days. Cash flow from operations was $585 million, and net CapEx was $76 million or about 2% of revenue, resulting in non-GAAP free cash flow of $509 million or 16% of revenue. During Q3, we paid $225 million towards the capacity access fees related to VSMC, which is included in our cash flow from operations. Additionally, we paid $139 million into VSMC and $15 million into ESMC, our 2 equity accounted foundry joint ventures under construction with the payments reflected in our cash flow from investing activities. Now turning to our expectations for the fourth quarter. As Rafael mentioned, we anticipate Q4 revenue to be $3.3 billion, plus or minus $100 million. At the midpoint, this is up about 6% year-on-year and up 4% sequentially, better than our view 90 days ago. We expect non-GAAP gross margin to be 57.5%, plus or minus 50 basis points. Operating expenses are expected to be about $757 million, plus or minus $10 million or about 23% of revenue, consistent with our long-term financial model. Taken together, we see non-GAAP operating margin to be 34.6% at the midpoint, bringing NXP back into our long-term financial model. In addition, our guidance includes about 2 months of operating expenses for the close of Aviva Links and Kinara acquisitions. Now turning to the below line items. We estimate non-GAAP financial expense to be about $103 million. We expect the non-GAAP tax rate to be 18% of profit before tax. Noncontrolling interest expense will be about $14 million and start-up expenses related to our equity account investees will be about $3 million loss. For Q4, we suggest for modeling purposes, you use an average share count of 254.3 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $118 million. Taken together at the midpoint, this implies a non-GAAP earnings per share of $3.28. Turning to the uses of cash. We expect capital expenditures to be around 3% of revenue below our 5% target as we execute our hybrid manufacturing strategy. This includes consolidating our 200-millimeter front-end manufacturing factories, investing in our 300-millimeter joint ventures with VSMC and ESMC. These investments will result in margin expansion, supply resilience and access to a competitive manufacturing cost structure. As shared at our Investor Day, we will continue to substantially invest in VSMC in Singapore during Q4, including a $250 million capacity access fee payment and a $350 million equity investment. When VSMC is fully loaded in 2028, it will drive a 200 basis point improvement in NXP's total gross margin. Additionally, we will make a $45 million equity investment into ESMC in Germany, enabling additional 300-millimeter supply resilience. Lastly, we will pay approximately $500 million for the closed acquisitions of both Aviva Links and Kinara. And furthermore, we have restarted our buybacks at the beginning of September, and we will continue to buy back stock consistent with our capital allocation strategy. And finally, I would like to extend my personal thanks to Kurt as he transitions to a new and exciting chapter of his life. He's been in an inspiration to all NXP team members and a personal mentor and valued partner to me as a CFO. We will miss his infectious humor, timely counsel and thoughtful insights. With that, I would like to now turn it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: Congrats to both Kurt and Rafael. I guess my first question, a big picture one. Bill, you just mentioned that the guidance for the fourth quarter was better than you expected 90 days ago. But the details Rafael gave, while positive, didn't seem like much had really changed. So what specifically got better over the last 90 days, either by end market, inventory, region, et cetera? Rafael Sotomayor: Yes. Let me take that one, Ross. So we -- the way we think about Q4 is we're guiding Q4 sequentially 4% up. And so what we said last time, we said we're going to -- I mean, we did provide a soft guide of Q4 that we said we're going to be flat to slightly up. So I think what I would say is the things that we expected to go, maybe potentially the risk that we have, they didn't materialize. And the signals -- the signals with respect to a soft recovery continue to get -- continue to be there, right? And our order book continues to be strong. The end customer backlog our distribution partners continues to be healthy. And so if you look at the quarter-to-quarter guide, what is driving a slight improvement, I would say, over seasonality, pre-COVID seasonality, is Industrial and IoT, where I think we see signs now of slight demand improvement. Ross Seymore: Great. I guess on that front, you mentioned about the inventory staying in the 9- to 10-week level, not quite getting to the 11 that's your target. If you go from 9 to 11, any sort of rough dollar amount that, that contributes that we should think about? And is there any specific trigger that you're looking at to let that inventory get back to its normal level, whether it be in the fourth quarter, which it doesn't sound like or in, say, the first half of next year? Rafael Sotomayor: Yes, Ross, so I understand in the past, I mean, we apply a math that it was -- that we said it's about 1 week of inventory equals to $100 million. And I understand the math. But what I would like to kind of for now, think of -- I think it's more useful to look at how we are managing the channel strategically and so kind of shift a little bit of how you look at our channel inventory. If you look at today, given the current environment that we have, where visibility is limited, orders come late, the one thing I want to leave you with is important to have the right product mix in the channel to be competitive, especially when you think about our competition that has significantly higher inventory in the channel than us. And so -- and as you know, we're not a catalog company. So getting the right product mix is really important for us. Now today, right now, we're being selective. We stage in additional products that have -- that we have high conviction of sell-through. And so that one, that's the reason I state that the inventory may fluctuate between 9 and 10 because what I want to leave you with is, in today's environment, weeks of inventory is not static, right? Orders are coming late. Now I would say that your question with respect to when 11 weeks, I would say that as our visibility and confidence continues to improve, and I will confirm your point, we still see the optimal level moving towards 11 weeks. And that may or may not happen in Q1 as we see improvements in the business conditions. Operator: Our next question comes from the line of Francois Bouvignies with UBS. Francois-Xavier Bouvignies: My first question is on maybe your comment, Rafael, you said that you think inventories are, I mean, low in automotive, for example, and things are getting better broad-based, but you do not expect to increase inventories in the channel, I mean -- or even -- sorry, not in channel, but in the direct channel. So I was wondering if we look at Q1 in terms of seasonality, I think you are down high single-digit percentage quarter-on-quarter for Q1. Should I read this comment as today, with your visibility, you are comfortable with seasonality, assuming there is no stockpiling and demand is stabilizing. Is that the right way to look at it? Rafael Sotomayor: So you're asking about Q1? Francois-Xavier Bouvignies: Yes, Q1 like in a way, directionally based on what you just said, like are you comfortable with the seasonal trend? Rafael Sotomayor: Yes. Well, let me just kind of -- before I get into -- I give you a slight answer on that one, I would say that if you look into what we feel good about is the setup into 2026. If you look at how we finished Q4, I think that we are now entering a phase of inventory normalization in auto, and we've seen signals of, I would say, demand improvement in Industrial and IoT. I think we like the setup. I'm not going to guide Q1 for you, Francois, but I think if you're going to model -- I think modeling seasonality, and I would say, using pre-COVID seasonality, which is high single digits decline would be reasonable. Francois-Xavier Bouvignies: I appreciate the color. Maybe the second question is for Bill. I mean, gross margin is going up in the next quarter. I assume it could be because of mix, but I would be happy to have your view here. But more generally, I mean, your inventories is still fairly high, days a bit higher, dollars a bit higher. So I assume your loading is still -- you keep loading quite high. So how should we think about the gross margin direction after this Q4? Are you going to decrease the loading at the expense of gross margin? Or do you think you can manage this level of gross margin or even increase from here? Just some moving parts would be very helpful. Bill Betz: Sure, Francois. As you could see, as you mentioned, we are guiding gross margins up approximately 50 basis points into Q4. And this is driven by the higher revenues, Francois, improved operational costs and also, yes, higher utilizations, which is actually offset with unfavorable product mix. And then, of course, we have the normal plus or minus 50 basis points on what that mix tends to ultimately be in the quarter. For Q1 2026 and the full year of 2026, we are not guiding; however, please consider our normal seasonality that Rafael just talked about in revenues for Q1, along with our annual low single-digit price negotiations that typically impact us in the first quarter, and we always work to offset those throughout the year through cost reductions and operational efficiencies. So for full year 2026, I would say we expect to be in our long-term model of 57% to 63%, driven by a function of revenue levels, improved utilization, cost reductions offsetting the price gives and the normal product mix fluctuations in any given quarter. I would say, as stated before, please continue to use that rule of thumb for every $1 billion of revenue on a full year basis drives approximately 100 basis point improvement to gross margin. For example, I shared in the past, at $15 billion, we should be at 60%. And then remember, as I mentioned in my prepared remarks, beyond 2027, we also see another lift to our gross margins by approximately 200 basis points driven by our hybrid manufacturing strategy. And again, overall, I think we're very pleased with the trajectory of our gross margins and how we manage this. Related to your inventory question, you're right. In Q3, we finished inventory at 161 days. That was up 3 days. And we're staging inventory to support our growth into Q4. Proactively, we are holding more inventory to support the continued increase of late orders that Rafael talked about, which are coming in below lead times. And of course, the customer escalations have grown quarter-over-quarter, as Rafael shared in his prepared remarks. And as I mentioned last quarter, we started our prebuilds for the 200-millimeter consolidation plans, which by the end of the year will be worth about 6 to 7 days of our total NXP days of inventory. Also remember, we're holding approximately 14 days of inventory on our balance sheet versus our distribution partners, again, that assumes 9 weeks. And with the positive signals we are seeing and from lessons learned from the past, I'm quite comfortable and pleased with the internal inventory positioning. As we mentioned many times, we have long-lived inventory in die form, preventing obsolescence risk. So if you had me to call inventory into Q4, I would say similar levels from a days perspective, plus or minus 5 days is the best view I can give you at the moment into Q4. Operator: Our next question comes from the line of Joe Moore with Morgan Stanley. Joseph Moore: I also wanted to touch on automotive customers' kind of view on inventories. And I guess, can you just talk to us a little bit about what those conversations are like? Understanding there's not much overlap between you and Nexperia at this point, I would think stuff like that is a reason to want to hold more inventory and kind of buffer yourself from these geopolitics issues. Just are you seeing any indications that, that is happening or will happen? Rafael Sotomayor: Yes. Joe, I mean, that's a great question. And I think it really -- I think the issue with Nexperia really shows that the current level of inventory at the end customer is not sufficient to have any ripple of business continuity. We don't see restocking with our direct customers. And now I would say, I mean, the good thing, right, if you look at the business dynamics of auto highly related to inventory, the normalization and also already a very nice -- already -- we consider a very nice tailwind. And you would expect the next phase to actually be a restocking of inventory, but we have not seen it happen. And so the conversations are pretty much about how they are being very conservative with respect to how they manage their working capital. So no restocking so far. Bill Betz: Yes. Maybe I'll add, Nexperia itself, just to add to it because I think your question, does it impact NXP in any way from a direct standpoint, the answer is no. And as Rafael said, we're still in the early phase and seeing customer escalations, the signals improved. The restocking has not happened nor has price increases that happened, which you typically see during a supply crisis. But those are other signals that we wait to see. Joseph Moore: Okay. And is there any impact potentially on automotive production from all of that on the negative side that you could see if they have shortages of other components that it slows production? Rafael Sotomayor: Joe, we don't anticipate that. I think the products that are associated right now with Nexperia, these are products that could be second source. I think the qualification process is -- it could be relatively benign for OEMs. But so far, our orders will not indicate any impacts into the production of auto. Operator: Our next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: My first one, I wanted to drill into gross margins a little more. So you are guiding it up sequentially, but it's flat year-over-year even on a pretty decent revenue increase. I guess that's mix, but I'm struggling to see where the mix issue is. It looks like your industrial mix is higher, auto looks about the same. Like what is going on with gross margin? It sounds like utilization, I'm not even sure they don't sound like they're lower year-over-year. Like why aren't we getting more gross margin leverage like on a year-over-year basis? Bill Betz: Yes, Stacy, I think the factor that we see going into Q4, again, what we talked about is from an end segment, our gross margins tend to be much closer to each other to the corporate average. But you can see the -- not the industrial, the comm and infra is down quite a bit year-over-year. And then the other one is you could see we're having record quarters in our mobile space, which, again, you kind of slightly below our margin corporate mix. So those 2 end markets are kind of impacting our mix. From a utilization standpoint, we are in the high 70s or plan to be in the high 70s into Q4 related to it. And so we do have kind of inventory at the high end internally. So of course, that also has an impact of how we run total -- our material throughout the line, just not in the front end, but also in the back end and so forth. So -- but really, those are help offsetting that unfavorable mix that we see at the moment. Stacy Rasgon: Got it. I guess the inventory also helps the depreciate -- the distribution stuff is higher margin as well. Bill Betz: Yes, there's 2 sets of it. So remember, the distribution and what you'll see is actually our distribution sales will be up quarter-over-quarter, but let me remind you that a portion of that or a large portion of it is driven by our mobile business where we drive and use the distribution partners in that mobile end market. And so that's what's driving the increase from a quarter-over-quarter perspective. Stacy Rasgon: Got it. For my follow-up, I just wanted to level set. So it sounds like there is some disty fill into Q4. So if I say half a week, I guess, is that -- do I just like roughly think of that as $50 million of income on the -- impact into the Q4 guide? And I know you said Q1, you were comfortable with seasonal, but does that incremental channel fill in Q4 influence how we might think about Q1 seasonality? Are you sort of implicitly assuming that you are going to be putting more into the channel in Q1 for a seasonal guide? Rafael Sotomayor: Okay. There were several questions on that one, Stacy. Let me grab that one. So you made a comment again on the -- on trying to kind of equate where we're going to end up in the channel. And I mean you mentioned $50 million. And again, I mean, I wouldn't see it that way. I mean we gave a guidance of $3.3 billion. The demand -- again, the visibility that we have right now is low. Orders are coming late. And so where the weeks of inventory end up in the channel, like I said, it may fluctuate between 9 and 10. It's not going to be more than 10, it may be 9. And so to put a formulaic kind of way of looking at how much revenue is going to come from weeks of inventory staying in the channel, I don't know if I can really kind of go there given how fluid the demand is. Again, we're putting products that we have high conviction of sell-through, right? And so I don't see it... Stacy Rasgon: But you must have a scenario that's baked into the guidance for Q4, right? Rafael Sotomayor: Yes. And the scenario says that it depends -- the inventory may fluctuate between 9 and 10 weeks. The scenario is what material we put in the channel. Operator: Our next question comes from the line of Tom O'Malley with Barclays. Thomas O'Malley: The Industrial and IoT business seems very strong to close the year, kind of particularly versus where expectations were. You guys have been helpful in the past about kind of laying out where you're seeing that strength, whether it's the core industrial side or more on that IoT side. Could you give us a little bit of a feel of what's moving into your Q4? Rafael Sotomayor: Yes, Tom, let me just step back. I mean, if you look at our Industrial and IoT business, at a high level, 60% is core industrial, 40% is consumer. And even within that, 80% of the revenue flows through distribution. So it just kind of gives you kind of step up. Now what we've seen in IoT, the end customer backlog through the channel continues to improve. So we see really strong signs of demand improvement. On the consumer side, this is where we continue to benefit from company-specific drivers. And this, for instance, I'll give you an example that there's a new category of wearables. There's smart glasses that have high demand. They require high-performance, low-power processing. And this is an area where our portfolio is strong. So we're seeing some tailwinds on that side. And the core industrial, we're seeing broad-based improvements across regions and products. And for us, if you were to drill into a little bit of the application specific, it will be driven by -- for us, it is driven by energy storage systems and building automation. Now let me put a caveat here. I don't think we will be -- the first one to tell you, we don't see ourselves as bellwethers for Industrial and IoT. And so what we see, it may be that this is very company specific. Thomas O'Malley: Helpful. And then a similar question just on the automotive side because it's useful to kind of see what's moving here is just on the S32 portfolio, like you've seen some really strong growth trends. And like part of the reason many think that you guys have handled this a lot better is just the growing portion of your business that is levered to processors. So maybe again, what happened in the quarter, maybe the processor business versus the rest of auto? And then into the fourth quarter, any kind of color on if there's a divergence there, how we should be thinking about just the entire auto business with those 2 pieces? Rafael Sotomayor: No. I think, Tom, I mean, we were encouraged about the direction that auto is taking, right? I mean if you were to take just Q3, in Q3, we were only 3% below our prior peak. And so I think that's encouraging. Now with respect to what is driving the performance in the business, I mean, it continues to be what we deem -- what we term calling accelerate growth drivers. And these are in the software-defined vehicle, which is the 32 franchise that you mentioned, is radar, is connectivity. And so if you were to ask me what is driving this, that is exactly what is -- I mean the secular shift to software-defined vehicles is driving the performance of auto. Bill Betz: And Tom, if I could add, we'll provide a full year kind of update on where we're at with our accelerated growth drivers on our Q4 call. But directionally, I'd say we feel very good about how the accelerated growth drivers are playing out intra-quarter. Operator: Our next question comes from the line of Vivek Arya with Bank of America Securities. Vivek Arya: Best wishes to both Rafael and Kurt. So Rafael, let's say, if '26 plays out the way '25 did with China OEMs and EVs growing, but the rest of the world not growing or flattish, what does it mean for NXP? So in an overall flattish auto production environment, what kind of lift can content provide net of any pricing movements? Like can your autos be conceptually within your long-term model for next year? Rafael Sotomayor: So Vivek, I think the one thing I want to maybe reframe the way we -- the drivers of our business, right? Car production is not the driver of our business. We're not SAAR related. I mean if you were to look at the production, the production has been stable for years. I mean it varies 1% here and there, but it stays pretty flat at [ 90-ish ] million a year. Content growth dwarfs SAAR growth. And so -- and then what you have in auto is the production is quite stable. But you have a very complex supply chain. And that complex supply chain is the one that creates either bubbles in inventory, but or vacuums that create shortages. And that -- the supply chain is the one that creates the cyclical aspect of our business. If I just say -- the way I see it is we see normalization in inventory. If you already get behind the content growth of auto, normalization of inventory is something that we see as very, very positive for the direction of auto. And so I just want to kind of basically reframe the way I think you posed the question a little bit and the way we see it. Content growth and normalization of inventory provides for us an optimistic view of our business in auto in 2026. Vivek Arya: And for my follow-up, Bill, on gross margins, is it just volume that takes you from the kind of the lower end of the 57% to 63% range right towards the middle of the range? Or are there any new products, any new kind of mixing up of your portfolio that can provide benefits on top of any volume benefit? Bill Betz: Absolutely. As we said in the past, our new product ramps are accretive to the company, and they go through their normal growing pain, of course, as they ramp and other parts of our products roll off. I mean, mix is really the one that what orders we get, what orders we serve. We serve over 10,000 SKUs or products every quarter. And so we have to adjust and either accommodate for it and offset those or vice versa, let them fall through, and that's why gross margin improves as another factor related to it. But really also our hybrid manufacturing strategy as we move more to 300-millimeter and as we're making all these investments, that will start to yield benefits beyond 2027, as I talked about. But short-term levers, again, it's -- I think we're doing a really good job offsetting any price gives that we give through our cost efficiencies and productivity internally on test time reductions and so forth. So those -- that's really what we're supposed to go do day in and day out. And I think the team is doing a good job. And you can see this by just our variability in our gross margins through this last cycle. So I think as we become less fixed cost, that will just improve with that variability going forward. As I mentioned today, we're 30% fixed. And my guess is in about a couple of years from now, once we finish our consolidation efforts, so I think 5 years and so we'll probably below 20%, which will reduce that variability. Operator: Our next question comes from the line of Chris Caso with Wolfe Research. Christopher Caso: I wanted to go back to some of what you said with inventory levels, particularly at your direct automotive customers. Where do those inventory levels stand now? And you quantified a bit on what the impact would be as the distribution channel -- increased inventory. Is there any -- I mean, help us with the magnitude of what would happen if those direct auto customers finally decided that they didn't need to restock. Rafael Sotomayor: So Chris, what we see right now that we are starting to shift to end demand. And I think that normalization and we can see it in our orders. And we did say indeed that we don't see the restocking. Now the specific question of what the levels are, I think we don't have visibility at a granular level per customer per Tier 1, that will be a complex. But it's very clear to us that is way below our manufacturing cycle. And that's what I mean by is I think that is just eventually not a healthy level to be able to manage sustainable business. I can't comment whether this will happen or not in the next few quarters or in even 2026. But that is a potential scenario of restocking is indeed a tailwind for our business that is something that will provide benefit for us. Bill Betz: Maybe I could add a little bit, Rafael. Chris, as you know, for about the last 8 quarters, we've been undershipping into the Tier 1 supply chain and actual end production. So it's actually been a headwind to us. I'd say over the last 2 quarters and in our guidance into Q4, we started to see that headwind subside. And so we think the inventory levels at the Tier 1 are where they, the Tier 1 players, believe are normalized for the current environment. They are still very cautious on the macroeconomic outlook. And so as Rafael said, we've not seen that next lever of restocking occurring. But when you go from a headwind of undershipping to at least shipping to end demand, that's the new growth in the short term. Did you have a follow-up, Chris? Christopher Caso: I do. I wanted to come to your comment on buybacks that you mentioned in your prepared remarks. Could you give us a little more detail on what the intention is going forward and what we should expect now that you're resuming the buybacks? Bill Betz: Yes. No change to our capital allocation strategy, Chris. As shared in our prepared remarks, we restarted our buybacks. As I mentioned, we have a lot of cash going out. And so we just wanted to make sure we had all the cash to continue to return and make all the investments we want to make inside NXP, but also balance that with healthy returns to our owners. And so if you look at the last 12 months, we returned 106% back to our owners, and we're going to continue to go do that. Operator: Our next question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: I just want to ask on the kind of cyclical tailwinds versus seasonality. I mean, I guess if you look at December, it's really just industrial that maybe you could argue is above typical seasonality. And then I think you said just soft guidance for March, normal. I think a lot of people have talked about just the slowing down of cyclical recovery. I mean your comments were pretty positive, Rafael. So I'm just kind of curious if you can just kind of assess -- if you're just looking at seasonality, I guess, is there -- is the cyclical tailwind slowing? And I guess maybe you can look at the different markets and if you feel differently about them. Rafael Sotomayor: Yes. I think if you look at the Q4 numbers, you clearly stated industrial and IoT was above robust seasonality. I would say that automotive was slightly better than seasonality, right, pre-COVID levels. And the drivers are -- they have one common driver that is, I think, is inventory digestion is almost done. I think that is one normalization is a big deal. And we're starting to shift to true end demand in automotive, and we're starting to see some company-specific drivers in industrial and IoT that are helping us. With respect to whether seasonality is going to change, are we calling an up cycle, I think we're careful with that because, one, we do have the inventory digestion done as a factor for an up cycle. We do see some specific areas of growth in industrial, and we see an encouraging signs of true demand in industrial and IoT. And so we do see the elements of a soft up cycle. And that's the reason why I would say that like that if you were to ask me today, are you more optimistic than you were last quarter? I would say that we are slightly more optimistic than last quarter. Blayne Curtis: And then I wanted to ask you on mobile. I mean, if I have the numbers right, it might be a record. I'm just kind of curious the drivers behind that. Rafael Sotomayor: Blayne, in mobile, we're a specialty player there, mostly driven by the wallet and a little bit of custom analog that we do for a Tier 1 customer there. I see the moves of Q2 to Q3 and Q4. And I think you got to take Q3 and Q4 together, is purely, in my opinion, it's just a seasonal move and some strength in some of our customers. Operator: Our next question comes from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats to both Rafael and Kurt and good luck. I know it's still early in earnings season, but your comments and outlook on the Industrial & IoT segment, were certainly better than your peers who have mainly talked about decelerating trends. We've kind of touched on it a little bit, and I realize you're not going to comment on peers. But would you say the difference in what you're seeing versus peers is because of inventory management or more product cycle driven? And what gives you confidence in the sustainability of sort of the up cycle that you're starting to see signs of with orders still coming in late and with the lead time? Rafael Sotomayor: Yes, Josh, so I can speak -- speak of NXP's situation with respect to Industrial and IoT because for us, Industrial and IoT has indeed been one of the more challenging end markets since 2022. And as of Q3, our business is still 20% below our peak, right? And again, I do remind you that we're not the bellwether for Industrial and IoT, so the comparisons to other, you can say, peers may not be, I guess, relevant. But I would have to say that we did manage inventory in a different way. We were very disciplined in the way we manage our business in the down cycle. And I think I would say that we will be similarly disciplined managing what we see, and I would say as a soft up cycle. And again, I mean, we are having some company-specific drivers there that are driving demand that is true new demand. And we have exposure to a few company-specific design wins in the core industrial that is driving some of the improvement. But I don't know how you will take that as a bellwether for the industry. Joshua Buchalter: Understood. Helpful color. And I was maybe also hoping that you could provide some color on the China auto market, what you saw there intra-quarter and your expectations into 4Q. I believe a good amount of that is actually served by the disty. So our inventory levels there lean as well? Rafael Sotomayor: Yes, China -- I mean, listen, I was in China a few months ago with Kurt, and we did a customer visit to both China, Taiwan and actually Japan. China specifically, China continues to be strong. It continues to be a very dynamic market, themselves, the auto industry there is very competitive, and they continue to actually push for innovation, push for product. Our -- I would say our inventory situation there is also lean -- is also, but it's a business that is driven, that is driving is strong. We have good customer traction. So we feel very optimistic about our position in China. Bill Betz: And Josh, if I could just add as a reminder, in the Asia market, specifically in China auto, we service the majority of that through our distribution channel. And it is in the Western markets in North America and Europe, where we do it on a direct basis. So our approach to channel management, which I'd say is probably best-in-class, we take a heavy hand there even in Asia with the channel. Operator: Our next question comes from the line of William Stein with Truist Securities. William Stein: First, I'm hoping you can remind us about the strategic purpose of the recent acquisitions? I think TTTech closed recently, but then you have the 2 new ones as well. Can you just frame that as it relates to the rest of the autos business? And then I have a follow-up. Rafael Sotomayor: Yes. William, these acquisitions are actually directly aligned with the strategic direction of bringing intelligent systems at the edge of industrial and automotive. If you look at TTTech is a company that is a software company that is going to help us accelerate our move of the system-defined vehicle and around S-32s and around a system approach. And so quite excited to have them. It's a capability that would have been very difficult to obtain organically. And it's a company that brings IP-specific also in functional safety at a system level. Aviva Links is a company that has a really, really, I would say, innovative technology on a SerDes technology that is a standard. So it's a standard SerDes. And that is critical to standardize sensors think of our radar, think of cameras, think of LiDAR around a core processor, which, in this case, will be our S32. So we're quite bullish on Aviva Links. And Kinara brings AI capabilities, especially GenAI capabilities, high performance, low power that is going to also accelerate our portfolio of intelligent into the edge. William Stein: And then as a follow-up, there's been some discussion about some elevated competitive dynamics in the infotainment part of your autos business. Can you remind us how big that is in your autos business and maybe update us on that competitive situation? Bill Betz: Will, I'll take that one. So if you think about IVI in vehicle infotainment, there's kind of 2 parts. There's the visualization what you see on the dashboards and there's the what you hear the audio portion. I'd say on IVI auto, we continue to be a dominant player there. On the visualization, our performance is maybe a little below some of our peers, but I think that's very well known at this time. And I think with that, Towanda, I think we're going to need to move back to Rafael for closing remarks, if we can. Rafael Sotomayor: Well, thank you, everyone, for joining us today and your thoughtful questions. This quarter marks both a leadership transition and a reaffirmation of NXP's consistent strategy, focus on profitable growth, disciplined execution and predictable returns. We are encouraged by the gradually increasing signs of a cyclical recovery across our automotive and Industrial and IoT end markets and by the continued strength of our company-specific growth drivers. Our priorities remain clear: deliver on our commitments and manage what is in our control and position NXP to continue to grow profitably. I want to express my gratitude to Kurt for his outstanding leadership and for the partnership we have built over many years. In his 30-year career at NXP, he has left a lasting legacy, navigating us through various challenges and positioning NXP as a leader in the markets we serve. I am truly humbled to follow his footsteps. It is a privilege to lead this company and this team. I am excited about what we will achieve together. Thank you. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to NXP's Second Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your first speaker, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Michelle, and good morning, everyone. Thank you for joining our call today. With me on the call is Kurt Sievers, NXP's CEO; Rafael Sotomayor, NXP's President; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the third quarter of 2025. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward- looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter 2025 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section. Now I'd like to turn the call over to Kurt. Kurt Sievers: Thank you, Jeff, and good morning, everyone. We appreciate you joining our call today. I will review our quarter 2 performance and then I will discuss our guidance for the third quarter. Beginning with Q2, our revenue was $26 million better than the midpoint of our guidance. The revenue trends in all our focus end markets were above expectations, reflective of increasingly positive cyclical trends. Taken together, NXP delivered quarter 2 revenue of $2.93 billion, a decrease of 6% year-on-year. Non-GAAP operating margin in quarter 2 was 32%, 230 basis points below the year ago period and 20 basis points above the midpoint of our guidance. Year-on-year performance was a result of the lower revenue and the related gross profit fall-through, partially offset by $40 million lower operating expenses. From a channel perspective, distribution inventory was consistent with our guidance of 9 weeks, while still below our long-term target of 11 weeks. And during the quarter, we did not experience any material customer order pull-ins or pushouts, which could be associated with tariffs. From a direct sales perspective, we continue to support Western Tier 1 automotive customers with their desire to digest on-hand inventory. However, we do believe that for the most part, the Tier 1 are either approaching or already at normalized inventory levels. Now let me turn to our expectations for the third quarter. Our guidance for the third quarter reflects the combination of an emerging cyclical improvement in NXP's core end markets and the performance of our company-specific growth drivers. We are guiding quarter 3 revenue to $3.15 billion, down 3% versus the third quarter of 2024 and up 8% sequentially, a return to better than historic seasonal trends. At the midpoint, we expect the following trends in our business during quarter 3. Automotive is expected to be flat versus quarter 3 2024 and up in the mid-single-digit percent range versus quarter 2, 2025. Industrial & IoT is expected to be up in the mid-single- digit range year-on-year and up in the high single-digit range versus quarter 2, '25. Mobile is expected to be up in the low single-digit percent range year-on-year and up in the mid-20% range on a sequential basis. And finally, communication infrastructure and other is expected to be down in the upper 20% range versus quarter 3 2024 and flat versus quarter 2, 2025. Our guidance assumes channel inventory will remain at 9 weeks. However, if the cyclical recovery continues, we may stage additional products at our distribution partners to be competitive. And hence, we may selectively increase the inventory in the channel. With respect to direct sales, our automotive outlook assumes that we will come closer to shipping to natural end demand. In industrial & IoT, which is primarily served through distribution, we see globally a broad-based recovery across both core industrial and consumer IoT. So in summary, NXP's second quarter results and guidance for the third quarter reflect an increasingly positive view that a new up cycle is beginning to materialize. This is based on several signals we track regularly. These include continually growing customer backlog levels placed with our distribution partners, improved order signals from our direct customers, increased short-cycle orders and increasing product shortages leading to customer escalations. At the same time, the tariff environment continues to create a level of uncertainty in the long-term planning of our customers. And yet, as of today, the direct impact of the current tariffs is immaterial to NXP's financials. So looking ahead, we will continue to manage what is in our direct control to drive solid profitability and earnings. This includes strengthening our competitive portfolio by leveraging the recently closed acquisition of TTTech Auto as well as the addition of Kinara and Aviva Links, which are still pending regulatory approval. Lastly, we are on track to align our wafer fabrication footprint, consistent with our hybrid manufacturing strategy. And now I would like to pass the call over to you, Bill, for a review of our financial performance. William J. Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q2 and provided our revenue outlook for Q3, I will move to the financial highlights. Overall, our Q2 financial performance was good, with revenue and gross profit above the midpoint of our guidance range, while operating expenses were at the high end of our guidance due to the timing of tape-outs and project spend. Taken together, we delivered non-GAAP earnings per share of $2.72 or $0.06 better than the midpoint of guidance. Consistent with our guidance, the distribution channel inventory was 9 weeks. Now moving to the details of Q2. Total revenue was $2.93 billion, down 6% year-on-year and $26 million above the midpoint of our guidance range. We generated $1.65 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 56.5%, down 210 basis points year-on-year and 20 basis points above the midpoint of our guidance range due to higher revenue and slightly favorable manufacturing costs. Total non-GAAP operating expenses were $720 million or 24.6% of revenue, down $40 million year-on-year and $10 million above the midpoint of our guidance range. From a total operating profit perspective, non-GAAP operating profit was $935 million and non-GAAP operating margin was 32%, down 230 basis points year-on-year and 20 basis points above the midpoint of the guidance range. Non-GAAP interest expense was $85 million, while taxes for ongoing operations were $148 million or a 17.4% non-GAAP effective tax rate. Noncontrolling interest was $12 million and results from equity account investees associated with our joint venture manufacturing partnerships was $0. Taken together, the below-the-line items were $1 million unfavorable versus our guidance. Stock-based compensation, which is not included in our non-GAAP earnings was $117 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q2 was $11.48 billion, down $247 million sequentially as we repaid the $500 million tranche of debt due in May 2025 during the quarter. Our ending cash balance was $3.17 billion, down $818 million sequentially due to the cumulative effect of acquisition costs, debt reduction, capital returns, equity and CapEx investments offset against the cash and additional liquidity generated during the quarter. The resulting net debt was $8.31 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $4.75 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q2 was 1.8x and our 12-month adjusted EBITDA interest coverage ratio was 17.4x. During Q2, we paid $257 million in cash dividends and repurchased $204 million of our shares. Due to the capital requirements related to the TTTech Auto acquisition, the potential closure of Kinara and Aviva Links and our long-term net debt leverage ratio targets, we paused the buyback during the quarter. We expect to resume the buyback in Q3, consistent with our long-term capital allocation policy. Turning to working capital metrics. Days of inventory was 158 days, a decrease of 11 days versus [Technical Difficulty] with inventory dollars slightly up sequentially. Days receivables were 33 days, down 1 day sequentially and days payable were 60 days, down 2 days sequentially. Taken together, our cash conversion cycle improved to 131 days. Cash flow from operations was $779 million and net CapEx was $83 million or 3% of revenue, resulting in non-GAAP free cash flow of $696 million or 24% of revenue. During Q2, we paid $35 million towards the capacity access fees related to TSMC, which is included in our cash flow from operations. Additionally, we paid $50 million into VSMC and $16 million into ESMC, our 2 equity accounted foundry joint ventures under construction with the payments reflected in our cash flow from investing activities. Now turning to our expectations for the third quarter. As Kurt mentioned, we anticipate Q3 revenue to be $3.15 billion, plus or minus about $100 million. At the midpoint, this is down about 3% year-on-year and up 8% sequentially. We expect non-GAAP gross margin to be 57%, plus or minus 50 basis points. Operating expenses are expected to be about $735 million, plus or minus about $10 million or about 23% of revenue, consistent with our long-term financial model. The sequential increase is primarily driven by the acquisition of TTTech Auto and variable compensation. Taken together, we see non-GAAP operating margin to be 33.7% at the midpoint. Please note, our third quarter guidance does not incorporate the remaining 2 acquisitions, which continue to be under regulatory review. We estimate non-GAAP financial expense to be about $91 million. We expect non-GAAP tax rate to be 17.4% of profit before tax. Noncontrolling interest will be about $14 million and results from equity account investees about $1 million. For Q3, we suggest for modeling purposes, you use an average share count of 253.8 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $116 million. Taken together at the midpoint, this implies non- GAAP earnings per share of $3.10. Turning to uses of cash. We expect capital expenditures to be around 3% of revenue. We will make a $225 million capacity access fee and a $145 million equity investment into VSMC as well as a $15 million equity investment into ESMC, which are 2 equity accounted foundry joint ventures under construction. Pending the regulatory approval for Aviva and Kinara acquisitions, we will result in a cash payment of $550 million. Now in closing, I would like to highlight a few focus areas for NXP. First, as Kurt mentioned, based on the signals we track, it appears to us we are in the early stages of a cyclical recovery. Second, we have started the consolidation of our legacy front-end 200-millimeter factories as part of our hybrid manufacturing strategy. This includes prebuilding a bridge stock for future customer requirements, which will result in higher inventory. We expect by year-end, this will be approximately 6 to 7 days of inventory, which we will hold in die form. As a result, our front-end utilizations have moved to the mid-70% range during Q2 from the low 70% range before. Lastly, we will continue to focus on what is in our control, driving solid profitability and earnings consistent with our long-term financial model. I would like to now turn it back to the operator for your questions. Operator: [Operator Instructions]. And the first question comes from Ross Seymore with Deutsche Bank. Ross Clark Seymore: Kurt, you went through some of the same signals this quarter as you did last quarter about the cyclical business turning and then, of course, some of the idiosyncratic NXP-specific drivers. I just wondered how you'd compare those signals quarter-to-quarter. Is your cyclical confidence rising quarter-over-quarter? Is it staying about the same? In general, just how are you feeling this quarter versus last? Kurt Sievers: Yes. Thanks, Ross. Clearly better. So it is indeed the same signals. That's actually the reason why we do this. We track these signals all the time. And there is clearly an improvement on all 4 of them over the past 90 days. That is exactly why I tried to highlight them because that drives our growing confidence that we are in the beginning of a new up cycle. So 90 days ago, I guess I really talked about a balance of uncertainty from tariffs and some early, early signals, which would signify the early innings of a new cycle. This time, I would say nothing really new on the tariffs. But clearly, those signals about the new up cycle have strengthened since 90 days ago. So a market difference, Ross, versus 1 quarter ago. Ross Clark Seymore: Great. And then for Bill, just, I guess, 2 parts quickly on margins. One, how much does your gross margin get benefited from running the fabs a little hot in the consolidation? And then two, with those 2 pending deals on the OpEx side of things, how do you expect to manage that? If they close, does OpEx pop up in the fourth quarter? Or can you kind of offset that in other ways to keep that 23% intensity? William J. Betz: Sure, Ross. Related to Q2 results, delivering the 56.5%, it had very little impact. Related to the 57%, not much, I would say, because, again, you start the material and we're only building a couple of days and at the end of the year, it will be about 6 to 7 days. As you can see, we've been also focused on draining some of our internal inventory as well. So you have that net effect occurring there. Related to the acquisitions that are still pending, again, we have mechanisms in a way to try to absorb this as much as we can. If we do close in this quarter, which we do expect, we may be a bit higher. But remember, these 2 acquisitions are the smaller of the 3. Just to remind you from a headcount size, I believe Kinara is around 60 and Aviva Links is around 100. Operator: And our next question will come from Vivek Arya with Bank of America Securities. Vivek Arya: Kurt, I heard on the call the suggestion that you are in early stages of a cyclical recovery. So if we apply that to the Automotive segment, Q2 sales flattish year-on-year. I think Q3, you're also indicating to be flattish year-on-year. And that seems to be a somewhat more conservative tone that we hear from some of your analog peers who are more optimistic, right? They are seeing the year-on-year sales increase, especially in China. So how would you contrast the pace of recovery you are seeing in automotive versus your peers? And when do you expect your automotive sales to start growing year-on-year? Can that happen in Q4? Kurt Sievers: Yes, Vivek, well, I can't really contrast to our peers because I think we are the first one to have earnings. So I wouldn't really know what they have to say this quarter. We will probably all of us learn a little later. Now I still fully understand your question, and I would reformat this a little. Our Automotive business is accelerating massively from the second into the third quarter when you think about the sequential growth. So we just gave you actuals of the second quarter, which were 3% up quarter-on-quarter. And for the first time in a long time, by the way, flat year-on-year, as you rightfully said. And we said now mid-single digit up into the third quarter. So that is doubling in terms of sequential growth, Vivek. So therefore, I'd say there is a clear difference. Furthermore, the underlying inventory burn, which has held us back for quite a while, that is actually what is moderating or eventually going away through the quarter. So that was the Tier 1 inventories in the Western world, which we've talked about many quarters where we had to follow their desire to bring down their internal inventory quite materially. It appears that this is coming to an end through this upcoming quarter. So that is actually the real factor. China, since you also asked about China, China has been strong all along. And mind you that we are serving the automotive market in China predominantly through distribution, where we have been and continue to be below our inventory targets there with 9 weeks, significantly less than 11 weeks. So what really matters is this change in the Western Tier 1s. So what I tried to say is, Vivek, I don't think we should sugarcoat that the automotive macro is certainly mixed. S&P just came out with their latest SAAR forecast for this year, which they upped actually from 90 days ago to flat year-on-year, 90 million cars. When we talked 90 days ago, they were actually at 88 million cars. So the forecast has slightly gone up. I wouldn't celebrate this as a big thing. It's still flat. So our main improvement is that we come closer to shipping to natural end demand, Vivek. That's the key point because the inventory burn at the Tier 1s is going away. So that's how I would frame the automotive environment at this stage. Vivek Arya: Great. And for my follow-up, just 1 or 2 related ones for Bill. So Bill, if you could give us just the contributions from the acquisitions. I think one has closed, 2 have not closed. So just how to kind of think about when they do close, what the contribution ranges might be? And then if I were to make a guess for Q4 and say, if NXP sales were to grow low to mid-single digits sequentially in Q4, what would that do to gross margins? And is there anything [ in ] mix that we should be thinking about as we kind of conceptually think about Q4 gross margins? Kurt Sievers: Okay. There was a number of questions, Vivek, which you did flow into your second question. Well done. Let me try to pass them. The first one was about the contribution of the acquisitions. We actually closed one acquisition in the second quarter, which is TTTech Automotive. And as we said before, their contribution from a revenue gross margin perspective is completely immaterial to our financial model all the way through '27. We did acquire them for the IP and know-how they have in software for safe processing in the software-defined vehicle, where it is a major, major contributor to our system solutions there. On the OpEx side, we do have to digest OpEx from them, and I think Bill talked about this in the prior quarters, both quarters before, that we do create space with our existing OpEx by actually deprioritizing less strategic parts in our portfolio in order to have enough room to swallow TTTech Auto's OpEx. And I think we also told you they come with 1,100 software engineers. Those are now indeed part of NXP. So the OpEx guide, which you get for quarter 3, Vivek, includes fully TTTech Automotive. It's fully in there, but we did create space for this by deprioritizing other elements. And all in all, and here, I speak for what Bill said earlier, we are on track in the second half of the calendar year '25 to be in our OpEx model or, say, 23% OpEx of revenue. That's what we're going to hit in the second half of calendar year '25. Now you talked also about Q4, and I think this gets pretty lengthy here. We don't really guide here for Q4, but you put something into my mouth. So from experience, I know I have to say something. Otherwise, you say, I said it differently. We don't guide Q4, but I know you want to model something, Vivek. So I guess for Q4 revenue to start with, it is fair to orientate yourself on the long-term historical seasonality, which we have had from Q3 to Q4 or to be more specific, a flat to slightly up revenue development from Q3 into Q4. Now I want to remind you when saying this, that this is all sitting on 9 weeks of inventory. And in order to stay competitive in the channel, we may want to stage our what we call hero products, which are the products which have the best sell-through higher in the channel from an inventory perspective in order to be competitive against the competitive pressure in an upcycle situation. So I made that comment for quarter 3, and I want to be sure that you all understood what I said, the quarter 3 guide, which we gave you, the $3.15 billion sits at 9 weeks, but we may take it higher by putting more inventory in, and the same holds for Q4. And that would be, of course, over and above this historic seasonality of flat to slightly up, which I talked about earlier. And now the last part of your question was about the impact on gross margin, and that I give to you, Bill. William J. Betz: Sure. Q3 related to gross margin. The way to think about this, the 57% guide assumes that we stay in the mid-70s from a utilization standpoint because at the same time, we're lowering inventory, but we started to bridge and build up a couple of days of our inventory as well. Now for Q4, we are not guiding it. However, I would continue at this time to model front-end utilization in the mid-70s based on what Kurt just said the normal revenue seasonality of flattish to slightly up unless we see stronger business signals and conditions, which we may want to increase this then up to the upper 70s. We haven't made that decision yet. It's something that we will monitor very carefully and explore from now until next earnings period. And then again, beyond 2025, I know you didn't ask, but I'm sure somebody will ask, without providing direct guidance, I'll just refer to what I said last quarter and what we shared during Analyst Day as a good rule of thumb. For every $1 billion in incremental revenue, we should see about 100 basis points of incremental margin on a full year basis. So that $12 billion, revenue should be around the 57%, $13 billion at 58%, $14 billion, 59% and so on. Now of course, there is timing elements and other levers that may get us above or below these levels given any quarter and hence, why we give plus or minus 50 basis points on a quarterly basis. Now remember, these other levers include front-end utilization back to the 85% level or even above, mix, refilling our channel target of 11 weeks, ramp of those new products, improved costs, normal annual low single-digit ASPs and eventually think about post 2027, reducing our fixed costs with our consolidation efforts, part of our hybrid manufacturing strategy. So a lot going on, but we are -- we have the levers in place to -- and we feel very confident in delivering our long-term model range of 57% to 63%. Operator: And our next question will come from Francois Bouvignies with UBS. Francois-Xavier Bouvignies: I just have a follow-up on your channel inventory. So you said, Kurt, that you expect to sit at 9 weeks. Your guidance is based on 9 weeks and you may increase it either in Q3 and Q4, if I recall correctly. What are you waiting for exactly to increase? I mean what are the signs that you would make you -- make the decisions? And why you don't do it right now? So what are the moving parts that would make it increase to higher levels? That would be my first question. Kurt Sievers: Yes. Thanks, Francois. I actually did not say or Q3 or Q4. What I want to say is it could be Q3 and Q4. That really depends on the circumstances. What we are waiting for is a further solidification through this quarter, but it could be in this quarter of those -- at least those 4 trends, which I talked about earlier, which is the number of short-cycle orders, which is the growing backlog of the orders at our distribution partners, which is the growth of our direct customer order book and actually escalations, supply escalations, which, by the way, have almost doubled over the last 90 days. So if this continues to go, and that's why I put it into my prepared remarks, Francois, it could be as early as in this running quarter that we start to touch this. Again, the importance here is it is not about those $200 million revenue, which is probably the difference currently between 9 and 11 weeks. It is much more about the competitiveness of the right products of the distributors' shelves. That is what we are watching. Likely, it will lead to an increase then at some point of the inventory, but we don't look at it as making revenue because we know we just ship revenue from here to there. It is about being competitive and drive our sell-through at the distributors with the right products. So that's how you have to think about it. But again, there is a chance it happens in Q3 and the same again in Q4, and that could be an end eventually. Francois-Xavier Bouvignies: Makes sense, Kurt. And maybe one for Bill. I mean on the inventory days, 11 days below is actually a big decrease in days. I mean, when you look in the history, so that's welcome. Still on the absolute number, it's still very relatively high. But how should we think about your own inventories in Q3 and Q4? Do you want to work it down more aggressively perhaps given the relative high level? It would be great to have your color here. William J. Betz: Absolutely, Francois. For Q2, we made some progress on reducing our internal DIO from 169 days last quarter to 158 days. Now approximately 5 days are linked to a future asset for sale and the remaining is linked to reducing our inventory levels from a days perspective. For Q3 based on the combination of the inventory linked to the higher revenues and taking account the start of our prebuilds of a couple of days, we expect to be at a similar level ending in Q3. Now please note, we are still holding about 14 days' worth of channel inventory on our balance sheet and by year-end, hold about 6 to 7 days of prebuild stock related to our manufacturing consolidation efforts. So overall, we're trying and continue to balance and hold a bit more internal inventory versus our long-term target of 110 days to ensure we improve supply in this new emerging up cycle from the lessons learned from the COVID supply crisis in the past. So we're trying to balance this as best as we can. Operator: And the next question will come from C.J. Muse with Cantor. Christopher James Muse: I guess digging a little bit deeper into auto, you talked about shipments tracking to natural end demand. I was hoping perhaps you could be a little more specific within your key growth drivers and the trends you're seeing there, both from a China and kind of non- China perspective to get a sense of the rate of recovery geographically? Kurt Sievers: Yes. Thanks, C.J. So a couple of statements here. One is, as we annually update them, sneak preview, it appears that all the growth drivers which we laid out, and that means, of course, also including the automotive ones are on track to the targets which we had given you in November last year in our Investor Day. Secondly, I think it's really important in automotive to take a step back and look at our overall automotive situation relative -- probably relative to peers. And I want to remind you that the revenue, which we just guided for quarter 3 is only 4% below the peak, which we had in automotive in the fourth quarter of calendar year '23. So we are just a little bit away from the peak. So we've done extremely well through this, what you would call a down cycle. Again, you know where the industry has gone in what high percentages from peak to trough. We are now only 4% away from the former peak. Now of course, we want to grow above that peak because of the growth drivers. But I just wanted to put this a bit into perspective also relative to the question earlier from Vivek. Now on a geographic basis, C.J., the way I would phrase it is China has been and continues to grow both from a quarter-on-quarter perspective as well as from a year-on-year perspective. There was one dip in the Q-on-Q growth in auto in China, which was Q1. And we talked about this earlier, this is a seasonal drop, which we every year have in China. It did grow very nicely into the second quarter, and so it will into the third quarter. The same is true for Japan and Asia Pacific. What for us is the change, which is significant and which really makes a difference to us, and that also drives the higher sequential growth for the total Auto segment is that the inventory burn with the Tier 1s, and that is especially in Europe and to a lesser extent in the U.S. is starting to go away, which means through this quarter, we think we will start versus the second part of the quarter, maybe versus the end of the quarter, we will start to ship to end demand. And that makes a real difference because we get the growth without the macro would need to improve. So we don't need improvement from the macro for us to grow, and we also don't need restocking at customers. That growth comes alone from the moderation of the inventory burn at these Tier 1 customers. And that's the biggest dynamic which we currently have, C.J. Christopher James Muse: Very helpful. And I guess a follow-up question for you, Bill. You spoke earlier to Vivek around the key drivers to gross margins. I was hoping perhaps you could speak to maybe the near term, the next 6 to 9 months within the kind of structure of 57% to 63% target model. Would you highlight any particular drivers outside of utilization and mix that could impact trends there or no? William J. Betz: Yes. I think Kurt alluded to it, we still are holding at 9 weeks. And obviously, that's an opportunity once we feel and target in specific areas to bring that back up to 11, and that will also help our inventory. I think ongoing improved costs, we continue -- if you recall, in the beginning of the year, we always have our low single-digit price adjustments, and then it takes time to get [Technical Difficulty] and improve for the full year effect. So that becomes a tailwind [Technical Difficulty] we continued focus [Technical Difficulty] and then more medium term, it's really going to be [Technical Difficulty] why I laid out that rule of thumb. So that's where we are besides the utilization [Technical Difficulty] that I mentioned earlier. Operator: And our next question will come from Chris Danely with Citi. Christopher Brett Danely: Kurt, can you just give us a little more color on the visibility trends maybe through the end of the year or even into next year? You mentioned some shortages and escalations. Just any sort of quantitative metrics you can give us, say, now versus 3 months ago on how the rest of this year and next year is looking? Kurt Sievers: Well, Chris, I'm smiling now because I went ahead of my skis already. Yes, the Q3 guidance you just got, the difference to 90 days ago is that 90 days ago, we didn't even provide any -- not even the remote soft guide for the next quarter. I did offer that color for the calendar quarter 4 of this year a few minutes ago with a flat to slightly up typical historic seasonality based on a 9-week distribution inventory, and we may or may not be higher than that. My sense is, Chris, that, that dynamic is continuing because inventory has burned away our company-specific growth drivers. And here, I would actually call out auto because it's almost 60% of the company are just firing on all cylinders. I mean there is a whole race now on the software-defined vehicles, which is driving very hard our revenue in the S32 processor families going very, very well. So we have this #1 position, which we have there globally. We really see it expanding. Radar is doing very well because the ADAS levels are driven up. And I personally even believe if you think a bit more midterm, that robotaxis will become more pervasive. When in electrification, even though people in the Western world might have been a little bit more muted on it, electrification just keeps penetrating. So S&P latest forecast for this year is 15% more units, car units, which are xEVs over last year and ending this year of 43% global penetration. Now what makes me really excited, Chris, in all of this is China. So Rafael and I, we were just a week before last week, we were together in China. And maybe, Rafael, you share a little how excited we were by how innovative and how fast customers are turning design-ins into revenue. Rafael Sotomayor: Yes, indeed, and thanks for the question on that one. In China -- if you think of China, China is an OEM-driven market where they're driving innovation through software-defined vehicles and it's extremely fast moving. So clearly, China is extremely competitive and the competitive pressure, and I can get [Technical Difficulty] this is not only on pricing, it's also on product differentiation and innovation. So quite exciting. We had a week of very good meetings with both the OEMs and the Tier 1s where kind of part of the transition plan passed the relationship to me. But not only that, they started initiatives associated with software-defined architectures, BMS and radar. And so quite exciting the opportunities that we see in China. And the strength in China comes also with Tier 1s. There's a story there in China that's probably not told enough. The Tier 1s in China are relevant not only for China, but relevant for foreign OEMs for China markets and non-China. And so quite important meetings there with the Tier 1 Chinese customers who are driving innovation and competitiveness in non-China OEMs. Christopher Brett Danely: So just as a follow-up, I guess, on that same topic. I mean it sounds like auto, you're most optimistic on that. If we look at the next, I don't know, year, 1.5 years, Kurt, would you expect higher relative growth from your Automotive segment or your Industrial segment? Kurt Sievers: Well, Chris, 2 points. The one is we are as optimistic on industrial. It was an auto question, so we answered on auto. That doesn't mean we are not optimistic on industrial. And the best way to answer your midterm question is we see absolutely no reason to not meet our November '24 3-year Wall Street guide of 8% to 12%, both in industrial & IoT as well as in auto. Since we will be certainly below this, this year, we clearly see the opportunity to catch up next year and the year after, which is greatly helped by the cycle and by the company-specific drivers. So it's also industrial. And maybe, Rafael, you speak a bit about early views on Edge AI capability of NXP in industrial. Rafael Sotomayor: Yes. So we see -- well, we're already starting to see the signals already in industrial for the next quarter to actually normalize. This is the first and last time we discussed how Q2 industrial & IoT was being driven by the consumer space. The changes that we see now in Q3 is that this is broad-based. This is -- the growth that you see quarter-over-quarter is driven geographically in all areas, all geographies are showing growth. And the other thing we're seeing is we also see now a big part of this growth comes also from industrial, from core industrial, not just consumer. So the trends of the [indiscernible] in industrial for NXP on the MCU and microprocessor place is starting to kind of take shape. And now we're starting to get engagements for next year on higher performance, higher AI capabilities with our Tier 1. So the thesis of our industrial growth of 8% to 12% that contributes to 8% to 12% are still very much in play and continues. Operator: And our next question will come from Thomas O'Malley with Barclays. Thomas James O'Malley: If I look at last quarter and this quarter, obviously, one of the major changes is your confidence that you could actually up some of the weeks of just the inventory, and you're still kind of waiting mid-quarter here and you kind of addressed that already. But you made the remark 9 weeks to 11 weeks. Is 11 weeks the maximum that you guys would channel refill in this period of time? Or is there any circumstance in which you would go a little bit higher than that? Just walk me through why it would be 11 weeks? Is that just kind of the stated goal long term? Or what would change to make you maybe go a little bit higher than that given that you guys are clearly seeing a recovery? Kurt Sievers: Yes, Tom, it's a stated long-term goal, which we actually -- about the same size we had before the whole COVID and supply crisis. We completely relooked at it, reassessed it by the mix of the pieces which are in there. And not by top-down decision, but by bottom- up assessment, we arrived again at 11 weeks being a reasonable target across our different segments. Tom, the reality is once we are there, I think we also want to stop speaking about this at the time because we got almost paranoid about this, which we did because we were probably the only ones to hold our channel inventory very much under control through this cycle, which has served us extremely well. But yes, we want to go back to normal. The definition of normal for us is 11 weeks, and then we just continue on a much more regular basis. But yes, maybe it jumps a day to 12 and jumps down to 10 again, but the target, the stated long-term target is indeed 11 weeks. I would almost go that far, and I think we had it even on a slide there in our Wall Street model, which we provided last November, the 11 weeks was actually an element of the forecast. So we said this forecast is valid with the 11 weeks inventory on the long run. Thomas James O'Malley: Helpful, Kurt. And then obviously, you gave us a little sneak peek into Q4, so I can't help but pick a little bit there, too. But you're saying flat to slightly up. If you look at normal seasonality for your segments kind of into the December quarter, at least over the past 7, 8 years, it looks like auto is up low single digits. Industrial is actually up a bit more robustly in the fourth quarter. If you were to plug that in, you kind of get greater than 20% growth in the Industrial business. You're clearly pointing to some strength there, but any differences that we should be thinking about in the recovery between auto and industrial as the year closes? Or would you say the contributing factors to that flat to slightly up are relatively in line with what you've seen historically? Kurt Sievers: Tom, that's a stretch too far. Clearly, no segment guidance for Q4. What I did say the flat to slightly up is indeed just mathematically our, I don't know, 9 year or so average historical seasonality across the entire company. And that's what we give for Q4, and it stays there. So I'm sorry, but we really can't go to a segment level at this stage. Operator: And the next question comes from Joshua Buchalter with TD Cowen. Joshua Louis Buchalter: In your prepared remarks, I think you talked about not seeing any material impact from the tariff environment or pull-ins. Can you maybe elaborate on what signals you're looking for and what makes you so sure that there's not really a meaningful impact yet? I think a few of your peers have commented your customers don't check a pull-in box when they place an order. So I'd be curious to hear if there's any changes in your customers' behavior and what you're seeing on the tariff front? Kurt Sievers: We have a pretty good view on this, Joshua, because we are very alert to it. And that has to do that we have been highly disciplined over a number of years now on inventory levels. So we didn't want to get into the trap of being a victim of pull-ins here at the very end of the down cycle or better at the beginning of the up cycle. The way we can do this is we have a lot of AI running on our order patterns, which tells you immediately if there is anything which falls out of the normal patterns. And when we see that, we go back to the customer and ask what is it? And if there is a clear [ plea ] for this would -- is a wish for a pull-in relative to tariffs, we typically don't support it because that is exactly what we want to avoid. We had a very few of those situations. So I'm not talking fiction. Not much, though. And therefore, we can really make this statement. We also looked at it relative to liberation day if there was any correlation of any of these signals. And given our very application-specific business, Joshua we have pretty smooth order trends. I mean this is not like everything is jumping around all the time. It is relatively smooth. So we would see those deviations. That's the basis I made this comment from. My comment to be very clear here was a firm comment for the past second quarter. So the numbers which we gave you had no pull-ins or pushouts. And the comment also holds for what we can see from today's perspective for the third calendar quarter. Now I don't know yet what the rest of the quarter is going to be in the end, but it doesn't appear at this stage that any of this would happen. Joshua Louis Buchalter: Got it. Kurt, you touched on this before, but I was wondering if you can maybe comment on behaviors from your auto customers, specifically related to their investment in software-defined vehicle. I mean it's a very challenging time still to be an auto OEM. Like are you seeing them sustain, accelerate, pull back on their investment in newer technologies and features like SDV and ones that, that enables? Kurt Sievers: Yes. That's actually what I find exciting because, yes, that is accelerating. Clearly, OEMs around the world are finding out more and more that the SDV concept delivers them a number of very, very significant competitive advantages. One is really consumer value because the car just doesn't age in the hands of the consumer, which is a significant advantage, but it also makes their designs more versatile and cheaper. So I'm going that far to claim that a lot of the cost advantages, which the Western car industry is suffering from against -- or disadvantages against the Chinese players is because China has embarked earlier, faster and more successfully on SDV concepts. So it's a must-do, Joshua for the rest of the world to catch up to remain competitive with China in [ Inc ]. So clearly, an acceleration. And I know that, that sounds orthogonal to the tariff pressures and other turmoil this industry is in. But they all know this is the way to go to move forward. It's almost like electrification of drivetrains and people know how to do it. It's now like how to reach the consumer with it. The next big thing is SDVs. And the next big thing in that is NXP. I mean we are -- with our S32 family and our ethernet connectivity with it and now TTTech Auto software, there's just -- I mean, we are just far away from everybody. Joshua Louis Buchalter: Kurt, this is indeed your last earnings call. Thank you for the help over the years. Operator: And our next question will come from Stacy Rasgon with Bernstein Research. Stacy Aaron Rasgon: Kurt, I wanted to revisit the TTT Tech (sic) [ TTTech ] in the guide. I know you said it was insignificant, but I mean, you had 1,100 employees and you paid $625 million for it. Is the revenue really $0? Like how big is the insignificant amount of revenue that's actually in Q3? Kurt Sievers: It is insignificant, Stacy, because we don't want them to do what they used to do to an extent. There is a -- we need that competence they have and that know-how in a sector which they know, but really going more from maybe a service model to becoming an integral element of what we do for the SDV. So that's why this is also changing to what it might have been in the past, Stacy. Stacy Aaron Rasgon: Okay. So it's like what, single-digit millions? Or is it double digit? Like just help me size it. How big is it? Kurt Sievers: We don't give a number for it, Stacy, but it is really completely insignificant and immaterial to NXP's financials. On the revenue/gross margin as a consequence side, it is not insignificant at all from the OpEx side, which I called out because those 1,100 engineers, we, of course, want to have them, we pay them. So they are on the payroll. So that's really where the impact is. Stacy Aaron Rasgon: Got it. Okay. So there's a business model change is what you're saying, okay, I understand. Kurt Sievers: Absolutely, absolutely, Stacy. Stacy Aaron Rasgon: For my follow-up, I wanted to take a little bit on Q4. So it does sound like I get it the guidance doesn't include fill in the channel, but it's certainly on the table. And you sort of gave a number for kind of typical seasonality for Q4. Are there plausible scenarios where you could be above seasonal in Q4 without filling up the channel further than it is right now? Kurt Sievers: Stacy, we don't guide Q4 at all. Stacy Aaron Rasgon: I am not asking the guidance. Kurt Sievers: I tried to -- no, you asked me if I could give you a direction today, if we can be above seasonality. I mean that's your question. And... Stacy Aaron Rasgon: What I'm asking is do you need to fill the channel to be above seasonal is what I'm asking? Kurt Sievers: No. That is fine with 9 weeks. However, the sell-through trends, Stacy, are very dynamic to the positive side. And that's why I made that comment even for quarter 3, Stacy. I mean, you asked for quarter 4. Honestly, I think the more burning question is for quarter 3 because already there, the dynamic is such that we might selectively put it a little higher. Now if that all continues the way it actually in all the past cycles has continued, of course, the dynamic holds or accelerates even into Q4. Stacy Aaron Rasgon: I mean even though, I wonder a little bit, we read negative preannouncements from auto OEMs and like the end demand environment for auto doesn't seem fantastic. So it's just a normalization of inventory or like what? Kurt Sievers: I absolutely know what you speak about. There were a few less overwhelming announcements very recently. But I think we have to look at the total market, Stacy, and I told you that S&P just upped their car forecast for this year from 88 million to 90 million. It's only 2 million cars. And I would also clearly not say it's not the SAAR, which is driving us. But it's not going backwards. It's actually improving a little, and our growth comes from content increase, thanks to our like radar electrification S32. And it comes -- and it's really important, it comes from a moderation or even cease of the inventory burn at the Tier 1s in the Western world, which has been a big headwind over, I'd say, 8 quarters now. And if that goes away, we just start to ship to natural end demand, which is growth, Stacy. I mean there's not much we have to do. It's just the inventory burn goes away at the Tier 1s, and we already grow. Stacy Aaron Rasgon: Got it. That's helpful. I apologize if I sound like a harpy. Kurt Sievers: No, that's all right, Stacy. And I think we are at time. So I want to thank you all for the attention. And I trust you got to feel that we have quite a change from 90 days ago relative to the sentiment on the up cycle, which starts to be clearly broad-based in industrial & IoT across geographies, across consumer IoT and core industrial and across direct and distribution channels. So it can't be broader than this. And also Auto, which was actually the best segment, if you will, in the second quarter because it was already flat year-on-year, is accelerating from a sequential perspective. But what excites us in auto is the design win traction on the one hand and the fact that this damp inventory burn at the Tier 1s starts to go away. Having said that, thank you very much all, and speak to you in the individual calls. Thank you. Bye-bye. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.?

Operator: Good day, and thank you for standing by. Welcome to the NXP First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Tanya, and good morning, everyone. Welcome to NXP Semiconductor's first quarter earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the second quarter of 2025. NSP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2025 earnings press release, which will be furnished to the SEC on Form 8-K and available on NXP's website in the Investor Relations section. Now, I'd like to pass the call to Kurt. Kurt Sievers: Thank you, Jeff, and good morning, everyone. We appreciate you joining our call today. I will review our quarter one performance and then discuss our guidance for quarter two. Beginning with quarter one, our revenue was $10 million better than the midpoint of our guidance. The revenue trends in the mobile and communication infrastructure markets were slightly above expectations, while performance in the automotive and industrial and IoT markets were slightly below our expectations. Taken together, NXP delivered Q1 revenue of $2.84 billion, a decrease of 9% year-on-year. Non-GAAP operating margin in quarter one was 31.9%, 260 points below the year ago period and about 40 basis points above the midpoint of our guidance. Year-on-year performance was a result of the lower revenue and related gross profit fall through, partially offset by lower operating expenses. From a channel perspective, distribution inventory was in line with our guidance at 9 weeks below our long-term target of 11 weeks. From a direct sales perspective, we continue to support Western Tier 1 auto customers with their ongoing digestion of on hand inventory against the backdrop of a cloudy automotive demand environment. Now, let me turn to our expectations for the second quarter. We are operating in a very uncertain environment influenced by tariffs with volatile direct and indirect effects. As of today, the direct impact of the current tariffs is immaterial to our financials. However, the indirect impacts of current tariffs related to future and demand and supply chain remains unknown. As of now, we are not seeing any abnormal customer order pull-ins or push-outs which could be associated with the tariffs. And other than the potential indirect impacts of tariffs, we are seeing some positive trends. These trends include improving distribution customer backlog levels as well as stabilized order signals from our direct customers. Additionally, we are experiencing an increase in short cycle orders as well as some spot product shortages leading to customer escalations. Taken together, these trends have historically been indicative of the early innings of improving cycle dynamics. Therefore, our guidance reflects these improving cycle trends and the immaterial direct tariff impact, but we have not incorporated any judgment of indirect impact from tariffs. Given the uncertain macro environment, we are only providing guidance for the second quarter. We are guiding Q2 revenue to $2.9 billion, down 7% versus the second quarter of 2024, and up 2% sequentially. At the midpoint, we expect the following trends in our business during quarter two. Automotive is expected to be flat versus quarter two 2024 and up in the low single-digit percent range versus quarter one 2025. Industrial and IoT is expected to be down in the mid-teens percent range year-on-year and up in the mid-single-digit percent range versus quarter one 2025. Mobile is expected to be down in the mid-single-digit percent range on both the year-on-year and the sequential basis. And finally, communication infrastructure and other is expected to be down in the high 20% range versus quarter two '24, flat versus quarter one '25. Our outlook assumes that we will continue to undership end demand in automotive, and we expect channel inventory to be flattish at 9 weeks against our long-term target of 11 weeks. Before turning to your questions, I would like to review a strategic acquisition which we announced in the first quarter. On February 10, we announced the intention to acquire Kinara for $307 million, an industry leader in high-performance, energy efficient, and programmable neural processes. This acquisition provides a scalable platform for AI-powered edge-based systems combining NXP's broad portfolio of processing, connectivity, security, and advanced analog solutions with Kinara's AI NPU hardware and software. We believe there is an inflection point in the industrial and IoT markets which is creating demand for intelligent edge AI compute solutions. Customers need high-performance, secure low-power processing which takes place locally at the edge. This eliminates the requirement to connect to the cloud for the execution of AI models in order to meet the critical latency, security, and real-time edge requirements. Kinara already has meaningful customer engagements within the factory automation, building and energy management, healthcare, and smart home end markets. We expect the regulatory approval should be complete by the end of second quarter. The transaction will not have a material impact on the financial model shared at our Investor Day in November. We expect Kinara to be accretive to our current financial model by 2028 and it will accelerate our overall position in the industrial and IoT markets. In summary, NXP's first quarter results and guidance for the second quarter underpin Porsche's optimism that NXP continues to effectively navigate with challenging set of market conditions. We are operating in a very uncertain environment influenced by tariffs with volatile direct and indirect effects. Considering these external factors, we are redoubling our efforts to manage what is in our direct control, enabling NXP to drive solid profitability and earnings. Now, finally, on a more personal note, after deep reflection, I have decided to retire from NXP at the end of 2025. My past 30 proud years with NXP, including 7 years as President and 5 years as CEO, have been hugely fulfilling. I am incredibly thankful for the invaluable privilege to work with so many amazing people and having the opportunity to co-create NXP's future and drive technological leadership for a better world. For three decades, I've passionately prioritized and dedicated my energy to NXP and all of our stakeholders. Now, the time has come to start planning for a shift and focus on my personal journey. I am looking forward to entering the next chapter of my life in good health, taking more time for family, friends, and personal passions. And I would like to congratulate Rafael on his promotion to President of NXP. I look much forward to the next six months of transition period before Rafael assumes the Chief Executive Officer role for NXP in October. Worked very closely together with all of you in the upcoming period. Building on more than 10 years of experience in NXP, Rafael will be an excellent leader to execute on NXP strategy to bring intelligent systems to the edge in the automotive and industrial IoT end markets. And with that, I would like to pass the call over to you Bill, for a review of our financial performance. Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q1 and provided our revenue outlook for Q2, I will move to the financial highlights. Overall, our Q1 financial performance was good. Revenue was slightly above the midpoint of our guidance range, while gross profit was in line and operating expenses were below the midpoint of our guidance. Taken together, we delivered non-GAAP earnings per share of $2.64 or $0.05, better than the midpoint of our guidance. We continue to manage sales into the distribution channel consistent with our guidance of 9 weeks. Now, moving to the details of Q1. Total revenue was $2.84 billion, down 9% year-on-year, slightly above the midpoint of our guidance range. We generated $1.59 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 56.1%, down 210 basis points a year-on-year, and 20 basis points below the midpoint of our guidance range due to product and channel mix. Total non-GAAP operating expenses $686 million, or 24.2% of revenue, down $50 million year-on-year, and $14 million below the midpoint of our guidance range. From a total operating profit perspective, non-GAAP operating profit was $904 million, and non-GAAP operating margin was 31.9%, down 260 basis points year on year, and 40 basis points above the midpoint of our guidance range. Non-GAAP interest expense was $80 million, while taxes for ongoing operations were $143 million, or a 17.4% non-GAAP effective tax rate. Non-controlling interest was $7 million, and results from equity account investees associated with our joint venture manufacturing partnerships was $1 million. Taken together, below the line items were $3 million unfavorable, which is our guidance. Stock based compensation, which is not included in our non-GAAP earnings was $127 million. Now, I would like to turn to the changes in our cash in debt. Our total debt at the end of Q1 was $11.73 billion, up $871 million sequentially due to a combination of a second tranche of the European investment bank loan and the initial results of our new commercial paper program. Our ending cash balance was $3.99 billion, up $696 million sequentially due to the cumulative effect of additional liquidity, capital returns, CapEx investments and cash generation during the quarter. The resulting net debt was $7.74 billion and we exited the quarter with a trailing 12-month adjusted EBITDA of $4.89 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q1 was 1.6x, and our 12-month adjusted EBITDA interest coverage ratio was 19.2x. During Q1, we repurchased $303 million of our shares and paid $258 million in cash dividends. After the end of the quarter and through April 25th, we bought an additional $90 million of our shares under an established 10b5-1 program. Turning to working capital metrics, days of inventory was 169 days, an increase of 18 days sequentially and slavish on a dollar basis. Days receivable were 34 days, up 4 days sequentially and days payable were 62 days, down 3 days sequentially. Taken together, our cash conversion cycle was 141 days. Cash flow from operations was $565 million, and net CapEx was $138 million or 5% of revenue, resulting in non-GAAP free cash flow of $427 million or 15% of revenue. During Q1, we paid a $125 million capacity access fee related to VSMC, which is included in our cash flow from operations. Additionally, we paid $16 million into ESMC, our equity accounting foundry joint venture under construction in Germany and a $20 million into VSMC, our equity accounted Foundry joint venture under construction in Sinaloa, both of which are included in our cash flow from investing. Now, turning to our expectations for the second quarter. As Kurt mentioned, we anticipate Q2 revenue to be $2.9 billion plus or minus about $100 million. At the midpoint, this is down about 7% year-on-year and up about 2% sequentially. We expect non-GAAP gross margin to be 56.3%, plus or minus 50 basis points. Operating expenses are expected to be about $710 million plus or minus about $10 million. The sequential increase is driven by the normal annual merit increases and the previously disclosed annual license payment modestly offset by our ongoing restructuring to make room for the three pending acquisitions. Taken together, we see non-GAAP operating margin to be 31.8% at the midpoint. Please note our second quarter guidance does not incorporate the three pending acquisitions. We estimate non-GAAP financial expense to be about $88 million. We expect the non-GAAP tax rate to be 17.4% of profit before tax. Non-controlling interest will be about $9 million and results from equity account investees about $2 million. For Q2, we suggest for modeling purposes, you use an average share count of 255 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $115 million. Taken together at the midpoint, this implies a non-GAAP earnings per share of $2.66. Furthermore, we continue to operate our internal fabs in the low 70% range, and we expect our days of inventory to be flattish into Q2. Turning to uses of cash, we expect capital expenditures to be around 4% of that. We will pay a $35 million capacity access fee to VSMC. Additionally, we will make a $60 million equity investment into ESMC and a $50 million equity investment into VSMC, our two equity accounted foundry joint ventures under construction. Pending the regulatory approval of the three acquisitions, it will result in a cash payment of $1.1 billion and we will redeem the $500 million tranche of debt due in May from our current cash balance of $4 billion. After closing these acquisitions, our ongoing restructuring actions are intended to enable NXP to get into its stated long-term operating expense model of 23% in the second half of 2025. In closing, I would like to highlight a few focus areas for NXP. First, as Kurt mentioned in his prepared remarks, our outlook does not consider unknown indirect and market demand impacts because of global tariffs, while the direct impact of the current tariffs are immaterial to our financial guidance. Second, with the upcoming CEO transition, there is no change to our long-term financial model and capital allocation strategy, and lastly, we are operating in a very uncertain environment influenced by global tariffs. Considering these external factors on the end markets we operate, we are redoubling our efforts to manage what is in our direct control, enabling NXP to drive solid profitability and earnings while executing our growth strategy. With that, I would like to now turn it back to the operator for your question. Operator: [Operator Instructions] Our first question will be coming from Christopher Muse of Cantor Fitzgerald. Christopher Muse : Kurt, you will clearly be very missed. Thank you for everything that you have done over the last five years and obviously before that as President. I guess maybe first question, you highlighted in your prepared remarks the Kinara acquisition, but you have also made acquisitions with Aviva and TTTech. I guess my question is this. As you think about competition from China in the MCU world, how much of these acquisitions are defensive in terms of a world where MCU discrete purchases probably decrease and focus on software is more important or conversely more offensive in terms of true differentiation both in the auto and in the industrial side of things where you look to really separate yourselves? Kurt Sievers: Many thanks, and good morning, CJ. Indeed, we have had three acquisitions now, Kinara, Aviva, and TTTech Auto. Kinara is the AI edge compute, which I just discussed briefly on the call. Aviva is about asynchronous connectivity in the car between displays and cameras and for very high data rates in one direction versus not in the other, so clearly beating what Ethernet can do. And TTTech Auto is indeed a very strong software complement to our platform. And to answer your question in brief, this is clearly an offensive addition, complement to our product strategy as we have it today to make us more differentiated with our compute portfolio. I was a little bit hesitating, CJ, because it's not just the compute portfolio because especially the Aviva and TTTech Auto is the whole offering with our core right platform for the software region. Clearly, this will come to good play in China, but I have to emphasize, CJ, not only in China. I mean, this is a global offering, but it will certainly also further help our, China for China strategy. Christopher Muse: Very helpful. Then as a quick follow-up, could you give us a kind of, level set where we are in the auto correction? You talked about under-shipping and demand. I guess, when you now expect excess inventory to be digested and how are you thinking from a geographic perspective? I think three months ago, you talked about China strong, America is kind of slowly recovering and Europe weak. Is that kind of consistent with where we are again today? Kurt Sievers: Yes. Actually, quarter two guidance is a bit of a turning point. Above and beyond the comments I made in my prepared remarks about better backlog with some distribution customers, about stabilization of the order patterns from direct customers, some early innings of escalations because of supply shortages with very short-term orders. But the turning point of order in the second quarter is actually in my view that second quarter we are flat year-on-year. And that's the first time after five quarters. So, we look now back to five quarters of year-on-year declines in automotive and this second quarter of calendar 2025 is the first time that we are flat. It is indeed, CJ, a combination of a stabilizing order pattern from the direct customers with somewhat slower digestion of above inventory in the Western Tier 1s. I'd say, some was slower because some of them are done and we still have a few left, which are still absorbing over inventory. So, this is still under shipping through their end demand. At the same time, we see a pretty nice pickup in order pace, especially from Asia for the second quarter automotive. And Asia here is a combination of China and Japan. There admittedly that also has seasonal components. China automotive is always seasonally weak in Q1 and then picks up the pace in Q2 and that's exactly what we see. And in Japan, there is another element, which makes Q2 always stronger than Q1, which has to do with the price adjustment. I talked about global pricing, in the last earnings call, and I hope I made a clear comment that most of the Western customers will settle pricing for the full year by January 1. For Japan, that is by April 1. And natural customer behavior is that they hesitate to buy before they have the new prices. So, Japan was waiting, and that's why we see now an uptick in Japan into the second quarter. Since it will be one of the next questions for sure, I'd say it upfront. With having all the price negotiations with the large customers now settled for the year, I can reconfirm and with confidence what I said last earnings, which is we will have for this year a low single-digit price erosion for the whole company for the year. So, no change to what we said last year. It's just that now the confidence is fully in place, since we also closed and operate and execute in Japan. Operator: Our next question will be coming from Ross Seymore of Deutsche Bank. Ross Seymore : Hi, guys. Thanks for having me ask a couple of questions. And Kurt, I want to echo what CJ said. Thank you so much for all your help over the years and congrats and best of luck in retirement. So, I guess my first question is, I know you talked about the direct and indirect not really having an impact on the tariff front. But can you just talk a little bit about how NXP is viewed by the customers and by the various governments? I know where you're technically headquartered, but are you a U.S. company to China? Are your U.S. China for China play? Or does the U.S. consider you a European company? Just trying to talk through the manufacturing footprints you have and the flexibility that might provide. Kurt Sievers: Yeah, thanks. Thanks, Ross, and good morning. Let me first reiterate indeed what I said about direct and indirect impact. The direct impact of the current tariffs we consider immaterial to our financial guidance. So there is a tiny little bit, but it is immaterial. Therefore, consider zero. What I did say about the indirect impact is that it is completely confusing because things are changing by the day. I think today is another reiteration planned for the 25% auto. So that keeps changing and we don't see a consistent pattern. But I would also clearly say we have been very busy talking to all of our customers across the world, asking them what they plan to do, what they have possibly done. And there is neither pull in nor push out effects at this point in time. And we also don't, we didn't really foresee anything for the second quarter from an indirect perspective. So that's why the comment in my prepared remarks. The second part of your question is indeed yielding something we essentially see as an opportunity. Especially in China, Ross, as we are seen and of course we position ourselves that way as a European company. Very clearly as a European company with a lot of our manufacturing operations, given our hybrid manufacturing strategy outside of the U.S. so that makes us, I'd say a pretty much appreciated partner for the industry and our customers in China. Now, tariffs have been exempted and coming and going over the last couple of weeks. But clearly, we've seen an opportunity with our China for China strategy from these tariffs. Because our manufacturing structure and our hybrid manufacturing network, which I think I've discussed over the past couple of quarters already, which is very much emphasizing and strongly building a local manufacturing network, is a positive in this. So it's not just how we are seen, Ross, but it's also factually such that I think more than a third of our China for China business today is already manufactured in China. So we already have made a lot of progress in leveraging this advantage. Now, you also asked, are we seen in the U.S.? Well, both in the U.S., we are seen as a U.S. company, which means we are complying with anything that is being asked from us. But I think that the part which gives us potentially a boost and we try to leverage is that the Chinese are seeing us as European and we have already spent, I'd say, two years of changing our supply network to be a better partner from a China for China manufacturing perspective. Ross Seymore: I guess for my follow-up, I just want to pivot over to the industrial side of things. You gave a lot of color about the order patterns, et cetera, and automotive channel versus direct, et cetera. We've heard from other companies that they're seeing some of the green shoots, and I know those are dangerous words these days, but nonetheless, in the industrial business, I just wondered what you're seeing on that side of things, both kind of direct or geographically, and then, of course, via the channel. Kurt Sievers: Yeah. As a precursor to this, I'm a little bit humble when it comes to looking at NXP as a bellwether for the industrial sector. I mean, we are comparably small, so I'm a little bit careful in taking my commentary now as a strong direction for the whole industry. What we are seeing is that, actually, in Q1 from a performance perspective, actual performance, but also for the guidance of the second quarter, which is up mid-single-digit. It is more or less by the consumer IoT part than the core industrial part. The ratio is still about the same as we discussed earlier, Ross, which is the 60-40 between core industrial and consumer IoT. But directionally both in Q1, but also now into Q2, it is the consumer IoT part, which is strong on a relative basis. However, I do believe, Ross, that also has to do with company specific design wins. We just have a number of really strong design wins. And again, they are specifically in China, which are now playing out nicely in the first half of this year. So, I don't know we can take this as a proxy for the industry. It's probably pretty specific to NXP. Operator: Our next question will be coming from Chris Caso of Wolfe Research. Chris Caso : Yes. Thank you. Good morning. I wonder if you could expand a little bit on some of the comments you made on your China for China strategy and I guess how far that progresses. And I guess ultimately within China, how much of your China revenue do you expect to be able to supply domestically and under which time? And then, maybe you could speak a little bit to the U.S., obviously, because that's something we're waiting the regulations and how much of the U.S. you'd be able to satisfy from the U.S. fab? Kurt Sievers: Yes. So, good morning, Chris. First of all, the China for China strategy has two legs. One is the manufacturing leg, which I will expand on in a second. The other one, I think structurally or strategically even more important is the road mapping and product generation, dedicated for Chinese customers with the consideration of them as lead customers, given that they are really setting the pace now in the automotive and industrial sector when it comes to innovation. And I might have talked last fall about the fact that I even changed the management team of NXP to the extent that I have a leader now directly reporting to me, who runs the China business to make sure we have full visibility on the highest level in the company on the specific product needs. So, the product road mapping is a very important strategic element. Now, back to your question on the manufacturing side. We have currently about -- by the way, everything I say now is wafer manufacturing. There is different considerations when you think about back end, test and assembly versus strong end wafer manufacturing. I speak now about wafer manufacturing where we have about 30% capability at the moment, to supply or not only capability, it's actually what we do to supply for our China for China business. So, from the revenues which we currently ship, China for China, 30% are actually sourced in China. And of course, we work hard to expand this. Now, don't assume that the rest is in the U.S. You know that we have 60% of our overall vases coming from boundaries, which are typically not in the U.S. So, we have a much higher number, which is non-U.S. sourced, which is then from Europe and other places in Asia serving China. So, it's a much higher number than the 30%, which is already in China. But again, we want to work this as high as possible as soon as possible to have maximum independence here, relative to possible tariffs, to that end. I would actually say, Chris, the tariffs, of course, are now adding uncertainty and complexity, but the China-for-China strategy, which I can speak about here, is not something we now suddenly did because of the tariffs. We've had that actually in place for probably more than two years, given the revenue opportunity which we see for our core markets, automotive and industrial, in China, where we just see that the industry in China is leading the tech now from a global perspective, which is why we've been leaning into this already for a longer time. Chris Caso: As a follow-up question for Bill, I think you made a comment that you would get to your 30 -- I'm sorry, your 23% expenses, as a percentage revenue target in the second half of the year after accounting for the acquisitions. Could you go into a little more detail on that and what assumptions you're making to get to those numbers? Bill Betz : Yeah, sure. So, on operating expenses, right, we're not guiding the second half. You can see in Q1 we were favorable against our guidance. So, that means we're ahead of the plan of the restructuring activities. And we're going to continue that into Q2 and Q3 because it's time phase. Think about, at the end of June 30th, we will have probably 1,250 extra employees joining us for a full quarter effect starting Q3 and Q4. And you're right in my prepared remarks. Basically, what we're doing is continue making space for those acquisitions so that we can absorb and hit our model at 23%. Obviously, we're not guiding the second half, but we have scenarios on what revenue we think we want to go do and different levers to go pull against that. But we feel pretty confident we'll land sometime in 2020, the second half of 2025 at the model. Operator: And our next question will be coming from Francois Bouvignies of UBS. Francois Bouvignies : And again, Kurt, thank you very much for your help. And you will be missed. Sad to see you leaving, but well-deserved, I have to say as well. The two questions I had is on, firstly, you said, Kurt that you don't see much pull-in so far and not much impact there in terms of all the behavior. Obviously, you managed very well during COVID the inventories in the channel. So my question is, if you were seeing some pull-in at some point, would you allow your customer to increase their inventories or would you control it the way you did during COVID? I mean, how do you want to play this dynamic here, given, I mean, your customers, maybe they would like to increase the buffer and inventories maybe above some level that you would like to see? Kurt Sievers: Yeah, thanks, and good afternoon, Francois. And by the way, I'm still around for a full half year. So this is not a good time to work. On the pull-ins, so yes, I first of all reconfirm through Q1 and through quarter to date Q2, we have not seen pull-ins. I say that very explicitly. We checked it very carefully, customer-by-customer, because we wanted to be sure that this is clean of that. If it was to happen, I think the underlying policy, Francois, continues to be we don't want this. We don't like that. Now, there could be specific reasons and specific cases with specific customers, where they can explain us why it makes sense, and we might want to do it. But I would say, especially on the distribution side, which is more than 50% of NXP, I think I said in my prepared remarks, we want to stay flat to the 9 weeks inventory into the second quarter, where again, we wouldn't want to allow it. And I also said, and I don't know CJ or Ross asked earlier, we are still busy with some Tier 1 automotive customers to digest inventory. And for that same reason, we don't have a hell of a lot of appetite to consider pull-ins. So, I'd say with possible exceptions always in the range of the moment, we don't want that. We would not want to support. Francois Bouvignies: Great. Thank you, Kurt. And maybe my follow-up would be for Bill on the gross margin side. I mean, your inventory days are relatively high when you look at the history. You said, you think it will be flat. And then, when I look at the gross margin, you are around 56%, low 56% in H1. I look at the consensus, it has more than 57% gross margin in the second half of the year. So, how should we think about the gross margin here? Because it seems tricky to get a big improvement of gross margin with inventories having to come down on your balance sheet, maybe not in Q2, but in Q3, Q4. So, can you help us our ratio as on the gross margin side trajectory in the second half of the year? Can it go up, despite inventories coming down on your balance sheet? And maybe you can remind us the mix effect. Bill Betz: Sure, absolutely. Very fair question. So, let me just repeat. In Q1, we had a slight mix, driven by our product and channel mix. And if we hold everything equally and going into Q2, we're just saying, okay, right now our order book is pretty full. We actually see the mix and it says similar mix as Q1 and we're getting the fall through on the higher revenues over fixed cost. That's why we guided the 56.3%. Now, without providing guidance for the second half of 2025, the best way to think about our gross margin is a function of revenue levels before any of our company specific drivers to influence it. So, for example, at a $13 billion revenue annual number level, we will feel very confident at 58% plus or minus, $12 billion, 57%, $11 billion, 56% and again that's a plus or minus 50 basis points. And we demonstrate those levels in the past. Now, from an upside perspective, we obviously have these additional levers to drive gross margin much higher, and they include increasing of our internal utilization, again, that's 70%, and it's staying at 70% because of our inventory, as you said, is at the higher. The consolidation of our 200 millimeter factories, we will be talking more about that in the second half. We're increasing our industrial and IoT go-to-market through our channel. So, we want to focus on addressing that mass market. We also have and by the way, our company-specific accelerated growth drivers are tracking to our growth plans versus Investor Day. I know we're only one quarter in, but everything is good there. We have the normal operational efficiency of our projects to offset just these annual pricing, low single-digit that we occur, so those two offset each other. And a bit longer term, which we've shared all of last year, we will leverage our VSMC 300 millimeter joint venture with Vanguard, which is tracking slightly ahead of schedule. So we feel pretty good about that. So overall, stepping back with the revenue numbers I just gave you, we feel very confident to deliver our long-term gross margin range of 57% to 63%. It really is where revenue comes from and the influence at the starting point, and then you have these levers. On inventory, again, you're right, 169 days is probably the upper bound in my liking for sure related to it. Now you have to think, we managed Q4 going into Q1, we had to manage the absolute dollars because it was the variable orders with our suppliers and we kept utilizations internally. So going into Q2 and also Q3, again, 169 because we have a backlog that we see actually is okay so far for Q3, and so we have to make sure we take that into account to make sure we build the proper product. But as you all know, with the uncertainty around the macro effects related to global tariffs, and more importantly, the number of potential disruptions from a supply chain perspective that could occur and we're starting to read about, we believe holding a bit more inventory is important from the lessons learned from the past. But again, I agree with you, the 169 is the upper balance and we're going to probably adjust this once we learn a little bit more about second half and confidence of second half revenue. Operator: One moment for our next question, which is coming from Stacy Rasgon of Bernstein Research. Stacy Rasgon : Bill, first a question for you. So I know you said you weren't guiding the second half. That being said, the OpEx targets, I mean, you're running $710 million a quarter in OpEx, 23% of that would be like $3.1 billion at some point in the second half. You got close to $50 million a quarter in OpEx coming in Q3. So I mean, $750 a quarter would be like $3.3 billion at some point in the second half. I mean, are these the kinds of revenue targets into the second half that you have in mind when you give those OpEx targets? Like, how do we think about that in the context of everything else? Bill Betz : Well, let me remind you about the Q2 OpEx number. There is a one-time payment from a reoccurring license that occurs each year. That's about 16 million to one of our peers. And I've had that in my prepared remarks. I also mentioned that we continue to restructure the company to make space for these new acquisitions, which I have not disclosed the size from an operating expense standpoint related to it. So we feel pretty confident under the different types of revenue scenarios that we can model because we have other levers to make sure. And remember what I said, where our whole message is we are redoubling our efforts on the areas that we can control. And as you know, Stacy, the two things that we like to control is our spend because that we can do as well as to some extent the inventory time based on what we're building and not building and taking and placing bets with those orders with the unknown macro environment. Hopefully, that helps provide additional context. Stacy Rasgon : That is helpful. And I guess my follow-up, I guess I'm going to try it. So I know, again, you said you didn't want to give color on the backup, but I mean, any just even soft commentary on how you guys are seeing Q3 right now? Like, I mean, what's typical seasonality in Q3? Is there any reason to expect you could be above or below that typical seasonality? I'm sympathetic to the idea that nobody knows what the hell is going on at all right now, but any color you can give us at all, even a little bit farther out would be helpful if you're so inclined. Kurt Sievers: Yes. Good morning, Steve. This is Kurt. Look, last year, we did this. And you know that we were wrong. We called the cycle which didn't happen. And one of the learnings from that was that we would not want to repeat this. Now, this year, the situation is even more complex because as I said in my prepared remarks, on the one hand, we do see now what has been always good early innings of the cycle recovery. I mean, that's very positive, what we see there. At the same time, we have this pretty material uncertainty of the indirect impacts from the tariff, which we just cannot figure out what they would possibly mean for the second half. Therefore, we wanted to draw here a clear line, not even for a soft cut for the second half. We just can't. It would be really irresponsible to do it, so we stick to quarter two. Stacy Rasgon: I mean, how do you even tell the difference between, like, a cycle recovery or green shoots and pull forwards and short-term orders and things like that? Like, wouldn't they look the same? Kurt Sievers: We can clearly see that because as I gave you a couple of elements. One of them was that the backlog of our distribution end customers, which we see by product, is starting to grow after a long, long period of absolutely no growth or even decline. And that is different customers, new customers, new products. That is totally different to a pull in. Absolutely not pull-in. I also talked about a nicely stabilized order pattern from our direct customers, which has been in decline for long, long, long periods and has now stabilized across the board, which is not a pull in because it's far too even, to be a pull-in. So, we think we can clearly differentiate between those because as I said earlier to our things going forward, we want to avoid, to entertain pull-ins and increase inventories again. So, Sandy, that's for us a pretty, it's a pretty potent point. So, therefore, no, let's stick to the second quarter and see how that plays out with the uncertainty, which is provided to us from the tariff landscape to our customers. Stacy, what we do is, we speak to our customers, and that's where that uncertainty comes from. I mean, it's not us inventing it, but we have no better source than speaking to our customers, big and small across the different, segments, and they have no idea what's what the second half should look like. So, how should we make it up? Operator: Our next question will be coming from Vivek Arya of Bank of America Securities. Vivek Arya : Thanks for taking my question. Kurt, I just wanted to go back to these, the green shoots that were discussed because when I look at your Q1 results, auto and industrial sales, industrial IoT sales were actually modestly below expectations. I think the upside came from mobile and the comm segment. And Q2, you're largely guiding to kind of seasonal trends. So, if there are green shoots, is it fair to say they have not yet shown up in this first half and they could show up in the second half? I'm just trying to get a sense for where are these green shoots showing up, if any? Kurt Sievers: Well, Vivek, you don't know what we thought it was earlier because you prepped us already in Q1 to a soft dive for Q2, where I don't know, I think I said it's maybe flat or very, very slightly up. No, the -- but I think there was something very relevant in your question, which is in Q1, indeed, auto and industrial and IoT were a touch light against guidance, while the other two segments were a touch richer. That has a reason, and it is actually Japan and China. So it is the seasonal weakness of China automotive, which was a little bit stronger than what we had anticipated. Again, we know that that was to happen, so it was forecasted, but not to the full extent it came. And in Japan, I think I talked about this earlier, it is the price change, which is leading customers to finally, and mind you that for several years, we have either increased prices or kept them flat. Now, it was the first time that we offered a low single digit price decline for customers also in Japan. So they were eagerly waiting and held actually back to purchase until they could enjoy the quarter two prices. So it's a bit of a, it's kind of specific and for quarter two, we see things coming up. What you don't see, Vivek, is of course, what underneath is still at work from an inventory digestion perspective with the Tier 1 automotive customers, which is kind of fogging some of the nice uptake, which we are seeing. But again, you didn't call me, you didn't hear me calling the site Vivek. I said, we've seen our trends, which are or have been in the past. And I would say also now indicative of early innings of the cycle recovery. But it's certainly not at the stage that we would say with belts and business, everything is jumping up. That alone would not be given, simply given the uncertainty which our customers face from Paris. Vivek Arya: And for my follow up, the last, I think, forecast that we saw from IHS or S&P was for light vehicle production to be down, I think kind of low single digit. So let's assume that that is the case, right, including all the effects of tariffs and whatnot. So if that is the industry backdrop, what does that tell us about what NXP's automotive business could do this year, given all your company specific growth drivers? Kurt Sievers: Well, let me confirm Vivek that indeed S&P just published their latest forecast for the year, which says the SAAR is going to be down by almost 2% this year, which compares to a flat line last quarter. So it has degraded, which maybe or maybe not is a consequence of the tariff fears, could be. But the matter of the fact is indeed, it is now a 2% decline in the forecast versus the flat line before. As we said earlier, we are not guiding the year and we are also not guiding the year for automotive, Vivek. However, the much bigger role continues to play the content increases. All of the growth drivers, which we had laid out at the last Investor Day in November, think about SDVs, think about radar, think about electrification, are nicely at work. So we are on-track on those. And I think it is those content increases which should continue to make us very optimistic about automotive, not that much the SAAR. Vivek Arya: So does that suggest, they can offset the SAAR decline or are we not willing to say that yet? Kurt Sievers: Hey, Vivek, I'll take that. I really think we're going to hold off giving any real color on where the second half could be revenue-wise. And you also have to remember, our revenue does not synchronize with global production quarter-over-quarter. There's always a six month or so lag between when we recognize revenue and when a car comes out of the factory somewhere in the world has counted and so. But we really do want to respectfully not address revenue targets or potentials in the second half. Vivek Arya: Understood. Thank you. Good luck. Kurt Sievers: Tanya, this will probably be our last, analyst question, if you would. Operator: And our last question will come from Mark Lipacis of Evercore ISI. Mark Lipacis : Great. Thanks for taking my question. And Kurt, congrats on your retirement. Really appreciate all your great insights and help over the years and wish you luck. The question, Kurt, is for you. Every two to three years, there's like a new theory on inventory stocking that gets proposed. Before COVID, it was just in time and then during COVID, it became just in case and now it's just in time. And you know, I think our own checks are consistent with your own that some of the Tier 1s are well below normal for their inventory stocking on semis at least. And my question is about like what would you what would you expect on a restocking cycle? Are you of the view that something has foundationally changed like you and your semiconductor peers keep inventories well above normal and your lead times lower than where they had been historically? And then, downstream, your supply chain feels comfortable with the idea of just keeping things very low and then you don't really benefit from a restocking cycle? Or are you of the view that really nothing has changed and this is all driven by lead times, and when lead times stretch, everybody's just going to restock again? Kurt Sievers: I fear Mark, I have a bit of a frustrating answer. It's more the latter than the first. I'd say more than because there are notable exceptions to this. I don't think that semiconductor companies in general will hold more inventory because it would be just the wrong inventory. That always creates a mix issue. What has got better in several cases is the communication and the alignment between customers and us on understanding the future, on understanding the future, on understanding where it could be bottlenecks. And of course, given the whole geopolitical turmoil, there is also a more sophisticated, diversified supply chain in place now across the world, which eventually, eventually has going forward. But fundamentally, Mark, I fear, as an industry in total, intellectually, we've all learned a lot. Practically not much of that is actually, happening as we speak. The working capital pressure, across the supply chain is just too high, to allow that to happen. Bill Betz: With that, I guess, just to go to the last question, let me, Mark, have a follow-up. Kurt Sievers: Sure. Mark Lipacis : No. That that's all I had. It was simple as that. Thanks so much, Kurt. Appreciate it. Kurt Sievers: Thanks, Mark. Thank you. Thanks very much, Mark. Let me go to make just a couple of closing comments. We have now a very interesting crosshair situation between what I would call a significant macro uncertainty offered by the tariffs with the current tariffs more the indirect impact of them rather than the direct, which is immaterial for us, standing against the clear early innings of cycle recovery. Mind you that, for example, automotive turns to a flat year-on-year already now in the second quarter. So, those two are competing for this, which are not easy to forecast into, into the rest of the year. With that, we continue to -- I hope, show pretty strong resilience through the truck cycle. And at the same time, offer excellent exposure to the second growth drivers, especially in the automotive and industrial sectors. So we -- when we zoom out from this, we see us nicely on track to [doubling] our EPS by 2030 plus as we had laid out in our Investor Day last year in November. Of course, a lot of turmoil short-term but seeing the cycle coming back now, of course, also shadow but an uncertainty in the macro from tariffs, but fundamentally seeing the cycle coming back, we consider as a pretty nice positive. Thanks for your attention today and see you soon. Thank you. Operator: And ladies and gentlemen that concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the NXP Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Daniel, and good morning, everyone. Welcome to NXP Semiconductor's Fourth Quarter Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the first quarter of 2025. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure for forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth quarter 2024 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section at nxp.com. Now, I'd like to turn the call over to Kurt. Kurt Sievers: Thank you, Jeff, and good morning, everyone. We really appreciate you joining our call today. I will review both our quarter four and our full year 2024 performance, and then I will discuss our guidance for quarter one. Beginning with quarter four, our revenue was $11 million better than the midpoint of our guidance. The revenue trends in our end markets were slightly above in Automotive, in line in Mobile, slightly below in Industrial & IoT, while communication infrastructure and other missed our expectations. So taken together, NXP delivered quarter four revenue of $3.11 billion, a decrease of 9% year-on-year. The non-GAAP operating margin in quarter four was 34.2%, 140 basis points below the year-ago period and about 10 basis points above the midpoint of our guidance. Year-on-year performance was the result of the lower revenue and the related gross profit fall-through, partially offset by lower operating expenses. From a channel perspective, we kept distributing inventory flat at eight weeks, below our long-term target of 11 weeks. From a direct sales perspective, we supported Western Tier 1 automotive customers with their continued digestion of on-hand inventory in a cloudy auto demand environment. For the full calendar year 2024, revenue was $12.61 billion, a decrease of 5% year-on-year. Full year non-GAAP operating margin was 34.6%, a 50 basis point compression versus the year ago period due to lower revenue and the related gross profit fall-through, partially offset by lower operating expenses. While the second half of 2024 did not play out as we had originally expected, we rigorously focused on what is under our own control to minimize the impacts on our financial performance. And now let me turn to the specific full year 2024 trends in our focus end markets. In Automotive, full year revenue was $7.15 billion, down 4% year-on-year, primarily a reflection of declining automotive production in Europe and Japan exacerbated by inventory digestion at Western Tier 1 customers in an uncertain automotive demand environment. Against this backdrop, we experienced company-specific growth in our accelerated growth drivers, S32 for the software-defined vehicle, automotive connectivity, radar and electrification. For quarter four, automotive revenue was $1.79 billion, down 6% versus the year-ago period and near the high end of our guidance. Turning to Industry and IoT. Full year revenue was $2.27 billion, down 3% year-on-year, a reflection of ongoing weakness in end demand and tight control of distribution channel inventories. For quarter four, Industry and IoT revenue was $516 million, down 22% versus the year-ago period and slightly below our guidance. In Mobile, full year revenue was $1.49 billion, up 13% year-on-year, thanks to easy compares in the first half of 2023. For quarter four, mobile revenue was $396 million, down about 2% versus the year-ago period and in line with our guidance. In communication infrastructure and other, full year revenue was $1.69 billion, down 20% year-on-year. The year-on-year decline was due to lower sales across the entire portfolio. For quarter four, revenue was $409 million, down 10% year-on-year and below our guidance. Now, I will turn to our expectations for quarter one, 2025. We are guiding quarter one revenue to $2.825 billion, down 10% versus the first quarter of 2024 and down 9% sequentially. From a sequential perspective, this is consistent with our original outlook for quarter one to be seasonally down in the high single-digit range. At the midpoint, we expect the following trends in our business during quarter one. Automotive is expected to be down in the mid-single-digit percent range versus both quarter one 2024 and quarter four 2024. Industrial and IoT is expected to be down in the low double-digit percent range year-on-year and about flat versus quarter four 2024. Mobile is expected to be down in the high single-digit range year-on-year and down in the high-teens percent range versus quarter four 2024. And finally, communication infrastructure and other is expected to be down in the mid-20% range versus quarter one 2024 and down in the upper 20% range versus quarter four 2024. Zooming out, as we enter 2025, we continue to see weakness in Europe. The Americas appear to be bouncing off the bottom and China has implemented several incentive programs. All of this correlates with the reported manufacturing PMI being around 50 with China and the US slightly above and Europe and Japan below. Against this backdrop, we continue to have poor forward visibility, and we are experiencing relatively high turns business, reflective of our short orderly terms. On the customer front, we have completed the majority of our annual price negotiations for calendar year 2025, and we continue to be confident in low single-digit price erosion year-over-year, consistent with our prior commentary. When it comes to inventory in the market, our quarter one guidance contemplates decreasing inventory dollars in both the direct and the distribution channels reflecting under shipment against true end demand. We expect distribution channel inventory to be eight to nine weeks, below our long-term target of 11 weeks. Now, before turning to your questions, I would like to review two strategic acquisitions, which we announced over the last 90 days. Both are vital building blocks to accelerate and expand NXP's CoreRide vision for next-generation software-defined vehicle platforms. Our CoreRide platform comprises a complete suite of secure hardware and software solutions, including processes, connectivity, functional safety and power management as we had laid out in our Investor Day in November. So first, in mid-December, we announced our intention to acquire Aviva Links for $243 million. Aviva is a five-year-old Silicon Valley startup, whose founders have a proven track record in the multi-gigabit Ethernet market. The company is focused on multi-gigabit automotive connectivity technology based on the ASA-MLE standard, which is ideally suited for asymmetric point-to-point connectivity of ADAS sensors and IVI display applications. Asymmetry ASA links are cost and performance optimized for one-way data traffic typical for ADAS and IVI applications, whereas Ethernet is optimized for two-way data traffic going in both directions at the same speed. This addition is fully complementary with NXP's market-leading positions in automotive networking processors, gateways and broad in-vehicle networking solutions. Aviva is an innovation leader in open standards based asymmetrical ASA service with the first to market best-in-class 16-nanometer quad-port 16 gigabit per second uplink product. The company is pre-revenue and has received design awards from OEMs and Tier 1 customers aiming to replace proprietary solutions. We expect Aviva to enhance and complement our broad automotive networking business beginning in 2027. With this, we are capturing a growing application area we have not taken part in by our standards-based solution. This acquisition reinforces our company's specific automotive connectivity accelerated growth driver. And secondly, in early January, we announced our intention to acquire TT Tech Auto for $625 million, a division of TT Tech, a privately held software company based in Austria. TT Tech Auto has extensive knowledge and expertise in the automotive market, especially in the domain of vehicle safety and real-time integration. Its software product called MotionWise, is focused on safety and deterministic real-time performance, key attributes of the software-defined vehicle. MotionWise bridges the silicon hardware layer to the operating system layer, enabling deterministic and safe management of the application software layer. MotionWise is already deployed in over 4 million vehicles with a pipeline of awarded projects, which will enable another 7 million vehicles. The combination of NXP’s CoreRide and TT Tech Auto's MotionWise, will reduce our customers' integration efforts, enabling software reuse and delivering optimal system performance. The combined expertise of NXP and TT Tech Auto will allow to drive faster time to market and lower cost solution in direct collaboration with automotive OEMs. Taken together, these acquisitions enhance our long-term competitive position in the automotive end market. We expect the regulatory approvals should be complete by the end of quarter three '25. These transactions are consistent with our long-term strategic efforts and will begin to contribute revenue within a brief period after close. However, they will not have a material impact on the financial model we recently shared at our Investor Day in November. By 2028 and beyond, these assets will be accretive to our current financial model and will help bootstrap and accelerate our capabilities in specific functional areas. I am very excited about how they will help NXP to offer complete system-level solutions for tomorrow's automotive markets. We do look forward to welcoming the talented teams to NXP. And with that, I would like to pass the call over to you, Bill, for a review of our financial performance. Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q4 and provided our revenue outlook for Q1, I will move to the financial highlights. Overall, our Q4 financial performance was good. Revenue and non-GAAP gross profit were both modestly above the midpoint of our guidance range, while operating expenses were in line with the midpoint of our guidance. Taken together, we delivered non-GAAP earnings per share of $3.18 or $0.05 better than the midpoint of our guidance. Furthermore, we continue to tightly manage sales into the distribution channel with weeks of inventory in the channel flat sequentially at eight weeks. I will first provide full year highlights and then move to the Q4 results. Full year revenue for 2024 was $12.61 billion, down 5% year-on-year due to a weak macro in the Western markets, while China continued to be resilient. We generated $7.33 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.1%, down 40 basis points year-on-year. Total non-GAAP operating expenses were $2.96 billion or 23.5% of revenue, slightly above our long-term operating expense model as we continue to invest in our strategy, supporting long-term profitable growth. Total non-GAAP operating profit was $4.37 billion, down 6% year-on-year. This reflects a non-GAAP operating margin of 34.6%, down 50 basis points year-on-year and in line with our long-term financial model. Non-GAAP interest expense was $275 million. Taxes related to ongoing operations were $686 million or a 16.8% non-GAAP effective tax rate. Noncontrolling interest was $32 million and the results from equity account investees associated with our joint venture manufacturing partnerships was zero. Stock-based compensation, which is not included in our non-GAAP earnings, was $461 million. Turning to full year cash flow performance. We generated $2.78 billion in cash flow from operations and invested $693 million in net CapEx or about 5.5% of revenue. Taken together, this resulted in $2.09 billion of non-GAAP free cash flow or about 17% of revenue. During 2024, we repurchased 5.73 million shares for $1.37 billion and paid cash dividends of $1.04 billion or 37% of cash flow from operations. In total, we returned $2.41 billion to our owners, which was 115% of the total non-GAAP free cash flow generated during the year. Now, moving to the details of Q4. Total revenue was $3.11 billion, down 9% year-on-year, modestly above the midpoint of our guidance range. We generated $1.79 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57.5%, down 120 basis points year-on-year and in line with the midpoint of our guidance range. Total non-GAAP operating expenses were $725 million or 23.3% of revenue, down $66 million year-on-year and in line with the midpoint of our guidance range. From a total operating profit perspective, non-GAAP operating profit was $1.06 billion, and non-GAAP operating margin was 34.2%, down 140 basis points year-on-year and above the midpoint of our guidance range. Non-GAAP interest expense was $74 million, while taxes for ongoing operations were $164 million, or a 16.5% non-GAAP effective tax rate. Noncontrolling interest was $10 million and results from equity account invest fees associated with our joint venture manufacturing partnerships was zero, although $2 million better than our expectations. Stock-based compensation, which is not included in our non-GAAP earnings, was $117 million. Now, I would like to turn to the changes in our cash and debt. Our total debt at the end of Q4 was $10.85 billion, up $672 million sequentially due to the attractively priced loan from the European Investment Bank. Our ending cash balance was $3.29 billion, up $144 million sequentially due to the cumulative effect of additional liquidity, capital returns, CapEx investments and cash generation during Q4. The resulting net debt was $7.56 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.06 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q4 was 1.5 times, and our 12-month adjusted EBITDA interest coverage was 21.3 times. During Q4, we paid $258 million in cash dividends and repurchased $455 million of our shares. After the end of the quarter and through January 31, we bought an additional $101 million of our shares under established 10b5-1 program. Turning to working capital metrics. Days of inventory was 151 days, an increase of two days sequentially, while we maintain distribution channel inventory at eight weeks. As we have highlighted throughout the previous year, given the uncertain demand environment, we continue to make the intentional choice to control the increase of channel inventory. Days receivables were 30 days, flat sequentially, and days payable were 65 days, an increase of five days versus the prior quarter due to improving our payment terms with suppliers. Taken together, our cash conversion cycle was 116 days, an improvement of three days versus the prior quarter. Cash flow from operations was $391 million, and net CapEx was $99 million or 3% of revenue, resulting in non-GAAP free cash flow of $292 million or 9% of revenue. During Q4, we paid a $275 million capacity access fee related to BSFC, which is included in our cash flow from operations. Additionally, we paid $50 million into our -- the ESMC equity accounted foundry joint venture under construction in Germany, which is included in our cash flow from investing. Turning now to our expectations for the first quarter. As Kurt mentioned, we anticipate Q1 revenue to be $2.825 billion, plus or minus about $100 million. At the midpoint, this is down about 10% year-on-year and down about 9% sequentially. We expect non-GAAP gross margin to be about 56.3% plus or minus 50 basis points, driven by the return of our annual price concessions and lower revenue fall-through over our fixed costs. Operating expenses are expected to be about $700 million, plus or minus about $10 million. The sequential decline is driven by restructuring the business and lower variable compensation. Taken together, we see non-GAAP operating margin to be 31.5% at the midpoint. We estimate non-GAAP financial expense to be about $80 million. We expect the non-GAAP tax rate to be 17.5% of profit before tax. Noncontrolling interest will be about $5 million and results from equity accounted investees to be about $1 million. For Q1, we suggest for modeling purposes, you use an average share count of 256 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $128 million. Taken together at the midpoint, this implies a non-GAAP earnings per share of $2.59. Turning to uses of cash. We expect capital expenditures to be around 5% of revenue, we also made a $125 million capacity access fee into the SMC, which was originally planned for Q4. Additionally, we will make a $32 million equity investment into ESMC and a $76 million equity investment into VSMC, our two equity accounted foundry joint ventures under construction. For full year 2025 modeling purposes, consistent with comments from our recent Investor Day, we expect operating expenses to stay with our long-term model of 23% for the year. We will see a step-up of operating expenses due to the annualized merits, the $15 million annual license fee, along with variable compensation movements pending actual performance. We suggest using a non-GAAP tax rate of 17.5%, plus or minus 50 basis points. For stock-based compensation, we suggest using of $475 million. For noncontrolling interest, we suggest modeling $30 million, plus or minus a few million. And for equity accounted investees, we suggest modeling $10 million loss, plus or minus a few million depending out on the build progress for both ESMC and VSMC joint venture from our front-end facilities. For capital expenditures, we expect to stay within the long-term model of 5% or less. In closing, I would like to highlight a few focus areas for NXP. First, as you can see, we have taken some restructuring charges in Q4 as we are creating space for our recent acquisitions to prevent dilution and to ensure we stay within our long-term operating expense model. Second, our internal front-end utilizations will remain in the low 70% range. Consistent with our hybrid manufacturing strategy, we are now also concretely planning the consolidation of our internal 200-millimeter factories. And lastly, as visibility remains very cloudy, we will rigorously focus on managing what is in our control to navigate a soft landing while executing our growth strategy. And of course, there is no change to our capital allocation strategy. With that, I would like to turn it back to the operator for your questions. Operator: [Operator Instructions] Our first question comes from CJ Muse with Cantor Fitzgerald. Your line is open. CJ Muse: Yeah. Good morning, good afternoon. Thank you for taking the question. I guess high level, all eyes are on the rate of recovery off of a likely Q1 bottom for you guys as well as the industry. So, would be curious if you think we're set up for normal seasonal trends into Q2 and beyond? And if you could kind of parse through that, where you're seeing relative strength and perhaps where you see relative weakness or where you see concerns where perhaps trends won't be as strong as seasonal? Kurt Sievers: Thanks, CJ, and good morning. Let me start with reiterating what I said in my prepared remarks, the visibility we have is really, really poor. Given the low order lead times, there is a lot of turns business and customers place their orders very late. So we have, in total, a pretty limited visibility. Now, coming more specifically back to your question, yeah. So Q1 with the 9% sequential decline is, I'd say, it's on the lower bound of seasonal as we had anticipated and kind of soft guided in the previous quarter. There in -- I would qualify this actually as kind of okay in automotive and industrial, kind of okay, meaning that the year-on-year decline in automotive is the same as we had it in quarter four. So that's like a mid-single-digit year-on-year decline. And in industrial IoT, we actually are flat from Q4 into Q1. Where it really comes down is in the comms infra segment where we have an accelerated pace of the earlier discussed end-of-life situation with some of the former digital networking or former Freescale digital networking products. That's the one which really falls short, in line with what we said over last year that this part of that segment is really becoming weak. Now, I heard your question. You were asking for quarter two. With the little visibility we have, we really can't call quarter two. Now, I understand you need something for the model CJ. If anything, probably a flat to slightly up is what I would use for modeling purposes. But that isn't really based on a hell lot of forward visibility, which we have at this stage. But I guess, flat to slightly up is the best proxy at this stage. CJ Muse: Very helpful. And then maybe a question for you, Bill. Our gross margins, given where we are in the cycle, 56.3% is spectacular. Would love to hear kind of how you see a recovery playing out from utilization rates from mix, from bringing in higher-margin distribution? Would love to kind of how you see things evolve. Bill Betz: CJ, absolutely. As you could see, the gross margins declined as we anticipated by about 120 basis points. And the attributes, again, we are now returning to our normal annual price negotiations. And as Kurt alluded to, down to low to mid single-digit range. So when you do the quick math, you can understand that effect. And then as we enter toward in Q4 guidance, we would lose some of the fall-through over our fixed costs, which actually happen. But on the bright side, which is more of a tailwind, we were able actually to partially offset some of those headwinds through the improved mix in Q1. And also, we are getting lower supplier and operating costs, which are tying throughout the year to offset that total pricing effect that occurred in the first quarter. So the cost adjustments come throughout the year. Overall, I would say at these revenue levels. And as I mentioned, we're running front-end internal utilizations in the low 70s, I feel pretty confident that we will remain at these gross margin levels, plus or minus the normal 50 basis points, driven by mix. I'd say once we return to revenue growth, we will then move back into our long-term gross margin range of 57% to 63%. Operator: Thank you. Our next question comes from Thomas O'Malley with Barclays. Your line is open. Thomas O’Malley: Hey, guys. Thanks for taking my question. I wanted to focus in on the regional trends. It sounds very similar, what you're kind of talking about, at least on the auto side with some inventory at the North American guys with potentially some better environments elsewhere. Could you just maybe talk about the inventory situation at the North American customers versus three months ago? Do you feel like that's coming to a bottom here with some inflection from this point forward or are you still kind of working that down? Any additional color there would be helpful. Kurt Sievers: Yeah. Thanks, Tom. I hear two parts in your question. One is the regional one and the other one, the inventory. On the regional side, in quarter four, clearly, Asia, led by China was on the brighter side of things with Europe and the US being very weak, and that very weakness was certainly driven both by inventory digestion as you're hinting to and a weak end demand. That was pretty much as we had anticipated. So I'd say quarter four, there was nothing really changing through the quarter versus our anticipation. And going into quarter one, overall, I'd say we do see some early strength in Asia for industrial IoT. You saw that we sequentially guided that flat. Also for auto, Asia is robust. So, it's kind of the same situation like 90 days ago from a regional split perspective with a strong Asia and a relatively weak or especially weak Europe and maybe the US getting a little better. Now on the inventory side, so the answer, first of all, Thomas, yes, we continue to digest on-hand inventory at our direct Tier 1 customers. That process continues, and it is both for the US as well as for the European Tier 1 customers. How much it is and how long that still lasts? I can't really tell you. And I would also not put Q1 into comparison to Q4 in terms of its less or more. No, we have individual plans there with each single customer, and we got to see how that plays out. But that is clearly still weighing on our revenue performance, especially in automotive, keeping it at a sub end demand level. At the same time, and I -- for completeness, I have to say that also the discipline on the general inventory holds, you saw that we kept it flat at eight weeks in the fourth quarter. For Q1, I had in my prepared remarks, something like eight to nine weeks. It's a bit hard to say, to pin it down exactly about, say, eight to nine weeks. So, and in total, by the way, a reduction in dollars in the inventory. So the important piece is we continue to do this from inventories, both at distributors as well as direct customers go down from a dollar perspective. So at some point, that must come to an end because the rate of under-shipment against end demand in a flat SAAR environment, that must come to an end. I gave up to try and call when exactly. But if you do the math, it cannot take that long anymore. Thomas O’Malley: Super helpful. And then just as a follow-up, I think you gave a lot of really good pieces there. So the inventory is low. You talked about low 70s range in terms of internal utilization. Like clearly, visibility going into this year is really difficult for you guys right now. But can you just maybe walk through for us on the line, when do you start to make decisions about internal utilization? Like, is it like two or three quarter out scenario where, hey, things are getting better, we're going to reduce a bit. It seems like things are at a healthy level right now from the utilization perspective. But when do you make that call? And maybe what levers do you look at when you think about potentially reducing that if demand isn't coming back? Bill Betz: Yeah. Let me take this one. Obviously, we're focused on what we control. At the same time, our internal inventory from a dollar perspective is up quarter-over-quarter. We expect those dollars going into Q2 as Kurt alluded to, on flat to slightly up, from a dollar perspective is to stay flattish. So that's what we're balancing, the dollars and the utilization from an internal standpoint as well as we have to adjust our foundry and subcon orders with current revenue levels. So again, we're balancing all that. I would say if the second half comes up and we’re planned and ready for that, that's probably when that will take effect when we would increase our utilization. But again, we're going to be very cautious as Kurt alluded to, we kind of got this wrong last year, so we're just going to take it one quarter at a time. Operator: Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Thanks for letting me ask the question. Kurt, the auto -- excuse me, the Industrial IoT segment being flat sequentially. You alluded a little bit to Asia acting a bit better, but I think that flatness is a welcome surprise to people. Can you dive a little bit deeper into what's going on there and keeping that business flat? Kurt Sievers: Yeah, Ross. As I said, the relative strength, I don't want to use the strength yet, but the relative strength from a sequential perspective indeed comes from Asia. And within Asia, clearly, from China, and you know that we have a relatively high exposure in that segment to China. I think we are helped by our low channel inventory in that case because we don't have to reduce that further. So, any possible light at the end of the tunnel in terms of end demand directly comes to us because we don't have to work down inventory in the channel. That's how I would characterize it. But I -- Ross, I also don't want to go that far to talk about green shoots or anything. I mean it's kind of -- it looks a little better indeed in Asia, but too early to play the trend. Ross Seymore: Thanks for that. And then I guess as my follow-up, switching over to the comms business and other. You've mentioned about kind of an accelerated end-of-life process. Is that now behind us? And so the business a little under $300 million, I guess, in the first quarter for your guide is now going to act along with whatever demand does? Or is there more room that, that has to be taken down? Kurt Sievers: Yeah, let me try to parse this. So when exiting last year, calendar '24, think about the comms infra segment with roughly the following split. So 50% was in the secure card area, which includes also RFID, 20% in the radio power for the mobile base station networks and 30% in this digital networking business. So, that's about the size we talk about here and that end of [lighting] (ph) still continues, Ross. It goes into Q1, but I would expect it further continues beyond Q1. Operator: Thank you. Our next question comes from Vivek Arya with Bank of America Securities. Your line is open. Vivek Arya: Thanks for taking my question. Kurt, on the first one, maybe a little deeper into the Automotive segment. There's a lot of talk of tariffs, et cetera, this year. Have you seen any change yet in customer behavior, pull in, push out, mix of EV, et cetera? Just how are you reflecting this kind of evolving landscape in your thinking for 2025? Kurt Sievers: Yeah. So first of all, to be clear, given all the uncertainty and the many moving parts, it is not reflected in anything we told you today. I just want to be very clear, there is so many unknowns that we could only get it wrong. So it's just not reflected, Vivek. Most of it from what we are hearing about today, there’ll be indirect impact on NXP. Let me give you the example of Canada and Mexico. That's not something where we would be impacted because we don't ship from Canada or Mexico into the US. So for us, that's not relevant. The China one clearly touches us eventually because we have some production in China. As you know, we have this back-end facility in Tianjin. And there is also some shipments from there to the US. We looked through this, Vivek, and it would be completely immaterial to us. So that's the only one where I can get my hands firmly around because we know what it is and that has absolutely immaterial impact on us. Why that is? We can discuss it another time and there’s a complex consideration behind it. So therefore, the straight answer is beyond that, nothing is contemplated in our -- in what we said today. Vivek Arya: And maybe one for Bill, just kind of a hypothetical, if I sort of take what was said about Q2, and I completely understand visibility is limited. But if I assume some semblance of normal seasonality in the back half, I kind of get it conceptually sales down high single-digit or so this year. So I'm not asking you to endorse that. But let's say that was the situation what would be the right way to mathematically think about gross margins and OpEx this year? Thank you. Bill Betz: Yeah. Similar to last quarter, the best metric, I think, for modeling purposes, without knowing all the different movements and visibility, I would just go back to whatever you put in your model for those type of revenues look at from a historical standpoint. That's all I can provide, to be honest with you, because as you know, there's many moving parts, but that's, I would say, a fair representation for modeling purposes. Operator: Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my questions. I wanted to go back to gross margins. You said gross margins would probably stay here, give or take, until revenue started to grow. You suggested Q2 would be maybe flattish or up a bit. So I assume Q2 gross margins in that environment don't really go up very much. Hopefully, that revenue grows in the second half. Before, you had suggested that margins for the full year would land still within your range of 57% to 63%. Given you're going to be in the 56% is in the first half, do you think you can still get into the range for the full year? And if you do, is it like very close to the low end because I'm having a hard time getting it much more than that without a lot of growth in the second half. Bill Betz: Yeah, Stacy, first off, related to the gross margins, you're right, for Q2, I said at similar levels, plus or minus the 50 basis points. We never guided the full year and say we would stay within the financial model for... Stacy Rasgon: That’s what you said. At the Analyst Day, you said that. Bill Betz: Correct. We have said that, and a lot will depend on the second half related to return of growth. So, as I mentioned earlier to another question, I said if the second half grows above the first half, we will then get back into model of the 57% to 63%, but a lot depends on the recovery of the second half. Stacy Rasgon: You don't know if you'll be there for the full year now? Bill Betz: I'm not guiding that at this point in time with the low visibility we have. Stacy Rasgon: Okay. And I guess on that point of visibility, you said you have a lot of turns. What is your percentage of orders that are coming from turns right now? And, like, how does that differ across the different segments? Bill Betz: We don't disclose that. All I can tell you is the trend has picked up over the last three quarters, and they're getting larger and larger. Operator: Thank you. Our next question comes from Toshiya Hari with Goldman Sachs. Your line is open. Toshiya Hari: Hi, good morning. Thanks so much for taking the question. My first one is on the automotive business. Just from a business planning perspective, and again, I realize you've got a little visibility and a lot of moving parts here. But from a planning perspective, what kind of global SAAR or global unit production are you expecting for the year? And more importantly, Kurt, you talked about the secular drivers that you guys have been speaking to the 32 connectivity radar, et cetera, what rate of outperformance or content growth should we or can we expect in calendar '25 versus '24? Kurt Sievers: Yeah. Hi, Toshiya. So yeah, the first part indeed is pretty simple. We just quote S&P here. We think about around about 89 million units in car production this year, which would be a very slight flat minus. So just a little bit down where it's probably important to understand that in that China is more flat plus versus Europe and the US flat minus. So that's the two directions within that. And as Vivek alluded to, I mean, let's see what the tariffs will do to all of this, we can’t say. But we model with a flat to slightly down car production for the year. The outperformance of the company-specific growth drivers. What I suggest to do, Toshiya, is you use the percentage growth rates, which we guided in our Analyst and Investor Day back in November, offset by what you see the overall business underperforming currently, which is the under-shipment which we have to do on inventory digestion. But the delta between what the core business does and what the accelerated growth drivers do, that does hold. There is no difference because they all have about the same inventory levels. So there is statistically looking at the total, it doesn't make sense to model any difference in inventory, which means they all suffer from the same offset. So, it's the same delta. That's probably the best you can assume. And they run well. I mean, let me say that they also -- all three of them did grow last year from an absolute perspective year-on-year while the total auto business last year was down. Those pieces, which are quite sizable, as you know, were up and we clearly see this continue in this year. Toshiya Hari: That's helpful. Thank you. And then as my follow-up, you mentioned for the year, you're expecting blended pricing to be down in the low single-digits. I'm curious what your expectations are in terms of foundry costs or wafer costs in '25 versus '24? And then somewhat related to that, Bill, you talked about potentially consolidating 8-inch facilities. If you can expand on that and kind of speak to timing and magnitude in terms of potential gross margin tailwind in future years, that would be helpful. Thank you. Kurt Sievers: Yeah. Let me take the first half of your question. So yes, I reconfirm the low single-digit price erosion, which we see this year, this calendar year, by the way, coming from a flat line last year. I'm not sure we said this before, but I can now confirm that last year, as we had anticipated, we were neutral on pricing. This year, low single-digit down. It's now with high confidence that we can say that. And the input cost you were asking for has also started to develop more favorably, which means it helps us offset from a gross profit perspective. The headwinds which we are seeing from that low single-digit price erosion. The only thing is it's a bit of a timing element and Bill spoke about this earlier because a large part of the pricing hits us already in while the cost erosion -- the input cost erosion is through the full year. So [we need through] (ph) the year to offset that. But that has become a more favorable environment, which helps us offset the ASP erosion. And, Bill, maybe you speak about the consolidation of that. Bill Betz: Yes, absolutely. Obviously, this is something we shared during Investor Day. I just hinted that we're basically planning and almost complete. When this occurs, it will occur sometime in 2025. And there will be a natural tailwind associated with the utilization as we start bridging some of the build plan for the transfers of those products. That would probably be my guess more of an impact in the second half of the year when we decide to announce this. And again, at this point in time, I could just show you, yeah, that's roughly basically, I would say there is a tailwind when we do and start that process. But we haven't yet. Operator: Thank you. Our next question comes from Chris Caso with Wolfe Research. Your line is open. Chris Caso: Yeah, thank you. Good morning. The first question is, again, on some of the digital networking products that are going end of life. I want to make sure that we're calibrated on this correctly. So, I think what you said is that was about 30% of the common infrastructure segment. Should we expect that a large part of that goes away over the next few quarters? I guess I'm trying to quantify how much of the business is affected by end of life and sort of the timing that you expect for that to finally work its way down. Kurt Sievers: Yeah. So first of all, yes, I reconfirm you understood me correctly. It's about 30% exiting last year of the total revenue of the segment, which we discuss about here. And by the way, just as an aside, I mean, the RF power business in there is also pretty lumpy. It's not like everything else is golden, and that's the only concern. But that's the one we speak about. And yes, it will continue through the next couple of quarters to further decline given the end-of-life actions on several of these products. That doesn't mean it goes totally away but think about the continued decline through the next couple of quarters of that 30% piece. Now at the same time, the secure card business is okay. In there, we have RFID. You know that RFID is a growth business for NXP. So there are many moving pieces in this comms infra segment, which is why for the next three years, we guided it to be just flat. I just wanted to show today to call out that, that 30% portion really sees a quite material decline through this year. Chris Caso: Understood. Follow-up question is on China. And obviously, it's very strong now given some of the share shifts that are happening in the industry. I guess, in the interest of no good deed goes unpunished. We do get a lot of questions about the sustainability of that strength and owing to the fact that there are a lot of OEMs in China trying to gain share. Could you talk about your view of the sustainability of what's happening in China now and the steps you're taking to make sure that the customers aren't building inventory, we're not over shipping to that region? Kurt Sievers: Yeah. So that's a number of questions. Let me try and parse them. One is, indeed, last year, China as a region for NXP, did grow by 4% year-over-year. So if you take the China portion of the NXP revenue, calendar '24 over 23%, that was 4% up. And that made it a 36% portion of the total NXP revenue. So while the company was down 5%, China was actually up 4% last year. We have zero indication. I have said very clear, we have zero indication that there was any inventory build or pull-in or anything like this in there. We just see it really correlated and a good part of it is obviously automotive to the increased content and the relatively good production trends and global market share trends of Chinese OEMs. So there is no pull ahead or inventory build. It was just natural growth, which structurally, we think, will continue which clearly goes at the expense of the Western OEMs. I mean as I said earlier, the SAAR this year, the global car production is about flattish. So there is a share shift from the West to China building. And furthermore, test in China, the electric vehicle penetration is really fast paced. So through the second half of last year, it was 50%. So 50% of the cars sold last year -- second half of last year, were in some form, electric, hybrid or sfully electric in China. So, very high penetration already and continuing, which, of course, delivers us over-average content growth from a semiconductor perspective. We are dealing with that, I would say, aggressively to the extent that we want to be the right partner there to not have the risk of losing share. I just changed my organization. I have a business leader now for China who reports directly to me to make sure that we do what we've spoken about before, which is dedicated solutions for Chinese OEMs because -- if you think about software-defined vehicle and electrification, it is now that in many aspects, China is leading. So we leverage them as lead customers and turn more of our R&D attention to that side of the world to stay competitive. Secondly, we have our manufacturing strategy, China for China because a big requirement there is that we do local manufacturing, which we are delivering through our back-end facility, which I mentioned earlier in Tianjin and three elements of front-end manufacturing being TSMC and Lansing, SMIC and HHGrace as we announced in our Investor Day in November. So, Chris, I think this trend continues. We do everything to stay and be very competitive locally, really with substantial changes in how we operate because we think this continues to be a significant growth factor for NXP. Operator: Thank you. And our final question comes from Joshua Buchalter with TD Cowen. Your line is open. Joshua Buchalter: Hey, guys. Thanks for squeezing me in and taking my questions. Very much appreciate that you gave us the rough outlook for the second quarter, given the low visibility environment. I guess as you sit here today, do you expect to still be under-shipping in that second quarter? Is there any way to quantify that amount? And I assume within that flat to up number, that still includes the channel staying in sort of the eight to nine week range? Thank you. Kurt Sievers: Josh, this is a trial to further have us guide the second quarter, which we did not intend to do. Yes, it's just mathematics. If we are flat or slightly up, we still under-ship. We very clearly think we have a much higher natural demand in run rates than that. So if it is flat to slightly up, only then it continues to be under-shipment, which I would think is in holding discipline on the channel. Yes, the eight to nine weeks is it? And secondly, it is -- it would then be probably further digestion of on-hand inventory at especially automotive Tier 1 customers. Again, all of this is not a guide, Josh. But if you put it that way, if it is flat to slightly up, then that would be indeed the consequence. Joshua Buchalter: Got it. Appreciate the color there. And I'll give the cycle a break for a moment. I wanted to ask about the TT Tech acquisition. You're moving into -- further into the software space and acquiring the middleware assets. Can you maybe speak to, I guess, one, how that changes your conversations with your OEM customers and the potential pull for your broader set of hardware solutions. And also, is there any element of -- with this acquisition in particular that where you're competing a little bit more so with your customers? Thank you. Kurt Sievers: Yeah, Josh. Thanks for that really, I think, important question because that's a key strategic move which we announced there. I would say that very clearly, it does enable the conversation and engagement with automotive OEMs. So when you ask what does it do? It enables it. The software-defined vehicle definition and architecture creation is in the hands of the OEMs. No single Tier 1 can ever do that. It has to be top down for the whole vehicle. So it is owned by the OEMs. And in order to make NXP the leading partner for them to architect those new backbones of the car, we needed more software that became abundantly clear over the past couple of quarters. And this is where TT Tech Auto builds ideally in. So it makes -- it gives us the possibility to have that conversation and to codesign those STD architectures with OEMs. I wouldn't call it competition with our direct customers, but we are moving up the value stack. I mean that is a matter of fact, Josh. So in that sense, from what Jens Hinrichsen, my leader for the automotive business talked about in our Investor Day in November, TT Tech is a very important building block to make that vision a reality, which is co-architecting those platforms with OEMs. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Kurt Sievers for closing remarks. Kurt Sievers: Yeah. Thanks operator. Yeah. Thanks for paying attention to today's call. We continue to be in a very cloudy environment where you saw our hesitation and cautiousness to call the bottom or to speak about the rest of the year. We take, however, a very rigorous focus on cost and gross margin management, which is under our control to continue consistently on that strategy of soft landing to be ready and best prepared for the upcycle when and if it comes. With that, I thank you for your attention. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Jeff Palmer: Hello everyone. This is Jeff Palmer from NXP. Thank you and welcome to NXP Semiconductors Third Quarter Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products, and our expectations for the financial results for the fourth quarter of 2024. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2024 earnings press release, which will be furnished to the SEC on Form 8-K and available on NXP's website in the Investor Relations section at nxp.com. Now I'd like to turn the call over to Kurt. Kurt Sievers: Thank you, Jeff and good morning, everyone. We appreciate you joining our call this morning. Beginning with quarter three, NXP delivered quarterly revenue of $3.25 billion in line with our overall guidance of down 5% year-on-year and up 4% sequentially. While we experienced some strengths against our expectations in the communication infrastructure, mobile, and automotive end markets, we were confronted with increasing macro-related weakness in the industrial and IoT markets. At the total company level, sequential growth was led by China. Non-GAAP operating margin in quarter three was 35.5%, 50 basis points above the year-ago period and 40 basis points above the midpoint of our guidance. Year-on-year operating profit performance was due to a combination of lower revenue and gross-profit, partially offset by favorable operating expenses. Now let me turn to the specific trends in our focus end markets. In automotive, revenue was 1.83 billion down 3% versus the year-ago period and in line with our guidance range. The inventory digestion at our main Tier 1 customers continues to occur with further pressure coming from slowing European and North American car OEM end demand. At the same time, we experienced healthy growth in the China and Asia-Pacific automotive end markets. Turning to Industrial & IoT, revenue was $563 million, down 7% versus the year-ago period and below our guidance range. During the quarter, we experienced weaker than expected trends globally. In Mobile, revenue was $407 million, up 8% versus the year-ago period and at the high end of our guidance range, in what is normally a seasonally strong period. In Communication, infrastructure, and other, revenue was $451 million, down 19% year-on-year and above the high end of our guidance as several RFID programs ramped stronger than originally anticipated. From a Channel perspective, distribution inventory was 1.9 months up from the 1.7 months in quarter two, following our attempts to stage dedicated mass market product in the channel. While, at the same time, sell through to distribution service customers in the European and American markets was somewhat slower. Now, let me turn to our expectations for quarter four 2024. We are guiding quarter four revenue to 3.1 billion, down about 9% versus the fourth quarter of 2023, and down about 5% sequentially. Relative to our earlier expectations, we are taking a more conservative stance for quarter four, hence, we will also aim to hold channel inventory approximately flat sequentially at 1.9 months or about eight weeks. This is because we began to see increasing weakness in the Industrial and IoT market already during quarter three, as well as an unexpected contraction in manufacturing PMI below 50 across all regions except China. Furthermore, we find ourselves exposed to a broad slowdown of European and North American automotive OEM outlooks for 2024, only partially compensated by the aforementioned strength in China automotive. This leads to more stringent inventory reductions at our Tier 1 customers below the natural end demand. So at the midpoint, we anticipate the following trends in our business during quarter four. Automotive is anticipated to be down in the high single-digit percent range versus quarter three, 2023. Excuse me, versus quarter four 2023 and down in the mid-single-digit percent range versus quarter three 2024. Industrial and IoT is expected to be down by 20% versus quarter four 2023, and down in the mid-single-digit percent range sequentially. Mobile is expected to be down in the low single-digit percent range both versus quarter four of 2023 and sequentially. And finally, communication, infrastructure, and other is expected to be down in the mid-single-digit percent range both versus quarter four 2023 and sequentially. In summary, our guidance for the fourth quarter reflects broader macro weakness in Europe and North America, only partially compensated by strength in China. The cyclical rebound, which we had anticipated for the second half of 2024 has not materialized. The soft and uncertain demand environment appears to be causing the Tier 1 customers to take a very cautious stance on their inventory positions. These trends are consistent with the multiple profit warnings issued by major Western automotive OEMs as well as the contracting global manufacturing PMI trends, which are weighing on demand in the Industrial and IoT market. The net impact to NXP are lower-than-expected, order trends from our direct customers and distribution partners. Notwithstanding this more challenging short-term demand environment, we are very confident we have deployed a long-term winning strategy focusing our investments to succeed in the fastest-growing secular end markets of automotive and industrial IoT. In the short term, we will maniacally focus on managing what is in our control while making the right decisions for the long-term health of the business. This will enable NXP to drive resilient profitability and earnings even in an uncertain demand environment. And now I would like to pass the call to Bill for a review of our financial performance. Bill? Bill Betz: Thank you, Kurt and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q3 and provided our revenue outlook for Q4, I will move to the financial highlights. Overall, our Q3 financial performance was good. Revenue was in line, non-GAAP gross margin was near the low end of our guidance more than offset by favorable operating expenses resulting in better operating profit. Turning to Q3 specifics, total revenue was $3.25 billion, down 5% year-on-year. We generated $1.89 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.2%, down 30 basis points year-on-year and 30 basis points below the midpoint of our guidance range due to product mix. Total non-GAAP operating expenses were $738 million or 22.7% of revenue, down $65 million year-on-year, although this was $22 million below the midpoint of our guidance due to lower variable compensation, project spend, and payroll. From a total operating profit perspective, non-GAAP operating profit was $1.15 billion; and non-GAAP operating margin was 35.5%, up 50 basis points year-on-year and 40 basis points above the midpoint of our guidance. Non-GAAP interest expenses was $70 million, with taxes for ongoing operations of $182 million or a 16.8% non-GAAP effective tax rate. Non-controlling interest was $11 million and stock-based compensation, which is not included in our non-GAAP earnings, was $115 million. Taken together, we delivered non-GAAP earnings per share of $3.45, slightly ahead of our midpoint guidance of $3.42. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $10.18 billion with our cash balance of $3.15 billion, down $111 million sequentially due to the cumulative effect of capital returns, internal CAPEX, investments in previously announced equity accounted foundry joint ventures, and cash generation during the quarter. The resulting net debt was $7.03 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.24 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q3 was at 1.3 times and our 12-month adjusted EBITDA interest coverage ratio was 22.9 times. During Q3, we paid $259 million in cash dividends and repurchased $305 million of our shares. Taken together, we returned $564 million to our shareholders, representing 95% of non-GAAP free cash flow. In addition, on August 29th, the NXP Board of Directors authorized an increase of our existing capacity to purchase an additional $2 billion of buybacks with a total balance of $2.64 billion at the end of Q3. Furthermore, since the end of Q3 and through Friday, November 1st, we repurchased an additional $117 million of our shares under an established 10b5-1 program. Turning to working capital metrics, days of inventory was 149 days, an increase of one day sequentially, while distribution channel inventory was 1.9 months or approximately eight weeks. Days receivable were 30 days, up three days sequentially; and days payable were 60 days, a decrease of four days versus the prior quarter. Taken together, our cash conversion cycle was 119 days, an increase of eight days versus the prior quarter. Cash flow from operations was $779 million and net CAPEX was $186 million or 6% of revenue, resulting in non-GAAP free cash flow of $593 million or 18% of revenue. Turning to our expectations for the fourth quarter, as Kurt mentioned, we anticipate Q4 revenue to be $3.1 billion plus or minus about $100 million. At the midpoint, this is down 9% year-on-year and down 5% sequentially. We expect non-GAAP gross margin to be about 57.5%, plus or minus 50 basis points. Furthermore, our guidance assumes flat channel inventory at about eight weeks exiting Q4, this reflects our continued discipline of proactively managing our distribution channel, especially during uncertain demand environments. Operating expenses are expected to be $725 million, plus or minus $10 million. Taken together, we see non-GAAP operating margin to be 34.1% at the midpoint. We estimate non-GAAP financial expenses to be $77 million with the non-GAAP tax rate to be 16.8% of profit before tax at the midpoint, non-controlling interest and other will be $9 million. Our guidance assumes a $2 million loss from our equity accounted boundary joint ventures, we suggest for modeling purposes, you use an average share count of 257 million shares. Taken together at the midpoint, this implies a non-GAAP earnings per share of $3.13. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $118 million. Turning to uses of cash. We expect capital expenditures to be around 5% of revenue. We also will make a $400 million capacity access fee and a $120 million equity investment into BSMC as well as a $52 million equity investment into ESMC, which are our two equity accounted foundry joint ventures, which are under construction. In closing, I would like to highlight three items. First, we will continue to return all excess cash to our owners through buybacks and dividends. We expect our Q4 capital returns to be above $700 million. Second, despite the macro headwinds, NXP will continue to navigate and operate within its long-term financial model. And lastly, we look forward to you joining our 2024 Investor Day on Thursday, November 7th at 8:30 A.M., where we will provide an update to our long-term strategic plan and financial models. I'd like to now turn it back to the operator for your questions. Operator: Thank you. [Operator Instructions]. Our first question comes from the line of Ross Seymore of Deutsche Bank. Your line is now open. Ross Seymore: Hi guys, thanks for taking my questions. Kurt, seems like a lot of things changed during the course of the quarter. You're not alone in highlighting weakness, and I don't think it's NXP specific. But can you just talk a little bit about the specific customer behavior changes you saw because up until now you seem to have set things up pretty conservatively throughout the year. So the guide down seems to be a little more of a surprise for you guys than the peers just given the setup appeared to be a little more favorable heading into the quarter and guide? Kurt Sievers: Yes, thanks and good morning Ross. Indeed, we were taken by some surprise, I would say, in the -- say, in the August time frame during quarter three by a broadening weakness in the Industrial and IoT market pretty much across the board, which led to a much more cautious stance on their side, Ross, relative to also their inventory positions. And the same is now broadening when you ask for the guidance for Q4, it's clearly broadening into the automotive segment. There I would exclude China from these discussions. I think you've heard similar from our peers. China actually appears to be quite strong. Our growth was led by China in quarter three and the sequential growth. And also in quarter four, China actually will grow from a sequential perspective over quarter three across automotive and Industrial and IoT. But that weakness and that customer behavior you were asking for is really specifically strong now in the fourth quarter in the Western Automotive and Industrial segments. Their customers, and you saw all the profit warnings from the car OEMs, for example, where now the Tier 1s are aiming to further reduce their inventory. So our trends to under ship against natural end demand is becoming even tougher, Ross. That's how I would characterize the customer behavior. It almost felt like everybody from them kept up their forecast and then suddenly, August, September, they started to drop. And that is now ripping through to the Tier 1s, which are becoming even more cautious on what they want to hold from NXP in terms of inventory. You know that we have talked about this extended inventory digestion before, but that has now extended because of the end market weakness. Ross Seymore: Thanks for that color. And I guess, looking forward, Bill switching to the gross margin side. I know that you talked about for the quarter, so just -- can you talk a little bit about utilization that's leading to the roughly 0.5 point to 1 point decline in gross margin? And how do we think about the levers for gross margin going forward at the risk of kind of front running which you're going to talk about on Thursday, what are the plus and minuses to that in a weaker environment where inventory seems to be a little bit more persistently elevated? Bill Betz: Yes. Thank you, Ross. And quickly on our Q3, our gross margin was missed, and you can probably see that very clearly through our segment reporting, where industrial IoT revenues, where 80% of that is serviced through the distribution and carry accretive margins for us. And we also had a bit stronger mobile revenues, which are slightly dilutive to corporate margin. And so that's why we missed 30 basis points in Q3. We obviously see that trend. Curt talked about the segments where clearly, Industrial and IoT will be stepping down again. So that becomes a mix headwind going into Q4. In addition, obviously, declining by $150 million a year also we had some fall through over our fixed costs. Related to inventory, you saw from a day’s perspective, we're kind of holding ourselves but clearly, when you see our Q report, you're going to see increased finished goods. And basically, those finished goods we were going to put in the channel, but the sell-through wasn't there, so we held them on our balance sheet. And so it will probably take us a quarter to get back to where we want to be from an inventory perspective. Now more longer-term on the gross margins, again clearly, we're running our utilization in the low 70s. We expect to continue around them in the low 70s, probably at least for the first half of 2025. So that will flip and become a tailwind when we decide and see sequential improvements in our revenue sometime in 2025 related to it. Clearly, we have mix that's a tailwind that will come in our way into the future as we continue to ramp our new products. More importantly, we're going to talk about during Analyst Day, our real strategic structural changes that we plan to make more longer term, which obviously I said many times, that 58% is not our final destination. And please hold tight for a couple more days, and I'm going to walk you through that gross margin journey over the next three years and plus some as well related to it. But we feel pretty good. Obviously, we have to make sure we burn off some finished goods here and going into Q4 and in Q1 and rebalance the inventory a bit. But remember, we're holding about three weeks on to our balance sheet, which is margin accretive when we do ship it into the channel. We're holding that quite tightly at about eight weeks. We believe eight weeks is probably one of the lowest compared to all our peers. And once the environment normalizes, we will bring that back up to 11 weeks. It's just a matter of when that will be when the macro improves. Ross Seymore: Thank you. Kurt Sievers: Thanks Ross. Operator: Thank you. One moment for our next question. Our next question comes from the line of Chris Caso of Wolfe Research. Your line is now open. Christopher Caso: Yes, thank you. Good morning. I guess the first question is with regard to the channel inventory. And I know that you wanted to increase that somewhat. I guess it is right to interpret that the increase in channel inventory was just a function of the end markets being larger than you thought. And I guess, in the context of your customers taking the inventory down so low, how does that affect your view of where you want your own inventory to be as you go into next year on both a channel basis or on an internal basis? Kurt Sievers: So Chris, let me take the channel question and the internal inventory question will be answered by Bill in a minute. So on the channel, yes, I think you got it exactly right. We wanted to increase by a digit from 1.7 to 1.8, which we did. And by the way, let me remind you why we want to do this, we want to be sure that critical product for competitiveness in the channel is probably staged on the shelves. Since most of our competitors have higher positions there, we want to be sure we don't fall behind in terms of competitiveness. And yes, we inched another digit higher, which was then a function of the late weakness in the quarter, which I just talked about, which reduced the sell-through more than we had anticipated. That's why we indeed inched a little bit higher than we had anticipated in the plan. And Bill, maybe you'll speak about the internal inventory targets. Bill Betz: Absolutely. Clearly, the macro environment is weaker now than 90 days ago, as Kurt explained. So I expect our inventory levels internally to remain elevated for the next couple of quarters until we obviously grow revenues again from a sequential standpoint. But again, at the same time, we are proactively reducing our foundry purchases which are more variable in nature for us and this will probably have an impact in the first quarter of 2025. Q4 obviously is limited because we placed these orders already in Q3. And again, as I talk to Ross, we're holding about three weeks of finished goods of inventory on our balance sheet. So we'll proactively manage that. And then as we replenish the channel, we will get that benefit relief with inventory coming down internally. Again, we think it's important to hold it very tightly and low at eight weeks and sometime in 2025, we'll bring this back to the 11 weeks when the macro improves. And again, I have to say majority of our inventory is long-lived supporting our auto industrial markets and had very, very low obsolescence. Christopher Caso: Thank you. I guess as a follow-up, I'll ask a question, which I know is very difficult to answer, but you're going to get it. So I'll be the one to ask it, which is do you think that we're pretty close to the bottom now and recognize how difficult that it is given the moving targets and such. But as an example, sort of normal seasonality is down to the first quarter. I don't know if we should think about that differently given what's happened in the second half of this year. And I guess, with what your customers are planning to do with inventory, does that get -- and bring it so low, does that give you some confidence that we're kind of approaching revenue bottom levels here? Kurt Sievers: Yes, let me try and go at it. This is a number of complex questions. So first of all, clearly, the forward-looking, there is a lot of uncertainty around this. I mean, with all the unexpected downticks from a macro perspective in automotive and industrial, which we've seen over the past say 10 weeks, I want to be really careful in making strong statements for the longer future into next year. However, what we can offer is we do believe that probably quarter one will follow a pretty normal seasonal pattern for NXP, which is a high single-digit sequential down from quarter four into quarter one. We see no reason why we should be different to normal seasonality here into quarter one. I don't want to go that far, Chris, to call the trough because I just don't know what the macro is going to do with all the uncertainty around us. I don't think we can do this yet. I do agree with you that with our strong discipline on the channel inventory, and I had it in my prepared remarks, we keep it now flat again into quarter four. So where we start to stage a bit into the third quarter, we hold here. So we keep it flat into the fourth quarter, which keeps us at a very low level of eight weeks only. And also, indeed, with the direct customers at some point, inventory is just burned. So yes, at some point, of course, that sets us up for a good growth. I just cannot call and don't want to call when that moment is. But I would say NXP from an inventory in the customer space perspective is actually pretty well positioned. Christopher Caso: Got it, totally fair. Thank you. Kurt Sievers: Thanks Chris. Operator: Thank you. One moment for our next question. Our next question comes from the line of Vivek Arya of Bank of America Securities. Your line is now open. Vivek Arya: Thanks for taking my question. Kurt, what's NXP's relative exposure in the China-based car versus a European premium cars, so if let's say, your China customers continue to take share, how does that content play out for NXP? And then this China trend, yes, you have mentioned it and the peers have mentioned it. How much of that is kind of pre-buying before the elections and does that kind of keep the industry exposed to in-sourcing risks on a longer-term basis? Kurt Sievers: Yes. So hi Vivek, first on our exposure to content per vehicle in China versus premium Western. There are damn high-end cars in the mid-term in China, which have a similar set of features. So I would probably say that on the higher end cars in China, we have a very similar exposure from a content per vehicle perspective as we have in the Western world. And as we have discussed a couple of times before, since they are spinning new platforms faster, I dare to say that probably the growth of that content exposure is growing faster than in the rest of the world because they just get faster to the next innovation steps. They develop a new platform in two to three years, which gives us the opportunity to tap faster into a higher content opportunity. So over time, that is actually strengthening. Now from anything we can see, I don't think -- and that's the second half of your question, I don't think that they are staging inventory or something because of election or other external events. It is actually the success of the Chinese industry. I mean, if you look at the global star. In the meantime, for the world it has tipped down to a forecast of minus 2% this year. So global star is going to decline by 2% this year at the same time, China is going to grow by 2%. So you see the differential that China is actually doing better, which puts it at least to our estimate in a fair light relative to how our revenue develops better in China than in the other regions. The same holds true for this whole discussion about XEV, so electric vehicle penetration. In China, it keeps going strong. We just got the other week that data point that in September this year, 46% that was the penetration of EVs in China. So almost 50% of the vehicles in China was then already electric. So the SAR overall does well in China and the EV penetration is doing better than in the rest of the world. And that's for me, a fair reason why I do believe that the China growth, which we are experiencing is sustainable. It's really their competitiveness locally and globally against the Western players. It's almost like what is lost in the west is won in China. Vivek Arya: Right. And for my follow-up, I think you mentioned that Q1, you expect to be seasonal, if I heard correctly, which is down high single digits. But if I were to just take the average of just your automotive business over the last seven years, including the COVID that is more down like 1%, 2% or so on an average. I understand seasonality could mean different things at different times. But what explains this large difference between what we have seen with NXP over the last six or seven years in Q1, especially in your automotive business versus what I think you are kind of alluding to for Q1 2025? Thank you. Jeff Palmer: Vivek, I'll take that. It's Jeff here. I don't think we're going to provide a guidance by segment into Q1. As Kurt said on a previous question, we do expect total company to be seasonally down into Q1. And I think that's probably about as far ahead of our skews as we're going to get today. Vivek Arya: Okay, thank you. Jeff Palmer: We will take the next question operator. Operator: Thank you. One moment for our next question. Our next question comes from the line of Christopher Muse of Cantor. Your line is now open. Christopher Muse: Yeah, good morning and good afternoon. Thanks for taking the question. I was hoping you could give a little more color on the industrial slowdown that you're seeing. You talked about China strong, and I'm assuming that's a little more IoT. So we would love to hear kind of what -- whether North America, Europe, kind of any changes in terms of geo and where you're seeing weakness, whether it's broad, isolated to say factory automation, I would love to hear your thoughts? Kurt Sievers: Yes, hi CJ. Indeed, let me reconfirm the weakness in Q3, but also now specifically going to Q4 is predominantly across the board from Europe and the U.S. in industrial and IoT. So across also most sub segments. But mind you that we are not that big in Europe and the U.S. in Industrial and IoT. So we are actually a relatively small player there. I -- if you want to get a little bit of color, I would say, especially factory automation appears to be particularly weak there in the West, in Europe and the U.S. The strength in China is more in the consumer IoT part, that 40% portion of our industrial IoT segment than in the core industrial. It's not that core industrial is particularly weak in China, but if you want to have color between the two in Q4 in China, then the stronger one is the consumer IoT, which I guess is also a bit of a seasonal strength into the fourth quarter. Christopher Muse: Thank you so much. And I guess as my follow-up, given kind of how you will manage the cycle to date, there's a perception that you're gearing into the next up cycle, maybe less than peers. So I was hoping you could speak to kind of where you think you are overall in terms of your sell-in versus sell-through end demand and if there's any kind of color around end markets to kind of give confidence that when things do recover, that you do have that gearing cyclically? Kurt Sievers: Yes, CJ I'm happy you're asking because I fail to understand the logic why we would come back less strong than others because we have fared somewhat better so far. And I fail to understand that because the only one reason why we are declining less this year, for example, with our guidance, you will see that NXP is like 5% down this year versus most of our direct peers more double-digit down. The reason for that is that we hit the brakes earlier. It's not that we took anything away from the future. The only thing is we didn't do it in the first place. So we did a little less and a little softer in 2022 and 2023, which helped us to not have to hit the brakes so hard in 2024. But that puts us at the same starting point into any recovery. So that is our firm position here. And I think it all comes back down to what we discussed a little earlier in this call which is the actual inventory position, which we have in the channel and Bill said it, 1.9 months or about 8 weeks currently, which is still quite a bit away from the longer-term target of 11 weeks or 2.5 months, so that we still have like, I think, $300 million or so under the belt to be shipped in, which we don't do in the current environment. Again, we stay cautious. We could do, but we don't do it because we want to do it when it makes sense, when the recovery happens. And on the direct customer inventory, I can, of course only assume, CJ but I don't see a reason why we would be any worse or any better than typical peers. I mean that's the treatment you get from the customers. We can control that, but I don't think we should be any different to our peers. So therefore, no, I don't think there is a reason to believe we have less of a recovery ahead of us. We actually feel good about the soft landing strategy, which in fact only brought us down by 5% this year, thanks to cautious behavior the year before. Christopher Muse: Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Stacy Rasgon of Bernstein Research. Your line is now open. Stacy Rasgon: Hi guys, thanks for taking my questions. My first one just around the auto, like 90 days ago, you were sort of suggesting to us that auto would be stronger into the end of the year because of company-specific wins in radar and other things that were going to be ramping. So part of the incremental, because I'm a little confused, did that stuff just not ramp or did it ramp less than you thought or is it ramping later than you thought or what is it because it certainly doesn't seem to be enough to offset the other of the broader weakness that we're seeing, like what's going on with that? Kurt Sievers: Yes, Stacy, absolutely. I can confirm we did say that half two would grow over half one, driven by two factors. One was the anticipated recovery and the other one was company-specific growth. We went very deeply into this and tried to find what happened and what didn't happen. The company-specific growth Stacy is happening. I mean it's a little softer because if they build a little less cars, then of course, you ramp also a little bit less. But the fundamental mechanisms of RADAR and S32 ramps are happening, we are actually growing quite nicely in the second half over the first half. But it is wiped away by the recovery not happening and on the contrary, of macro weakness, which is actually superseding all of that. So underneath the company-specific drivers are intact. We will show a bit more detail on Thursday in our Investor Day in Boston. But it's not strong enough to overcome the macro weakness, Stacy. Stacy Rasgon: Got it. That's helpful. For my follow-up, I wanted to ask about gross margin. So I understand why they're coming down in Q4, I think. Now in Q1, you just suggested that revenues are probably down high single digits sequentially. It doesn't sound to me like mix is any better. Is it -- should I be thinking that the 57.5% just given those dynamics in the near term is likely not the trough, like how should we be thinking about gross margins in Q1 just given the further revenue shortfall that we're seeing and any other drivers that are leading into the beginning of the year? Bill Betz: Yes Stacy, this is Bill. First, we're not going to guide to Q1. But for modeling purposes, I would suggest when incorporating what Kurt said about the seasonal adjustments to revenues, probably best to use a gross margin similar to those revenue levels at the past in the absence of the guide. Again, we just don't know it's not fully order booked yet. So mix will play a role, of course, but I'm just not that smart enough. But for modeling, I would just use something along those lines during the last three years of those revenues. Stacy Rasgon: So where was that, I'd open up my model, like where were gross margins last time revenues were? Kurt Sievers: I mean Stacy, you can probably find me on our website. Stacy Rasgon: Alright, I will dig it up myself. But thank you guys. Operator: Thank you. One moment for our next question. Our next question comes from the line of Francois Bouvignies of UBS. Your line is now open. Francois-Xavier Bouvignies: Thank you very much. My first question was on the pricing as we know we are at the end of the year where we understand you have some negotiation, especially for your auto customers. And from what you understand, of course, given the challenging environment, the pricing is -- it's like an intense conversation, I should say, from many peers that I talked about this. So I was wondering for NXP how should we think about the pricing strategy, how you think the pricing is going to play out, given this pressure maybe more than usual, especially into next year, that would be very helpful. And I have a follow up after if that's okay? Kurt Sievers: Yes. Thanks, Francois, absolutely. Let me confirm indeed two data points here. The one is, and we talked about this through this year, we can now say with a lot of confidence that for this year, pricing will have been neutral. So we will end the year with a flat pricing over the previous calendar year 2023. And from anything we can see today relative to next year's pricing across the entire company, so that's all the segments, all the channels together, it will probably be a low single-digit ASP erosion, which is very typical, I would say. And that's also what we have anticipated. So after this whole swing, after COVID, and the supply crisis where prices were up, they went into flat this year. And we assume that for next year, but also the years after, it is reasonable to assume we are back to a low single-digit ASP erosion annually, which is very much in line, by the way, with what we have experienced in the years before the supply crisis and before COVID. And I know you hear different data points from different people, Francois, but mind you that we have a pretty differentiated portfolio. So a lot of our product is very far away from a catalog or commodity products, which gives us also in a period like now a relatively strong standing when it comes to pricing. Francois-Xavier Bouvignies: That's very clear, thank you Kurt. And maybe a follow-up. It's a bit kind of a medium term, but still it impacts the short term, given these challenges on the cycle, you have this China uncertainty with local players probably going after pricing. Even if you have a sticky and strong differentiation, as you described, Kurt, it's fair to assume maybe that the pricing environment and the oversupply that will take a bit longer to feel how NXP tends to play in that role. I mean, the trade-off between market share and gross margin, for example, would you consider like to exit some product as soon as you see something that doesn't play your way or cost saving program as well, given the very long down cycle, is it something that you consider as well potentially just strategy? Kurt Sievers: Absolutely. I mean, one side of this equation you all will learn more on Thursday this week when we will provide the new financial model with our new gross margin forecast, which obviously is a function or a consequence of that. But let me give you some color on the pricing. So we will not try and build on price, Francois. Generally, I would say, the way how Bill and I and the management team, how we are running the company is if we have to compete on price only, then we are in the wrong product category. So there is always a gray zone in between. Of course, we have to stay -- try and stay competitive. But if it really comes to a point that the only way, the only leverage we have to win would be price, then we would eventually exit that. And you have examples. I mean we did this with powertrain microcontrollers in automotive, for example. There are over a number of years after we had acquired Freescale, we have actually exited some of these sub-segments and they have been heavily picked up by some of our peers. So yes, we are doing that or the banking cup business years ago. There was a similar thing where in the end, we don't try to compete on price. Now there is, of course, more to it, Francois because it is also our cost competitiveness. We work maniacally on bringing our own cost down. And the more recent moves with the BSMC joint venture, for example, in Singapore and a few other moves we have are actually helping us to come at the same time to a competitive cost base. So I mean, price is also a function of the cost which we can achieve and also there, we work very hard. But still, ultimately, no, we are not the company which would sacrifice gross margin for short-term market share. That's not the philosophy how we run the company. Francois-Xavier Bouvignies: That’s what I thought. Thank you Kurt. Operator: Thank you. One moment for our next question. Our next question comes from the line of Josh Buchalter of TD Cowen. Your line is now open. Joshua Buchalter: Hey guys, thanks for taking my question. I'm sorry for harping on gross margin, but it's the one that’s in my inbox the most last night and this morning. I guess if we zoom out, I mean, your gross margins have been remarkably stable for like 10, 11 quarters and now are starting to see some leverage with revenue. Like can you, I guess, maybe walk through why now and it sounds like it's all maybe fixed cost coverage and utilization rates, and there's nothing going on with pricing, but the mix by end market isn't really changing anything within mix of products that we should be aware of or any other factors beyond, again, fixed cost coverage and purchase agreements that are really driving the sequential decline in gross margins in both the fourth quarter and I guess, what you're implying for the March quarter, which is another leg down? Thank you. Bill Betz: Sure. Hey, Josh. Well thanks. Yes, I mean it's really just a function of the revenue levels over a fixed cost structure. Obviously, mix plays a role -- played a role in Q3 a bit and playing another role of some sort of it along with the lower revenues into Q4. And really, the step down going into Q1, it will be the total revenue level, to be honest with you. There's not really anything else fundamentally different. It's just that, okay, now you have to rebalance the inventory a bit and so maybe you don't build as much goods and you have to adjust foundry and so forth. So I know I will walk the team through the gross margin journey this upcoming Thursday. And again, I would say we've been quite resilient here compared to many of our peers because of that fluctuation of the revenues clearly have an impact to the gross margins and how they service their customers or stage inventory. So we feel pretty good of where we are. And again, it will be mostly a function of revenue over the near term. And then once we see the macro improve, we are very excited about some of the levers that Kurt just talked about more longer term to actually bring the gross margin above our high end of our current model today. Joshua Buchalter: Got it, thank you. I appreciate the color there. For a follow-up, Kurt, I think you mentioned in your prepared remarks, there's a lot of volatility and changes going on at OEMs, in particular in the West. I was wondering if you can maybe speak to your confidence and ignoring the inventory changes, have there been changes in the assumptions on content at those customers and in particular, I think the 5-nanometer 32 MPE was supposed to ramp in sort of the 2026 time frame, is that still on progress and I guess, how are you seeing engagements for your content on the software-defined vehicle side? Thank you. Kurt Sievers: Yes. Thanks, Josh. No change. We are actually very confident here and my leader for the auto business, Jens will speak in much greater detail on Thursday about the traction of the STV. But you will also see in the numbers that our STV S32 growth accelerated segment has outperformed our targets in spite of all the turmoil over the past three years. So we will show the numbers on Thursday. So that has great traction today. And we anticipate we'll continue to have great traction, and that’s absolutely, of course, includes the S32N, which is the 5 nanometer vehicle computer and a lot of other products. What does happen, however, is we do see a continued non-competitiveness of the Western OEMs versus Chinese OEMs. So I dare to say that from anything we can judge here, the pendulum swings more in favor of the Chinese car companies. That doesn't mean that the content per vehicle in Europe or the U.S. comes down but maybe the number of cars that they are building is coming down. So that's not a content question, it's more a unit production question, which is going probably in favor of China, which means next to our efforts to win with STV concepts across the board we want to particularly be sure that we keep winning also in China because that is where probably the bigger opportunity is going forward. Joshua Buchalter: Thank you. See you Thursday. Operator: Thank you. One moment for our next question. Our next question comes from the line of Toshiya Hari of Goldman Sachs. Your line is now open. Toshiya Hari: Hi, good morning. Thank you so much for taking the questions. I have two quick ones on automotive. Just wanted to clarify, Kurt, the incremental weakness you're seeing in auto, is that at this point purely due to weakening end demand or are your Tier 1s bringing down their inventory levels as we speak as well, I think last quarter, you gave a range of something like 2 to 12 weeks in terms of how they're managing their inventory, have you seen any changes to how they think about optimal inventory levels? Kurt Sievers: It is unfortunately indeed both, Toshiya. So they bring down the expected unit numbers, which they will produce. And I said earlier that the SAR for this year is now at minus 2%. In Europe, by the way, at minus 5% year-over-year. But because of that, the 2 to 12 weeks, Toshiya also become a lower number, that's the whole issue. So with the OEMs telling the Tier 1s that they need less parts, they forecast also a lower inventory target. So we get a double whammy. We suffered directly from the lower production numbers but we also suffer from the overlaid lower inventory in absolute dollar terms, which is a function of that. So I would say the 2 to 12 weeks still stands but against the lower revenue number. And that's why -- and there is also an emotional element like towards year-end when they have a poor outlook. They, of course, have no interest whatsoever to end the year on the too high inventory. So they rather go lower than higher. So yes, it is both. The one is overlaid the other, which, of course, on the other side of all of this is the starting point for a better recovery. But again, I don't want to go to the point when that recovery is but in the end, it means once it grows, it grows even stronger. That's what we have the last three cycles out of that same situation. Toshiya Hari: Yes, that makes a lot of sense. Thank you. And then as my follow-up, you've seen a mix shift in favor of hybrids at the expense of EVs, maybe not at the expense of EVs, but EV adoption has kind of stalled over the past several quarters. I think the industry consensus view is that over the long run, EVs do grow pretty materially. But as you talk to your partners and customers into 2025 and maybe early part of 2026, do you have a view on how hybrids perform or EVs perform relative to one another and more importantly, what are the implications from a content perspective for you guys at NXP? Thank you. Kurt Sievers: Yes, so we don't have that much of a differential between hybrids and EVs because as you know, we don't have power discretes, which are much more sensitive to the difference between hybrids and full EVs. Our main thrust in the electrification space is the battery management systems and they don't differ that much from a dollar content perspective between the two. So therefore we don't have a sharp eye on the specific mix change between hybrid and full EV. At the same time, I just want to slightly maybe adjust what you said, the overall XEV, it has slowed absolutely, but it is still going to be a 14% growth this year. So in units, XEVs worldwide this year will grow by 14% over the year before, while the total SAR is declining by 2%. So I mean, that is still a very, very strong growth and it will be 37% of the total vehicle production this year. So 37% of all vehicles produced on the planet this year are actually XEVs. So it is moderated from a pace perspective relative to what it was forecasted to be but it is still growing very sharply, and that continues to help us. And yes, the other half of your question, yes, we do continue that over the longer term, we do continue to believe it will grow. We think something like a 75% global XEV penetration by 2030. That's kind of the data point which we have ahead of us. Toshiya Hari: Appreciate that, thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of William Stein of Truist Security. Your line is now open. William Stein: Great. I'm just going to ask one, if I can. The weaker-than-expected results in Industrial and IoT and yet the strength in China, I'm a little bit confused because I always recall this segment to be very China and very China distribution focused. So maybe you can correct my understanding, is it -- am I correct, but what's outside of China is very, very weak or is my recollection of the mix of this in terms of geo and channel maybe stale? Thank you. Kurt Sievers: It has a majority in China, that is very true. So you don't miscall it. The U.S. and Europe is very weak. And what we did say is that about 80% of the whole Industrial and IoT business is going through the distribution channel. So maybe you mix this with the China exposure. Not all of that 80% is in China, but 80% of the total segment is going through the channel. And since we keep up our channel discipline and don't over ship there, we basically are really fully exposed to the end demand because we are down to our eight weeks, and we keep it flat there. So therefore, the strength in China cannot overcompensate the weakness in Europe and the U.S. Yet China as a whole, as I said before, will grow into Q4 in both the industrial and the auto segment. But the rest is just falling so much that it can’t hold up. William Stein: Thank you. Jeff Palmer: Hey Marvin, we'll take one last question here today, please. Operator: Thank you. One moment for our next question. And our last question comes from the line of Chris Danely of Citi. Your line is now open. Christopher Danely: Hey gang, thanks for squeezing me in. Just two quick ones. So guys, can you just give us a sense of how much of your auto business is China? And then I'm sure you were at the Paris Auto Show as well, it seemed like there were dozens of China sort of EV companies and start-ups. If China gains a bunch of share in the EV market, what's the impact to NXP, is it good, is it bad, is it indifferent, how would that be? Kurt Sievers: So Chris, we don't break down the geo by segment. But since auto is like 56% or 58% of NXP and we -- and you find in the Q, the total breakdown by geo of NXP, where China is between 35% and I think now even 37% with the strength in China. I mean, just assume that auto is probably not that far from the corporate average. And that means, indeed, Chris, yes with China getting stronger, and I can only echo what you say there is a whole entry later and great lineup of EVs coming out of China which at some point will find their way worldwide. That is to the extent we can see it today, a good thing for NXP because they are faster, they get faster innovation out, which means our newer products are coming into production much quicker than with Western OEMs. And if we keep up the pace, and we put everything in motion to do that, this continues to be a positive for NXP. Christopher Danely: Great. Thanks, Kurt. I got to figure out a way to get that into my note on Enchilada. Chinese Enchilada VVs. And then just real quick, a follow-up for Bill. So Bill, your inventory days are basically in the $145 million to $150 million range for this year. Longer term, what's the goal there, are we going to keep it at $150 million while this weakness passes and then where are we looking at like longer term there? Bill Betz: Yes, sure. Over the next couple of quarters, I think we'll be at this level until we decide to replenish the channel. And so that's about three weeks' worth. So that would naturally come down and pull down our internal inventory when we decide to go replenish. More longer-term, we will be updating this on Thursday on what we think is the required inventory target to service our customer needs. So please be patient with me and wait two more days and you'll get the whole complete model of everything of both the P&L and our working capital and CAPEX and so forth. So just please be patient with me there. Christopher Danely: Will do, thanks guys. Jeff Palmer: Thanks Chris. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Kurt Sievers, President and CEO, for closing remarks. Kurt Sievers: Yes. Thanks, operator. Yes, we had to report today that we were taken by some surprise in the third quarter of an enhanced weakness in the automotive and industrial and U.S. and European markets, which is totally beyond our control. So what we do, we clearly maniacally try to control and will control what is in our power. And I hope the guide and the early signs which we show for next year, give you a feel for that. That does not take away anything from staying course on our soft landing strategy which should set us up very well for the recovery whenever it happens. We are not in a position to make a judgment on that. But when it happens, we should be set up very well with the low inventory in the channel and the low inventory at our direct customers. Now at the same time, I hope to see many of you in our Investor and Analyst Day this week, Thursday in Boston where we will speak about our long-term strategy and give you the long-awaited update on our long-term financial model. Can't wait to see you all. Thank you very much for your attention this morning. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Operator: Good day, and welcome to the NXP 2Q '24 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation there'll be a question-and-answer session and instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Michelle, and good morning, everyone. Welcome to NXP Semiconductors Second Quarter Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products, and our expectations for the financial results for the third quarter of 2024. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter 2024 earnings press release, which will be furnished to the SEC on Form 8-K and available on NXP's website in the Investor Relations section. Before we start the call today, I have one housekeeping item related to the 2024 Investor Day, which will be held at the Four Seasons in Boston on November 7th. The pre-registration website will be open on the NXP Investor Relations website beginning on August 7th. Space will be limited, we request that you register in advance and we hope to see you all in November in Boston. Now I'd like to turn the call over to Kurt. Kurt Sievers: Thanks very much, Jeff, and good morning everyone. We appreciate you all joining our call today. Let me begin with quarter two. Revenue trends in all our focus end markets were in line with the midpoint of our guidance range. NXP delivered quarter two revenue of $3.127 billion, down 5% year-on-year and flat sequentially. The non-GAAP operating margin in quarter two was 34.3%, 70 basis points below the year-ago period and 30 basis points above the midpoint of our guidance. Year-on-year performance was a result of lower revenue in the automotive and communications infrastructure markets combined with consistent gross profit generation. From a channel perspective, distribution inventory was 1.7 months consistent with our guidance and just slightly up from the 1.6 months in quarter one. With that, we continue to operate well below our long-term target of 2.5 months of inventory in the channel. Now let me turn to the specific trends in our focus end markets. In automotive, revenue was $1.73 billion, down 7% versus the year-ago period and in line with our guidance. We have worked with our direct Tier 1 customers to ensure a continued orderly process of inventory digestion. In industrial and IoT, revenue was $616 million, up 7% versus the year-ago period and in line with our guidance. Our performance compared favorably versus the year-ago period, driven by demand in China and Asia Pacific, while the trends in the European and North American markets remained soft. In mobile, revenue was $345 million, up 21% versus the year-ago period and in line with our guidance. And finally, in communication infrastructure and other, revenue was $438 million, down 23% year-on-year and in line with our guidance. Now I will turn to our expectations for the third quarter 2024. We are guiding Q3 revenue to $3.25 billion, down 5% versus the third quarter of 2023 and up 4% sequentially. In the automotive end market, our revenue troughed in the second quarter and we will resume sequential growth in quarter three. This will be led by company-specific drivers and by now we are also moving much closer to shipping to end demand at several customers. At the same time, the inventory digestion process at select direct Tier 1 auto customers will extend into the second half, stretching beyond our initially expected levels and with a surprisingly wide variation of their desired steady-state inventory levels. Taken together, while resuming sequential growth in the second half of 2024, we continue to ship below automotive end demand in the somewhat softening automotive macro. In the industrial IoT end market, we see steady improvement in the consumer IoT demand in China. This is offset by persistent weakness in the core industrial demand in Europe and the Americas. In the mobile end markets, we anticipate normal seasonality from a lean inventory position. And finally, within communications infrastructure and other, we expect our company specific growth in secure RFID tagging to be more than offset by the previously discussed weakness in the remaining parts of that reportable end market. So at the midpoint, we anticipate the following trends in our business during the third quarter. Automotive is anticipated to be down in the low single digit percent range versus quarter three '23 and up in the mid-single digit percent range versus quarter two 2024. Industrial IoT is expected to be up in the low single digit percent range both year-on-year and quarter-on-quarter. Mobile is expected to be up in the mid-single digit percent range versus quarter three '23 and up in the mid-teens percent range versus quarter two '24. Finally, communication infrastructure and other is expected to be down in the mid 20 percent range year-on-year and down in the mid-single digit percent range versus quarter two '24. In summary, NXP trough in the first half of this year and now we expect to resume sequential growth through the second half. Therefore, during quarter three, we will continue to stage inventory just a touch higher in the channel in order to support our competitiveness and in order to prepare for the anticipated second half growth and beyond. With that, our quarter 3 guidance assumes approximately 1.8 months of distribution channel inventory. However, we will not grow channel inventory back to anywhere near our long-term target of 2.5 months within this calendar year. As a result, we will continue to stage inventory in a very controlled and targeted manner in the channel. Taken together, the second half will grow over the first half with the potential outcome for 2024 to be a modest annual revenue decline in the low single digit range. This is toward the low end of our earlier expectations because of the more persistent and deep inventory digestion at our auto Tier 1 customers and due to the continued weakness in our core industrial markets in Europe and the Americas. Before turning the call over to Bill, I would like to highlight what I believe is a truly strategic long-term investment for our hybrid manufacturing strategy. On June 5, 2024, we disclosed the formation of a 60-40 manufacturing joint venture between Vanguard International Semiconductor and NXP. The strategic rationale for the investment is to enable NXP to execute its long-term growth objectives with access to competitive cost, supply control, and geographic resilience. This move complements our participation in the TSMC-led joint venture in Europe, which we announced in August 2023. The new joint venture, VisionPower Semiconductor Manufacturing Company, or VSMC, will build a 300 millimeter fab in Singapore, which is a global hub for third-party foundries with excellent access to a robust and highly skilled workforce for mature node manufacturing. Singapore is also where NXP and TSMC have successfully operated SSMC, a 200 millimeter joint venture, for over 25 years. Phase 1 of the VSMC joint venture fab will support 130 nanometers to 40 nanometer mixed signal power management and analog products, targeting the automotive, industrial, consumer, and mobile end markets. When fully operational in 2029, the fab will produce 55,000 wafers per month, and there is a Phase 2 option to expand the fab, providing an additional 45,000 wafers per month, including 28 nanometer process flows. A key factor for the long-term success of the joint venture is that TSMC will license the foundational process flows, as well as NXP contributing proprietary mixed signal process flows. We are very confident to partner with Vanguard, an independent trailing-edge foundry located in Taiwan. Vanguard's largest shareholder is TSMC, which owns approximately 30% of Vanguard and which will help to assure the long-term success of the joint venture. From a financial perspective, NXP will make a total investment of $2.8 billion between 2024 and 2028, with the peak investment period being in 2025. This investment enables NXP to address about $4 billion of incremental annual revenue, for which the capacity has not been available to us before. Furthermore, this joint venture opens the door to a strategic roadmap to eventually consolidate our 200 millimeter internal factories over time into a very cost competitive footprint. And now, I would like to pass the call over to you, Bill, for a review of our financial performance. Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q2 and provided our revenue outlook for Q3, I will move to the financial highlights. Overall, the Q2 financial performance was good. Revenue, non-GAAP gross margin, operating expenses, and distribution channel inventory all came in line with our guidance. Turning to Q2 specifics, total revenue was $3.127 billion, down 5% year-on-year. We generated $1.83 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.6%, up 20 basis points year-on-year, and 10 basis points above the midpoint of our guidance range. Total non-GAAP operating expenses were $760 million, or 24.3% of the revenue, down $11 million year-on-year. This was $5 million below the midpoint of our guidance due to lower than anticipated hiring. From a total operating profit perspective, non-GAAP operating profit was $1.07 billion, and non-GAAP operating margin was 34.3%, down 70 basis points year-on-year, and up 30 basis points above the midpoint of our guidance. Non-GAAP interest expense was $67 million, with taxes for ongoing operations of $169 million, or a 16.8% non-GAAP effective tax rate. Non-controlling interest was $6 million, and stock-based compensation, which is not included in our non-GAAP earnings, was $114 million. Taken together, we delivered non-GAAP earnings per share of $3.20, consistent with our guidance. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q2 was $10.18 billion, with our cash balance of $3.26 billion, down $49 million sequentially, due to the cumulative effect of capital returns, CapEx investments, and cash generation during Q2. The resulting net debt was $6.92 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.3 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q2 was 1.3 times, and our 12-month adjusted EBITDA interest coverage ratio was 23.1 times. During Q2, we paid $260 million in cash dividends and repurchased 310 million of our shares. Taken together, we returned $570 million to shareholders, representing 99% of non-GAAP free cash flow. After the end of Q2, and through Friday, July 19th, we repurchased an additional $69 million of our shares under an established 10b5-1 program. Turning to working capital metrics, days of inventory was 148 days, an increase of four days sequentially, while distribution channel inventory was 1.7 months, or just over seven weeks. The combination of balance sheet inventory and channel inventory was about 200 days of inventory. Days receivable were 27 days, up one day sequentially, and days payable were 64 days, a decrease of one day versus the prior quarter. Taken together, our cash conversion cycle was 111 days, an increase of six days versus the prior quarter. Cash flow from operations was $761 million, and net CapEx was $184 million, or 6% of revenue, resulting in non-GAAP free cash flow of $577 million, or about 18% of revenue. Turning to our expectations for the third quarter, as Kurt mentioned, we anticipate Q3 revenue to be $3.25 billion, plus or minus about $100 million. At the midpoint, this is down 5% year-on-year and up 4% sequentially. We expect non-GAAP gross margin to be about 58.5%, plus or minus 50 basis points. As Kurt noted in his prepared remarks, we will continue to stage inventory in the channel to support growth in future periods. Our guidance assumes approximately 1.8 months of distribution channel inventory exiting Q3. Operating expenses are expected to be $760 million, plus or minus $10 million. Taken together, we see non-GAAP operating margin to be 35.1% at the midpoint. We estimate non-GAAP financial expense to be $67 million, with the non-gap tax rate to be 16.8% of profit before tax. Non-controlling interest and other will be about $9 million. For Q3, we suggest for modeling purposes, you use an average share count of 258.5 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance, to be $116 million. For capital expenditures, we expect to be around 6%. Taken together, at the midpoint, this implies a non-GAAP earnings per share of $3.42. Before going to my closing remarks, I will provide additional details of the VSMC joint venture, as discussed by Kurt earlier. The total cost of the joint venture will be $7.8 billion. The NXP investment into the venture is $2.8 billion, made up of $1.6 billion commitment for a 40% equity stake in the joint venture, and an additional $1.2 billion investment for long-term capacity access. Vanguard will invest $3.1 billion, made up of $2.4 billion for a 60% equity stake, and an additional $700 million for long-term capacity access. The remainder of the funding will be provided by other sources in the form of subsidies and loan guarantees in Singapore. This joint venture will not consolidate into NXP's financial statements, but the profits and losses will be reflected under the equity accounting investees in our non-GAAP income statement. The investment will be funded from cash flow from ongoing operations, with no need to raise additional debt. Additionally, the joint venture will provide approximately 200 basis points of gross margin expansion to our total corporate gross margin when fully operational in 2029. The gross profit benefit is derived from the incremental revenue, the benefits of the increase to 300 millimeter wafer size, and the avoidance of typical margin stack-in when buying material in the commercial foundry market. So in closing, looking through the remainder of 2024, I would like to highlight three areas of focus. First, with the VSMC and ESMC investments, there is no change to our capital allocation policy. We have returned $2.4 billion, or 81% of the free cash flow generated over the last 12-months. Furthermore, we will continue to be active in the market repurchasing NXP shares. Second, we will continue to be disciplined to manage what is in our control and stay within our long-term financial model. Specifically, we expect our gross margin will continue to perform at or above the high end of the long-term model. And then lastly, we feel confident to resume sequential growth through the second half while we continue to stage inventory in the channel in a targeted and controlled manner. I would like to now turn it back to the operator for your questions. Q - Vivek Arya : Thanks for taking my question. For this calendar year, Kurt, you're suggesting total sales down low single-digit, which as Bill also mentioned, I think that suggests Q4 up mid-to-high single-digit sequentially. Normally, your Q4s are kind of flat or down. So I'm curious, what is giving NXP the confidence that you can have sequential growth in Q4? Are there certain end markets you think will do better than seasonality, or is this all kind of channel inventory refill? I'm just trying to understand the dynamics as you see it for Q4 right now. Kurt Sievers: Yes, thanks and good morning, Vivek. Certainly, it's not the channel refill. I tried to be very specific in my prepared remarks that we continue to be very thoughtful and cautious with channel refill. We've worked very hard over a long period of time to keep the channel lean. So we want to really tune this to the growth in the coming quarters in a careful manner. So no, the channel is going to go nowhere near our longer-term target of 2.5 months. So that stays for next year. We will go to 1.8 months in the third quarter, and then maybe a little bit further up in the fourth quarter. So no, that's not it. What is much more behind that continued resumption of growth now in the second half, which then includes quarter four, is a re-acceleration of automotive. You see that actually in the third quarter, I mean, we turned the corner from a quarter two performance in automotive, which was a mid-single-digit decline to now a mid-single-digit growth sequentially in automotive and we definitely want to continue, which has two legs, one is company-specific drivers, which is led by radar, but also a couple of other new platforms which are ramping. But also less and less need for digestion of over-inventory at our Tier 1 automotive customers. That will be getting less, while at the same time, I also have to say in this call, it takes longer than we thought. So it reaches now into the third quarter. We were hopeful it would end a little earlier, so that it's protracted longer, which is one of the reasons why actually the second half growth is a little less than we had assumed earlier. Still, it does grow. So automotive is the source of that. Secondly, the RFID secure tagging, which I mentioned earlier, is a company-specific growth, which is going to be with us both in the third as well as in the fourth quarter. And we are also optimistic that industrial IoT will keep growing from our lean inventory position in the channel. Vivek Arya: All right, thank you, Kurt. And just one more on automotive. Post-COVID, a lot of OEMs and Tier 1s built up a lot of inventory to avoid the problems they ran into as they were recovering. Do you think that process is now behind us? Do you think they will hold to those levels? Do you think they will start to go back to the prior trends? The reason I ask the question is that just as you're kind of signaling somewhat of a turn in automotive, auto production is not that great. And there is just a lot of concern that maybe inventory levels are still too high, which is why it's kind of pleasantly surprising to hear you be somewhat more positive on the automotive recovery. So maybe just give us a sense of where we are in the supply-demand dynamic for automotive in the second half of this year versus what you thought it would be three months ago? Kurt Sievers: Yes, so yes, first of all, indeed, the latest S&P forecast for SAAR for the calendar year '24 dropped a little to a 2% decline. So we were more in the flattish kind of area and now they forecast a 2% decline. So yes, the auto macro has deteriorated a little from the views which we had 90 days ago. I do believe the bigger factor is actually that indeed the inventory digestion adds the Tier 1 automotive customers, which is the direct customers of NXP, so that is the 60% of our automotive business, which goes through direct. That takes longer, which indeed is a function of two things. One is they are further down adjusting in some cases their inventory targets and it is all over the place. So for our customers, inventory targets range between two and 12 weeks. So we have automotive Tier 1 customers who go for a 12-week target and others who are as far down as a two-week target. We have our views on this and I guess we will discuss a bit more in that call here because going so low clearly will lead to a pretty sharp need to refill later. I mean, that led to the whole supply crisis in the first place a couple of years ago. But they are adjusting these targets on the go and that is also what keeps us to be very transparent. It keeps us growing a little bit less into quarter three than we would have thought 90 days ago because that keeps going a bit longer. Where exactly it's going to land is hard to say, Vivek. So it's hard to say what the target average of those inventory end numbers is from the Tier 1s because it's also going to change probably how they think about their future. If they get higher call-offs from the OEMs, they will start to want to increase their inventories again pretty quickly. But again, I can tell you today their targets are between two and 12 weeks and we still have a little bit of work to do in the third quarter to get there. But you see it is already much less than before, which is indeed why our automotive growth has now snapped back into positive sequential and into what is only a low single digit annual decline, which was a high single digit annual decline in the past quarter. So you see the tide is already changing, but we are not through. Operator: Thank you. Our next question comes from C.J. Muse with Cantor Fitzgerald. Your line is open. C.J. Muse: Yes, good morning. Good afternoon. Thank you for taking the question. I guess first question, just to follow-up on the auto side. Can you kind of drill down by end market between radar, VMS, advanced analog, and really kind of, I guess, help us understand where you think inventory is clear and maybe where there still remain excesses. And then as we look into 2025, how are you thinking about acceleration by these different segments? Kurt Sievers: Yes, C.J. So relative to how is the inventory at the Tier 1s between those different product segments, it is completely customer specific, C.J. There is no overriding pattern because it really depended on what they thought they had to order through all of this NCNR [ph] time during the last two years. So we don't have a pattern there, C.J. There is no answer to that question because it is absolutely different customer by customer. We also have Tier 1 customers where we are done with inventory digestion, which is actually driving the growth into the third quarter, where none of the product categories has any more surplus inventory. So it’s a completely uneven picture. And secondly, mind you, that their targets are not the same. I think I said to Vivek earlier, targets range between two and 12 weeks. So the one would declare 12 weeks as being on target and no over inventory. The other with three weeks says, I still have a week too much because my target is two. So therefore, I can't answer that question because it's just all over the place. However, in general, our accelerated growth drivers, think about the electrification, BMS chips, think about S32, core right processing, think about radar. They tend to grow now anyway because they all have ramping platforms in the second half, which are overpowering, I would say the inventory digestion, which is why we call that out as company specific drivers, which is above and ahead of the inventory digestion in any case in the second half. And of course, that's going to continue next year, C.J. But then the base is also going to be fine because by then the -- say all the rest of the business, which might still see some inventory digestion will be clear too. C.J. Muse: Very helpful. And I guess just a quick follow-up, given kind of the change in your revenue outlook for the year, but still looking for strong growth into Q4 and 2025, how are you thinking about managing utilization rates? Bill Betz: Yes. Hey, C.J. This is Bill. So right now on utilizations on our internal factories, we plan to run them for the rest of the year in the low 70s. We don't expect to bring them up or fully utilize them until 2025. As you can see, we have a bit higher inventory on our balance sheet. And again, we probably have holding about 25 days in theory that belongs into the channel, so we'll navigate through that. Another 10 days of strategic inventory and the remainder of 10 days of in-orders that come in within a quarter that we want to serve the upside. So we think inventory gets back in balance sometime in 2025 at this current picture. C.J. Muse: Thanks so much. Operator: Thank you. And our next question comes from Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore : Hi, guys. Thanks for me asking the question. I want to pivot over to the industrial and IoT segment. Kurt, do you think that is a demand issue on the core industrial side or is it similar to the inventory burn dynamic that we've talked so much about on the automotive side? And really what I'm getting at is, is that going to start growing more meaningfully on a sequential basis due to the core industrial just when you start shipping closer to demand? Or is this, especially in the U.S. and Europe, truly a demand issue? Kurt Sievers: Yes, thanks. Good morning, Ross. It is indeed, in our view, a demand issue in the U.S. and Europe. So the U.S. and Europe is where we have more of the core industrial business and there we clearly see it is a macro-driven demand issue and at least in our case, not really that much a function of over-inventory. And yes, where we do see growth into the third and fourth quarter is actually more from China and that is more led from the consumer IoT part of the business. So that 40%, which is more IoT, what we call IoT that is actually doing pretty well, which by the way is a matter of fact for China overall. So when I think about the geographies and how they've done in the past quarter and the second quarter, then actually China is the one which is growing both year-on-year as well as, or which has grown both year-on-year as well as sequentially. And that also plays into industrial where then the consumer IoT is the piece which is pulling it. So answer is, in short, it is a demand issue very much from the Americas and Europe in core industrial. Ross Seymore: Thanks for that. I guess as my follow-up then switching gears over to one for Bill, I know you guys are changing your capital allocation, but you talked about the VSMC CapEx peaking next year. I believe you have a slug of debt due again next year. Any sort of change to the CapEx we should think about and or just the thoughts on kind of how free cash flow might develop given those two dynamics as we try to judge what you may or may not do on dividends and share repurchase, et cetera? Bill Betz: Yes. Hey, Ross. Relate to our capital allocation again, as I stated, there's no change. We're going to be continually active buying back the stock, continue making sure our dividend is at 25% of our cash flow from operations as right now I think we're around 28% on a trailing standpoint. We're going to continue to do some small M&A tuck-ins that we've been doing over the last several quarters. Related to the timing of the cash for both ESMC and VSMC, they are at different times and they will show up in our cash flow statement in different areas. So think about the equity investments for both those ventures will show up in our equity investment accounting on our cash flow statement. And again, those are spread out for VSMC specifically. Think about five years where the first three years represent about 75% of the $2.8 billion that we talked about and the remainder over the two years. As you know, we also have an investment of a 10% equity position in ESMC. Again, similar but different timing in equity. And then there's a portion of, we break that out, of that $2.8 billion that I talked about, the $1.6 billion is equity. The $1.2 billion will come out of working capital operations. It's more of a guarantee of supply where we have to actually get more supply up front so that we can service our customers and be able to deliver incremental revenue. Because at this point in time, we just don't have that capacity available based on all the design wins we have that are going to ramp at that time frame. So that's the strategic nature of this venture related to it. Now on CapEx specifically, we're going to stay at the low end of our model at 6%. I don't see us going above that any time soon. And again, we will probably update the CapEx as a percentage of revenue during our November 7th Investor Day. Ross Seymore: Thank you. Operator: Thank you. And our next question comes from Francois Bouvignies with UBS. Your line is open. Francois Bouvignies : Hi, thank you very much. So I have two quick questions. The first one is maybe for Kurt. I mean, you mentioned the company specific in auto in the second half of the year as one of the drivers for improvement. Could you be a bit more specific, give more details on what platform and what products especially you are launching any drivers that is driving that. You mentioned radar, but I was wondering if you could be a bit more specific. Also in the context that we see that OEMs are talking about launches in the second half but the demand is still unclear for this. So I just wanted to dig on these company specific drivers on the platforms? And then I have a follow-up, if I can. Kurt Sievers: Yes, sure, Francois. So the growth in automotive in the second half is really having two legs. The company specific, which I will reply to, but I have to highlight it is also just moving closer to shipping to end demand. Not all the way there, but moving closer because of inventory digestion being more behind us than in front of us. Now on the company specific side, I mean, let me call out indeed radar. We have ramps with at least two Tier 1 automotive companies which are operating absolutely globally. So they are serving OEM platforms across the globe. So we are pretty well hatched here relative to end demand -- from end demand perspective. And those are design wins, Francois, which we made probably three years ago or so, which are now finally coming into production. Everything is being prepared. And yes, of course, I mean, with a SAAR of minus 2%, there is always something which is a little less and something which is a little more. But since it is widespread, both geographically and across different OEMs, we are actually absolutely optimistic that those numbers will come in the way we want them to come in. So there hasn't been also any change over the past couple of quarters in the view of preparing that. And again, it is about radar, front phasing and side radar platforms for global OEMs. Maybe Francois, if you need to get a bit more color, you know that when we talk about radar, it is typically a complete chipset. So we talk about the front-end transceiver, the microprocessor and in several cases, not always it even includes Ethernet connectivity and power management. Francois Bouvignies: I appreciate the color. Thank you, Kurt. And maybe the follow-up is on the maybe more for Bill on the pricing dynamic. I'm probably a bit too picky here, but your guidance is 10 bps lower on the gross margin side versus Q2. I feel ashamed to ask, but despite higher revenues. So I just wanted to check the dynamic on the gross margin and maybe if you could talk about the pricing dynamic in the market would be helpful. Thank you. Bill Betz: Sure. Let me first say about pricing. Pricing this year is flattish. Again, no increases, no decreases, so that's not causing the movement in the gross margin. Again, in Q2 we kind of did slightly better by 10 basis points and that was driven by favorable product mix. As we transition into Q3 we do see the favorability like you point out on the higher revenues over our fixed cost. But this is being offset by slightly unfavorable product mix that we plan to ship. So therefore at the moment, those two are kind of offsetting each other. And just to remind everyone, we ship over 10,000 different part numbers a quarter on average. And to be honest with you, to manage the mix exactly right is quite difficult and that's why we put the plus or minus 50 basis points on our gross margin. Now on the positive side, we have multiple tailwinds to help improve our gross margins further. Both I would say more in the medium and long term. We talked about earlier about the internal utilizations. Again, we're going to keep them in the low 70s for the rest of the year because of balancing our inventory. But we expect in 2025 that becomes a tailwind for us as we bring that up. As clearly as revenue improves we get that fall through over the fixed costs as we demonstrated in Q3, but unfortunately the mix is slightly going the other way. Timing of the replenishing our distribution channel, it carries higher average, higher margins. And so you heard Kurt talk about we're not going back to 2.5 this year, so expect that more in 2025. Internally, ongoing productivity, cost reductions of course we're doing. We continue to have this big, big drive on really focusing on additional long tail customers with our distribution partners, which over time should benefit. As we always talk, the continued ramping of our new products which carry a higher margin. And then more longer, longer term as I had in my prepared remarks, we expect to improve our 2029 margins by over 200 basis points of whatever the actual 2028 gross margins are driven by our strategic investments in this newly VSMC joint venture. Again, we're going to talk more about this on our financial model on November 7th and you all know I've hinted many times that 58% is not our final destination. Francois Bouvignies: Great, thank you very much. Operator: Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon : Hi, guys. Thanks for taking my questions. For my first one, on your auto commentary. I got to admit, I'm a little confused. So the auto market seems to be worsening versus your prior expectations but the inventory draining is mostly done. You got some company-specific drivers. Like are your auto expectations better for yourself or worse than they were three months ago? Like is it like you thought you were going to grow high single digits for the year and now it's going to grow mid-single digits? If you could just frame for us how your overall auto expectations for yourselves have changed over the next -- over the last 90 days, that would be super helpful for me. Kurt Sievers: Yes, hi Stacy. I would say our auto expectations for the second half are in some in line with what we had before. So I would say similar to what we would have said 90 days ago, but with 2 moving components underneath. The inventory digestion to be done is actually worse. So we have lower headwind than we had anticipated some time ago. At the same time, some of our company-specific stuff is actually going better. Those two things are completely unrelated, Stacy. It just happens to play out for us that, that part of the company is actually more in line with what we had seen before. But again, I want to be very transparent. The inventory digestion in automotive is a longer drag on us than I would have thought and I would have talked about 90 days ago, given all the changes on the inventory targets they have, which I explained in earlier questions. Stacy Rasgon: Thank you. That's helpful. For my follow-up, I was just curious. I know the channel inventory is not ripping higher, but it is ticking higher. Where is that inventory getting built? Is it all industrial? Is it industrial and auto? And it did sound like I think I heard maybe it was Bill say the 2.5 target would be for 2025. So are you still planning to go back to 2.5 months as we get into next year? Kurt Sievers: Yes, Stacy. So several points here. Yes, our long-term target remains to be 2.5. Absolutely. I mean we -- and that's not just because it used to be our target, but we went through the whole analysis, what makes sense, what is strategically meaningful. And it happens to be that indeed the outcome, given our product and segment mix, is that 2.5 remains the long-term target. What I did say in my prepared remarks is also indeed we don't see a case where we go back to the 2.5 at the end of this calendar year. I would almost say by far not. And we just say that because we don't want to put smoke and mirrors on this. What is this annual outlook? Is it all driven by channel refill? No, no, no, it is not. And here, Stacy, I would also say that is a change probably versus 90 days ago. 90 days ago, I thought we might want to be a bit more aggressive in refilling the channel, which given the poor macro environment in the Americas and Europe, we feel is probably not appropriate. So that is not lost revenue. So when we have now a little lower outlook than we had before, it is just that we do a little less into the channel than what we would have planned earlier. For reasons which have to do with the macro and we just want to continue to operate the company in a very responsible way. Now finally, you asked where does it go into the channel, where we take it up. It's really a cross-segment, Stacy. It is about high runner products. The way we think about this is there are certain products which are really hot in the channel. And we have to make sure that we have sufficient of those products on the shelves of our distributors such that they push them instead of competitive products from our peers. And there we are a little behind and are busy to push those products in. And they are, I would say, neither geography nor segment specific. They really go across the board. It's more product specific. Stacy Rasgon: Got it. That's helpful. Thank you so much. Operator: Thank you. And our next question comes from Thomas O'Malley with Barclays. Your line is open. Thomas O'Malley: Hey, Kurt and Bill. Thanks for letting me ask a question. My first one is on the comp side. So I think on the last earnings call you talked about the RFID business representing roughly about 50% of the mix. In your comments, it kind of sounds like RFID is still doing well, but pretty much all other areas of the business are more than offsetting. If you look at the growth profile of that business going forward, I mean, is RFID kind of 60 plus percent of that business now? And how should we think about that business into the back half of the year? Obviously, September, you're saying comp down kind of mid-single digits, but is there continued RFID growth with other stuff falling off faster? Just could you give us the profile how that business should trend going forward? Kurt Sievers: Yes. Hey, Tom, I'm sorry. And we might have been confusing here. To be very specific, RFID is not 50% of that segment. What is 50% of the segments by the end of last year, what was then 50% is what we call secure cards, which includes payment cards, transport cards, and RFID and security. So the RFID is a part of that 50%, Tom. And for the rest, everything you said is right. The RFID keeps growing. It keeps growing into Q3. It will keep growing sequentially into Q4, but it is less than 50% of the total, which is why it is easily offset by the rest. And the rest is then -- and again here the numbers from the end of last year, the Legacy Digital Networking business is about 30 -- or was about 30% by the end of last year. And this is where we said we selectively start to end of life products after kind of eight years collecting good cash from that part. And it is the pretty lumpy radio power business, RF power business for the mobile base stations, which at the end of last year was 20%. And that is hanging in there. I would say it's kind of up and down every other quarter, but in the end, more on the downward slope. So basically think about this whole comps infra segment end of last year, 50% secure cards, including RFID, 30% legacy digital networking, 20% RF power. And the only structurally growing part in there is actually the RFID. Thomas O'Malley: Super helpful. And then if I think about that trajectory, what you normally see with mobile in the fourth quarter and kind of your commentary about being kind of at the low end of your initial targets are kind of low single digits total revenue down year-over-year. I guess the last two pieces are just the industrial and IOT and auto into the fourth quarter. You kind of mentioned hey, auto was down high single digits year-over-year. Now it's down low single digits year-over-year. Is your expectation for December to kind of get to that year-over-year growth? Or are you expecting most of that sequential growth into the fourth quarter to get you to that low single digits year-over-year to come from industrial and IOT? Thank you. Kurt Sievers: Hey Thomas, look you are really pushing it a step too far now. We tried to give a lot of color for the second half with the guidance of the third quarter. I really can't give you all the breakout on how each segment is going to do in the fourth quarter. And honestly speaking Tom, we also don't know that. I mean there are things which are constantly moving around, especially relative to these two things. One is the inventory targets of our Tier 1 automotive customers. The other one is the macro for industrial in Europe and the U.S., which could or could not get better a little earlier or a little later. So honestly speaking, I don't know. We just say here the outcome of all of this, if you put it all together, is going to be this low single digit decline for the whole company over the complete year. But the trend and that piece I will tell you, the trend in automotive is a positive one. I mean we left the trough in automotive behind us. I want to be dead clear. Quarter two was the trough in automotive, which I think was a 9% peak to trough for automotive. And it is now coming up. How fast is something we have to see because it's really a function of the inventory digestion. Thomas O'Malley: Thank you, Kurt. Operator: Thank you. Our next question comes from Blayne Curtis with Jeffries. Your line is open. Blayne Curtis : Hey, thanks guys. Thanks for squeezing me in. I have actually two questions on auto processors. So Kurt, I wanted to ask you, one of your European competitors has been talking about share gains. I know it's kind of fair while you're correcting and talk about share. But I wonder if you just talk about, particularly in China, your share position with auto processors. I know you've talked about qualifying a Chinese fab as well. Can you maybe talk about the timing there and the decision to do that? Kurt Sievers: Yes, hi Blayne. So first of all, I just want to be sure everybody knows we are the number one in auto processors worldwide. Whatever you hear from peers is typically related to parts of that, which is the microcontroller part or the application processor part, et cetera. If you put it all together, you'll find enough third-party evidence that NXP is the number one and keeps being the number one. And that holds also for China. So I think in China, we have a fairly strong position in processors. We actually push the performance very much up. So our attempt and our strategy in China is to lead customers to higher performance because we know that is where we have the most differentiation. We all know that Chinese local competition is coming in in the non-auto world on the low-end microcontrollers. I think it's just a function of time that they will try to do this also in automotive. So all of our strategy here is to push for the higher performance processors, not microcontrollers, but microprocessors, which for us is the 16 nanometer devices and going forward even lower. And here, I think we have a unique and strong position, Blayne. So I feel actually we are in a good place. Now when it comes to manufacturing, absolutely right. In our China for China strategy, which is a big requirement in the meantime from our Chinese customers, our first tactical step is provide local manufacturing capability. And that includes the microcontrollers and microprocessors. For microprocessors, it is quite straightforward because we manufacture them in 16 FinFET from a big Taiwanese foundry. I think we published this earlier. It is TSMC. And TSMC has a fully operational factory in Nanjing in China, which is doing 16 nanometers. So it's a copy exact factory of what they have in Taiwan. So we are just transferring it from Taiwan into China. So it's a fairly straightforward process to allow local manufacturing for microprocessors of NXP in China. Blayne Curtis: Thanks, Kurt. And if I just follow-up on what you just said there, the 16 nanometer domain zonal was something you outlined in, I think, 2021 Analyst Day. Could you just maybe talk about, I know you're going to talk about it more in your upcoming Analyst Day, but in terms of these are very long-dated design cycles. But when should we think about revenue from these products? I mean, I don't know if you can size it today or kind of give us a sense of how material that could be as you're looking at next year. Kurt Sievers: Yes, well, the 16 nanometer ones are in full production plane. So they absolutely contribute to one of the three accelerated growth drivers, which we highlighted in our '21 to '24 growth. So I think we guided 9% to 14% for automotive. And there were three high growth drivers. One of them is the S32 platform, which is the performance processing for automotive. And the big part of that is indeed 16 nanometer processors. And what I can say now ahead of the November 7th Analyst Day is that for that piece we will be ahead of target. So we laid out growth targets and the automotive processing will be actually above the target which we had laid out in November '21. Blayne Curtis: Thanks, Kurt. Operator: Thank you. We have time for one last question. And that question comes from Chris Danely with Citi. Your line is open. Chris Danely : Hey, thanks, Gang, for squeezing me in. A lot of helpful color on the automotive end market. Are you seeing any trends by geography in the automotive end market or any geographies better or worse than the others? Any particular strengths or weaknesses? Kurt Sievers: Yes. Hi, Chris. Yes, I clearly say that China is in a better position than the other geographies in automotive these days, which I think is also a function of the continued success of electric vehicles in China. If you look at all the numbers, then electric vehicles, both hybrid and battery electric, continue to grow significantly. I think S&P just published something like 21% unit growth in xEVs in China in '24 over '23, which is a staggering growth. And that reflects also back into our business. So yes, I would call out China. Chris Danely: Thanks. And then just a quick follow-up on your own inventory days. It continues to creep higher at 150 days. Given there's some sales growth coming in the second half, do you think your inventory days will go down? And are we looking at some sort of new range? Are you comfortable with 150? Where's the end goal? Where do you expect that to trend? Bill Betz: Sure, Chris. Let me take that. Based on the latest second half guidance for the revenues that Kurt talked about, we do expect internal inventory days to start coming down in Q4. As Q3 will probably be similar levels of Q2. And the reason for this, it takes a bit longer is where the inventory is staged. When you look at our Q filings, we reduced for WIP and moved products into finished goods as we service about 85% internally. So we add more value to that product through our back ends. Then this finished goods will help support the Q3 sequential growth. And we expect a similar profile entering into Q4 to ensure we service our customers around that. So again, I think this is probably near our peak levels. And hopefully we expect Q4 to start coming down and then get this back in order in 2025. Chris Danely: Great. Thanks, Bill. Operator: Thank you. That concludes our question and answer session. I'd like to turn the call back over to Kurt Sievers for closing remarks. Kurt Sievers: Thanks, operator. Look, we really see that we have now probably the trough clearly behind us. Navigated the cycle successfully with what we call consistent gross margin performance through all of this down cycle period. The company is resuming growth, most importantly both in automotive as well as in industrial IoT. In automotive, turning from a mid-single-digit decline to a mid-single-digit growth now sequentially. In industrial IoT, we stay in the positive growth regime both year-on-year as well as sequentially. However, we also have detractors. So the digestion of direct automotive customer inventory takes longer than we had anticipated. And given that we also stay a little bit more muted in terms of how much channel refill, how fast we will do. Those factors play them into our guide for the year being more of a low single-digit decline annually over last year, which is toward the lower end of what our earlier expectations were. But the growth hasn't gone away, it just shifts out, if you will, into next year, which makes us actually quite optimistic and we will continue to be super vigilant in operating the company in a very responsible way. Thank you very much for the call this morning. Operator: Thank you. This does conclude the program. You may now disconnect. Everyone, have a great day. Bill Betz: Thank you. Operator: You're welcome.

Operator: Hello, and thank you for standing by. Welcome to NXP's First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jeff Palmer, Senior VP of Investor Relations. You may begin. Jeff Palmer: Thank you, Towanda, and good morning, everyone. Welcome to NXP Semiconductor's first quarter earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for our financial results for the second quarter of 2024. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures which are driven primarily by discrete events that management is not considered to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2024 earnings press release, which will be furnished to the SEC on Form 8-K and available on SP's website in the Investor Relations section. Now I'd like to turn the call over to Kurt. Kurt Sievers: Thank you, Jeff, and good morning, everyone. We appreciate you joining the call this morning. Beginning with quarter 1, revenue trends in all our focused end markets were in line with the midpoint of our guidance. NXP delivered quarter 1 revenue of $3.13 billion, essentially flat year-on-year. Non-GAAP operating margin in quarter 1 was 34.5%, 30 basis points below the year ago period and 60 basis points above the midpoint of our guidance. Year-on-year performance was a result of consistent gross profit generation, offset by slightly higher operating expenses as we continue to invest in our future business. From a channel perspective, we held distribution inventory at a tight 1.6 months level, consistent with our guidance and well below our long-term target of 2.5 months of inventory EBITDA. Now let me turn to the specific trends in our focus end markets. In Automotive, revenue was $1.80 billion, down 1% versus the year ago period and in line with our guidance. We continue to manage an orderly process of inventory digestion with our major direct Automotive Tier 1 customers. In Industrial & IoT, revenue was $574 million, up 14% versus the year ago period and in line with our guidance. Our performance compares favorably versus the year ago period when the business had dropped. Since 1Q '23, we have seen a steady sequential improvement in the Industrial & IoT demand trends, so not yet back to the long-term levels, which we would expect. In Mobile, revenue was $349 million, up 34% versus the year ago period, where again, the business had troughed already back in 1Q '23. And lastly, in Communication Infrastructure & Other, revenue was $399 million, down 25% year-on-year and in line with our guidance. And now let me turn to our expectations for the second quarter 2024. We are guiding quarter 2 revenue to $3.125 billion, down 5% versus the second quarter of 2023 and flat sequentially. In the Automotive end market, revenue trends during the first half of 2024 reflect a continued inventory digestion process at our direct Tier 1 Automotive customers compounded by a soft Automotive macro environment. In the Industrial & IoT end markets, we had already trust in 1Q '23. We see improving demand in China, in part thanks to our lean channel position as well as thanks to incrementally healthier end demand. This is expected to be partially offset by soft end demand in Europe and the Americas. In the Mobile end market, we continue to witness the expected modest cyclical recovery. And finally, within the Communication Infrastructure & Other end markets, our resumption of sequential growth is primarily driven by secure RFID tagging. Taken together at the midpoint, we anticipate the following trends in our business during the second quarter. Automotive is expected to be down in the high single-digit percent range versus quarter 2 '23 and down in the mid-single-digit percent range versus quarter 1, '24. Industrial & IoT is expected to be up in the high single-digit percent range for both year-on-year and versus quarter 1 '24. Mobile is expected to be up in the low 20% range year-on-year and about flat versus Q1 '24. And finally, Communication Infrastructure & Other is expected to be down in the mid-20% range year-on-year and up in the high single-digit percent range versus quarter 1, '24. So in summary, we are beginning to see incrementally improving demand signals for the second half of '24 across all end markets. Hence, during quarter 2, we will begin to state slightly higher inventory in the channel to support our competitiveness for the anticipated second half growth. Therefore, our guidance assumes approximately 1.7 months of distribution channel inventory exiting quarter 2. And if demand momentum continues, we will stage additional channel inventory during the second half, however, in a very controlled and targeted manner. So it is unlikely that we grow channel inventory back to our long-term target of 2.5 months within this calendar year. And taken all together, the potential outcome for 2024 should be in the range of a modest annual revenue growth or decline, just consistent with our views from a quarter ago. Overall, we continue to manage what is in our control, enabling NXP to drive solid profitability and earnings in a challenging demand environment. Our first quarter results, our guidance for the second quarter and our early views into the second half of the year underpin a cautious optimism that NXP is successfully navigating through this industry-wide cyclical downturn. And now before turning the call over to Bill, and while we are very focused on managing the soft landing through the cycle, I would like to take a minute to highlight a couple of important innovation announcements, which we made during the first quarter. This includes our S32 core right platform for next-generation software-defined vehicles. It represents the industry's first platform to combine high-performance Automotive processing, vehicle networking and system power management, along with integrated software to address the complexity, the scalability and the cost efficiency required for the software-defined vehicle. And as part of that announcement, we also introduced our 5-nanometer S32M processor, a milestone in the expansion of our S32 processing summary. Additionally, we introduced industry's first 28-nanometer RFCMOS single-chip Automotive radar, which enables next-generation Automotive ADAS systems. This new product further expands our market-leading franchise and it enables next-generation highly performing coherent radar systems in a very cost-effective manner. Lastly, NXP and Honeywell, who is a leader in building automation systems signed a memorandum of understanding. This collaboration aims to help make them operate more intelligently by integrating NXP's neural network enabled industrial grade applications processes into Honeywell's building management systems. That agreement is another great example of how NXP will participate and potentially lead in the revolution of AI processing at the edge in industrial applications. And now I would like to pass the call over to you, Bill for a review of our financial performance. Bill? Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q1, and provided our revenue outlook for Q2. I will move to the highlights. Overall, the Q1 financial performance was good. Revenue was in line with the midpoint of our guidance range, with non-GAAP gross margin slightly above the midpoint of our guidance, while inventory in the distribution channel continues to remain below our long-term target. Turning to Q1 results. Total revenue was $3.13 billion, flat year-on-year, in line with the midpoint of our guidance range. We generated $1.82 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.2%, flat year-on-year, though 20 basis points above the midpoint of our guidance range. The incremental margin was due to an increase in the estimated useful lives of our internal front-end manufacturing equipment from 5 to 10 years. This was about 30 basis points favorable to the results, which was not in our guidance. Total non-GAAP operating expenses were $736 million, or 23.5% of revenue, up $8 million year-on-year and down $55 million from Q4. This was $19 million below the midpoint of our guidance range, primarily due to a combination of reduced variable compensation and proactive expense controls. From a total operating profit perspective, non-GAAP operating profit was $1.08 billion, and non-GAAP operating margin was 34.5%, down 30 basis points year-on-year and 60 basis points above the midpoint of our guidance range. Non-GAAP interest expense was $64 million, with taxes for ongoing operations of $171 million or a 16.8% non-GAAP effective tax rate. Noncontrolling interest was $5 million and stock-based compensation, which is not included in our non-GAAP earnings, was $115 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q1 was $10.18 billion, down $997 million as we repaid the 4.875% bonds that was due on March 1, 2024. Our ending cash balance, including short-term deposits was $3.31 billion, down $963 million sequentially due to the cumulative effect of debt repayment, capital returns, CapEx investments and cash generation during Q1. The result -- the resulting net debt was $6.9 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.4 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q1 was 1.3x, and our 12-month adjusted EBITDA interest coverage ratio was 22.8x. During Q1, we paid $261 million in cash dividends, and we repurchased $303 million of our shares. Subsequent to the end of Q1, and through Friday, April 26, we repurchased an additional $97 million of shares under an established 10b5-1 program. Turning to working capital metrics. Days of inventory was 144 days, an increase of 12 days sequentially while distribution channel inventory was 1.6 months or about 7 weeks. As we have highlighted throughout the previous year, given the uncertain demand environment, we continue to make the intentional choice to limit inventory in the channel while keeping inventory on our balance sheet to enable greater flexibility to redirect product as needed. Days receivables were 26 days, up 2 days sequentially and days payable were 65 days, a decrease of 7 days versus the prior quarter. Taken together, our cash conversion cycle was 105 days, an increase of 21 days versus the prior quarter. Cash flow from operations was $851 million, and net CapEx was $224 million or approximately 7% of revenue, resulting in non-GAAP free cash flow of $627 million or about 20% of revenue. Turning now to our expectations for the second quarter. As Kurt mentioned, we anticipate Q2 revenue to be $3.125 billion, plus or minus about $100 million. At the midpoint, this is down 5% year-on-year and flat sequentially. We expect non-GAAP gross margin to be about 58.5%, plus or minus 50 basis points, which includes approximately 60 basis points associated with the change of our useful life estimates for our internal front-end manufacturing equipment. As Kurt noted in his prepared remarks, we will begin to stage slightly higher inventory in the channel to support our competitiveness for the anticipated second half growth. Therefore, our guidance assumes approximately 1.7 months of distribution channel inventory exiting Q2. Operating expenses are expected to be about $765 million, plus or minus about $10 million. The sequential increase is primarily driven by our annual merit increases and the $15 million license fee paid to Impinj as part of our legal settlement. Taken together, we see non-GAAP operating margin to be 34% at the midpoint. We estimate non-GAAP financial expense to be $63 million, with a non-GAAP tax rate to be 16.8% of profit before tax. Noncontrolling interest and other will be about $5 million. For Q2, we suggest for modeling purposes, you use an average share count of 258.5 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $115 million. For capital expenditures, we expect to be around 6%. Taken together at the midpoint, this implies a non-GAAP earnings per share of $3.20. In closing, looking through the remainder of 2024, I'd like to highlight a few focus areas for NXP. First, from a performance standpoint, we will continue to navigate a soft landing through a challenging and cyclical demand environment with a cautious optimism for a second half improvement in our business. Second, we will continue to be disciplined to manage what is in our control and stay within our long-term financial model. Specifically, we expect our gross margin will continue to perform at or above the high end of the long-term model while maintaining internal fab utilization levels in the low 70s for the remainder of the year. Third, there is no change to our capital allocation policy, where we have returned $2.4 billion over the last 12 months. Furthermore, we will continue to be active in the market repurchasing NXP shares. And lastly, we are excited to host an Investor Day on November 7 in Boston. The specific details will be available soon on the NXP Investor Relations homepage. We look forward to you joining us. I'd like to now turn it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Vivek Arya with Bank of America Securities. Vivek Arya: For the first one, Kurt, I think you gave a very clear explanation of kind of the cautious optimism around Automotive in the second half of the year. My question is kind of a more medium- to longer-term question. In the past, you gave a 9% to 14% growth target for your Automotive business. And since then, a lot of things have changed, right, with the slowdown in EVs and inflation and all those other things. What is the right way to think about NXP's long-term Automotive growth prospect? What's -- is it a simple formula that connects production growth to your sales growth targets? Kurt Sievers: Yes. So first of all, let me augment what you said, the cautious optimism, which I expressed for the second half is not limited to Automotive. It is important to note that, that cautious optimism for second half growth over first half is actually across the company. It's very broad-based. It's across distribution and direct and it is across all of our segments. Now coming back to your original question, longer-term Automotive growth. Yes, we had a guide of 9% to 14% from '21 to '24. Now we are in '24. It's actually good to see that Automotive is probably the one segment which is going to hit the target this year of the 9% to 14% and we will, as Bill said at the end of his prepared remarks, we will host an Investor Day in November where we will come out with the new growth targets for the next 3 years for all of our segments, including Automotive. Now -- so I will not be able to give you a number today for the next 3 years for Automotive, but directionally, Vivek, the -- I would say, the algorithm isn't that much different from the history because we see the content drivers very much in place. And you know that we are, as NXP very well benefiting both from ADAS as well as from the electrification trends and mainly on the mid- to longer-term basis from a trend to software-defined vehicles where our industry-leading franchise in processing is certainly going to win. So that continues, which means in the end, the SAAR as an underlying mechanism probably becomes less relevant. And I would also tell you that we think pricing will be certainly to start with sustainable from where we come from. You know that we have the NXP increased prices over the past 3 years. We said it will be neutral this year. And as I said earlier, for the coming years, maybe we go back to a very small, low single-digit ASP erosion per year. I mean, that is to be discussed in the coming years. But nothing out of the normal, I would say, and especially not pricing coming back to where it was pre-COVID. I mean that's really important for that algorithm. So please bear with us, Vivek, for the November Investor Day and we come with exact numbers. But I just wanted to signal to you, you should not expect massive changes here. Vivek Arya: Got it. And then, Kurt, kind of a more near-term or sort of just calendar '24 question on your Automotive business. So last year, your Auto sales grew about 9%, about in line with Auto production, right? So despite better pricing, i.e., you somewhat undershipped. What is the assumption for the entirety of calendar '24 because your Auto sales seem to be declining sequentially in Q2. So is the assumption that they pick back up and they do better than production in the back up? Just what is kind of the puts and takes for how you're thinking about Automotive for the entire year? Kurt Sievers: Yes. Look, indeed, you had it quite right for last year. The 9% growth of Automotive revenues was actually in a very strong SAAR year. I think the SAAR last year was something in the order of almost 10% growth year-on-year, so spectacularly high. And indeed, NXP did increase price from a corporate total company perspective by 8%. So yes, we totally undershipped already last year, which is -- which was part of the soft lending strategy, which we are pursuing. So we think we have already started to correct the Automotive revenue and the inventory situation in the direct customers since mid of last year and in the distribution channel already way back because we number went above 1.6. Now when you think about this year, Vivek, it is indeed -- the macro is a little different. The latest S&P numbers would suggest a 0% SAAR for this year and a bit of a moderation in the EV penetration. I say that very carefully, Vivek because I think the headlines we all see about EV slowdown are more dramatic than what it really is. S&P is still talking about 20-plus percent unit growth of xEV, so hybrids and full EVs for this year, which is still a very strong growth. What really drives our revenue number, however, this year is the inventory digestion with the direct customers. Clearly, in Q1, and now with the guide, which we just gave for the second quarter, we are digesting inventory with our direct Automotive Tier 1 customers. If this is exactly done by the end of Q2 or if it takes a little bit into Q3, very hard to say. However, we have any indication that the second half in Automotive this year is going to grow solidly above the first half of this year. And that is actually driven both by company-specific enablers. So we have RADAR platforms, which are strongly ramping in the second half. But of course, it is also driven then by the normalization of that inventory digestion which means we would move in the second half from under shipping end demand to meeting end demand again. I will not give you the full year growth number, Vivek. We don't guide the full year by segment. Actually, we only guide the next quarter. But when I said the whole company is modestly up or down for the full year and Automotive is more than 50% of the company, then you can guess that Automotive is probably not that far from the same number. Operator: Our next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: Kurt, I want to get into a little bit of the increased comfort that apparently you're feeling with the desire to start refilling the channel. I know you did a little bit of it in the first quarter, but the second quarter, it seems like your optimism has increased a little bit sequentially, even despite the Automotive side being guided down. And I know you went through each of the segments specifically. But if you step back at a higher level, what's giving you the confidence? What's improved to give you the confidence to fill the channel? Kurt Sievers: Yes. So first of all, Q1, honestly, the 1.6, and you are right, we came from 1.5 in Q4. It's just been hovering around 1.5 and 1.6. It's very hard to keep this strictly to one number. So I'd say Q1 wasn't really intentional. It's just -- if you look back over the past, I don't know, 12 quarters, we've always been jumping up and down between 1.5 and 1.6. Quarter 2, yes. This is intentional. So we want to try to get it to 1.7 for the exit of quarter 2. And indeed, it is based on growing still cautious optimism for the second half. Now what is giving us that optimism. It is really a mix between cyclical considerations and very company-specific considerations. I think in the question of Vivek, a minute ago, I mentioned in Automotive, we have company-specific platforms, which are ramping in the second half where we sit almost every day with our customers and discuss the organization of that ramp. So we just know that's going to happen. Secondly, and Bill mentioned that in his prepared remarks, we have the settlement with Impinj for the RFID tagging business and the fact that the 2 market-leading franchises or companies in that market space, NXP and Impinj have settled here was a positive catalyst, I would say, to the market development for RFID tagging. So we see a positive development there, which is then also playing into the second half over first half in our Communication Infrastructure & Other businesses. And then thirdly, and that's more on the cyclical side, we clearly see that the Automotive Tier 1 inventories will normalize. So then we just go back to shipping to run rates. So there's nothing spectacular happening. The demand is there already today but we are still digesting inventory. And in the second half, so we don't expect that there is more car production or more EVs or anything. It is simply that we ship to end demand. But the same holds even more true for Industrial & IoT, where we come from an extremely lean travel position, that Industrial & IoT business is largely exposed to China. You might also have seen that the PMI in China is actually developing quite nicely. So we do see both in the core Industrial as well as in this Consumer IoT business, which is in that segment, we see sequential improvement, and that is the main reason actually that we are staging the channel because we absolutely want to be sure we have a competitive position on the shelves of our distribution partners entering into the third and fourth quarter. Ross Seymore: I guess since you mentioned the Impinj side, Bill, you're doing a great job on the OpEx. You came in below your guide in the first quarter. The second quarter, you included, you said a $15 million payment for that. Can you just give us an idea of, one, is that Impinj payments a onetime deal, and so it goes away after this quarter? And then more importantly, what are your thoughts on the OpEx side of things? If the optimism on the revenue side is increasing, should we expect the OpEx to increase with variable comp or any of those sorts of drivers? Bill Betz: Sure. Let me break those 2 apart. So the agreement that we have with Impinj is the annual cross license, which will impact us on a go-forward basis, about $15 million in the second quarter and it rose slightly, but that could stop any time in the future once we have the work around complete. And again, I don't know exactly the exact timing, but that's something that we're pursuing internally. Related to our OpEx, clearly, you can see we're somewhat out of model in Q2, but that's really driven by our annual merit increases. So we have a combination of both those impacts occurring in Q2, the $15 million plus the annual merit increases. But what's offsetting some of that impact is also our proactiveness on our expense controls and you saw that in Q1 as well and some lower variable compensation. So as we think about the second half, and I think this is where you're going, is where are we headed with OpEx. And what we're going to try to do is make sure we get back into that model, as you know, around that 23% as we think about the second half. Operator: Our next question comes from the line of C.J. Muse with Cantor Fitzgerald. Christopher Muse: I guess first question on gross margins. If I take into account the change in the depreciation on equipment, you're essentially pro forma guiding gross margins flat. And I guess -- I would have thought maybe you would have had a little bit of a [ kit ] from the channel refill as you take it one more month. And so I guess if you can kind of comment what might be an offset there. And then considering your vision for utilization rates to stay kind of where they are through the remainder of the year, how should we be thinking about the trajectory for gross margins into the second half? Bill Betz: Yes. You're right. So obviously, if you adjust for the accounting, basically, we're kind of flattish guiding to flat and again, it's within our plus or minus 50 basis points, I'm not really that good for $3 million or 10 basis points. But again, there's all sorts of puts and takes in that, and part of the reason for the useful life, I would say, accounting change. As you know, every year, we have to go look at this from accounting and related to this specific topic, there was a number of factors considered, which includes the NXP product life cycle, age of tools and the market analysis. And this is something that we just how to go do, and we did it. We think it's the right thing to do, and we're calling it out, so it's very clear. And to be honest with you, we expect now to run at or above our long-term model, versus our previous commentary where we said near or at the gross margin. And what levers we have, some of the tailwinds, as we mentioned before in our previous calls, C.J. is clearly, our utilizations are running below the 70%. So that eventually will go back up and becomes a tailwind. We talked about higher revenues fall through over that 30% fixed cost. Again, that should help. We discussed about replenishing the distribution channel, that's where you were applying with your question, just that one, you should get something. But you're right, over time, when we bring that back up to target, that should be a lever for us. to carry the higher margin. We're also -- we talked about expanding customer reach within the mass market. That just takes time. And now internally, the team is focused on productivity improvements, cost reductions, and over the longer time horizon, we explained this many, many times, it's really our new product introductions layering on top of our business. So continue to move that. So we have an Analyst Day or Investor Day coming up on November 7. We'll break that out in more details and update that model. But hopefully, you guys can see that even through the downturn, we're managing margins quite well and 58% or 58.5% with the accounting adjustment, that's not our end destination. Christopher Muse: Excellent. And then a question for Kurt. As you look back to the COVID period and kind of the initiation of NCNR programs, it sounds like that has really been at the most senior levels with you and focused on volume, not price. I'm curious, just as you look forward, how did that kind of help nurture your customer relationships? And what potential benefits might you see ahead as we progress into a world where NCNRs are no longer part of the business? Kurt Sievers: Yes. A couple of considerations here, C.J. The one is just to remind everybody our NCNR programs have ended with the calendar year '23. So since January 1, there is nothing anymore under any NCNR program. However, I would very strongly say, and I pointed out because I know that some industry peers had very different opinion on this. The way how we had our program was actually good. I would do it again. It did help because, in our particular case, it did put us closer together and we learned much earlier about over inventory build because there was an agreement underneath, which forced the customer to the table to tell us that things would be running too high if we don't jointly try to correct and that is the reason why we undershipped already all of last year in Automotive. And I think I started to speak about this in the Q1 earnings call already last year that there was first signs of building inventory with Tier 1 Automotive customers. Again, that would not -- we wouldn't have seen that. We wouldn't have learned about it without NCNR. Now from a more strategic perspective, C.J., I think this is all about how does this industry learn from the supply crisis to not run into the trap again to try and apply just-in-time concepts with semiconductor products, which have a 3 to 4 months manufacturing cycle time. And I would say I have mixed emotions about this, C.J. On the one hand, I'd say the Automotive OEM customers and some of the Industrial OEM customers are very thoughtful, and we have entered into long-term agreements into programs where we know how to deal with inventory in order -- in a very specific way about those products, which are most critical. So I'd say there is good learning in place, and that's clearly a step forward beyond NCNRs. With some of our direct customers, however, we clearly see that now under the pressure of working capital requirements, they tend to become very tactical when it comes to reducing inventories again. From my perspective, too far down. So I would go that far that we see inventory targets of some of our direct customers, not all but some, which I believe are starting to pose a risk when I think about the next uptick. And what I mean with the risk is that we get again into supply trouble because the short reaction time, which would be required then to ship again much more suddenly it's going to be very hard and that is compounded by the fact that, that supply chain is a very deep one. So it's not just one partner which we ship to and then it goes to the car company, but it's typically 2 or 3 or 4 stages, and they all reduce inventory. And at some point, they all will want to increase inventory again. And that is what drives the cycle. So I'd say on the OEM side, good learnings in the post NCNR time, C.J. with the direct customers, it is a more mixed picture, unfortunately. Operator: Our next question comes from the line of Chris Danely with Citi. Christopher Danely: Kurt, just, I guess, a longer-term question on the Automotive end market. What are your thoughts on the relative growth rates of hybrids versus EVs? And then also, it seems like BYD has been a little bit better than Tesla this year. Do you expect those 2 trends to continue? And then what are the impacts, if any, to NXP? Or does it not matter? Kurt Sievers: These are interesting questions, Chris, which we also think about very hard. Let me try and dissect it. The one is -- and I think I said this in my prepared remarks earlier, the xEV, so if you combine hybrids and battery electric vehicles, continues to grow pretty well. And -- but that is carried by China. And the reason why many media headlines suggest it is not going well is that Europe and the U.S. are actually quite small in xEVs. To be more specific, if you take the total xEVs worldwide, only 12% of those are in the U.S. and 24% are in Europe while China holds 44% and BYD indeed is a big part of that. And that China 44%, Chris, is growing this year according to S&P by 27% in volume. So what I tried to say was that is the xEV in total, certainly keeps growing nicely. Now if you go into the split between BEV and hybrid, so fully electric and hybrid electric, then I'd say it isn't that difficult. The battery electric vehicles are still only 15%, but they grow by 25%. Hybrids are 24% but grow with 17%. So the one has a smaller base and grows faster. The other one has a bigger base and growth a bit slower. I think on the long run, Chris, and that's more from a technical perspective, BEVs will win the race. I think this hybrid thing is an intermediate period. I do believe on the long run, it will all tilt to BEVs. Once battery and electronics technology gives a tough range. I mean, then the whole concept of a hybrid is actually not meaningful anymore. Now for NXP, it doesn't matter that much as it does to some of our peers because only very little of our product portfolio has a strict exposure to BEV only. It is actually only the high-voltage battery management solutions. Everything else also plays in hybrid. So that's very different to people who have silicon carbide, for example, which only goes into one and not in the other. So therefore, Chris, I don't know exactly how that plays also over the short term. But it's also not relevant very much to our revenue. On the long term, I'm sure it is going to tail back all to be EVs again. Tesla against BYD, I don't want to call it, Chris. I would just say that Chinese and there is much more than BYD are extremely competitive and aggressive. I'm very glad that we have a great exposure to them because I do believe that a large part of the global electric growth will continue to come from China. Now how Tesla plays with that or in that, I don't know. But certainly, China is going to be the majority in the end, and that's -- again, that's BYD plus. Christopher Danely: Great. And then just a quick follow-up for Bill. Bill, you said your utilization rates are going to remain kind of flattish in the second half of the year. What would be the catalyst to take them higher? Would it be some sort of inventory days level or even better demand outlook or some combo of both? Can you share what would be a catalyst for higher utilization rates? Bill Betz: You're correct. It's the combo of both. As you can imagine, right now, we're at the high end of our model when we look what's in the channel, what do we have on hand. So -- and then we're trying to balance that, stage it appropriately for that second half growth. So it's balancing at quarter-for-quarter, but we want to make sure we continue to do the right thing here and keep inventory in check. And some of that inventory of the 144 days is coming from the fact related to the revenue drop-off from Q4 and so revenue cost is probably impacting that drop by about 14 days. And then we actually decreased their inventory dollars in the quarter by about 2 days or $32 million. So we're trying to balance all of this, all the moving pieces. And I expect that we're going to focus on getting inventory maybe a little bit tighter in the second half, but if growth is higher than our current expectations, clearly, we'll be able to run our factories that increase the utilization there. Operator: Our next question comes from the line of Gary Mobley with Wells Fargo Securities. Gary Mobley: Kurt, you seem to be implying that the second half revenue is about 12% higher than the first half or in dollar terms, about $750 million higher. Correct me if I'm wrong, but I would imagine the majority of that delta is inventory restock direct in through distribution. But maybe you can give us a sense of the magnitude of the impact from improving end demand or seasonality there? Kurt Sievers: Yes. First of all, no, that's not what I said. What I said is that the second quarter is guided at $3.125 billion, so you can calculate the first half revenue. And then I said that the full year is somewhere between modestly down to modestly up. And very importantly, I want to stress that, that growth in the second half over the first half is not just coming from the channel. We clearly see -- and we have the data points from order patterns, et cetera, that also the direct business is going to grow in the second half over the first half. And I gave 2 examples, I think with Ross earlier. One is Automotive platforms, which are ramping, that is totally independent of the cycle and there is no product on the inventory because it's a new product, which just comes in at the customer. And it is RFID tagging, which is also with direct customers in parts there -- it has nothing to do with the cycle, but it is the, say, the relief of the industry after the settlement between NXP and Impinj for that market. Very importantly, I also want to say that it is highly unlikely, Gary, that in order to do this, we would go to 2.5 months of channel inventory. So what I said is in quarter 2, we take it to 1.7. So that's one digit up. We are at 1.6, and we want to exit Q2 at 1.7. And if then the demand continues to go the way we preview this, will slightly increase further in Q3 and Q4. I must admit I cannot see a scenario that we would get to 2.4 or 2.5 with that. So the modestly up or down for the full year, does not depend on taking the channels to 2.5 months. So I'm sorry if that was not clear earlier, so I'm glad you did ask, Gary, but that's really not the background to it. Gary Mobley: Okay. Just a quick follow-up for Bill. You did a good job of highlighting the increased depreciation schedule for 5 years to 10 years on internal front-end equipment. What does that do for the long-term capital intensity for the overall company? Bill Betz: No change. Our current view is our CapEx is to spend 6% to 8%. Again, this is really accounting change that we just dealt with it and moved on. Operator: Our next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: For the first one, I also wanted to sort of revisit the second half ramp. So it does seem clear if the full year is flat, plus or minus, you're up decent double digits half over half. Does that start in Q3? Like is Q3 above seasonal to get us there? Like how would you -- I guess, sitting where we are right now, how would you sort of characterize likely Q3 seasonality versus what you've seen historically? Kurt Sievers: Stacy, we really can't go there. I mean I'm already leaning out of the window here with giving kind of a directional full year guidance, which we thought is useful given the dramatic cycle we are all going through. But now calling it into Q3 and Q4 separately, I'm sorry, we don't provide that. So it is for the full year. And honestly, it's also hard to say, Stacy, because you know that inventory digestion is not an actual sheet. I mean this is a number of customers. Each of them has their own dynamic, has moving targets. So things could be settled earlier could be set a little later and calling that exact by the quarter end is virtually impossible. Stacy Rasgon: Okay. So I mean -- so maybe to take that point and maybe step out a little more. So on Autos, last year, you've already sort of indicated that you undershipped last year, you had strong pricing and you didn't -- you actually underperformed the market last year. So if you actually started under shipping last year, why are you still in an inventory correction now? Like so this is like 6 quarters. Kurt Sievers: Because we wanted to spread this out, Stacy, that was the whole idea. I think last quarter, we discussed about our understanding of that so-called soft landing strategy for NXP. Our whole target was to actually have not a sharp peak to trough in Automotive because there would be a bad impact on our factories and Bill would come back with heavy underloading and negative margin impact. So the idea was to spread this over a longer period of time, which is why we started early but didn't want to overdo it in any given quarter. So say we started in Q3 last year for the direct side of Automotive. And obviously, it goes at least until the end of the second quarter of this year. So that would be a full year of correction on the direct side, maybe a little bit spreading into the third quarter. Mind you that at the same time, our distribution Automotive business, which is 40% of the total Automotive revenue has always been at [ 1.6 ] only. So on that side of the house, we haven't had to correct at all. So that's the way how you should think about it, which explains also some of the confusion I'm reading in a lot of reports about the peak to trough behavior of NXP versus others. In Pumps Infra, in Industrial and Mobile, we have a 30% peak to trough more or less. It's just that our trough was already a year ago because of our channel discipline. But it's the same peak to trough as everybody else. It's just in Automotive, it's probably more in the 9% to 10% and because I believe we troughed in Automotive this quarter 2 right now. But again, that is intentional, as I just explained. Stacy Rasgon: Got it. So is it demand getting worse now? Or is it just your inventory behavior taking a harder line on inventories because it does feel like the general trajectory is getting worse over the last quarter and Q4, Q1, Q2. Kurt Sievers: No, it's really the inventory. We don't see -- I mean, you have to take the offset from the SAAR, Stacy. I said earlier that last year, of course, there was a SAAR growth of 10%, this year, it is flat. That is a -- if you compare like-for-like, then that makes this year, of course, a less positive environment from a macro perspective. But everything else, which is the company specific positions we have, which is the content increase, which is offered by the industry per se, and the pricing, which is also flat for us this year is totally in place. So no, it's just inventory. Operator: Our next question comes from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats on results. For my first one, I think there's a perception out there that there's a line draw to draw between software-defined vehicles and EVs and then it's much more difficult to do in SPV architecture on an ICE engine. Maybe you could spend a minute or 2 talking about what you're seeing from your customers? I mean, is there a big correlation between that digital architecture change versus electric vehicles because they're rearchitecting and what are you seeing on ICE engines for a software-defined vehicle? Kurt Sievers: Yes. I would say no. Fundamentally, the concept of a software-defined vehicle, which is actually moving a lot of performance parameters from hardware to software and creating much more flexibility is completely independent of what kind of powertrain it has. Now the matter of the fact is, however, that all OEMs, I know, are extremely busy with developing electric powertrain-based new vehicles. And for most of them, it is actually the core of their activity going forward. And that is, of course, the reason why when they think then about STB implementations, it falls together with electric drivetrains, but that is not because there would be a technical reason. I actually know that several STB implementations where we are a leading partner for OEMs, this comprehend both ICE and electric drivetrains. So it is the same STB content which splits then on a much lower level into an implementation for a combustion engine car or in an implementation for a battery electric vehicle car. But fundamentally, there is no difference. Joshua Buchalter: Appreciate the color there. And maybe for Bill. As you just paid down the $1 million note in March, I think you don't have anything to do for over a year now and only $500 million next year. In the passing of NXP has been more aggressive utilizing the balance sheet. And I think your past target was 2x levered. Can you maybe talk about how you're thinking about utilizing the balance sheet and the capital returns here? Bill Betz: Yes, sure. So again, Josh, no change to our capital allocation strategy. If I just look back over the last 3 years, we returned $8.4 billion or 107% of our free cash flow last trailing 12 months, it's below 100% because we retire that debt that you just mentioned. And so that's about 82%. And in the past quarter, we did 90%. So I think we did take the opportunity to deleverage the company. We looked at our gross leverage metric, and it was at 2.1x, now that 1.9. Clearly, with the credit rating agencies and [ sweet stocks ] below 1.5. If we look at -- we're going to continue actively buying back our shares. We think it's a great use of our cash. We have approximately $1.1 billion left on a board authorization plan of buybacks this year. We continue to pay a healthy level of dividend. So if you look at that as a percentage of cash flow from operations over the last 12 months is about 28%. And as we talked about in the past that we treated someone as fixed, we'll continue to execute and invest in the business. That's the #1 priority, right? We're going to stay within our financial model, invest in the business, continue a lot of small tuck-ins of our M&A that we've been actively involved in. So overall, I think we're committed to continue returning excess free cash flow back to you all. Jeff Palmer: Towanda, we'll take one more question here today. Operator: Our final question comes from the line of Chris Caso with Wolfe Research. Christopher Caso: I wonder if you could talk a little bit more about the China for China manufacturing strategy that you've spoken to in the past. I mean I guess in one point, how that protects the business in China? And then secondly, what margin implication that may have if you change that manufacturing strategy going forward? Kurt Sievers: Yes. Chris, that's indeed a very -- that's a very important point. There is a clear ongoing and I'd say, increasing requirements from our Chinese customers in Automotive and beyond to go for localized manufacturing. We are pursuing this quite forcefully. We have chosen the Nanjing factory of TSMC, which happens to host the 16 FinFET, 16-nanometer technology, which is the core of our microprocessors for Automotive. We are working with SMIC, which we have done historically outside of Automotive and continue to do so outside of Automotive. And we just ended up choosing a third foundry partner, which I'm not going to name here, but a third foundry partner for the analog mixed signal space in order to produce our products in China for China. That is helpful in 2 ways, Chris. The one is indeed that we can follow that requirement of local manufacturing. And I believe NXP is in a comparably good position here because several of our peers have their own factories. And for them, that move to China is really not easy. Secondly, cost. You just mentioned it, there is certainly a competitive market in China. And if we want to successfully play against local Chinese competitors, which certainly over time will continue to try and come up, it is good when we can use the same cost base, which they use, which is local foundries in China. So in an ideal case, Chris, and again, let's see how it plays out. You will not see any impact on the margin from doing this. but it keeps us competitive. I mean the whole point is that we can play against them successfully because we can leverage the same cost competitiveness, which they have in the local manufacturing environment. I look at Jeff here. Do you have a follow-up? Christopher Caso: Yes, I do. And if I could follow up also with China from a competitive standpoint regarding what they could actually produce. And you've addressed it from a manufacturing standpoint and putting you on an equal cost base with them. What do you think about the capabilities of some of these local players? Obviously, there's an imperative in time to try to bring as much content locally as possible. Do you see the competitive threat rising in terms of the capabilities of some of the local players that could be a factor going forward? Kurt Sievers: Look, Chris, in principle, and that's an overriding statement, we are always paranoid about competition because I've learned in my career in this industry, you better be paranoid at all times because it keeps you hot to run successfully against competition. actually, in that particular case, we see 2 areas where China is very, very busy from a local competition perspective. One is power discretes, especially for Automotive and that ranges all the way from IGBTs MOSFETs to silicon carbide. We just observed that for us, it doesn't matter since you know that this is not part of our portfolio. But that's something where it appears they actually make quite good progress. Secondly, lower end microcontrollers. There is a number of companies and they together have a couple of hundred million of dollar business already. That's outside of Automotive. We think with the fast move and requirements for higher processing performance and a lot more software in Automotive. This is a long way for them. Again, we are paranoid, but I think it's just another set of competitors, which we are facing like in other places in the world. So we are not fearful of this anytime soon. In the analog space, I could imagine, again, we haven't really seen much, but I could also imagine that they get into the lower end catalog analog at some point. I mean if I was China, I would try and do this. So overall, clearly a trend, so I completely agree with you that this is something which they want to do. We don't see it really moving in our space at this time. And certainly, with the localization of our manufacturing, we kind of want to counter that, at least from a competitive cost base and from a compliance perspective. Good. With that, we are a little bit over time. I want to conclude the call with summarizing and just making the remark again. This is a tough cycle. We have, over many quarters, operated a soft landing strategy in order to keep the P&L earnings and profitability in reasonable shape. With some cautious optimism, we are seeing now that the second half is turning around. It's hard to say what the slope of that is going to be. But given our low inventory position going into this, we are cautiously optimistic that we can land the year in this plus/minus 0 kind of fashion which we discussed during the call. In the meantime, we keep every possible control on anything we can do about gross margin and OpEx as well as CapEx. With that, I would like to conclude the call and thank all of you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good day, and welcome to the NXP 4Q '23 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Jeff Palmer, Senior Vice President of Investor Relations. You may begin. Jeff Palmer: Thank you, Michelle, and good morning everyone. Welcome to the NXP Semiconductors Fourth Quarter Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO, and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macro impact on the specific end-markets in which we operate, the sale of new and existing products, and our expectations for financial results for the first quarter of 2024. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth quarter 2023 earnings press release, which will be furnished to the SEC on Form 8-K and available on NXP's website in the Investor Relations section. Now, I'd like to turn it over to Kurt. Kurt Sievers: Thank you, Jeff, and good morning, everyone. We really appreciate you joining our call this morning. I will review both our quarter four and our full year 2023 performance, and then discuss our guidance for quarter one. Beginning with quarter four, our revenue was $22 million better than the midpoint of our guidance with the trends in the Mobile market performing better than our expectations, with Automotive and, Industrial and IoT performance in-line with our guidance, and Communication Infrastructure slightly below our expectations. Taken together, NXP delivered quarter four revenue of $3.42 billion, an increase of 3% year-on-year. Non-GAAP operating margin in quarter four was 35.6%. 90 basis points below the year-ago period and about 20 basis points above the midpoint of our guidance. The year-on-year performance was a result of solid gross profit growth, offset by higher operating expenses as we continue to invest in new product development. From a channel perspective, we maintained distribution inventory at a tight 1.5-months level, well below our long-term target of 2.5 months. In addition, we continue to partner with our direct customers on the normalization of their on-hand inventory. For the full year, revenue was $13.28 billion, an increase of about 1% year-on-year. Passing the revenue growth, we increased our pricing by approximately 8% in 2023, offsetting our higher input cost to maintain our gross profit percentage. And at the same time, our unit volumes were down by approximately 7% through 2023. We believe this underpins our view that we have intentionally under-shipped fundamental end demand in order to limit inventory build in the channel and at our direct customers. Full year non-GAAP operating margin was 35.1%, a 120 basis-point compression versus the year-ago period as a result of the improved gross profit performance, offset by increased operating expenses primarily in products and system innovation investments. Now, let me turn to the specific full-year 2023 trends in our focused end markets. In Automotive, full-year revenue was $7.48 billion, up 9% year-on-year, which is a reflection of higher pricing, strong company-specific growth drivers, offset by lower shipment volumes. For quarter four, Automotive revenue was $1.89 billion, up 5% versus the year-ago period and in line with our guidance. Turning to Industrial and IoT. Full year revenue was $2.35 billion, down 13% year-on-year, a reflection of our tight channel management in a cyclically weak end market offsetting price increases. We saw the trough for the Industrial and IoT business back in quarter one 2023. For quarter four, Industrial and IoT Revenue was $662 million, up 9% versus the year-ago period and in line with our guidance. In Mobile, full-year revenue was $1.33 billion, down 17% year-on-year because of weak trends and inventory digestion in the handset marketplace. For quarter four, Mobile revenue was $406 million, flat versus the year-ago period and better than our guidance. Finally, in Communication Infrastructure and Other, full-year revenue was $2.11 billion, up 5% year-on-year. The year-on-year growth was due to a combination of increased sales of secured card and tracking solutions, higher pricing, and last-time buys of select legacy network processor solutions. And that was offset by declines of RF Power products for the cellular base station markets. For quarter four, revenue was $455 million, down 8% year-on-year and below our guidance. Now, like every year, I would like to provide the annual progress update on our six accelerated growth drivers, which we highlighted during our Analyst Day in November 2021. Starting with Automotive, the accelerated growth drivers are radar, electrification and our S32 processor family for the software-defined vehicle. Looking at our performance in 2023, both the S32 processor family and our electrification solutions are tracking ahead of plan. Revenue from radar is tracking below plan as we took strong actions to limit shipments to customers who are [digesting] (ph) inventory. Taken together, the Automotive's accelerated growth drivers in aggregate are tracking above plan. The underlying core Auto business grew in line with our longer-term expectations. Within Industrial and IoT, we are trading below our expected growth range. We believe the underperformance is a reflection of significant cyclical end-market weakness and of our disciplined approach to managing the distribution channel. So remember, we served approximately 80% of the Industrial and IoT end-markets through our distribution channel to efficiently address the needs of tens of thousands of small customers, the majority of whom are in the Asia-Pacific and the Greater China region. Within Mobile, we are below our expected revenue growth range for the ultra-wideband accelerated growth driver due to the well-documented weakness in the Android handset market. However, ultra-wideband traction in the Automotive market, which is the first well-defined use-case for ultra-wideband is progressing very well. 18 out of 20 Automotive platforms have been awarded to NXP and another 15 platforms are evaluating NXP solutions as we speak. And at this point in time, the ultra-wideband revenue stream is being driven by about seven automotive platforms and the few premier handset OEMs. Finally, for RF power amplifiers within Communications Infrastructure, we are below our expected revenue growth range. The challenge we faced was a combination of weaker base station deployments globally in 2023 and the faster-than-expected OEM transition to gallium nitride from LDMOS technology. However, the underlying core portion of Communications Infrastructure performed very well in 2023 as a result of serving pent-up demand for various secure cards and tracking solutions including RFID for intelligent labels. Taken together, we are ahead of plan for the Communications Infrastructure segment. Now, let me turn to our expectations for quarter one 2024. We are guiding quarter one revenue to $3.125 billion, about flat versus the first quarter of 2023. From a sequential perspective, this represents a deceleration of about 9% at the midpoint, versus the prior quarter, which is consistent with our original outlook for quarter one to be down in the mids to high single-digit range. Our tempered outlook for quarter one reflects typical seasonality compounded by our continued desire to enable the normalization of on-hand inventories at our direct customers. And we will continue to hold channel inventory in a tight range. Regarding pricing, we see improving input costs trend versus previous years, which allow us to assume flat pricing for 2024. So at the midpoint, we anticipate the following trends in our business during quarter one. Automotive is expected to be down in the low-single-digit percent range versus quarter one, 2023, and down in the mid-single-digit percent range versus quarter four 2023. Industrial and IoT is expected to be up in the mid-teens percent range year-on-year and down in the low-double-digit percent range versus quarter four 2023. Mobile is expected to be up in the low 30% range year-on-year and down in the mid-teens percent range versus quarter four 2023. Finally, Communications Infrastructure and Other is expected to be down in the mid-20% range year-on-year and down in the low double-digit percent range versus quarter four 2023. In review, during 2023, thanks to our company's specific end-market exposure, we experienced the variations of the semiconductor cycle at distinctly different points of time for the various parts of our portfolio. On the one hand, full-year revenue performance in our more consumer-oriented segments of Industrial and IoT, and Mobile was underwhelming. However, following our tight channel management, these businesses troughed already back in quarter one 2023 after experiencing a traumatic post-COVID reset. Ever since, we have seen a gradual improvement, and we do think these growth trends should continue throughout 2024. On the other hand, within Automotive and core Industrial, we experienced solid trends in the early part of 2023. But have entered the multi-quarter inventory correction phase with our direct customers starting in the second quarter of 2023. This should continue through the first half of 2024. In the second half of 2024, we expect also in the Automotive and core Industrial segments to shift to end demand and resume growth. Regarding our Communications Infrastructure and Other business, we expect 2024 revenue to decline over 2023, consistent with our prior view we shared on the Q3 earnings call. So as we look ahead to 2024, we do think the macro has deteriorated from our view 90 days ago. We now expect the first half of 2024 will decline versus the first half of 2023 due to longer than anticipated inventory digestion at our direct automotive customers. However, we expect our company revenue in the second half of 2024 will grow over the first half of 2024, as we believe we will be shipping again to end demand by then. Overall, we have and will continue to manage everything in our control to navigate a soft landing for our business. As such, we have kept a very tight handle on our distribution channel and we are supporting our direct customers to facilitate inventory digestion as appropriate. This enables us to take advantage of the cyclical improvement as soon as it materializes per segment. And based on everything I've said, the potential outcome for 2024 should be in the range of a modest annual revenue growth or decline. So now, I would like to pass the call to you Bill for a review of our financial performance. Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q4 and provided our revenue outlook for Q1, I will move to the financial highlights. Overall, our Q4 financial performance was good. Revenue was slightly above the midpoint of our guidance range. And non-GAAP gross profit was above the midpoint of our guidance range, driven by a higher mix from sales into distribution channel even as months of supply in the channel remained flat at 1.5 months for about six weeks. I will first provide full-year highlights and then move to the Q4 results. Full year revenue for 2023 was $13.28 billion or up 1% year-on-year. We generated $7.76 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.5%, up 60 basis points year-on-year. Total non-GAAP operating expenses were $3.09 billion or 23.3% of revenue, slightly above our long-term financial model as we continue to invest in our strategy, supporting long-term profitable growth. Total non-GAAP operating profit was $4.66 billion, down 3% year-on-year. This reflects a non-GAAP operating margin of 35.1%, down 120 basis points year-on-year and in line with our current long-term financial model. Non-GAAP interest expense was $283 million. Taxes related to ongoing operations were $693 million or a 15.8% non-GAAP effective tax rate. Non-controlling interests were $25 million and stock-based compensation, which is not included in our non-GAAP earnings, was $411 million. Turning to full-year cash-flow performance. We generated $3.51 billion in cash flow from operations and invested $826 million in net CapEx or 6% of revenue. Taken together, this resulted in $2.69 billion of non-GAAP free cash flow or 20% of revenue. During 2023, we repurchased 5.46 million shares for $1.05 billion and paid cash dividends of $1.01 billion or 29% of cash flow from operations. In total, we returned $2.06 billion to our owners, which was 77% of the total non-GAAP free cash flow generated during the year. Now, moving to the details of Q4. Total revenue was $3.42 billion, up 3% year-on-year, modestly above the midpoint of our guidance range. We generated $2.01 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.7%, up 70 basis points year-on-year and 20 basis points above the midpoint of our guidance range, driven primarily by mix. Total non-GAAP operating expenses were $791 million or 23.1% of revenue, up $78 million year-on-year, though down $12 million from Q3 and within our guidance range. From a total operating profit perspective, non-GAAP operating profit was $1.22 billion and non-GAAP operating margin was 35.6%, down 90 basis points year-on-year, above the midpoint of our guidance range. Non-GAAP interest expense was $69 million with taxes for ongoing operations were $178 million or a 15.5% non-GAAP effective tax rate. Non-controlling interest was $6 million and stock-based compensation, which is not included in our non-GAAP earnings, was $107 million. Now, I would like to turn to the changes in our cash and debt. Our total debt at the end of Q4 was $11.17 billion, essentially flat sequentially. Our ending cash balance including short-term deposits was $4.27 billion, up $229 million sequentially due to the cumulative effect of capital returns, CapEx investments, and cash generation during Q4. The resulting net debt was $6.9 billion and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.41 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q4 was 1.3 times and our 12-month adjusted EBITDA interest coverage ratio was 21.6 times. During Q4, we paid $261 million in cash dividends and we repurchased $434 million of our shares. Turning to working capital metrics. Days of inventory was 132 days, a decrease of two days sequentially, while we maintained distribution channel inventory at 1.5 months or about six weeks. As we have highlighted throughout the previous year, given the uncertain demand environment, we continue to make the intentional choice to limit inventory in the channel, while keeping inventory on our balance sheet to enable greater flexibility to redirect product as needed. Days receivable were 24 days, down one day sequentially and days payable were 72 days, an increase of 12 days versus the prior quarter due to increased external material sourcing. Taken together, our cash conversion cycle was 84 days and an improvement of 15 days versus the prior quarter. Cash flow from operations was $1.14 billion and net CapEx was $175 million, resulting in non-GAAP free cash flow of $962 million or 28% of revenue. Turning now to our expectations for the first quarter. As Kurt mentioned, we anticipate Q1 revenue to be $3.125 billion, plus or minus about $100 million. At the midpoint, this is flat year-on-year and down 19% sequentially. We expect non-GAAP gross margin to be about 58% plus or minus 50 basis points, driven primarily related to lower distribution sales as we maintain our months of sales in the channel at 1.6 or below. Operating expenses are expected to be about $755 million, plus or minus about $10 million. Taken together, we see non-GAAP operating margin to be 33.9% at the midpoint. We estimate non-GAAP financial expense to be about $66 million. We anticipate the non-GAAP tax rate to be 16.9% of profit before tax. Non-controlling interest and other will be about $3 million. For Q1, we suggest for modeling purposes, you use an average share count of 259 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $127 million higher-than-normal, driven by our restructuring activities taken in Q4 as we continue to refine the portfolio. For capital expenditures, we expect to be around 7%. Taken together, at the midpoint this implies a non-GAAP earnings per share of $3.17. For full-year 2024 modeling purposes, we expect non-GAAP gross margin to be around the high end of our long-term model of plus or minus the normal 50 basis points. We expect operating expenses to stay within our long-term model and fluctuate by quarter driven by annualized merits occurring in the second quarter and variable compensation movements pending actual performance. We suggest for non-GAAP tax rate, use a range between 16.4% to 17.4%. For stock-based compensation, we suggest to use $480 million where Q1 is the peak for the year. For non-controlling interests, we suggest to use $25 million. For capital expenditures, we expect to stay within the long-term model of 6% to 8% of sales. In closing, looking ahead into 2024, I'd like to highlight a few focus areas for NXP. First, from a performance standpoint, we will continue to navigate a soft landing, through a challenging and cyclical demand environment. Therefore, we will continue to be disciplined to manage what is in our control and stay within our long-term financial model. Second, operationally, the Q1 guidance assumes internal factory utilization will continue to be in the low to mid-70s range, a level we expect to hold until internal inventory normalizes. Lastly, we will retire, the $1 billion 2024 debt tranche when it comes due on March 1st with cash on hand. Finally, there is no change to our capital allocation strategy, where we will continue to return all excess free cash flow back to our owners. In addition, since the beginning of Q1 2024, we repurchased $116 million worth of shares under our existing [10b-51] (ph) program. Overall, we will remain active repurchasing our shares. I'd like to now turn it back to the operator for questions. Operator: Thank you. [Operator Instructions] Our first question comes from Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hey guys, thanks for letting me ask a question. First on the inventory management in general, Kurt, it sounded a lot like you've done a great job on the channel side, but the OEM side has gotten a little bit into the excess category. Can you just talk about, I guess on the channel side, do you have any plans for that $500 million coming into the plan in 2024, if that's still the number? And on the OEM side, when do you think that normalizes throughout the year? Kurt Sievers: Yeah. Hey, thanks, Ross. Good morning. Indeed, I think the color you put on this is what I would concur with. On the channel side, we feel safe and very much under control relative to the inventory. Let me put it that way, for quarter one, we have absolutely no intention to go beyond the 1.6 range. It will hover between 1.5 and 1.6. I think we had 1.5 the past two quarters. So consider for Q1 maybe a 1.6, but that's not an increase, it's more the precision we can hold that. So no intention to increase general inventory really in the first quarter. For the rest of the year, Ross, it isn't much different to how we've put this the past couple of quarters. We will only start to replenish when we see sufficient momentum in the market to justify that. So that means there is neither a guarantee that by the end of the year we hit the 2.5 inventory, which is our long-term target, nor will we do any fast or hectic steps here. So we will possibly start, because I do assume, when we come back to this later in the call, we do expect that there is some market recovery in the second half of the year, so that makes it more likely that we will start to replenish the channel by then. But again, it's really something which is a function of the market environment. The size of it is indeed the $500 million which we have discussed before, but again, that is not necessarily a part of our considerations for the annual revenue movement. Now, the inventory or the excess inventory at direct customers, indeed, I think we started to try and correct that one back in the second quarter of last year. I think that was the first time I also talked on the earnings call that we did see a few automotive Tier 1 customers where the majority of that is sitting with having excess inventory. And the fact that we knew by then already, Ross, is thanks to our NCNR system. We -- and we discussed about these NCNR orders, which by the way in our case are different to the constructs which some of our peers have been using. Ours were annual. Annual means tied to the calendar year. So to be very explicit, we currently have no more NCNR orders. So all of that was running out at the end of the calendar year 2023. But those NCNR orders, in hindsight, were very good because they let customers call us up and say, we see a problem, we see building inventory. And since that second quarter of last year, we've been busy to try and normalize this in a reasonable cadence, which is also good for our financials. And coming back to your question, yes, we think we will still be busy with that through the middle of this year, mainly, and I would say almost exclusively in automotive. So that is something which we only have in automotive. By the middle of this year, that should be behind us. And then we should move from under-shipping end demand with direct customers in automotive to shipping to end demand again in the second half. Ross Seymore: Thanks for that color. And I guess as my second question, focusing on the auto side, it was helpful to hear about the six growth drivers overall. But in automotive, the radar below plan, EV above, and S32 above. Can you just talk about what your expectations are for those growth drivers in fiscal ‘24? Kurt Sievers: Well, in principle, I would say if there was no excess inventory and we would be in a normal world, Ross, we stick to our 9% to 14% long-term growth, which includes then the set performance of those growth drivers, which we specified back in the Analyst Day in November ‘21. So they are just moving around a little, and that's why we transparently gave the color for this past year, pending on the speed of inventory control. And I think you might have noticed that I did say that radar was actually not performing to target. The reason here is really that radar has a relatively concentrated customer base. It's almost -- it's just direct customers where the inventory control was much easier to exercise because it's a very specified product range with a very non-fragmented customer base where it was easier to get a handle on the inventory control. So I dare to say inventory control in radar is already completely behind us, which will make ‘24 obviously a much better year. But on the longer term, on the three-year horizon, Ross, just assume they all come to the targets which we specified back in November ‘21. Ross Seymore: Thank you. Operator: Thank you. Our next question comes from Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thanks for taking my question. Kurt, last quarter you were good enough to kind of give us a little bit of color one quarter ahead and I was hoping you could share your thoughts on how you see Q2 just generically shaping up, flat up down sequentially. And then when I take your commentary about the full year, I think you mentioned sort of flattish growth overall, that still suggests, kind of double-digit growth in the back half. So I realize visibility is limited and so forth, but any other market color that you can share that gives you the confidence about that sort of double digit growth in the backup would be very useful? Kurt Sievers: So good morning, Vivek. Yeah, apparently I was a good man last time relative to the next [quarter] (ph). I think you just reiterated the pieces which we gave you, but I'm happy to give you a bit more color around those. So we really see the different parts of our revenue being dependent on the cycle they are exposed to. So all the consumer-oriented businesses, and that's the IoT part of Industrial and IoT and Mobile, we think we left the trough way behind us in the first quarter of last year, and other than some seasonal fluctuations, they will continue to grow throughout the calendar year 2024, which has to do that a large part of that is anyway supplied through the channel, so we are not suffering from excess inventory digestion. So we are pretty positive that that part of the company will grow. At the same time, I reiterate what I said last time, the Comms Infra & Other business will decline from a year-on-year perspective. So ‘24 revenue for Comms Infra & Other will be down versus the calendar year ‘23. I think we discussed at length the bits and pieces in there why that is. And then you come to the [blog] (ph) of Automotive and core Industrial where indeed there is something between first half and second half which has to do with the inventory digestion at the direct customers in automotive which I just discussed with the question of Ross a minute ago, where we do believe the turning point is somewhere around the middle of the year, where that over-inventory which is still sitting there is being digested. If you put all of these pieces together, Vivek, then obviously, half two is going to be bigger than half one. Obviously, half one of this year, of 2024, is going to be down against the half one of last year. And that puts it somewhere in this flat plus/minus range for the full year, indeed. So the confidence really comes from the view which we have on the inventory digestion on the Automotive and core Industrial side. At the end, at this very same time, the continued gradual improvement in the consumer-oriented businesses where given our tight channel management, we have no excess inventory. This is really where it comes from. Vivek Arya: All right. Thank you, Kurt. And for my follow-up, your industrial trends are in -- Industrial & IoT trends are in big contrast to your peers. So I get what you did, right? You were early to spot it. You were undergrowing in the first half of last year and now you're doing much better now. But how long can you maintain such a contrast with your peers, right, who are seeing these kind of 20%, 30%, 40% declines in their Industrial & IoT business? Is it not apples-to-apples comparison? When do you think that there is somewhat of a convergence between what your peers are reporting in terms of their industrial correction versus the strength that NXP is seeing right now? Kurt Sievers: Look, Vivek, I, of course, don't know and cannot judge what exactly they do. But conceptually, the contrast will be alive as long as they need to digest their over-inventory in the channel. That's very simple. We don't have that because we never build it. We actually back in the second quarter of 2022, mind you second quarter of 2022, that's almost two years ago, we started to control the channel and keep it at the 1.6 and 1.5 months level. We -- even with that, we troughed them in the first quarter of '23. So we even went down from this. And since then, we kept it very steady. In the meantime, some of our peers kept shipping hard and they just need to correct this. And that contract will disappear at the moment that over-shipment they have done there is actually behind them. I mean, maybe another number, Vivek, which puts this in perspective, and we gave you that transparency very intentionally. Last year, NXP as a company, did grow 1% in revenue. I also told you that our pricing last year was up by 8%. So that gives you a feel that we had a pretty significant volume decline last year from a supply perspective. So plus 1% revenue, plus 8% price gives you a 7% volume decline, which is clearly under-shipping, we think against end demand, but certainly against peers. I mean if you just take the same numbers from peers, then many of them who are now having a bit more of a hard time, they just shipped harder through the first -- at least the first three quarters of last year. So under the curve in the end, it's going to be the same thing. It's a matter of when did you ship and when do you need to reduce shipments. So that's my answer. I don't think other than that, there is a fundamental difference, Vivek. So I don't want to claim we have a much better industrial business. I think we just had a more disciplined handle on it earlier. Vivek Arya: Thank you, Kurt. Operator: Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Kurt Sievers: Stacy, are you there? Operator: Stacy, your line is open. Kurt Sievers: Operator, why don't we go to the next caller, and we'll circle around with Stacy? Stacy Rasgon: Hello? Kurt Sievers: I can hear you, Stacy. Good morning. Stacy Rasgon: Yeah, that was -- I don't know what was going on there. Thanks for taking my questions. I had a question on the IoT trend. So it obviously bottomed in Q1 last year. I was wondering if you could parse out the recovery trends between the Consumer piece and the core Industrial. So we all know Consumer is getting a little better. Has the increase off the trough from a year ago been all Consumer or has the general purpose IoT started to recover as well? Like what are those trends across those two pieces? Kurt Sievers: Yeah. Thanks, Stacy. That's a fair question because, indeed, the two are trending differently. I'd say the IoT piece, which, by the way, is about 40% of that segment, has indeed gradually improved since the trough in the quarter one of last calendar year. Gradual means it's getting better and better and better, but it's still below the levels it had before the peak. So it's way not there where it used to be while it is gradually improving. In our case, and I think we revealed that before, a very good portion of that is in China. So think about it as a largely distribution and largely China-oriented IoT business. But yes, so the trend starting from the bottom of Q1 last year, gradually improving and that's what we continue -- what we see to continue through the rest of this calendar year. The core Industrial part indeed has taken a somewhat different shape. Think about it more like Automotive, which is now suffering a bit more from over-inventory, not much, and end market weakness. So I would say core Industrial relatively speaking, is a somewhat less good shape still, which has just face shifted to the IoT portion. So think about core Industrial a bit more similar to what we see in Automotive. Stacy Rasgon: Got it. Thank you. My follow-up, I wanted to ask about lead times. Have they normalized to pre-COVID levels? And is that part of what's enabling you to keep pricing flat? Do you have just like better control of pricing because you have a better controlled lead times? You've got a lot of competitors that are talking about pricing starting to come down now. Kurt Sievers: So first part of the question, Stacy, absolute yes, lead times are just normal. I mean, forget about supply constraints, we have normal lead times back to the pre-COVID times, which helps a lot also relative to visibility because all of the double ordering and all of the need for NCNRs and all of these things, just consider them behind us more back to normal from that perspective. There is no real correlation of that to pricing, Stacy. The pricing, which I quoted to be about flat for this year, from our end is mainly a function of the input cost. We've been living in that world of sharply rising input costs over the past three years. And now it looks more normal. So any view and handle which we have on the input cost for this year is around zero, I would say. And that's also why we put that forward as the pricing for '24 and we found acceptance and buy-in for that with our customers, Stacy, that's not -- it's not really correlated with lead times. I understand your question if we had more of a commodity portfolio. Since we don't have that, that correlation doesn't really exist. Stacy Rasgon: Got it. That’s helpful. Thank you guys. Operator: Thank you. Our next question comes from Gary Mobley with Wells Fargo Securities. Your line is open. Gary Mobley: Hey guys. Thanks for taking my question. Kurt, you called out some better-than-expected revenue on the Mobile side, and you appear to be poised for some pretty significant year-over-year growth in Mobile in the first half of fiscal year '24. Is that a function of the Android market being last bad? Is it largely a function of maybe some traction in ultra-wideband or is it a function of content gains at your largest Mobile customer? Kurt Sievers: So, Gary, in full transparency, most of all, it's a function of the weak compares of last year. I just have to pull it out. I mean if you look at our Q1 of last year, it was horrendously low as a function of everything I explained in the last 10 minutes. So very, very clearly, mainly a function of weak compares. However, you mentioned at least one other thing, which is certainly the case. We clearly see that the Android inventory digestion is completely behind us. I would almost claim already in Q4, it was largely behind us. So in Android, we are shipping to end demand and you could also be somewhat hopeful about the Android market development going forward. So that is certainly a case. And our premium handset customer is also in, I would say, in a decent shape relative to volume development. But that's it. So again, it is very much a function of us trying to get as quickly as possible to true end demand and not suffering from excess inventory. I mean, that's a good example of where that also helps you then on the other side of the equation to quickly come back into growth. Gary Mobley: Thank you for that, Kurt. And Bill, you seem to be calling out 58% gross margin for fiscal year '24, which is down only 50 basis points from the prior year. And that's quite commendable considering what's going on in the industry and whatnot. And it seems like you have a lot of gross margin headwinds from utilization to mix headwinds and whatnot. Maybe if you can give us some additional color in terms of the offsets to those headwinds and what's allowing for this gross margin resiliency? Bill Betz: Sure. Let me just use Q4 as an example in Q1 and then talk about some more of those levers, both tailwinds and headwinds. So in Q4, we did slightly better, as you know, 20 basis points. And really, that was driven by that distribution mix. It represented 61% of our sales, up from 57% in Q3. Now in Q1, we're guiding down 70 basis points, primarily driven again by this lower distribution mix and lower -- slightly lower fall-through on the sales. And because what we're doing there is we're seasonally adjusting distribution sales. So that will be down, but still probably better than a year ago from a mix standpoint. If you remember, distribution sales was about 49% in Q1, and I think we'll be a bit better than that, which is then offsetting the underutilization. If you recall, Q1 from a year ago, we were running in the low 80s and now we're running in the low 70s. So you got some moving parts from a year-over-year compare, but from a quarter-over-quarter compare, it's really driven by the mix. Now talking about tailwinds and headwinds, you're right. Clearly, if we go below our current utilization levels of the low 70s, that becomes a headwind for us. We know that. We're managing it to this level. And you can see for the last three quarters, we've been running our internal factories, which represent 40% of our internal source wafers. Another, obviously, headwind is obviously you have lower revenues, you have lower fall-through over your fixed cost structure. If we do see lower pricing, again, we're -- so far, we see that we're able to keep this stable and flat from a year-over-year comparison standpoint. But again, if we do have lower pricing, it's our job to offset that with lower cost and productivity gains. Again, obviously, this is more longer term, the delay of any new product introductions could cause an impact from this quarter or that quarter based on timing. But the tailwinds we have, again, is higher revenues, if you think about over the 30% fixed cost structure we have, so that falls through. If we replenish our channel back to normal levels, again, Kurt talked about that $500 million. It's a richer mix. And when we decide to do that, that becomes a tailwind. And then utilization, if we improve our 70% utilization internally, going back to more something in the mid-80s, that's a tailwind. Another one is and something that we talked about is we plan to expand our distribution reach and mass market customers. We don't think we're doing as good as a job like some of our peers. So that's something that we're going to focus on and do better at and reach more customers. And clearly, we're going to continue to execute on our productivity gains. And most importantly, longer term is to ramp up our new product introductions, which are accretive to the corporate gross margins today. So all in all, I think it's how you manage the tailwinds and the headwinds quarter in and quarter out, and we're going to do our best to maintain near the high end of the model as what I said at these types of revenue levels. Gary Mobley: Helpful. Thanks, Bill. Bill Betz: Thank you. Operator: Thank you. Our next question comes from Francois Bouvignies with UBS. Your line is open. Francois Bouvignies: Thank you very much. I have two, maybe a follow-up to the previous question. The first one is on Automotive. I mean you mentioned that you are basically managing the channel and under-shipping at the moment with a more clear picture in the second half of the year, if I have to summarize. Can you quantify maybe how much do you under-ship the demand maybe in the last two quarters? Because when I look at your Auto revenues, it was up 1% year-over-year. The production was -- of cars was obviously much higher. I was wondering if you had any intelligence of how much you are under-shipping the Automotive right now, which basically would go into your way of a soft down cycle? But I was wondering if you have any quantification on that would be very helpful. Kurt Sievers: Yeah. Hi, Francois. No exact quantification, but I guess a few pointers. It isn't useful in my view, to look at one individual quarter. But I think now since the full calendar year '23 is behind us, you can look at the full year where I think our Auto business did grow by 9%. I also said that the company has increased pricing by 8%. So let's just assume for a minute that in Auto, we did also increase price in that order of magnitude, which basically puts you almost on a zero supply increase line last year in Automotive. So say zero growth in Automotive last year in supply and units. And that goes against what I would call super bullish Automotive fuel last year with, I think, in the end, the 9% SAAR increase to 90 million units, a rocking increase in electric cars. I think the xEV cars last year, we're growing by 45% year-over-year. So I mean all the good arguments, which we've discussed so often for a lot of content increase on top of the 9% SAAR. And we shipped zero. I mean that gives you a feel why we have a very strong view that we already significantly under-shipped through all of last year. But at the same time, I mean, it's obvious we have over-shipped in the time before. It's just that I believe we started very early with taking a handle on that and controlling that over-shipment and throttling it back. I think through all of last year, we have under-shipped in the distribution side of Automotive, which is 40% of the revenue. And I'd say we've take -- we started to take more stringent action in the second quarter of last year to also control the over shipments in the direct side. But that's the one which is not completely done yet. So it's very hard to qualify that Francois because you don't know what size of inventory individual Tier 1 customers want to keep on the long run. And it's also not a -- it's not a steady target. I mean we discussed with them very often. And these targets in terms of how many weeks of semiconductor inventory they want to keep. First of all, they are ranging widely between different Tier 1s. I could quote a range here between two weeks and 18 weeks. It's really all over the place. And it also changes over time. As soon as they see reason to believe that their business is going to grow again, which means the OEM call offs they are getting, then they want to grow their inventory again. So that's why it's a bit of a moving target. But I think for us, the synthesis is that we believe by the middle of calendar year '24, we have that behind us. Francois Bouvignies: That's great answer. Thank you. And the second follow-up is on the pricing. I mean you said flattish pricing in '24 and obviously, it seems to be like better than peers, and I understand the commodity part and also the input cost. If we look at the input cost, the electricity is coming down, I mean, obviously, from the peak you have the silicon wafers coming down. You have the mature nodes at the foundry level that is coming under pressure for many, many Tier 2, Tier 3 foundries. I was just wondering if the input cost is the main tracker of your pricing, how should we think about 2025 or through the year as we see input cost is also coming under pressure, if you see what I mean? Kurt Sievers: Look, a couple of things, Francois. First of all, I'm glad we get well through '24. I can't get my head around '25, that's a little early, to be honest. Now at the same time, I think you put good pieces together relative to input costs, the one which you didn't put up is the fact that the Tier 1 foundries are still a bit tight lipped when it is to cost decreases. And the biggest part of our input is Tier 1 foundries, not Tier 2 and Tier 3 foundries because we need these Tier 1 foundries for our Automotive and Core Industrial business. And there, unfortunately, the trends are not quite as ambitious as you mentioned them. Over time, Francois, I do believe, say, mid to longer term, that the industry will return to low single-digit ASP erosion year-over-year. That is what we had in the pre-COVID period in the application-specific business like ours. And I think it is reasonable to assume that, that is also going to happen in the mid to longer-term future. However, this year is a transition year because the input is not yet the input cost and the inflationary environment is just not yet at that level as it used to be in the past. And very important, and I know it's probably very clear, but I just want to reiterate that very clearly. This does not mean falling back to the levels which we had pre-COVID. What I'm saying is, from the levels which we have achieved now, we possibly have that in the mid to longer-term future, this very low single-digit ASP erosion per year, but we absolutely see no scenario that falls back to the levels of pre-COVID. Gary Mobley: Great. Thank you very much. Operator: Thank you. Our next question comes from Chris Danely with Citi. Your line is open. Chris Danely: Hey, thanks guys. Just in terms of the things getting a little bit tougher over the last months, Kurt, is there any way to tell how much of this is, I guess, worsening demand versus a little more inventory than we thought? Any which way or the other on either side of that? Kurt Sievers: Hey, good morning, Chris. Yeah, clearly, first of all, I confirm what you say. It got worse over the last 90 days or at least our view on what we are exposed to got worse. I would say the end demand in Auto has weakened. I mean the latest S&P data is now almost a percentage point down year-on-year in terms of SAAR, so that's a little less than it was before. The xEV penetration is a little slowing. Again, it is still up, but it is a little slowing. So these are just gradual movements to the less positive side than what it was 90 days ago. But I think what is probably the somewhat bigger part in here is that we just got a better handle now, what is the remaining size of the excess inventory with our Tier 1 Automotive customers, which we are working down through the first half. So I cannot pass in percentage, which one of the two is contributing how much. But I'd say it is in that, say, combination of Automotive, core Industrial over-inventory and at the same time a weakening macro. Chris Danely: Great. And for my follow-up, I think -- so Bill talked about disty being 49% of sales in Q1 of last year and then 61% of sales in Q4. Did I hear that right? Or is that wrong? Bill Betz: That's correct, Chris. Chris Danely: So -- yeah, okay. So my question is, your sales grew about, I guess, 10% from Q1 to Q4. And so that would mean your sales into disty grew a lot more than that. Why would that happen if the environment, like overall, at least outside [US] (ph) was a little more difficult? Bill Betz: Basically it is matching to the sell-through. Kurt Sievers: Chris, I think the background here is mainly that the exposure to distribution is larger in our Industrial and IoT business. And that is the one where we have seen the trough already in the first quarter of last year. So that gradual improvement throughout the quarters I discussed earlier, that shows up more on the distribution side because those are the segments which had that improvement. Where, in Automotive, distribution is only 40%, as I described, we have now the direct customer excess inventory digestion and distribution is a smaller part. So I think it is just a reflection of our exposure to the different end market segments. Chris Danely: Got it. Thanks for all the color guys. Bill Betz: Thanks, Chris. Operator: Thank you. Our next question comes from Joshua Buchalter with TD Cowen. Your line is open. Joshua Buchalter: Hey, guys. Good morning or good afternoon depending on where you are sitting. Thanks for squeezing me in. In Autos, you've heard from a few in the supply chain, that there's a bit of a push pull going on between OEMs and Tier 1s, where the OEMs want the Tier 1s to keep carrying more inventory, Tier 1s are trying to manage their working capital and carry less. I'd be curious, are you seeing that going on? Is that some -- the Tier 1s wanting to lower their levels. Is that playing into what's going on with some of the digestion you're seeing now? Thank you. Kurt Sievers: Joshua, absolutely. That's a horrendous fight and that's why I said earlier, it is really hard to call the final exact landing place for the size of inventory for Tier 1 because it is a matter of their negotiation with the -- with their OEM customers. The midterm trend is that every piece of new business they are winning, OEMs are now often enforcing for the new business to hold a certain amount of inventory for specific semiconductor components. So that becomes very explicit, but it's only for new business. So think about it as something which will be layering in over the next couple of years as those new design wins are materializing. That's the way how the OEMs want to get a firm handle on the size of inventory at Tier 1s. At the moment, it's still Wild West because none of this is really contractually anchored because it's old contracts, which didn't have these articulations, which is why it is indeed all over the place, and that makes it also a bit harder to be precise. Jeff Palmer: I think -- you have one more, Josh? Joshua Buchalter: Yeah, that's okay. I would just, maybe, Bill -- I was going to ask about the policy of repurchases. I know you mentioned it's still return 100% of free cash flow but have been running a little bit below that in the last several quarters. Should we expect after you pay down the debt in March that repurchases pick up? Or is it something more tied to the business environment? Thank you. Bill Betz: Yeah. I mean, again, our capital allocation, as I stated, hasn't changed. If I just look over the last three years, we returned $8.8 billion or 113% over those three years. And you're right, the trailing 12 months, 77%, current quarter was 72%. And again, we are -- we set aside some cash, as you all know, that we're going to retire some of our debt and deleverage the company here, and we think that's a good use of our cash and we're going to continue being flexible on our balance sheet and doing all of the above, dividends, buybacks, debt as well as small M&A, no changes and we are going to continue to do what we do. Joshua Buchalter: Thank you. Jeff Palmer: Thanks, Josh. Operator: Thank you. Kurt Sievers: Yeah, I guess that gets us to the end of the call. So, thanks everybody for joining the call this morning. Clearly continues to be a tough environment where NXP takes any control possible, and I dare to say we have started to take that control, especially relative to inventory builds externally and inventory management internally. We started to take that control in a very disciplined manner early, in the mid of 2022 for the distribution site, and starting in the second quarter of last year on the direct customer side, which we believe allows us to continue to drive a safe landing and soft landing in this tough environment. Mid and longer term, we continue to be fully focused on the Automotive and Industrial markets to innovate and drive profitable growth. Thank you all. Operator: Thank you for your participation. This does conclude the program and you may now disconnect. Everyone, have a great day.

Operator: Good day and thank you for standing by. Welcome to the NXP Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker Jeff Palmer, Senior Vice President, Investor Relations. Please go ahead. Jeff Palmer: Thank you, Shannon, and good morning, everyone. Welcome to the NXP Semiconductors third quarter earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on specific end markets in which we operate, the sale of new and existing products, and our expectations for financial results for the fourth quarter of 2023. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2023 earnings press release, which will be furnished to the SEC on Form 8-K and available on NXP's website in the Investor Relations section at nxp.com. Now I would like to turn the call over to Kurt. Kurt Sievers: Thank you very much, Jeff, and good morning, everyone. We appreciate you joining our call today. I will start with a review of our quarter three results, discuss our guidance for quarter four and provide our early views of 2024. Now let me begin with quarter three. NXP delivered quarterly revenue of $3.43 billion, $34 million above the midpoint of guidance and essentially flat year-on-year. Revenue trends in our Mobile, Industrial & IoT and Automotive end markets all performed in line or better than anticipated, while our communication Infrastructure & Other end market were slightly below our expectations. Our distribution channel inventory during the third quarter declined slightly to a 1.5 months level well below our long-term targets of 2.5 months. Non-GAAP operating margin in quarter three was 35%, 30 basis points below the midpoint of our guidance. This is primarily due to an unforecasted potential legal liability of approximately $14 million which is reflected in SG&A. Non-GAAP operating margin was down 190 basis points versus the year-ago periods, primarily as a result of higher R&D investments and the noted potential legal expense. Now let me turn to the specific trends in our focused end markets. In Automotive, quarter three revenue was $1.89 billion up 5% versus the year-ago periods and in line with the midpoint of our guidance. In Industrial & IoT, quarter three revenue was $607 million, down 15% versus the year-ago periods. So above the midpoint of our guidance. In Mobile, quarter three revenue was $377 million down 8% versus the year-ago periods and above the high end of our guidance. In Communication Infrastructure & Other, quarter three revenue was $559 million, up 8% year-on-year, so slightly below the midpoint of our guidance. During the third quarter from a geographic perspective, we experienced incremental improvement across most regions, with China solidly improving quarter-over-quarter. So our shift to rates to China are still down versus the year-ago period. From a channel perspective, sequential growth was led by improved sell-through in our distribution business. At the same time, our direct business sequentially declined, a reflection of NXP actively managing inventory digestion at our direct customers. Overall, our distribution business represented 57% of sales, up from 51% in the second quarter. And now I will turn to our expectations for quarter four 2023. We are guiding quarter four revenue to $3.4 billion. This is about 3% versus the year-ago period up and represents a sequential decline of approximately 1% at the midpoint. We anticipate the following trends in our business. Automotive is expected to be up in the mid-single digit percent range versus quarter four 2022 and flattish sequentially. Industrial & IoT is expected to be up in the high single-digits on a percentage basis versus both quarter four 2022 and quarter three 2023. Mobile is expected to be down in the mid-single-digit percent range versus quarter four 2022 and up in the low-single-digit range on a sequential basis and finally, Communication Infrastructure & Other is expected to be down mid-single-digits on a percentage basis versus quarter four 2022 and down in the upper teens percent sequentially. Our guidance for quarter four contemplates ending the fourth quarter at a 1.6 months of distribution channel inventory. Zooming out, the combination of our third quarter results and the midpoint of our fourth quarter guidance indicates the full year 2023 revenue will be flattish versus 2022 in a challenging and cyclical market environment. When we now turn to our early views on 2024, we continue to see an operating environment with a number of cross currents. Clearly, the macro environment remains weak, including subdued demand in China, geopolitical challenges and elevated inflation, which is constraining demand. At the company level, lead times have normalized, and we anticipate a more neutral pricing environment going forward. And already since early this year, we have actively engaged with our large direct customers to drive a reduction in on-hand inventory where needed, rather than just blindly enforcing NCNR commitments. Furthermore, we have demonstrated over several quarters proactive management of our distribution channel resulting in a very lean channel inventory position of 1.5 months at the end of quarter three versus our long-term target of 2.5 months. Through all of these proactive actions, we believe we will enter 2024 with a comparatively balanced customer inventory position with some remaining pockets of inventory digestion yet to occur. Hence, we will also begin to replenish the channel sometime in 2024. In terms of NXP's focused end markets for 2024, we are assuming global order production to be up 1% as anticipated by S&P. We assume the mixed shift towards semiconductor content-rich hybrid and battery electric vehicle continues and reaches about 40% of all cars produced in '24, up from 33% in 2023. This is very supportive of the NXP-specific [indiscernible] content drivers such as radar systems, electrification solutions and high performance processes for software-defined vehicles. Turning to Core Industrial. We see the trends, including especially content growth to be pretty similar to Automotive. In our Consumer IoT and Mobile business, after over a year of weak demand, we see an incrementally improving environment. Finally, we do believe the weak demand in Communication Infrastructure & Other likely continues as we have satiated pent-up demand in our secure cards business, anticipate a weak environment in mobile base station buildouts and expect end-of-life in some of our network edge products. When putting it all together, netting the positives against the known headwinds, we continue to navigate a soft landing for the business and anticipate a return to year-on-year revenue growth throughout 2024. For the first quarter, we expect seasonality to return more to the typical pre-COVID seasonal patterns in a range of down mid to upper single digits sequentially. And now I would like to pass the call to you, Bill, for a review of our financial performance. Bill Betz: Well, thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q3 and provided the revenue outlook for Q4, I will move to the financial highlights. Overall, our Q3 financial performance was good. Revenue and non-GAAP gross profit were modestly above the midpoint of guidance with solid gross profit fall through. Now, moving to the details of Q3. Total revenue was $3.4 billion, $34 million above the midpoint of the guidance and essentially flat year-on-year. We generated $2.01 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.5% up 50 basis points year-on-year and 10 basis points above the midpoint of the guidance range driven by the fall-through on higher revenues. Total non-GAAP operating expenses were $803 million or 23.4% of revenue, up $73 million year-on-year and up $32 million from Q2. When compared to the midpoint of guidance, this is a miss of $18 million, where $14 million is due to a potential unforecasted legal liability and the remainder from higher variable compensation. From a total operating profit perspective, non-GAAP operating profit was $1.2 billion and non-GAAP operating margin was 35%. This was down 190 basis points year-on-year and slightly below the midpoint of the guidance range due to the previously noted potential legal liability which created a 40 basis points headwind to non-GAAP operating margin. Non-GAAP interest expense was $65 million with non-GAAP income tax provision of 168 million reflecting a non-GAAP effective tax rate of 14.8% which is favorable versus our guidance range of 16% to 17%. Non-controlling interest was $5 million and stock-based compensation, which is not included in the non-GAAP earnings was $103 million. Taken together, this resulted in a non-GAAP earnings per share of $3.70, $0.10 above the midpoint of the guidance. Now turning to the changes in our cash and debt. Total debt at the end of Q3 was $11.17 billion flat sequentially. The ending cash position was $4.04 billion, up $179 million sequentially due to the cumulative effect of capital returns, improved working capital metrics, flat CapEx investments and positive cash generation during Q3. The resulting net debt was $7.13 billion and we exited the quarter with a trailing 12 month adjusted EBITDA of $5.38 billion. The ratio of net debt to trailing 12 month adjusted EBITDA at the end of Q3 was 1.3 times and the 12 month adjusted EBITDA interest coverage ratio was 19.9 times. During Q3, we repurchased $306 million of our shares and paid $262 million in cash dividends. Taken together, we returned $568 million to our owners in the quarter, which represented 72% of non-GAAP free cash flow and 81% on a trailing 12 month period. Furthermore, subsequent to the end of Q3, we continue to execute our share repurchase program, buying an incremental $124 million or approximately 658,000 shares through Friday, November 3rd. Now turning to working capital metrics. Days of inventory was 134 days, a decrease of three days sequentially and distribution channel inventory was 1.5 months or approximately 45 days, down about four days from the second quarter. When combined, this represents approximately 179 days or a seven-day decline from the prior quarter. We continue to be laser-focused on tightly controlling our channel inventory levels while leveraging our balance sheet strength to hold product in die form for quick turnaround as demand materializes. Days receivable were 25 days down, four days sequentially, and days payable were 60 days, a sequential decrease of three days. Taken together, the cash conversion cycle was 99 days, an improvement of four days versus the prior quarter. Cash flow from operations was $988 million and net CapEx was $200 million or approximately 6% of revenue, slightly better than our guidance of 7%, resulting in non-GAAP free cash flow of $788 million or 23% of Q3 revenue, which is up from 17% in the prior quarter. On a trailing 12-month basis, this represents a 20% non-GAAP free cash flow margin. Overall, we continue to be focused on driving non-GAAP free cash flow margin to greater than 25%, a level we have demonstrated in the past and a level we believe we can achieve in the future. Turning now to our expectations for the fourth quarter. As Kurt mentioned, we anticipate Q4 revenue to be $3.4 billion plus or minus $100 million. At the midpoint of our revenue outlook, this is up about 3% year-on-year and down about 1% versus Q3. Furthermore, given our manufacturing cycle times, the current demand environment and our lean channel inventory, our guidance contemplates improving the channel inventory to 1.6 month level for Q4. We expect non-GAAP gross margin to be flat sequentially at 58.5%, plus or minus 50 basis points, as we continue to balance mix and internal utilizations. However, we do see slightly higher input costs from our suppliers. As a result, we remain focused on mitigating these higher input costs through a combination of productivity and passing higher input costs along to our customers. Operating expenses are expected to be $785 million, plus or minus about $10 million. Taken together, non-GAAP operating margin will be 35.4% at the midpoint. We expect non-GAAP financial expense to be $69 million and the non-GAAP tax will be $180 million, or an effective non-GAAP tax rate of 15.9% of profit before tax. Non-controlling interest will be $6 million. For Q4, we suggest for modeling purposes, you use an average share count of 260 million shares and capital expenditures of 6% of revenue. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $106 million taken together at the midpoint, implies a non-GAAP earnings per share of $3.65. Now for 2024 non-GAAP modeling, we propose you to assume the following. We expect to increase channel inventory sometime in 2024 to support anticipated growth, ensure proper customer stock levels, and to support our long-tail customers. We expect non-GAAP gross margin to remain at the high end of our long-term model, plus or minus the normal 50 basis points. Non-GAAP operating expenses, we plan to manage the business at or below the 23% of sales. For capital expenditures, we expect to stay within the long-term model of 6% to 8% of sales. For stock-based compensation, which is not included in our non-GAAP results, we suggest using approximately $450 million. And for non-GAAP taxes, we expect a 17% rate versus the prior view of 18%. So, in closing, I would like to highlight what we shared last cycle. First, from a performance standpoint, as we navigate a soft landing through a challenging and cyclical demand environment, we will continue to be disciplined to manage what is in our control and stay within our long-term financial model. Second, operationally, the Q4 guidance assumes internal factory utilization will be in the low to mid 70s range, a level we expect to hold until internal inventory normalizes. And lastly, we plan to hold more cash on the balance sheet to enable greater flexibility. We also plan to retire the 1 billion March 2024 debt tranche when it comes due with our cash on hand, which will result in an improved gross debt leverage ratio below the current 2.1 times level today. Finally, we will remain active repurchasing our shares. I would like to now turn it back over to the operator for your questions. Operator: Thank you. [Operator Instructions] Our first question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open. Ross Seymore: Hi, guys. Thanks for letting me ask a question. Congrats on navigating the choppy times. Kurt, for my first question, I just wanted to talk about the linearity of demand. It was very helpful that you gave the fourth quarter and so much details on the first quarter in 2024. But in general, it seems like you're refilling the channel a little bit in your outer quarter guide and the channel was a big driver sequentially in the third quarter. So how are we to think about the channel directionally from here? Appreciating, of course, that it's already at the end of the range. What are the puts and takes in your decisions to seemingly slowly refill that? Kurt Sievers: Hey, thanks, Ross. Let me indeed first of all say that these fluctuations between 1.5 and 1.6 are partially beyond our control, to be honest. I mean, you know, it just ticked down a little in the third quarter. We think we are anyway sitting at the absolute minimum where it should be, so we felt it is appropriate to move it back to the 1.6 level. What I think is more important in the bigger context of that channel management is that over 1.5 years now, I would say, we have kept it intentionally very, very lean, always around this 1.5 or 1.6 level in the dropping environment so in an environment where demand was weak and rather dropping. Going forward, as I said in my prepared remarks, we think the environment is more stable or up again, which is why we did say that at some point through next year, we will also start to refill the channel again. The speed of that and the magnitude will really depend on the environment. We will not go higher than the 2.4 or 2.5 level, which is our long-term target and which has been our long-term target in the past. If there was a sharp rebound in China and we set the same last quarter, then of course, we would probably go back relatively quickly. But in a more stable environment, as we anticipate into next year, we will start to refill next year, Ross. Because we think that is important to make sure we hold competitiveness in the channel for our long-tail customers. So there will be a moment where it will be just important in a stable environment to have enough product on the shelf to remain competitive. Ross Seymore: Thanks for that color. I guess as my follow up one for Bill on the gross margin side, you guys have done a great job keeping it at the high end of the range despite all the puts and takes on the end markets and the weakness overall. What are the puts and takes for next year? And you said that you'd stay at the high end of the range plus or minus fill through that period, also impressive. Is that just the structural new base for the company? How are you able to keep it at the 58% range versus the 55% to 58% that you had given at your last analyst meeting? Bill Betz: Sure. So let me address the current -- the last couple of quarters. As mentioned, our internal utilizations are running, call it, low-to-mid 70s, and that headwind is being offset by our distribution mix. It's richer in margin, and that represented about 57% of our composition of revenue this quarter, which is up from 51%. So they're sort of offsetting each other in the short term and we see the same to occur in Q4. Now, if we look ahead, what are some of the levers that perhaps can drive gross margin higher over the long-term, and I think we've talked about these in the past, but again, higher revenues over our fixed cost structure is one, obviously, we're going to have continued productivity gains, clearly, you know, eventually we're going to [Technical Difficulty] demand from our internal factory standpoint. So think about higher utilizations. Kurt talked about, next year we're seeing neutral pricing. And then, you know, really, I think a focus more longer term is expanding our long-tail customers in the mass market. And then eventually what we've always talked about with where our R&D investments go is that ramp of our new product introduction. So some of those are the levels -- levers that we have that get us comfortable on continuing to bring gross margin above our current high end of our model. Again, 58% is not the end goal. It's not our final destination. We're going to continue to work on this from a company initiative. Ross Seymore: Thank you. Operator: Thank you. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is now open. Vivek Arya: Thanks for taking my question. Kurt, you mentioned you expect to grow through '24, but how do we square that with just, you know, 1% or so auto production growth that is lower than the mid-single-digit auto production growth that we saw in '23 when your overall sales were flat? So I guess the question is what content lift did you see in '23 and what are your assumptions for automotive content growth in '24? Kurt Sievers: Hey, thanks. Good morning, Vivek. Yeah, it's clearly that the revenue is driven and the demand is driven by content increase much more so than SAAR. At the same time, you are, of course, right, the latest SAAR update for this year, which I saw is actually almost 8% up over 2022, which is a, by the way, every quarter that was taken up further. So kind [Technical Difficulty] this year. And yes, indeed, also the forecast which we used from S&P for next year I think is just 1% up. So it's almost flat next year. Now, if you take NXP Automotive revenue, Vivek, if you take our Q4 guides, then this year's annual revenue growth of NXP will be like 9% or so. So 9% Automotive NXP in '23 over '22. With that number, I believe we are under-shipping demand and we are actually intentionally under-shipping demand because, as we've always said, we did not want to create this wave of inventory ahead of us, which will lead to a cliff to drop down from. That's why since early in the year we have tried to make sure to not enforce NCNRs to an extent that it would not build excess inventory. And as we discussed with Ross just a minute ago, we kept the channel very lean. And mind you, also in Automotive 40% of our revenue goes through the channel. So the channel is a pretty significant part also of the Automotive business. So what I mean to say here, Vivek, is that we think we are through this inventory digestion at some point next year, which means the revenue growth in our Automotive business will return more to levels which are reflecting the true end demand. I can't tell you when exactly that's going to be next year, but maybe it's safe to assume that through the first half. We are still a little bit working ourselves through this inventory digestion, but in the second half, we should be clean from that. Including then the replenishment of the channel and that's why I make that statement of growing year-on-year throughout the year, every quarter. By the way, that statement was relative to the whole company. It -- we discussed it now for Automotive. But in principle that whole pattern which I just explained is also true for entire NXP. And that's why we continue to be confident that we are properly managing that so-called soft landing. Since we have just anticipated this inventory issue relatively early, have proactively managed it, which means we do not run into this cliff and then resume into year-on-year growth as early as quarter one of next year. Vivek Arya: Thank you, Kurt. For my follow-up, just on '24, thanks for giving us the high-level views. So Q1, you know, you mentioned normal seasonal. What is normal seasonal for your Automotive business sequentially in Q1? And if I kind of just expand that question overall to '24, in your presentation, you kept your '21 to '24 model, right? That suggests that even at the low end of that 8% to 12% CAGR. Your '24 sales should be in the neighborhood of 14 billion or so. Is that, you know, useful assumption as we think about overall '24? So just Q1 Autos and overall '24 sales. Thank you. Kurt Sievers: Yeah. Look, Vivek, I think we really went quite far in this call, given the turmoil around us and some of the uncertainty created by some of our peer companies. We went quite far here in order to give quite some color on next year. We really don't want to go down the path of providing that color by segment -- by revenue segment by quarter. That would be just one shock too far. So stay with me with what I said of a more seasonal pattern for Q1, for the whole company, which was a mid to upper single-digit sequential decline, which is, by the way, what we've always had pre-COVID. So there's nothing really strange about this. In a normal pricing environment, with normalized lead times, everything pretty much back to normal. The other half of your question was about the commitment which we had given in, I think, in November '21 in our investor day about the three-year growth, which indeed was an 8% to 12% corridor. And, yes, Vivek, we stand behind that corridor. We do stand behind hitting that corridor of 8% to 12%, like all the rest of the model by the way. I mean, Bill just talked about the gross margin being more at the high end of the model. On the revenue, we will also be in that corridor of 8% to 12%, there we will be in that corridor. Really depends on a couple of macroeconomic factors, including especially more of a return of China and the timing thereof, which is very hard to judge. So we can't -- we just can't go there. But that should not get us either way out of this -- out of that corridor. We should hit it. Vivek Arya: Thank you, Kurt. Operator: Thank you. Our next question comes from the line of William Stein with Truist Securities. Your line is now open. William Stein: Great. Thank you so much for taking my questions. First, Kurt, I think it was in your comments, I'm not sure if it was restricted to your outlook of EVs specifically, but maybe more this electrified drivetrain sort of hybrids, maybe is what you were talking about. But it still seemed like a big jump to me next year. And, you know, would we consider the overall EV market, there's one North American OEM that's been growing very quickly, and there's one Chinese or maybe many, but one really big Chinese OEM that's been doing very well. But among the sort of traditional multinational OEMs, their EV sales have been really weak. And I wonder if your outlook for next year embeds a view that the multinationals are going to do better in this category, or if the companies that have had success only get bigger. And then I have a follow-up. Thank you. Kurt Sievers: Thanks, Will. That -- I see where you are going and let me try to be as clear as possible. First, yes, I did talk about what the category is called xEVs. That is a combination of the hybrid electric and the fully battery electric vehicles. It's a category used by S&P. So it's not our invention, but it's basically every car which has either only an electric drivetrain or also an electric drivetrain next to a combustion engine drivetrain. That's what matters for us because that is the stuff which calls for more semiconductors. And yes, we do believe it continues to grow quite sharply. So this year the latest forecast is, and since we are in November, I guess it's quite accurate, 33% of the total car production, which is in the order of, I think, 89 million units this year. 33% of that 89 million cars produced this year are xEV and that number is forecast to grow to 41%, which is a 29% year-on-year growth. So if you go in absolute terms, then there will be 29% more of these xEVs next year than this year. Now, where does it come from? Look, well, I think it is a little misleading to look at this from a US perspective. The US car producers are actually, from a global perspective, relatively small. Europe is a little better, but where really the main volume is driven, that is China. And on top of that, China is the one which is also driving the dynamic now in the electric vehicle space. So I think if you just take some of the commentary and some of the adjustments in investment programs which were published of US companies, then that is not representative of what's -- what is going to happen on a global level. But long story short, yes, we do believe this xEV category is moving to a solid 41% of the global SAAR next year, which is obviously very supportive to our semiconductor content growth. By the way, beyond pure electrification systems, as we discussed earlier, those cars tend to be higher featured in electronics above everything. So also ADAS systems like our radar and the whole SDV, Software Defined Vehicle introduction happens faster with these cars, which is why it is so supportive to our revenue. We believe in that. We do not see a massive slowing in the electric vehicle penetration. William Stein: It's really helpful. Thank you. And you sort of led me into the follow up which is ultra-wideband. I think you were, you know, early to see this among other trends, but I'm hoping you can update us as to how you're seeing uptake in that product, both in automotive and handsets. Thanks so much. Kurt Sievers: On the handset side, nothing really new. We are still waiting for a bit more dynamic in the Android space, which has nothing to do with ultra-wideband, which is more a mobile-wide industry situation where you might have seen in our guide for mobile for the first -- fourth quarter, excuse me. We are again sequentially up a little in mobile, which is also driven by Android. So given our very lean inventory also in Android space, we think if there is now a bit more dynamic in the Android space, we're going to benefit from it and with that, ultra-wideband, because it's going to go proportional, then up. In the Auto space, we feel very good. So we are ahead of what we wanted to achieve in ultra-wideband. So we have, I think, something like seven platforms in production. So there is seven car platforms which are in production with our ultra-wideband automotive product. To my knowledge, something like 18 to 20 new platforms are awarded or 18 of 20 are awarded to NXP. So there is two small platforms which have not gone to NXP out of 20. Actually, we rejected them because they were under the security standards which we want to ship and would have been margin-dilutive. So that means, overall the momentum in ultra-wideband automotive is very, very good. William Stein: Thank you. Operator: Thank you. And our next question comes from the line of Stacy Rasgon with Bernstein Research. Your line is now open. Stacy Rasgon: Hi, guys. Thanks for taking my question. I wanted to go back to the channel inventory. Is the amount that you have to ship still $500 million? And would you still grow year-over-year in 2024 if you didn't decide to fill up the channel next year? Kurt Sievers: So the answer is yes and yes, Stacy. That delta between -- well, now it's actually even a little bit bigger because to be perfectly precise, the $500 million, I think, came from 1.6 months going to 2.4. Since now we are at 1.5, it's probably even a little more than the $500 million, but it's immaterial. So the answer here is yes. That is. Secondly, no, we do not need the $500 million to grow next year, because that whole channel replenishment next year is something we will do some time to some amount. So that cannot be the basis of a guide for next year. Stacy Rasgon: Got it. Thank you. For my follow-up, I just wanted to ask about some of the geographical macro trends that you mentioned. I found them a little confusing. It sounded like you thought China was getting better, but then you said next year, like, where you land in, you know, in the guidance for the full year depends on China and getting better. We're not hearing from any of your competitors that, like, China or anything else is getting better. I'm just -- can you give us a little more color on what you're seeing by geography and maybe, like, what is -- what do you think the sources of the discrepancy? Why do you guys see things improving in an overall market where you still sound like fairly cautious and your competitors certainly all sound fairly cautious. Kurt Sievers: Okay. So let me peel the onions, Stacy. First of all, maybe rely on a company level. The reason why we do comparably better if you look at the quarter, to our peers is, again, a soft lending navigation, which we have entered into already early this year and when you think about the channel already middle of last year. We have certainly shipped less over that period, Stacy. And you find that if you compare our growth rates, say, a three-year CAGR over the last three years versus some competitors, especially in auto, and you see that even more sharply, if you look at this year's order growth, as I said earlier, which I think is 9%, we have undergrown competitors. And that undergrowth is still be that we ship less on inventory than we believe some of the peers have done. That, of course, also explains that going forward, we don't see this sharp decline. It's just a softer management through this cycle. Now we do it very, very intentionally because we believe this is very beneficial to our gross margin trajectory, which is not going to suffer that part from under loading factories too hard. So that's actually where the direction has been coming from. Now on the geographic side, Stacy, you have to ask this because I do know that what we just guided, especially in Industrial IoT, and that is largely relative to China is very different to what you heard from a lot of peers. So I just want to repeat, we have both sequentially and year-on-year, we just guided quarter four up by a high single-digit percentage which is in sharp contrast to what several of our competitors have said. We simply think this is because we saw and had our trough in Industrial IT already in quarter one of this calendar year. If you look at the numbers, we had a sharp drop there. We have made absolutely sure we would not increase inventories from there. So we are very close to the pile of the demand. Since then, since Q1, we have been readily going up. And that was long messaging, which might have been a bit confusing around China. What I meant to say is we keep moving up incrementally quarter-to-quarter-to-quarter, while it's still down from a year-on-year perspective. So we are still waiting, and we don't put this in any of our numbers on the big rebound in China. So that's not there. But incrementally, sequentially, it keeps improving. It has improved the past couple of quarters, and it does improve again now in Q1 into quarter four. So that was the commentary on China. So it's cautiously positive. But again, it is simply because we had our trough there already in quarter one, and it was a tough trough. I mean you just do the math. It was really deep. We just did it much earlier than many others. Stacy Rasgon: Got it. That's clear. Thank you guys. Operator: Thank you. Our next question comes from the line of Gary Mobley with Wells Fargo. Your line is now open. Gary Mobley: Hey, guys. Thanks for taking my question. Clearly, China is a market -- the China automotive market is a market where you can be quite vertically integrated from a chip supply chain perspective. The market is large enough in terms of volumes, and there seems to be some ability to invest in that area by domestic China competitors. So my question for you is, how are you planning to retain your business with China automotive brands when you probably long term see increasing competition from the domestic players? Kurt Sievers: Yes, Gary. First of all, it's our business. It has been our business and will continue to be our business to be competitive. So I come back to your specific point, but I mean in itself, it's nothing new. Our whole game, our whole priority in life is to be competitive wherever we play. So in China, indeed, so far, the competitors, which we do see in the automotive space, which you focus on, have been largely our Western competitors plus relates from Japan. So we have hardly seen any local competition. So that's absolutely right. Now over the past, I'd say, couple of quarters, local competition in China came more up in low-end micro controllers. However, not in automotive. We haven't seen that entering into automotive at all. We also don't play that much in the low-end microcontroller space. So I mean, we've been seeing it, but it's not been a big event for us at all. Secondly, we do see a significant focus of local Chinese up-and-coming semiconductor companies on silicon carbide. I mean I just spent 1.5 weeks in China, and it was obvious that there was massive investment and a massive focus both in factory engineering and device engineering on silicon carbide in China. The good news, if you will, is that this doesn't really matter for us because that's one of the businesses we do not do. But I think it takes some of the focus away from the things we do. My personal take would be that probably going forward, we will see a start of more competition in the simpler analogic signal world in China, which would then probably also touch automotive. I don't say, Gary, we have it, yes, it's not like we are losing or being under pressure there today. But my take would be probably that's the one segment where local Chinese semiconductor competitors will also focus on going forward. But again, I mean we've seen this in Korea. We've seen this in Japan in the past. So it's not the first time that we are confronted with local competitors. Yes, we stay paralleled about it, and we'll make sure that we have made an long-term strategies, which are on top of that. Gary Mobley: Thanks for that detail, Kurt. If I follow up, I wanted to ask about your purchase commitments. They've been running just below $4 billion for the past year, which is consistent with your flattish revenue, but it seems counterintuitive to the maybe the market dynamics that we're in where seemingly, you'd have to put less of a commitment with your foundry partners. So maybe if you can just speak to the trends that you expect in your purchase commitments given the industry dynamics through '24? Kurt Sievers: Well, those are multiyear commitments. So I guess you referred to, I think in the Q, we have something like a $3.9 billion commitment sitting, which is a multiyear commitment -- which is badly required and badly needed to support our growth over the next five-plus years, which is what this is referring to. So nothing unusual, nothing to worry about. It's just needed for those third-party foundry wafers, which continue to be very tight from a supply perspective and where we are glad we have these commitments to support actually the customer growth. This whole supply situation. Lead times have normalized. That does not mean, however, that we are in every place completely out of the woods. So there is still a couple of technology nodes where we are actually short, which are also leading to quite a few complications. And there is quite a few others, and that's actually quite a few where we are just fine, but where we have very stringent discussions with our customers that they need to make sure they give us mid- to long-term forecast because once the business comes back out of this inventory digestion cycle, we really have to make sure we don't enter into a similar period like we did in the second half of 2020, which is not -- that's not far away from a supplier capability versus demand perspective. So that's why those long-term agreements, which we have there are really needed in the mix of our future revenue growth. Gary Mobley: Thanks again. Operator: Thank you. Our next question comes from the line of Joshua Buchalter with TD Cowen. Your line is now open. Joshua Buchalter: Hey, guys thanks for taking the question and good morning. So I wanted to ask about the Auto outlook for next year. If we sort of lay out the puts and takes, production growth will be lower, pricing neutral, it sounds like but you mentioned that 2023, there was some element of digestion. I mean as we stack up the content growth and sort of flat to up production and flat pricing, is there a reason, how should we think about 2024 Auto growth for your business compared to 2023? Is there a reason it should be less than '23? Thank you. Kurt Sievers: Hey, Josh, good trial. As I have to say to, I think, Vivek earlier, I will not guide now on the segment level 2024 but I can give you at least some of the dynamics at work here. Yes, the SAAR -- the underlying SAAR growth next year is going to be less than it was this year. I think the mix of the penetration to xEV vehicles is better, as we discussed earlier, so going to the 40-plus percent level. So that's supported relative to this year. So it drives further content from where we are. I agree with your statement about more neutral pricing. I think that's a fair assumption across the Board. And having said all of that, the only remaining piece next to our company-specific growth drivers, which are well in place. The only remaining piece is the cycle of inventory digestion and going back to normal end demand, which is kicking through to our revenue. Currently, I can only repeat it, we are undershipping demands. And again, we do this intentionally. We've done it for a few quarters already. It's going to be another couple of quarters, but maybe it's fair to assume by middle of next year that is behind us and then the revenue growth rates in automotive and everything else will go back much closer to what the real end demand is. Think about it this way. But so it is really misleading to just look at annual revenue growth in Automotive against SAAR because there is so many other things that work, especially this inventory cycle. Joshua Buchalter: Understood. I can at least try. I guess I could ask it another way. You guys used to give a metric about I think it was 70% of your Auto business was tied to SAAR and the balance sort of to more content growth drivers. Maybe you can help quantify that mix or maybe give some directional drivers of things like radar, BMS, the S32 platform as you think for [indiscernible]. Thank you. Kurt Sievers: That's not our model, Josh. That might be a model you made, but we haven't really said that. So what we do say and what fits also to your earlier question, is that we do see a continued strong content increase, which is independent of SAAR. And I think that is something which is probably in the 5% to 8% bracket. And that keeps going. Again, there is no reason that would be slowing next year. But again, it is overlaid by the inventory cycle. Joshua Buchalter: Got it. Thank you. Kurt Sievers: Thank you. Operator: Thank you. Our next question comes from the line of Toshiya Hari with Goldman Sachs. Your line is now open. Toshiya Hari: Hi. Good morning. Thank you so much for taking the question. Kurt, I wanted to ask about the pricing environment in '24 you mentioned that you expect a relatively neutral environment. When we spoke at our conference a couple of months ago, I think at the time, you sort of hinted that expectation back then was for '24 pricing to be up a little bit more than what you saw in '21, but a little bit less than '22. So I guess there's been a slight change in how you think about pricing A) is that correct? And B) if so, is this more demand-driven? Or are you seeing lower input costs that's enabling you to keep pricing a little more flattish into '24? Kurt Sievers: Yes, Toshiya. It's indeed, it's slightly better. It depends on which perspective you want to take on this relative to the input cost. So what we are seeing now is a slight increase in input costs across everything. So it's really -- I mean, there is pieces which are going up, unfortunately, quite a bit. Others are starting to come down. So but in the mix, we have a slight increase, on top of that, we put our productivity efforts, and that is what we need to pass on to our customers in terms of -- well then you land in a pretty neutral area. And that indeed is a touch better than what we discussed when we recently met in your conference. And yes, it is just important to see this indeed in the context of what you mentioned over the past couple of years because in my view, in '21, we increased, I think, by 2% for the whole company in '22 by 14%. This year, we're going to tell you in the Q4 earnings, what it will be, but indeed, it's again a solid number. And that comes then down next year to a more neutral but I actually made the comment in my prepared remarks because I wanted to make sure there is no confusion about this possibly going back because we've had the question very often from analysts and investors. If not this whole pricing would be reverting back down all the way to the pre-COVID levels, it is not. I just want to be very clear. It's just neutral this coming year, which is fine from our perspective. Toshiya Hari: Great. That's very helpful. And then as my follow-up, you're guiding your comps and other business down, I guess, upper teens on a sequential basis in Q4. Is that primarily the base station business and the weakness in that market sort of catching up to you guys? Or is there something more to it? And is it fair to say that Q4 is the bottom for that market? Or could things stay relatively weak into the first half of next year? Thank you. Kurt Sievers: Yes. So into Q4, it is both. It is the weak base station demand, which you are also quoting. So it's -- I mean, all the hopes this year have been on India and as you hear left and right, it's just going as strong as people and as we had expected. But there is a second component in that weaker revenue for us in Q4 and that is the decline of the pent-up demand in secure cards. I think we spoke about this a couple of times through the year that by favouring Mobile demand in '21 and '22, we have brutally undershipped the secure car business and the solid part of the pent-up demand, we actually satisfied through this year, and that starts now to go away. And so that's plus the weak Mobile base station environment explains the downtime into the fourth quarter. How it all plays out next year? I mean, just to go back to my prepared remarks, clearly, that whole segment next year is not necessarily set up for a huge victory lab. Some of these trends, especially in the base station market will likely continue into next year. So staying relatively speaking weak. Kurt Sievers: So I'm looking at time now. I think we are nearing the end of the call. And I would like to summarize there. Bill and I really think the main theme of this quarter is especially that since there has been so much say, different messaging from our peers, we really think that the fundamental content growth drivers in our key businesses being Automotive and the Industrial IoT space are in place, but all of this has been massively overlaid by to what extent people have proactively or not proactively managed the inventory cycle. We have tried to do this as productively as we could most notably for all of you in the reported general inventory numbers, which for six quarters now. We have kept very lean. And also earlier this year, we started to try and do a similar thing on our direct customers by not enforcing NCNR, by being reasonable by finding alternative commercial solutions putting us actually in a situation where we think we have -- due to this somewhat undershipped the demand more than our competitors which leads us now going forward in a situation which is much less pronounced relative to the dip and much more realizing the intended and envisaged soft landing, which we wanted to have. That is the main point here. Other than that business really going back to a more normal pricing environment lead times being normalized, all reasons to believe that this growth quarter from a quarter year-over-year perspective throughout all of next year, resuming growth. You see this in Q4 already. We have year-on-year growth and that should continue throughout all of next year. With that, I thank you all for the attention today. Thank you very much. Bye-bye. Jeff Palmer: Thank you all. We'll call it here. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to the NXP’s Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Palmer. Please go ahead, sir. Jeff Palmer: Thank you, Norma and good morning everyone. Welcome to NXP Semiconductor’s second quarter earnings call. With me on the call today is Kurt Sievers, NXP’s President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today’s call will include forward-looking statements that involve risks and uncertainties that could cause NXP’s results to differ materially from management’s current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the third quarter of 2023. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP’s underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter 2023 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP’s website in the Investor Relations section at nxp.com. I would now like to turn the call over to Kurt. Kurt Sievers: Thank you, Jeff, and good morning, everyone. We really appreciate you joining our call today. I will start with a review of our quarter two results and then discuss our guidance for quarter three. Now let me begin with quarter two. Our revenue came in at the high-end of our guidance or about $100 million better than the midpoint with the trends in all end market segments performing better than our expectations. Taken together, NXP delivered quarter two revenue of $3.3 billion, essentially flat year-on-year, while we continue to maintain our distribution channel inventory strictly at a 1.6-month level, which remains to be well below our long-term target of 2.5 months. Non-GAAP operating margin in quarter two was 35%, 50 basis points above the midpoint of our guidance, so 100 basis points below the year ago period. The year-on-year performance was a result of stronger gross margin, offset by higher R&D investments in support of our mid- and long-term growth targets. Now let me turn to the specific trends in our focus end markets. In Automotive, quarter two revenue was $1.87 billion, up 9% versus the year ago period and near the high-end of our guidance. In Industrial and IoT, quarter two revenue was $578 million, down 19% versus the year ago period and near the high end of our guidance. In Mobile, quarter two revenue was $284 million, down 27% versus the year ago period and above the high-end of our guidance. In Communication, Infrastructure and Other, quarter two revenue was $571 million, up 15% year-on-year and at the high-end of our guidance. During the second quarter, we had experienced incremental improvement across all regions with China also gradually improving quarter-over-quarter. Year-on-year growth was led by our Direct business. While our Distribution business continues to grow sequentially from the trough in Q1, though still down on a year-on-year basis. Now let me turn to our expectations for quarter three 2023. We are guiding quarter three revenue to $3.4 billion. This is down about 1% versus the year ago period and represents sequential growth of about 3% at the midpoint. We do anticipate the following trends in our business. Automotive is expected to be up in the mid-single-digit percent range versus quarter 3, ‘22 and up in the low single-digit range sequentially. Industrial and IoT is expected to be down in the mid-teens percent range versus quarter three ‘22 and up in the low-single-digit percent range sequentially. Mobile is expected to be down in the mid-teens percentage range versus quarter three ‘22 and to be up in the mid-20% range on a sequential basis. And finally, Communication, Infrastructure and Other is expected to be up about 10% versus quarter three ‘22 and flattish sequentially. Our guidance for the third quarter contemplates that we maintain the 1.6 month distribution channel inventory level and very consistent to our approach in prior quarters, we will manage sell-in to the channel tightly, so we may start to increase general inventory as and when we see consistent strength in channel sell-through for future periods. We are well positioned with on-hand inventory to satiate a possible rebound in demand as it emerges. Furthermore, we continue to experience higher input costs. Hence, we stick to our consistent pricing policy, which is to pass along the input cost increases to our customers, while not having our gross margin. From a more strategic standpoint, we focus on enhancing how we work with our suppliers and customers in order to enable long-term supply and demand assurance programs especially in the automotive and core industrial businesses. Now as we progress through 2023, we are gaining confidence that we will be able to return to predictable year-over-year growth of the business. Demand in the Automotive and Core Industrial businesses continues to be solid with only a few pockets of supply shortages persisting through year-end. Within the Mobile segment, we are seeing the expected strong seasonal trends in the premium portion of the market in quarter three. And our consumer IoT business appears to be accelerating from the in Q1. However, it does not show signs of a sharp rebound as of yet. And finally, in our Communications, Infrastructure segment, we see soft and lumpy demand in the cellular base station markets, offset by strength in our secured card and businesses. So taken together our first-half results and our guidance for quarter three give us confidence that we are successfully navigating through the cyclical downturn in our consumer exports businesses, while we do see continued strength in our Automotive, Core Industrial and Communications Infrastructure businesses. We believe quarter one was the trough in our business. And we anticipate the second-half of 2023 will be greater than the first-half of this year and also the second-half of 2023 will grow over the second-half of 2022. And this outlook does not contemplate a strong rebound in the consumer IoT business or the Android handset market nor does it assume the retail of the distribution channel to our long-term target of 2.5 months. So overall, we will continue to be very, very disciplined, manage what is in our control and stay within our long-term financial model. And before I turn the call over to Bill, I'd like to take a moment and thank our automotive processor team for achieving a very significant milestone for the enablement of the software-defined At the end of June, NXP out the industry's first fully automotive specified safe and secure 5-nanometer computer. This is a 4 billion transistor multi-core NPU based on an innovative chip architecture that allows the up-integration of new functions and consolidation of existing functions. The vehicle of the future will utilize new software-defined platforms to allow easy upgrades and new features to be added through the vehicle lifetime. Software-defined vehicles get more performance, more reliable, more functional with time instead of degrading as is the case today. In order to achieve this capability, auto OEMs require both flexibility in their compute architecture as well as the opportunity to tap into a broad ecosystem of application developers. At the top of the compute hierarchy in the car is the vehicle computer that runs the vehicle score services and orchestrates functionality across domains deployed into new and processes. With our S32 platform, NXP is the only semiconductor company which offers a complete portfolio to address a wide range of processing requirements across the entire compute hierarchy of the software-defined vehicle. The challenge the auto OEMs are facing with this transformation is the enablement of both software reuse and software scalability. And NXP's S32 platform addresses that challenge by enabling software reuse both horizontally across domains as well as vertically from low-end controllers, all the way up to the high-performance vehicle computer. Over the last several years, we have engaged with and enabled multiple automotive OEMs in their journey towards the software-defined vehicle. We have continued to receive significant OEM awards, including the new 5-nanometer vehicle computer, which will help accelerate our automotive growth very well beyond 2024. We are and I am really excited to be on this truly transformational journey with the automotive industry. And now I would like to pause -- to pass the call over to you, Bill, for a review of our financial performance. Bill Betz: Well, thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q2 and provided the revenue outlook for Q3, I will move to the financial highlights. Overall, our Q2 financial performance was very good. Revenue was at the high-end of the guidance range and both non-GAAP gross profit and non-GAAP operating profit were above the midpoint of the guidance. Now moving to the details of Q2, total revenue was $3.3 billion essentially flat year-on-year while $99 million above the midpoint of the guidance range. We generated $1.93 billion and non-GAAP gross profit and reported a non-GAAP gross margin of 58%, up 60 basis points year-on-year and 20 basis points above the midpoint of the guidance range. Total non-GAAP operating expenses were $771 million or 23.4% of the revenue, which is up $47 million year-on-year and up $43 million from Q1. This was at the high-end of the guidance range due to our planned annual merit expenses and higher variable compensation. From a total operating profit perspective, non-GAAP operating profit was $1.16 billion and non-GAAP operating margin was 35%. This was down 100 basis points year-on-year though above the midpoint of the guidance range, which is a reflection of solid fall through on the combination of higher revenue, better gross profit offset by slightly higher operating expenses. Non-GAAP interest expense was $73 million with non-GAAP income tax provision of $108 million, consistent with better profitability reflecting a non-GAAP effective tax rate of 16.6%. Non-controlling interest was $6 million and stock-based compensation, which is not included in the non-GAAP earnings was $102 million. Taken together, this resulted in a non-GAAP earnings per share of $3.43 near the high-end of the guidance range. Turning to the changes in our cash and debt. Total debt at the end of Q1 was $11.17 billion flat sequentially. The ending cash position was $3.86 billion, down $67 million sequentially Q2 is the cumulative effect of capital returns, offset by lower CapEx investments, working capital needs, and cash generation during Q2. The resulting net debt was $7.31 billion and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.44 billion. The ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q2 was 1.3 times, and the 12-month adjusted EBITDA interest coverage ratio was 18.2 times. During Q2, we repurchased $302 million of our shares and paid $264 million in cash dividends. Taken together, we returned $566 million to the owners in the quarter, which represented 102% of non-GAAP free cash flow generated -- during the quarter and 80% on a trailing 12-month period. Furthermore, subsequent to the end of Q2, we continue to execute our share repurchase program, buying an incremental $69 million of our shares through Friday, July 21. Now turning to working capital metrics, days of inventory was 137 days, an increase of two days sequentially and distribution channel inventory was 1.6 months or approximately 49 days. When combined, this represents approximately 186 days. Furthermore, we continue to be laser focused on tightly controlling our channel inventory levels, while leveraging our balance sheet strength to hold product and die form for quick turnaround as demand materializes. We will only ship products into distribution that has a high likelihood of selling through in the current quarter or is being presage if needed for specific customer deliveries in the next quarter and along with any change in market conditions. Days receivable were 29 days, down two days sequentially, days payable were 63 days, a sequential decrease of five days due to timing of material receipts. Taken together, the cash conversion cycle was 103 days, an increase of five days versus the prior quarter. Cash flow from operations was $756 million and net CapEx was $200 million or 6% of revenue, resulting in non-GAAP free cash flow of $556 million or 17% of Q2 revenue. On a trailing 12-month basis, this represents a 20% free cash flow margin. We continue to be focused on driving non-GAAP free cash flow margin to greater than 25%, a level we have demonstrated in the past and a level we believe we can achieve in the future. Turning now to our expectations for the third quarter. As Kurt mentioned, we anticipate Q3 revenue to be $3.4 billion, plus or minus $100 million. At the midpoint of our revenue outlook, this is down about 1% year-on-year and about up 3% versus Q2. Furthermore, given our manufacturing cycle times and the current demand environment, our guidance contemplates maintaining channel inventory at 10.6 month level, though again, we may move this upward pending improved market conditions and customer requests. We expect non-GAAP gross margin to be flat sequentially at 58.4% plus or minus 50 basis points as we continue to balance our mix and internal utilizations. However, we do see and expect higher input costs from our suppliers to continue. As a result, we remain focused on mitigating these higher input costs through a combination of productivity, and higher prices to our customers. Operating expenses are expected to be $785 million plus or minus about $10 million, taken together non-GAAP operating margin will be 35.3% at the midpoint. We expect non-GAAP financial expense to be $67 million and non-GAAP tax rate to be 16.6% of profit before tax. Non-controlling interest will be $4 million and for Q3, we suggest for modeling purposes you use an average share count of 261.3 shares and capital expenditures of 7% of revenue. Taken together at the midpoint, this implies a non-GAAP earnings per share of $3.60. In closing, I would like to highlight the key themes for this earnings cycle. First, from a performance standpoint, we will continue to be disciplined to manage what is in our control and stay within our long-term financial model. Second, operationally the Q3 guidance assumes internal factory utilization in the low to mid-70s range similar to this past quarter and a level we expect to hold until internal inventory normalizes. Lastly, we continue to hold more cash on the balance sheet to enable greater flexibility. Options include reinvestment in the business, continued share repurchases, growth of the dividend and reduced debt levels. Similar to last quarter, we continue to remain active repurchasing our shares. I would like to now turn it back to the operator for questions. Operator: Thank you. [Operator Instructions] And our first question comes from the line of Gary Mobley with Wells Fargo. Your line is now open. Gary Mobley: Hey, guys. Thanks for taking my question and let me be the first to extend my congratulations on good execution. You guys have been consistent in your communication about keeping distribution inventory low until you see better sell out of the distribution channel. But per your 10-Q filing, your inventory sales were, up 13.5% sequentially ended June quarter and I have to presume that sell out of the distribution channel is up a commensurate amount. So what precisely are you looking at to define better sell? How the distribution channel does trigger taking up that inventory by $500 million. Kurt Sievers: Yes. Hi, good morning. Thanks, Gary also for the feedback. Yes, we have indeed and that's a good thing, increased our distribution performance in the second quarter, which is also why I said in my prepared remarks that we saw the trough in our consumer exposed businesses, which are the main users of that distribution channel already back in Q1. So we went up into Q2. However, at the same time, we do not see a real rebound in China, so I think that the main trigger point for us would be upper rebound in China, which in our case would both be relevant to the Android handset business, as well as to the consumer exposed IoT business. That hasn't really happened to the extent that we would consider it consistent and persistence enough in order to move up with distribution inventory. And that's why we try to confirm indeed that all the numbers we just gave you for the guidance contemplate a strict 1.6 again, still we may move higher, but then we would also deliver more revenue accordingly in case we see that rebound in China coming. Today, it's not visible. Gary Mobley: Thank you. That's helpful color. Kurt, I appreciate you dropping some breadcrumbs as to how we should think about the second-half of the year and based on those breadcrumbs, we have to infer that your fourth quarter will be flat sequentially. Is that a proper read or is there a possibility it may be even some sequential growth in the fourth quarter? Kurt Sievers: Gary, I mean, I'll let you draw your conclusions about the fourth quarter, which we don't guide here. But clearly, what I did repeat, and I think I said this last earnings already that the second-half is going to be larger than the first-half. Now we are adding indeed that the second-half is also going to grow over the second-half of last year. We don't want to tell it closer than this at this point. It's just hard in the current environment to do so. But I think the key point here is that it is really based on two separate legs, which are very important to contemplate. One, is consistent strength in the automotive core industrial and comms infra business pulling just continue to pull ahead. While at the same time, we left this trough in the consumer exposed businesses in Q1 behind us, which then also helps indeed in the second-half to resume the growth, which I was describing. Now for the fourth quarter specifically, let's see when we get there how that goes. Gary Mobley: Thank you. Operator: Thank you. [Operator Instructions] And the next question will come from the line of Joshua Buchalter with TD Cowen. Your line is now open. Joshua Buchalter: Hi, good morning. And congratulations on the results, and then thanks for taking my question. Last quarter, you called out pockets of inventory at Tier 1s in the auto business from some golden screw issues. I mean, clearly, your results don't seem to indicate that this wasn't an issue at all. But could you provide an update on that situation? Did this resolve intra quarter or still sort of lingering and hanging out there, but you're managing through it? I'd be curious to hear how you're seeing things now? Thank you. Kurt Sievers: Yes, good morning, Joshua. Indeed, it was last earnings that we mentioned that there were about two. Actually as we said European auto Tier 1s, which seem to have some over inventory. In the meantime, this is all contemplated in the guidance you just heard. It is still a, I would say, an unstable situation, because in the meantime lead times have largely normalized. So we are back to a much more normal order pattern, which is good after 2.5 years of turmoil from supply challenges. At the same time, OEMs are asking very much more strict inventory targets from the Tier 1s, but that hasn't settled in all cases. So what we are -- say, seeing here is that in several cases, there is a bit of a 10 situation between the OEMs, the auto OEMs and the automotive Tier 1s, and how much inventory they should actually hold. And that mixed with those golden screw leftovers is indeed leading to a somewhat uneven situation, which in the end and that I mean, I've seen this two, three times before in those cycles. It is now the normalization of what we've had the -- over the past 2.5 years with not much more normal lead times. And in that sense, I think everything is contemplated. I'd say the situation has normalized relative to what I did say last time. Joshua Buchalter: Thank you for all the color there. And then for my follow-up, I wanted to ask about a comment made towards the end of the prepared remarks. It sounds like you're going to hold utilizations in this 70% range until you get back inventory on books to their target range. Just want to confirm that target range is at 95-days from the Analyst Day. And so does that imply sort of sell through greater than sell in in the back half of the year? And you're confident you can keep margins at this level as utilization rates stay in the 70s? Thank you. Bill Betz: Yes. Joshua, this is Bill. Couple of questions in there mixed around. So first, let me talk about utilization. Do we expect those to be very similar in our Q3 in the mid to low-70s? And again, what we've guided is our improved mix a bit higher revenues offsetting those utilizations very nicely of everything we can see. On inventory, we expect inventory to go down from a day standpoint internally assuming the channel stays at the 1.6, right? So we're not counting on those 25-days to deplete our internal inventory. That'll be at a later date when we feel confident in the market. So remember, so we're holding about 25-days of extra inventory internally on our balance sheet and prepared for that. I think overall longer term, I would say we're more comfortable holding about a 105-days, I would call it a bit more normal than a 95-day target we said about a year and a half ago. We've learned a lot over the last couple of years and it's just good to have a little bit more inventory, so you can really churn those any orders inside the quarter under lead times and be able to upside revenue. And clearly, we've demonstrated that the past two quarters by upsiding our revenue, having the material in our die bank and being able to fast turn them through our back-end and deliver. So the team is doing a great job here. Joshua Buchalter: Thank you. Operator: Thank you. [Operator Instructions] And our next question will come from the line of Ross Seymore with Deutsche Bank. Your line is now open, sir. Ross Seymore: Hi, guys. Thanks for letting me ask a question. Kurt, first one for you, I just want to dig a little deeper into the automotive side, people have been waiting for another shoe to drop in that space for a couple of years' time. And you guys have been, kind of, flat to up solidly on a sequential basis and much better than that on a year-over-year basis for nearly four quarters now including your guide. So I just wanted to go into the covers is -- are you still limited by supply? If I put content together with some unit growth, you don't seem to be doing anything better than SAAR right now. So just if you could go into where supply and demand are relative to one another on thinking, any of those sorts of details would be great? Kurt Sievers: Yes. Thanks, Ross. Good morning, happy to -- I'm happy to do so, but let me maybe just respond to the initial part of the question on the shoe to drop in automotive. I think the shoe just fits, I -- we just don't see it dropping, because things are largely normalized by now, which means indeed we only have a few actually stubborn pockets of supply constraints left. But in the biggest scheme of things, I mean, they are nasty for customers, but from a revenue perspective or from an order size perspective, those are actually quite small. So this whole idea of a totally overstated backlog or huge inventory build, I mean, that's behind us. We've been working through this over the last three quarters. The automotive industry situation, in my view, is actually surprisingly good, I'd say surprisingly, because when you remember back to the SAAR forecast at the beginning of the year, they were more in the 3% range. I think last quarter, we talked about 4%. We keep quoting S&P and now they say 5%. And that's also the numbers which are being recorded from the different regions. So SAAR itself is on a solid path for this year. Yes, it still only returns then for the full-year with 87 million units to a number which is still lower than the 2019 peak volume. The more important part of it, obviously, is the top -- how many electric vehicles and hybrid vehicles are amongst that? And also they're very consistent. Any forecast we have says that about a third of the global status here is going to be either hybrid or fully electric vehicles, which is a 31% year-on-year growth in absolute terms of those type of reasons, which from a content increase perspective is, of course, a fantastic opportunity for the semiconductor business. So also here, nothing to worry about. Now the whole turmoil, I would say, which clearly we have been witnessing is in the supply chain. There was this complete supply crisis over a very extended period of time, which would totally drain supply chain, which has now normalized. And then with the golden screw that normalization has been a bit uneven in cases, but I think that's all coming to a point that things are more normal. Now when you say growing just around SAAR, well, we look at our trailing 12-months growth, which I think sits at 12% currently with the guidance for Q3, which is pretty fine. I mean, this is exactly where it needs to be. And if you look back over the last 10-years, there has never been one quarter, which is showing the mathematical formula of SAAR plus content increase. I mean, that just never happens. It always moves around per quarter. So I'd say with more normal lead times now, things are in the right place. Ross Seymore: Thank you for all that color Kurt. I guess for my follow-up, one on the gross margin side for Bill. You guys have done a great job. You're at the high-end of your long-term target for your last analyst meeting and you've done that while mix is moving around and utilization is low to the extent we focus on the mix side of that equation, when you talk about mix being a tailwind, is that between your segments that you're referring to and if it is. If those segments start to normalize at some point, your industrial IoT business grew very fast in this last quarter, you're guiding for the next quarter, the mobile business to come back, does mix become less of a tailwind? And if so, how do you handle that? And how does it show itself on gross margins? Bill Betz: Sure. Thank you, Ross. And let me try to share additional color for our gross margin performance for Q2, the guidance we just provided talk about the next several quarters of what we can see after Q3 and even more longer term, so beyond the next year. And again for Q2, the guidance, we did slightly better, because of that product mix. Now if you look at our distribution. Distribution represented about 51% of our sales and this is up nicely from 48%. And again, distribution long tail has higher margin, lower volume type of customers and richer mix. And again, still not where it used to be more in the mid-50s. So this, kind of, is offsetting us very nicely as we really work our internal inventory down and adjust our foundry purchase orders, it just takes time to do that. And so we feel good at the right balance, these two offsetting each other. Q3 guidance more of the same. And again, as I mentioned earlier in another question, a response to a question is, I think, and we are planning for inventory days to go below the current levels as we get that back into control and improve our free cash flow. Now beyond Q3 and next several quarters, we expect I'd say remain at the high-end of the gross margin model of 58%, plus or minus the 50 basis points. And again, mix I believe is more of a tailwind, not as a headwind, because the distribution we're really focusing on that long tail and we expect that to really kick-in as we continue to go forward. Now much longer term, so think about beyond next year. I would say our ambitions are to see gross margins to expand further, driven by higher revenues. You have to remember this falls through on a 30% fixed cost structure that we have talked about. We should see productivity gains, especially when returning our utilization rates to more optimal levels, so more back to that 85%. We -- I would say we plan to focus on growing that long-term customers, which again are those lower volume, but higher margin business. And lastly, you've heard us talk about this. How our new product introductions become accretive over the long-term as they ramp up? It just takes time. So overall, we feel quite good to increase gross margins over the longer term above the current levels. Obviously, the next couple of quarters, we think, will be in this zip code of what we just shared. Ross Seymore: Thanks, Bill. Operator: Thank you. [Operator Instructions] And our next question comes from the line of Stacy Rasgon with Bernstein Research. Your line is now open. Stacy Rasgon: Hi, guys. Thanks for taking my questions. First one, I had some more questions on the disti sales. I'm a little bit confused, so the disti sales weren't up, but the months didn't change that means the sell-out was equal to the increase in sell-in, but that's not a recovery. I guess can you explain that? And what are you assuming the disti sales doing Q3 in sell-in and sell-out in order to keep that -- the month of inventory flat in Q3? Bill Betz: So, Stacy, let me take that one. So selling was up, sell-through was up that's the only way you can balance that 1.6. Stacy Rasgon: Right. Bill Betz: So that's what the math is. In Q3, we expect, again, our distribution sales as a percentage of how we service our customers to be up again. Stacy Rasgon: Okay. So how is that not a recovery though? I mean you didn't think that, that was a recovery. So this is like a few quarters now where it looks at the sell-through is going up. Bill Betz: We've talked about a normal steady recovery, but no sharp rebounds that many are anticipating specifically out of China. Stacy Rasgon: Got it. Okay and thank you. For my second question, I want to follow-up on just -- it was an offhand comment you just made in front of one of the other questions. You talked about controlling your internal inventories and adjusting your foundry purchase orders. What did that last statement mean, you're reducing your foundry purchase orders in order to help bring your internal inventories down? Bill Betz: No. It's -- again, as you can imagine, six months ago, we had foundry purchase orders, we have internal utilizations that we're in, I don't know, in the '90s, right? So naturally, as we adjust our inventory levels to real demand we adjust both those levers. I mean that's just normal business. Stacy Rasgon: Got it. I guess, I'm confused at like your utilizations are in the 70s and your gross margins are at the peak. And I mean before your gross margin got anywhere closer, your utilizations were probably in the 90s. Is that just overall higher revenues or is it -- I mean, because disti sales are lower, I guess, how are you actually getting the margins to where they are [Multiple Speakers] utilizations are? Bill Betz: Sure. I think there's a combination of tailwinds offsetting those -- that internal utilization. First off, the internal utilization in our factory footprint is much lower than it was three or four or even six years ago during different cycles. We're talking about 30% fixed cost structure, much lower than the past as we source 60% externally. The mix of our products, the quality of our portfolio have improved. And, so you can see as we work through the cycle, distribution was quite low, and I continue repeat on this distribution represents the long tail, which carries a richer mix, because it's low volume, compared to more of your direct customers, which tend to be higher volumes and a bit lower margin. There's really no difference between segment mix. We really looked at product mix, because all the segments are very close to the corporate average. That's what we drive. So we feel very comfortable where we are with these utilization rates to focus on our free cash flow and bring in slight little of that back in balance. Again, we're holding 25 days of that distribution inventory and then maybe we'll get another five or 10 days internally to get that back into balance, and we feel very comfortable to support the growth of our long-term business. But I would say we have quite a number of tailwinds and headwinds that can offset each other. Stacy Rasgon: Got it. That’s helpful. Thank you, guys. Bill Betz: You bet. Operator: Thank you. [Operator Instructions] And our next question will come from the line of Vivek Arya with Bank of America Securities. Your line is now open. Vivek Arya: Thank you for taking my question. Kurt, how is NXP's content different in a hybrid or full EV versus a traditional ICE jar? And I ask that because when I look at your automotive business, so you mentioned it's up about 12%, 13% in the first-half, but it is slowing down towards, kind of, the mid-single-digit range in Q3. So, when we compare that against a SAAR production level that is quite decent, then we also add in some of the pricing tailwinds and some of the content tailwinds, wouldn't that suggest your automotive sales should be growing faster at this point? So just curious, how does that hybrid versus ICE mix play into how you look at your automotive sales growth? Kurt Sievers: Yes. Thanks, Vivek. So, the content or our exposure to electric and hybrid vehicles is extremely accretive to us. And that is products, which are specific to the electric drive train like battery management and gate drivers for inverter control, et cetera. But it is also a lot of other products, which are pulled into electric vehicles, because they tend to be much richer when it comes to electronic features in the ADAS and body and comfort world, so highly accretive to NXP. Now what you try to do it that just doesn't work, you can never take a single quarter and compare the SAAR, which you see, to our revenue. The products which are now getting into cars, we probably shipped two quarters ago, maybe in some cases, longer. It's a very deep supply chain, which has been the whole reason for the drama over the last 2.5 years. So, it doesn't work that way. It's not like mobile, where we ship and then it sits in the smartphone four weeks later. That's not the rhythm and the cadence in automotive. So, some of this on a more, say, normalized basis over several quarters certainly has to do that finally, the supply chain is now stabilizing, which is a good thing. So, we are very happy with how it's moving, because it looks like the drama comes behind us, while at the same time, we are now in a position -- and that's very different to pre-crisis days, we are in a position now to have much longer-term demand and supply assurance programs in place with our customers, which means we have a much longer forward visibility on our revenue stream and on our required products. Vivek Arya: Got it. And then, Kurt, on -- as the supply environment in automotive normalizes, how are the discussions with your customers changing as you look over the next three, four quarters? Are they less willing to accept higher prices? Are they less willing to take on and hold inventory than they did in the past? Like how is this environment going to transition as we go from a very supply-constrained environment to something that is more towards a normal environment? Kurt Sievers: Right. I have to repeat what I said last call, because that really hasn't changed from that perspective. Our pricing follows the increased input costs and unfortunately, we continue to have increased input costs through this year. So NXP pricing, including Automotive, will be up this year. For next year, we see the same signs again of increasing input costs. A few other elements in our input costs seem to look a little bit better for next year. So, it's hard for me to say what exactly the mix of our manufacturing and input cost is going to be next year. If it is up again and unfortunately, there are signs it could be up again then we will follow the same policy we have so far. And you know it will be accepted, Vivek, because our product, especially in automotive, where I think your question is going to, is unique. It is, in most cases, anyway not replaceable on the short-term. So, there is no -- this whole idea of it is a commodity product and if the price doesn't sit where it should say somebody else gets the socket, that doesn't work in that industry. It's actually much more the opposite through what we've done over the last two, three years we have a much bigger number of very long-term agreements with our customers on demand assurance, which is to our benefit, but we also signed up for supply assurance to their benefit, which is a pretty symmetric model. But that model avoids actually any short-term fluctuations which you are probably questioning here. Vivek Arya: Okay. Thank you, Kurt, very helpful. Operator: Thank you. [Operator Instructions] And our next question comes from the line of Francois Bouvignies with UBS. Your line is now open. Francois Bouvignies: Hi, thank you very much. I have two quick questions. The first one is on the automotive. And Kurt, I think you have been very clear on the solid outlook for Automotive. I just wanted to check on the all the behavior that you have in Automotive in a way that you don't see anything on the P&L side, but I assume you have a significant backlog still to normalize? And what we are seeing in the auto OEM side is like the orders is coming down rather sharply also on the EV side of things, probably some macro impact there. But I just wanted to check with you if you see any impacts on the order behavior, although it doesn't impact your P&L, because of your backlog yet. Is there anything happening on these orders that you see coming through? Kurt Sievers: Hi, Francois. Thanks for the question. I actually I like the question, because it helps me to clarify something. We never worked on the backlog. We never have that concept of looking at a big backlog, which is like pent-up demand and then working it down. We did these NCNR agreements, which we continue to do with our customers in order to have a long-term perspective on what the true demand is. Nothing about backlog, it's really about true demand and how we can best serve that over an extended period of time. So therefore, no, there is no negative or positive impact from working dollar backlog that has normalized already. So we -- it's not that we currently benefit from a backlog, which has worked down, which would be larger than the true demand. We don't have that. That's behind us. We -- maybe we had a bit of this in the first quarter, but that's behind us. I would rather say I'm not -- I cannot completely see what you said about the negative macro impact on automotive. So clearly, I agree with you on the one hand that, of course, the macro is very uncertain, and there is a lot of concerns about consumer behavior. At the same time, if you look at the fact then as I said earlier, the SAAR for this year is consistently every quarter upgraded. So it's now at a 5% growth forecast for this year, that's not NXP it's third-party research companies. The electrification penetration is consistent with what people said before and I just checked this data yesterday, the dealer inventories are now below the long-term average in China. So they are lower than what they used to be. In the U.S., they are lower than what they used to be. Only in Europe, dealer inventories apparently have, kind of, normalized now. So while I totally agree with you that the macro is certainly more the great place to be currently. But the auto comes consumption per se is actually not in the bad shape. Maybe some OEMs were much more ambitious in the first place, that may be, but if you look at the numbers, which are actually happening month-on-month and quarter-on-quarter, it's not degrading. Francois Bouvignies: Very clear. Thank you, Kurt for your answer. My quick follow-up would be on the pricing. Obviously, it's concern for investors, I mean, at least a big focus. And we are seeing some, sort of, pocket of pricing pressure from local Chinese for vast range of product. So I was wondering, you talked about the input cost increasing and that's putting the pricing up for your business. How do you see the behavior of some local Chinese or some discount that we see? It seems to be on the low-end side of the spectrum, but just want wondering if you see anything on your side? And maybe it would be great to have a quantification of how much of your business you would consider as low end versus high end, maybe would be very helpful? Kurt Sievers: Yes. I mean there was already a quarter ago that some of our peers apparently spooked the market a bit with this -- with what you say. I mean we -- I can only report here what we are witnessing. The only one place where we see more extended pricing pressure is low-end micro controllers in China, which is something, which we have almost abundant already a while ago. I mean we are still witnessing it because it's, of course, we speak to our distribution partners there and the end customers. But that's not a place where NXP ever really wanted to be, because the main philosophy of our business is to be differentiated by product, by the product value and its performance and its specification. So wherever we would be in something you call low end or a commoditized replaceable product, it's actually not a place where NXP is normally operating. Now that doesn't mean it's zero, Francois, because things over time might commoditize. So we are always having some of this. I cannot quantify it, but it's actually quite small because the whole philosophy of NXP is to not compete on price. Francois Bouvignies: Thank you. Thank you. Operator: Thank you. [Operator Instructions] And our next question will come from the line of C.J. Muse from Evercore ISI. Your line is now open. C.J. Muse: Yes, good morning. Thank you for taking the question. I guess, Kurt, I was hoping you could spend a little time discussing the trends that you're seeing in China, whether there's any green shoots at all, whether it's NIO and BYD or Android or other? Would love to hear your thoughts? Kurt Sievers: Yes. Thanks, C.J., I'm hesitating a little, because I wish I could say we see the rebound, which maybe everybody was hoping for. And bottom line is what -- I will give you a few more details, but we don't see a rebound. And that's also not contemplated in any of our numbers or remarks. Now in our specific case, I would maybe highlight two things. We have a strong feeling that at least in the Android space, the over inventory, which we might have had with our customers is worked down. So it looks like that our exposure to Android phones is now such that if there is a demand increase from the consumer side, we will immediately have it also in our numbers. No more inventory sitting there, which -- and that could be company specific. So I can only say that for NXP. At the same time, we don't see a massive pickup in Android. But I'm sure our peers which have much more exposure to the China handset market will provide more clarity in this during the next calls in the next couple of days. The other side is, indeed, in Automotive, we are nicely exposed to those electric car companies, which, in my view, will be the winners in China and maybe to an extent globally. I don't know to what extent they will be able to do this globally, but certainly in China, companies like BYD potentially going forward also NIO will grow share. And our exposure to them is very nice because they have a tendency to pick up newer products much faster than the Western car companies. So on average, we have a much newer part of our portfolio in those companies, which sits at higher ASPs, which is why we benefit from their success to a much higher rate than we would with competitors from the West, given the portfolio exposure we have. So that's a good thing. And they seem to be on a good road. So I dare to say that China electric automotive is in a good place. It's developing nicely. Finally, the much more hard-to-grasp consumer IoT world, which we are serving in China, we had nice sequential increase from Q1 into Q2. And when you look at our guidance into quarter three, which in Industrial IoT is again some sequential increase, that also comes from China consumer IoT. So it is gradually increasing. However, I wouldn't call it a rebound, and that goes back to the whole discussion we had earlier about when do we start to refill the channel? The signals we have currently are not strong enough to justify that. So it's still a very mixed picture, C.J. C.J. Muse: Very helpful. As my follow-up, and I don't know if it's for Kurt or Bill, but Tier 2 foundry pricing has definitely weakened over the last few months. And just curious, are you seeing that potentially spread to the Tier 1s? And is that loosening up wafer pricing for you at all in any of your markets? Thank you. Kurt Sievers: Yes. So I would confirm that Tier 2s have shown that behavior, absolutely. The trouble is it doesn't help us much, because most of our Tier 1 and Core Industrial and Automotive customers don't want product from these sources. So for a larger majority of our input costs that hasn't helped. Will it spread to the Tier 1 foundries? You go ask them, C.J. I don't know. I would be really stimulating here, which I can't. We don't have signs of that yet. C.J. Muse: Very helpful. Thank you. Operator: Thank you. Jeff Palmer: Hey Norma, we'll take one last question here today. Thank you. Operator: Thank you. And our final question will come from the line of Blayne Curtis with Barclays. Your line is now open. Blayne Curtis: Hey, thanks for squeezing me in. Maybe I'll just start by following on C.J.'s question, because you mentioned higher input costs. So I think it sounds like you're not getting breaks in the foundries, but I'm curious if you could just quantify where you're seeing the most pressure from rising input costs, external versus internal? And when does that start to layer in? Kurt Sievers: Blayne, that's not new. So we've had for probably two years in a row, a quite significant input cost increases. Of course, those are our own costs, but input costs from foundries, which for us is clearly the Tier 1 foundries, which are well-known companies. And there were even -- I think it was even public to what extent they have raised their price on us, as well as in our competitors. So that is the whole reason why we had continuously had to increase our price to our customers in order to offset that and protect our gross margin performance. When that's going to change Blayne again, I don't know, but it's a matter of fact that the Tier 2 foundries, they have already reduced prices in some cases, quite considerably, but it hasn't spread so far to any of the Tier 1s, and we also haven't -- we haven't really had indications that they would change. Blayne Curtis: Great. And then I just want to ask you, Kurt, on lead times. You said a couple of times more normal ranges. I think if I remember right, last quarter, you still had a one-third that were greater than 52-weeks. So maybe just a little more color on what that more normal is, what your normal range is and all your products, for the most part, back into that normal range by that comment? Kurt Sievers: Yes, most of the products are. The trouble is, and that's why I didn't give a number here -- well, not trouble is actually, it's a positive thing. A good part of our business sits under these MT&R contracts, where, by definition, we are all out for the year. So all of those products for those customers where we have these agreements, the lead time is 52-weeks by definition because the orders have been already placed for the full-year. But if you theoretically took this away and said it was -- that wasn't existing, then I'd say the largest part of NXP products have normal lead times. We have a very few remaining notes, one or two internally and one or two from third-party foundries where we are still in a severe shortage, which are very nasty because you know that each product which is missing to a customer is a big problem. But from a size perspective, if you measure it in dollars against our total revenue, this is very minimal in the meantime. And through the end of the year, it should have gone away completely. Blayne Curtis: Thank you. Kurt Sievers: All right. Then operator, I think I have to close the call here, and I want to thank you all for being on the call. In summary, our take is that we see clearly now that we left the trough of the consumer exposed businesses behind us in Q1, see good incremental growth from there sequentially, while Automotive, Homes Infra and Core Industrial continue to be very solid and that together lets us resume much more predictable growth going forward. And at the same time, we are confident to stick to our resilient margin pattern at the high end of our long-term guidance. With that, I want to thank you all and speak to you next. Thank you. Bye-bye. Bill Betz: Thank you very much. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.

Operator: Good day and thank you for standing by. Welcome to the NXP First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Palmer. Please go ahead. Jeff Palmer: Thank you, Latania, and good morning, everyone. Welcome to NXP Semiconductor's First Quarter Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include but are not limited to statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the second quarter of 2023. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2023 earnings press release, which will be furnished to the SEC on Form 8-K and available on NXP's website in the Investor Relations section at nxp.com. I would now like to turn the call over to Kurt. Kurt Sievers: Thanks very much, Jeff, and good morning, everyone. We appreciate you joining our call today. I will start with a review of our quarter 1 results and then discuss our guidance for the second quarter. So let me begin with quarter 1. Our revenue was $121 million better than the midpoint of our guidance, with the trends in all the end market segments performing better than our expectations. Taken together, NXP delivered quarter 1 revenue of $3.12 billion, essentially flat year-on-year, while we continued to maintain our distribution channel inventory at a 1.6 months level, which is well below our long-term target. Non-GAAP operating margin in Q1 was 34.8%, 50 basis points above the midpoint of our guidance, so 90 basis points below the year-ago period. Year-on-year performance was a result of flattish revenue combined with better gross margin offset by higher operating expenses. Now let me turn to the specific trends in our focus end markets. In Automotive, quarter 1 revenue was $1.83 billion, up 17% versus the year ago period and above the midpoint of our guidance. In Industrial & IoT, quarter 1 revenue was $504 million, down 26% versus the year-ago period and near the high end of our guidance. In Mobile, quarter 1 revenue was $260 million, down 35% versus the year ago period and near the high end of our guidance. And finally, Communication Infrastructure and Other, quarter 1 revenue was $529 million, up 7% year-on-year and above the midpoint of our guidance. During that first quarter, after a slow start, we have seen modest incremental improvement in our China-exposed businesses, which are primarily served through the distribution channel. And this was particularly true for our Industrial & IoT and Mobile businesses. At the same time, we saw solid demand in our North American and European businesses across all market segments. Now I will turn to our expectations for the second quarter of 2023. We are guiding Q2 revenue to $3.2 billion. While this is down about 3% versus the year-ago period, it represents a sequential resumption of growth to about 3% at the midpoint. At the midpoint, we anticipate the following trends in our business. Automotive is expected to be up in the high single-digit percent range versus quarter 2 2022 and up in the low single-digit range versus quarter 1 2023. Industrial & IoT is expected to be down in the mid-20% range year-on-year and up in the high single-digit percent range versus quarter 1 2023. Mobile is expected to be down in the low 30% range year-on-year and to be flat on a sequential basis. And finally, Communication Infrastructure and Other is expected to be up about 10% year-on-year and up in the mid-single-digit range sequentially. In summary, as we progress through 2023, we do see a continued solid demand environment in our automotive, core industrial and communications infrastructure businesses, while our consumer, IoT and mobile businesses are stabilizing. We believe the severe shortages which we have experienced over the last 2 years should subside as we progress towards the end of this year, with now only about 1/3 of our portfolio with lead times greater than 52 weeks. This is down substantially from prior periods. However, we continue to still be supply constrained in several specific technology nodes, primarily for the automotive and core industrial segments. In addition, we are experiencing higher input costs. Hence, we continue to execute our consistent pricing policy, which is to pass along the cost increases to our customers while not padding our gross margin. Within Automotive, we see a combination of positive tailwinds continuing throughout the year. This includes the ongoing secular adoption of xEV drivetrains and ADAS as well as NXP-specific content and price increases. Third-party research firms anticipate a modest increase year-on-year of global car production, while at the same time we believe there are pockets of elevated inventory held at some select Tier 1 auto suppliers due to the golden screw issues which have plagued the extended auto supply chain. In Industrial & IoT, we expect relative strength in the core industrial submarkets as our products enable critical infrastructure and companies to be more efficient. However, while the consumer IoT business is stabilizing, a more significant growth will be dependent on a cyclical rebound, especially in China. In the Mobile segment, we continue to navigate through a sub-seasonal trough in the first half of this year. However, we do anticipate normal premium model releases in the second half to help resume growth. And lastly, in Communications, Infrastructure and Other, we are further improving our supply capability against growing secular demand, specifically in our RFID tagging solutions, and against pent-up demand for secure card solutions. On the other hand, our RF power business remains lumpy, and growth this year is limited to 5G build-outs in India. Our guidance for the second quarter contemplates that we maintain the 1.6 months channel inventory level. And yet, we may start increasing this level if and when we see consistent strength in channel sell-through into the second half of this year. And overall, we are very well positioned with on-hand inventory to satiate a possible rebound in demand as it emerges. In summary, the combination of our first quarter results, the guidance for the second quarter and our early views into the second half of the year leads us to believe that total revenue for the second half of the year will be greater than the first half. Despite our cautious optimism, we do acknowledge the ongoing uncertainty in the demand environment. Therefore, we will continue to be very disciplined and manage what is in our control and stay within our long-term financial model. And with that, I would like to pass the call over to you, Bill, for a review of our financial performance. Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q1 and provided our revenue outlook for Q2, I will move to the financial highlights. Overall, our Q1 financial performance was very good. Revenue was above the high end of our guidance range, and both non-GAAP gross and operating profits were above the midpoint of the guidance. Now moving to the details of Q1. Total revenue was $3.12 billion, essentially flat year-on-year, while $121 million above the midpoint of the guidance range. We generated [Technical Difficulty]. Operator: [Operator Instructions] This is your operator and you are live. Kurt Sievers: Great. Bill, why don't you continue? Sorry about that, folks. Bill Betz: So let me start now moving to the details of Q1. Total revenue was $3.12 billion, essentially flat year-on-year, while $121 million above the midpoint of the guidance range. We generated $1.82 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.2%, up 60 basis points year-on-year and 20 basis points above the midpoint of the guidance range. Total non-GAAP operating expenses were $728 million or 23.3% of revenue, up $40 million year-on-year and up $15 million from Q4, modestly above the high end of the guidance range, driven by variable compensation and slightly higher R&D investments. From a total operating profit perspective, non-GAAP operating profit was $1.09 billion and non-GAAP operating margin was 34.8%, down 90 basis points year-on-year, though above the midpoint of the guidance range, reflecting solid fall-through on the increased revenue level versus the guide. Non-GAAP interest expense was $76 million, with non-GAAP income tax provision of $167 million, consistent with the high end of the guidance due to better profitability, reflecting a non-GAAP effective tax rate of 16.6%. Noncontrolling interest was $8 million and stock-based compensation, which is not included in the non-GAAP earnings, was $99 million. Taken together, this resulted in a non-GAAP earnings per share of $3.19, which is near the high end of our guidance range. Turning to the changes in our cash and debt. Total debt at the end of Q1 was $11.17 billion, flat sequentially. The ending cash position was $3.93 billion, up $85 million sequentially due to the cumulative effect of higher working capital, CapEx investments, capital returns and cash generation during Q1. The resulting net debt was $7.24 billion and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.46 billion. The ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q1 was 1.3x and the 12-month adjusted EBITDA interest coverage was 16.4x. During Q1, we paid $219 million in cash dividends, which represented 35% of cash flow from operations. Due to the uncertain macro environment and the recent liquidity issues in the regional banking sector, we paused our share repurchases during Q1. However, we plan to resume buybacks in Q2 and our capital allocation strategy has not changed. We plan to return 100% of excess free cash flow back to the owners of the company. Turning to working capital metrics. Days of inventory was 135 days, an increase of 19 days sequentially, and distribution channel inventory was 1.6 months or 49 days. When combined, this represents approximately 184 days. As mentioned during the last earnings call, our inventory strategy is to manage both on hand and channel inventory together to better serve our customers and prevent excess finished goods inventory on our balance sheet and/or in the distribution channel. Our goal is to only ship products into the distribution channel that have a high likelihood of selling through in the current quarter or of being pre-staged if needed for customer delivery in the next quarter. From an internal standpoint, we are comfortable supporting approximately 140 days of inventory on the balance sheet, so long as we hold the channel at 1.6 months or 49 days. As the channel inventory returns to the long-term target of 2.5 months or 75 days, we would correspondingly lower our balance sheet inventory. In Q1, the inventory flexibility on the balance sheet enabled us to deliver an extra $120 million of revenue by leveraging the die bank inventory on hand. Moving on to days receivables. It was 31 days, up 5 days sequentially. Days payable were 68 days, a sequential decrease of 9 days due to the timing of material receipts. Please note, beginning in Q1, we reclassified certain payables amounts to other current liabilities to better reflect true payable trends. Taken together, the cash conversion cycle was 98 days, an increase of 33 days versus the prior quarter as we leveraged the balance sheet to avoid overshipping into the channel. Cash flow from operations was $632 million and net CapEx was $251 million, resulting in non-GAAP free cash flow of $381 million or 12% of revenue. The reduction in free cash flow quarter-on-quarter is primarily due to increased working capital needs as previously noted. Our long-term target has not changed and we are focused on driving non-GAAP free cash flow margin to greater than 25%, a level we demonstrated in the second half of 2022. Turning now to our expectations for the second quarter. As Kurt mentioned, we anticipate Q2 revenue to be $3.2 billion, plus or minus $100 million. Furthermore, given our manufacturing cycle times and the current demand environment, our guidance contemplates maintaining channel inventory at a 1.6-month level, though we may move this upward pending improved market conditions. At the midpoint of our revenue outlook, this is down [ 3% ] year-on-year and up 3% versus Q1. We expect non-GAAP gross margin to be flat sequentially at 58.2%, plus or minus 50 basis points. Operating expenses are expected to be $760 million, plus or minus about $10 million, reflecting annual merit increases. Taken together, non-GAAP operating margin will be 34.5% at the midpoint. We expect non-GAAP financial expense to be $69 million and the non-GAAP tax rate to be 16.5% of profit before tax. Noncontrolling interest will be $7 million. For Q2, we suggest for modeling purposes you use an average share count of 261.2 million shares and a CapEx rate of 8% of revenue. Taken together at the midpoint, this implies a non-GAAP earnings per share of $3.28. In closing, I would like to highlight the key themes for this earnings cycle. First, we will continue to manage our inventory as a combination of internal and channel inventory. This enables us to better serve our customers' requirements, prevent excess inventory buildup in the channel and supports our outlook for the second half revenue of 2023 to be greater than the first half. Second, the Q2 guidance contemplates internal factory utilization to be in the mid-70s range, which is modestly down from the low 80s in Q1. We believe operating our factories at a more reasonable utilization level enables better flexibility and improved throughput. Despite the lower utilization level, we anticipate our gross margin to remain at the high end of our long-term model for the remainder of 2023, driven by improved product mix. Thirdly, we are holding more cash on the balance sheet to enable greater flexibility. This includes options around the timing and magnitude of share repurchases, cash dividends or the ability to retire debt early, as well as any small tuck-in acquisitions, all of which can be funded with cash on hand. Finally, we will continue to be very disciplined to manage what is in our control and stay within our long-term financial model. I would like to now turn it back to the operator for questions. Operator: [Operator Instructions] Our first question will come from C.J. Muse of Evercore. Christopher Muse: I guess first question, I was hoping you could speak to perhaps pricing tailwinds in 2023. You told us in January that you saw a 14% increase for the overall business. And obviously, you're not going to update each quarter, I get that. But just curious, embedded in your outlook for a stronger second half versus first half, how are you thinking about the impact of higher pricing as it relates to your higher input costs? And is that something that is broad-based across all segments, or is that something that we should be thinking about to just specific segments? Kurt Sievers: Thanks, C.J. So no, we don't see headwinds from pricing throughout this year. I would actually indeed say it's probably on the other side of that, since we continue to experience growing input cost, and we stay absolutely rock solid with our pricing policy, which has been and continues to be to pass on all of the increased input cost in order to keep our gross margin percentage protected. So from that perspective, there will continue to be price increases this year. So no headwinds here. It's actually a tailwind. And yes, we will only detail out how big that tailwind is going to be by early next year, so just like we did this year and the year before. Now when you think across the segments -- I think that was the second half of your question, how does it go into the different segments, I would say directionally, this is pretty simple and straightforward. It is a function of supply and demand, and the -- say, the supply shortages, as I think I mentioned in my prepared remarks, are most persistent in automotive and core industrial. So those are then also the 2 segments where the pricing sees the biggest tailwind continued into this year or throughout this year. In general, it's also important to note, C.J., that a large part of our business is actually anchored on annual price negotiations, which is anyway an annual price for the whole year where we don't touch that through the year. So in short, no headwind from pricing. What is contemplated in what we said about the second half being larger than the first half in terms of revenue in this year is based also on continued price increases. Christopher Muse: Very helpful. As my quick follow-up, your OEM sales grew to 51% of total sales versus 45% a year ago. Is that simply a function of kind of mix shift to auto/industrial, or is this a permanent shift that we should be thinking about for NXP? Kurt Sievers: No, that was actually a function of the weakness of China in Q1. As we spoke on the last call, we had the significant weakness to start within the quarter 1 in China. China is largely distribution for us and a large part of our China business is then again with the industrial IoT and also automotive business. And this is why the distribution part of the business came out so much weaker relatively speaking through the first quarter. So no, this is not going to be a permanent thing, but it has been a direct impact and consequence of this Q1 weakness in China. Operator: [Operator Instructions] And our next question will come from Ross Seymore of Deutsche Bank. Ross Seymore: I wanted to just talk about the Auto segment. Kurt, you just mentioned about still some shortages there. It's great to see significant upside in everything other than Auto. Can you just talk about a little bit of what you're seeing on the demand side in Auto? Is it really just supply limited? Is that the reason that it was a great quarter, but didn't upside as much as the others? Just some puts and takes on end demand versus supply, please? Kurt Sievers: Yes. Thanks, Ross. Well, I actually felt Q1 in Auto was a great quarter. I think we did 17% year-on-year growth, which is above the high end of our long-term revenue growth guidance. Indeed, the upside in Q1 in Auto was all gated by supply capability. That's indeed a matter of fact. Going forward, the remaining shortages which we see across the company are largely in automotive, a little bit also in core industrial, but the more material part of the shortages indeed continues to be in automotive, such that through the year, I would say the growth is really sitting on the drivers which we have discussed before. It is continued content increases, which follows the xEV penetration and ADAS penetration. I'm pretty damn sure that NXP continues to gain share in automotive. It is pricing as I talked to C.J. earlier, which is in automotive quite vivid. And going forward, I hope that the supply/demand situation, Ross, will normalize through the second half of this year, including automotive. Ross Seymore: That's a perfect segue to my second question and that's on the utilization rate and the inventory. I was a little surprised that the inventory kind of did what you guys expected it to despite revenues beating so nicely. And then you're talking about taking utilization down while you're simultaneously sounding significantly more optimistic about the demand conditions, your ability to grow half over half, et cetera. Can you help us reconcile how the utilization/inventory versus conservatism versus more optimism on demand balance out? Bill Betz: Sure, Ross. Let me take that. So our utilizations, as mentioned, are running now in the mid-70s versus, again, last quarter, low 80s, and then they were in the 90s in Q4 and high 90s. And we think the sweet spot is around probably 80% to 85%. We're a bit below that at the moment as we're trying to make sure we have rebuilt several of our buffer areas where we get inventory or produce inventory internally. So we have that all in strategic die bank form and ready to take on any new orders within the quarter and service them in that period. Related to our inventory, let me just help bridge that a bit. Again, we're holding about -- we're comfortable holding about 140 days. We're at 135 today. And if you think about it, we have 25 days we're holding where we could actually put it into the channel if we decide to do so, but we're not. We're being very cautious here. We're only looking at when product sells through and when the market improves. So again, that's about 25 days off of that 135 or off that 140 days. Then we have another 10 days, I would say, internally, which we call our strategic inventory as we continue to align our internal factories. The CapEx that we're spending today is around 8%, and 75% of that CapEx is linked to our internal factories as we get them really focused on our IP proprietary technology. And finally, to be honest with you, we like to hold another 10 days to be able to service the customer upside orders within the quarter, and we feel comfortable with that versus the 95-day target that we set out during Analyst Day. So I think the way to think about inventory, our internal inventory, we'll probably work it down throughout 2023. By running our front-end internal utilizations in the mid-70s, we'll continue to adjust some of our foundry purchase orders and obviously servicing the higher revenue, and Kurt commented that the second half of 2023 will be larger than the first half. Operator: [Operator Instructions] And our next question will come from Stacy Rasgon of Bernstein Research. Stacy Rasgon: I also wanted to ask about Auto. So I know you're talking about shortages still, but you also mentioned pockets of inventory out in the channel. I think this is the first time I've actually heard you directly mention auto build-outs in the channel. Could you give us a little more color on that? What kind of products -- how much of your revenue was in those categories? And are you seeing any pause in those areas given where those inventory levels are? Kurt Sievers: Stacy, no, the way you phrased it now sounds much, much larger than what I tried to describe. What we do see is a very few select Tier 1s -- it's not about OEMs, it's about the Tier 1 suppliers. It's pockets of inventory on those products which were suffering as a surplus from the golden screw problem. You remember that over the past 2 years we consistently had those situations where 1 part was missing, other parts were available. And then those parts were piling up a bit more before they got flushed through when the missing part came on. And from that period, there seem to be a few pockets, but it's not structural that I could say it's certain products or a certain amount. But there seem to be a few products at a few select Tier 1s which see somewhat elevated inventory. Now at the same time, there is now more and more of a discussion in the industry about the target size of inventory which the Tier 1 should hold. And from what I'm witnessing is that the automotive OEMs, so the car companies, are actually quite diligent in asking for elevated inventory levels to the Tier 1s anyway going forward. So now we have to figure out to what extent actually maybe these elevated pockets which I talked about are actually used to just satisfy what is being needed going forward anyway in terms of somewhat elevated inventory levels for safety reasons -- for supply chain safety reasons in the industry. So it's a little bit, Stacy, a very few customers. So nothing dramatic. I mean I just mentioned this because we talk about the SAAR growing by, I think, close to 4% this year, and I just wanted to put it in balance because there might be a tiny little bit of a headwind from those inventory levels. But all of that, just to be very clear, will not hinder the automotive business this year to grow and actually to grow substantially year-on-year. Stacy Rasgon: Got it. That's helpful. For my follow-up, I wanted to ask about China. So it does sound like you worked through the China disti issues that you had mentioned on last quarter's calls. Would you characterize this as a China recovery? Are you actually seeing recovery, or is it maybe a little too early to jump that far? Is it more just like little green shoots? Or like what exactly are you seeing in China relative to what you were seeing last quarter? Kurt Sievers: Yes. Yes, Stacy. I think it's too early to make such a statement. We've seen a modest, gradual improvement throughout the first quarter from a very slow start, I mean, through Chinese New Year and these elevated infection levels in the first few weeks. It just came modestly up. I would clearly not say, and none of our forecast and guidance comments we are making today would be based on that, I would clearly not see a sharp rebound. We don't see this. And again, our numbers are also not based on that. But by the way, Stacy, just also connecting this to your first question, mind you that our automotive business is also 40% in distribution. So when I talk about these pockets of inventory, they are in the 60% of the automotive business which goes through direct. But another large chunk is actually the 40% through distribution and that is controlled through what Bill explained earlier through our disciplined channel management at 1.6 months. I mean just to put it in perspective. Operator: [Operator Instructions] Our next question will come from Vivek Arya, Bank of America Securities. Vivek Arya: My first one, Kurt, is about half-over-half growth because you mentioned it in your remarks. So if I exclude 2020, second-half sales for NXP have grown at least around 5% to 6% half-on-half. Is that the kind of expectation we should have about second half? And what do you think is driving that? Is it just seasonality? Is it China coming back? Is it pricing increasing half-on-half? Just if you could help us set the models in the right place on a conceptual basis about what kind of expectation. And more importantly, what is driving that growth in the second half? Kurt Sievers: So Vivek, I need to disappoint you a little. I will not size it here. You know that we only guide the next quarter. Yet, I want to give you a few -- maybe a few anchor points. Clearly, the seasonality in Mobile, with the premium models ramping in the second half, will support that growth of half 2 over half 1. I mean that's one element. The other element I would mention here is indeed increasing supply capability, and it is clearly in auto and core industrial as we discussed earlier. But it is also in Comms Infra. Within the Comms Infra segments, we have this RFID tagging and secure card business, which continues to benefit this year massively from finally supply becoming available. We had actually de-prioritized the business through the past 2 years. And now we can finally serve that secular demand in RFID and quite a bit of pent-up demand in the secure cards business. So that together with the Mobile seasonality will drive the half 2 over half 1 growth. Vivek Arya: Got it. And then just one more on automotive and then just the state of play. When we look at the end market, right, we see a premium U.S. EV maker cutting prices, we hear of sluggish demand in China. So how should we reconcile all those end market data points, Kurt, that are a lot more cautious and conservative because of macro factors versus the strength that you and your peers are reporting when it comes to automotive semiconductor demand? Kurt Sievers: Well, it really goes back to content increase in the first place. And the latest data I have about xEVs, which is one of the two main drivers for a content increase, is that the number of xEVs in absolute terms globally this year will grow like 34% over last year and it will then hit the 34% portion of the total SAAR. So 34% or just a bit more than 1/3 of the total SAAR this year will be hybrid or fully electric. I mean this is a massive move. And by the way, yes, there are shifts. Clearly, there is a wave of success of local Chinese OEMs. You might have seen that some of the Western companies are losing ground with electric vehicle sales in China against local companies. Now we are perfectly hedged. So we are just as exposed to the Chinese OEMs as we are to the Western ones. So content increase is the main move. There is still also a forecast for an overall SAAR growth. I think the latest number I had seen from S&P was, I think, 85 million or 86 million, so somewhere in that neighborhood, which is a growth of about 4% over last year. So even the underlying SAAR, if you take it all together, xEVs and combustion-engine cars, is also growing. And that's actually the reason why this business keeps going, Vivek. So I don't find it that surprising. Operator: [Operator Instructions] And our next question will come from Matt Ramsay of TD Cowen. Matthew Ramsay: Kurt, I wanted to revisit quickly the question of pricing. And you were very clear on your comments, particularly in the auto business, to what pricing will do for -- or you expect it to do for the remainder of the year. But I think though -- the question I get a lot is, eventually, when we get a point when lead times stabilize, input costs stabilize and maybe come down a little bit, how are you thinking about long-term pricing in your auto business? Are we going back to the normal price-downs from a much, much higher base and a lot of these input cost increases you view as permanent? There's a little bit of an angst in the system, I think, that what goes up must come down. And I just wondered if you could address some of that, please. Kurt Sievers: Yes. So on the pricing, especially in Auto, or I would actually extend this question to all those areas where we've had the most significant shortages, it is important to understand where the price increases came from in the first place. They came from a structural, significant CapEx investment in order to cater for new capacity in mature nodes. So most of that is in the 16 to 180-nanometer area. And a lot of CapEx has been spent but continues to be spent also through the next few years, and the depreciation of that additional capacity which became necessary, as we all painfully witnessed over the last years, the depreciation of that is going to sit on all of these products across the industry. So my estimate here is that, yes, pricing will, of course, plateau at some point. And then maybe when supply and demand will have normalized, we will go back to what we had before this situation, which was a small, single-digit ASP erosion year-over-year. But that is not falling back to the old price levels. It is from the new level, which we have achieved in over 3 years of sequential price increases. Matthew Ramsay: Very clear. Bill, for my follow-up, I wanted to ask about inventory levels. I've kind of made the observation that oftentimes your channel inventory being below the long-term target, and then the on-books inventory may be increasing. Those get discussed kind of in isolation. And I wonder if you could talk a little bit about it holistically, just that, roughly speaking, the inventory days of full NXP inventory are roughly flat, just more on books than in channel, and gives you a bit more flexibility. And I guess the long-term question is, what's the real incentive to go back to the old mix? Why not just keep the ratios relatively close to where they are today given the flexibility it gives you? Bill Betz: Yes. The whole idea of managing the channel is really through understanding real demand in the market. And at the end of the day, what you want to do is put inventory on the shelf that's going to fast turn versus if you put inventory on the shelf, it stays there, then eventually has to get discounted, it uses real good real estate and so forth. So what we want to do is making sure we are only shipping product into the channel that is fast turning, is the way to think about it. And you're right, the way you think about it is the same way we do. We combine both and basically hold the same amount of inventory combined, and we're just trying this new strategy -- actually, we changed the strategy from lessons we've learned in the past, because at the end of the day it's all about real demand. Kurt Sievers: And let me add, Bill. I think we will enter this now possibly relatively soon, as we emphasized in our prepared remarks, as soon as we see a more consistent uptick in the sell-through trends in the channel, we will increase from the 1.6 months levels. And mind you, we speak about the $500 million delta when we would go from 1.6 to 2.4 or 2.5 months. And again, we are having the intention to fill back to that level, but again, in line with industry demand coming back. But those $500 million, we basically have that and we will get it into the channel as soon as the demand is coming. In the end, that will be required to make sure we can gain market share through distribution the moment the industry ticks up. Operator: [Operator Instructions] And our next question will come from Gary Mobley of Wells Fargo. Gary Mobley: I presume that your backlog continues to trend down, but I was hoping that you can give us an update on where you stand today with weeks of backlog, the durability of that backlog and whether or not you're still sold out in automotive based on your available supply - sold out through the remainder of the year, I should add. Kurt Sievers: Gary. So no, we never talked about the size of the backlog because I really try to be sure you all understand that we consider that backlog number misleading and that it's been misleading since the beginning of the supply chain situation because, sure, we, and I guess everybody else, has had double and triple orders in there. So I felt it never made sense to speak about the backlog -- the size of that backlog as a metric to get a feel for future growth. So that's why, no, we will not speak about the backlog. What however comes back to what I think you're asking for is in Automotive, the NCNR orders. So yes, the largest part of our automotive business has been and continues to be covered by NCNR orders for this year. The size of that NCNR order backlog has not changed at all. We also cannot ship more. I mean, it is what it is. And there is always mix changes from left to right and stuff, but the size of it is the same it has been before, and we just execute it down. Gary Mobley: And a follow-up, I want to ask about changing behavior following a 3-year period of supply chain shortages in the automotive end market. And so under the idea that the automotive OEMs have learned a lesson and will work more collaboratively with chip companies like yourself, perhaps the big get bigger. And perhaps you can expand further your market share lead by collaborating more closely with these Automotive OEMs. Is there a way to quantify or qualify the impact to that and whether or not that has any validity? Kurt Sievers: I think you have a really good point here. Very clearly, the rate of collaboration and also the depth and intensity of collaboration from logistics all the way to innovation and new design wins has significantly jumped up between us and the auto OEMs. That indeed also leads to direct deals, which we are cutting with these companies on a very long-term basis, where the principle is often that we give supply assurance against a very long-term demand assurance from the OEMs. And yes, I believe there is a bit of a winner-takes-it-all game here because if I put myself into the shoes of the OEMs, they cannot play with 6 or 8 different semiconductor companies. They will focus down on a few select leaders, and you can be sure NXP is one of them. Operator: And our next question will come from Blayne Curtis of Barclays. Blayne Curtis: Bill, I wanted to just double click on the gross margins. It's actually kind of quite impressive that your utilization is down that much and it's flat. So maybe just walk us through the pieces again. Obviously, mix per segment, I wasn't sure if auto is accretive to that mix. I think Mobile going down probably helps. But I also kind of wanted to understand your external loadings that you kind of mentioned that you might selectively bring that down. If you can comment on that as well. Bill Betz: Sure. Let me -- the major drivers is first, again, we expect favorable product mix. What we see, obviously, and what we're building to is favorable, and we see that in our forecasts. Then it's clearly being driven by the customer orders we are serving. And then we talked about this new product introduction. We're starting to see some of that. But again, longer term, that will kick in a couple of years out to continue that richer mix for the company. Now second, you have to remember our fixed variable cost structure, which is approximately 30% fixed and 70% variable, and this has significantly improved versus the last down cycle and over the last decade. And then finally, we are realigning our internal factories. And you have to remember, we service about 40% of our wafers, which 2/3 of our internal factories support Auto and Industrial IT proprietary technologies, versus the past, we would build bulk CMOS and so forth, which would disturb the utilizations of our factories. So think about the equipment that we're putting in, very sticky, very specific to our core IT technologies that service basically auto and industrial, the 2 fastest growth markets over the next decade that we're going to serve. Blayne Curtis: Got you. And then I wanted to ask you on the Comms segment. I think Kurt mentioned RFID being the big driver for the year. But is that the same driver for the strength you're seeing in March and June off the bottom? Kurt Sievers: Yes. It is RFID and secure cards which are really leading here from a growth perspective. That doesn't mean that the other stuff is not growing, but say the incremental additional growth really comes from supply into RFID and secure cards. But again, the difference between the two is that in RFID, it's really secular growth, which we've been working towards for many, many years and now a lot of these projects are unfolding, whereas in the secure cards, it's somewhat more pent-up demand, which will [ saturate ] at some point. But the lion's share is RFID. Operator: [Operator Instructions] And our next question will come from William Stein of Truist. William Stein: Congrats on the very good results and good outlook. The results came better than you expected, and I want to make sure I understand, I think at the beginning of the call, you said that the primary driver was an improvement in China. Is that correct? And I'm trying to reconcile this with the idea that distribution was down as a percent of sales, because I thought most of what goes on in China for you guys is through the channel. Is it just the expectations in the channel and in China were so low you still came in low, but that's what improved through the quarter? Am I getting that right? Kurt Sievers: Yes. So I'd say one part of it is China, where indeed it was less bad than feared in Mobile and Industrial & IoT. That's, I think, pretty much what you said. We took a cautious stance here because we had a really slow start in the beginning of the quarter. And then gradually, it improved a bit more than what we were fearing it would. However, the other side is more supply, which came into Auto and Comms Infra. So Comms Infra, as I just explained to Blayne. And then also in Auto on a more broad-based, that also helped the outperformance. At the same time, it's really important to see here that this $121 million more revenue we did, did not move the channel MOS up an inch. So that was really true good revenue, all the $121 million. But yes, a part of it in China was a, say, a better performance than we were fearing how China's demand would develop. William Stein: I'd like to follow up with giving you an opportunity to talk about some of the growth drivers that I don't think have been as prominent in this call as in the past. Any highlights in terms of adoption of some of these new technologies? In Autos, you've talked about high-def radar, domain and zonal controllers, and you've talked about ultra-wideband in a couple of different end markets. Maybe highlight some of the more significant content drivers in the near term and longer term. Kurt Sievers: I think in radar, and I think it's also in our press release, we are very proud we launched now the industry's first 28-nanometer based 1-chip radar for Automotive, which is moving in production now, which is great progress. I think the -- this one market research company which covers automotive radar, Yole, clearly presented us now as the #1 in automotive radar in -- for last year. So the numbers are out. So now this whole thing is who is leading in Automotive radar is clear now, it's documented, we are #1. Then today we had a very nice press release together with NIO, which is one of the smart electric car startups between California and China, which is using our 4D imaging radar, which is the high end of radar, which is a 300-millimeter -- sorry, 300-meter distance measurement including object classification. And Bill, I remember you and I are speaking about this years ago as a dream in innovation. Now the thing is out and it sits in these NIO cars. Then moving to electrification, I think earlier in the call, I mentioned the growing strength of China OEMs when it comes to electric cars. That is very good for our battery management business because we have a strong bias to winning designs in China. So that's fast-turning business, fast-turning means for automotive standards they go pretty quickly from design into production, helps a lot our BMS/electrification business. Last but not least, you -- I think you mentioned ultra-wideband. Ultra-wideband is a mixed picture though. The Android adoption continues in the ecosystem to be slower than we had anticipated. So that's a little -- I think we said this on the last call already, it's a little later. That doesn't mean it doesn't happen, but it's a little later, while the automotive side of ultra-wideband is actually picking up the pace now enormously. So we see very, very nice growth on the ultra-wideband side in cars, where we also haven't seen a single competitor yet. So it's really an NXP-only story. Operator: [Operator Instructions] And our next question will come from Toshiya Hari of Goldman Sachs. Toshiya Hari: I wanted to follow up on China. Kurt, you talked about a modest recovery in the region. I was hoping you could speak to linearity in the quarter from a either bookings or revenue recognition perspective? And then, I guess, more importantly, when you guys talk about the second half recovery in your overall business, the second half being higher than the first half, does that contemplate an increase in channel inventory from 1.6 months to something above 2? Or do you have visibility in half-over-half growth without any increase in channel inventory? Kurt Sievers: Yes, Toshi. So on the first half of your question, we will not provide any within segment -- within quarter details. So it has gradually improved through the quarter. I mean, let's leave it here. The second half of your question is really, really important. The answer is no. Our Q2 guide of $3.2 billion does not need or comprehend any increase of our internal inventory. So to be very specific, it sits again on 1.6 months of channel inventory. However, we will take the liberty to increase the channel inventory if and when we see a trend that the sell-through goes strong into the third quarter in order to prepare for that uptick. But then we will also make more than $3.2 billion revenue. So the $3.2 billion which are in the guidance are connected with 1.6 months. We might still go higher, but then we will also print the higher revenue. Toshiya Hari: Understood. And then as my follow-up, I just wanted to clarify on lead times. You mentioned that in Q1, I think roughly 1/3 of your product had lead times of 52 weeks or longer. Where do you expect that number to be exiting the year? And I was hoping you could speak to average lead times for your portfolio as well, what your target is, I guess, coming out of this pandemic? Kurt Sievers: Yes. This is a -- it's a tricky question because the lead times are a function of the amount of NCNR orders we have. I spoke earlier about the fact that our Automotive business, which is the lead example for this, is largely covered by NCNR orders. And that simply means that whole product portfolio for these customers, if they now ask for an additional order, of course they get only a confirmation for next year because it's already ordered out. So I mean, the way you've got to think about this is if all of our business was covered by NCNR orders, all of our business would have 52 weeks lead time. Now we don't have that. It's only a part of it. But that's why as long as we stick to the concept of annual -- they are based on calendar years -- annual NCNR orders, we will have a sizable part of our portfolio sitting on 52-plus weeks lead time. It's just a consequence of the NCNR orders. So that's why, to answer your question, it depends if again for calendar 2024 we will enter into the concept of NCNR orders. If we do that, and by the way, I expect that we will do that, we will have still a sizable part of the portfolio with lead times above 52 weeks, too. Now operator, I think we've got to terminate the call here. We are at the top of the hour. So I just want to thank you all for your attention through today's call. I trust you felt that we are at a pivotal point in navigating through this cycle, where we see that we are successfully navigating the consumer-oriented weakness in our business and seeing a change in slope of that business, while the Core Industrial, Automotive and also large parts of Comm. Infra. continue to be resilient and strong. And then if we put all of these pieces together, that leads us then to what we said today, which is the second half of this year revenue being above the first half, and now also a guidance into the second quarter where each of our 4 segments is actually sequentially growing. And with that, I want to thank you all for your attention. Thank you. Jeff Palmer: Thank you, everyone, and this will conclude our call for today. Thank you very much. Operator: Ladies and gentlemen, you may now disconnect.

Operator: Hello. Thank you for standing by, and welcome to the NXP Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the prepared remarks', we will conduct the question-and-answer session and instructions will be given at that time. I would now like to hand the conference over to your speaker today, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Michelle, and good morning, everyone. Welcome to NXP's fourth quarter and full year 2022 Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the first quarter of 2023. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth quarter 2022 earnings press release, which will be furnished to the SEC on Form 8-K and available from NXP's website in the Investor Relations section at nxp.com. Now I'd like to turn the call over to Kurt. Kurt Sievers: Thanks, Jeff, and good morning, everyone. We really appreciate you joining our call this morning. I will review both our quarter four and our full year 2022 performance, and then I will discuss our guidance for quarter one. Beginning with quarter four, our revenue was $12 million better than the midpoint of our guidance with the trends in the mobile and industrial and IoT markets performing better than our expectations, while Automotive was in line and Communication Infrastructure below our expectations. Taken together, NXP delivered quarter four revenue of $3.31 billion, an increase of 9% year-on-year while maintaining channel inventory at a 1.6 months level, well below our long-term target. Non-GAAP operating margin in quarter four was a strong 36.5%, 160 basis points better than the year ago period and about 50 basis points above the midpoint of our guidance. Year-on-year outperformance was a result of good fall through on the higher revenue, better gross margin due to higher factory utilization and disciplined expense management. Now let me turn to the full year performance. Revenue was a record $13.21 billion, an increase of 19% year-on-year. When passing the revenue growth, approximately 14% was due to higher pricing - and was due to a combination of volume and mix. And here, as a reminder, we have executed a consistent pricing policy to pass along the inflationary increases of our input costs while not patting our gross margin. Throughout 2022, we consistently found ourselves in a situation where robust demand across automotive and core industrial markets, outstripped available supply even as production levels, both internally and from our supplier partners improved through the year. And now we do see a continuation of input cost inflation in 2023, however, not at the same pace and level we experienced in 2022. The full year non-GAAP operating margin was solid 36.3%, a 340 basis point improvement versus the year ago period as a result of higher revenue, improved factory loadings and positive operating leverage. Now let me move to the specific trends in our focus end markets. First, Automotive. Full year revenue was $6.88 billion, up 25% year-on-year, a reflection of higher pricing, our strong company-specific product drivers and accelerated content increases, thanks to the secular growth in sales of xEV vehicles and prioritization by OEMs of premium class vehicles in a limited supply environment. For the fourth quarter, Automotive revenue was $1.81 billion, up 17% versus the year ago period and in line with our guidance. Now moving to Industrial and IoT. Full year revenue was $2.71 billion, up 13% year-on-year, primarily due to higher pricing and the strong competitive positioning of our solution offering comprising industrial processes and about [ph] cash connectivity and security. For the fourth quarter, Industrial and IoT revenue was $605 billion, down 8% versus the year ago period, so better than our guidance. Mobile. Full year revenue was $1.61 billion, up 14% year-on-year, primarily due to higher pricing and continued traction of our secure mobile wallet. For quarter four, Mobile revenue was $408 million, up 9% versus the year ago period and better than our guidance. Lastly, Communication Infrastructure and Other. Full year revenue was $2 billion, up 15% year-on-year. The year-on-year growth was due to higher pricing and a combination of sales growth of network processors, RFID tech solutions, secured transit and access products and RF power products for the cellular base station markets. For quarter four, Communication Infrastructure and Other revenue was $494 million, up 8% year-on-year and below our guidance. Now as discussed earlier, I also would like to provide you a progress update on our accelerated growth drivers. At our Analyst Day in November '21, we highlighted our expectation to grow total company revenue to approximately $15 billion in 2024, coming from $11 billion in 2021 within a compound annual growth range of 8% to 12% over that period. Embedded within this outlook, we highlighted six company-specific revenue drivers across all our served end markets, which we anticipated to grow in aggregates to about $6 billion in '24 from a $3 billion level in '21, representing about a 25% 3 year compound annual growth range. Additionally, we shared with you that our high relative market share for business would grow to $9 billion in '24 from $8 billion in '21, reflecting about a 5% 3 year compound annual growth range. Overall, we are confident to achieve the anticipated growth rates for both our accelerated growth drivers as well as our high relative market share core business. Moving to the segments. Within Automotive, the accelerated growth drivers are 77 gigahertz radar, electrification and the S32 domain and solar processes, all of which are tracking ahead of plan. According to market research company, Yole, NXP is confirmed as the clear number one revenue market leader in automotive radar solutions, as well as individually in radar RF transceivers and radar processes. Furthermore, we just announced the industry's first 28-nanometer RF CMOS radar one-chip IC family for the next-generation ADAS and autonomous driving systems. Turning to our efforts in electrification. Our sales, including battery management solutions, inverter control and other xEV control processes has doubled year-on-year and achieved record custom design wins. Finally, within Automotive, the customer enthusiasm for this S32 domain and sonar processor family, enabling the software-defined vehicle, are far in excess of our expectations. This includes the awards by a major automotive OEM, which selected the S32 family of automotive processes and microcontrollers to be used across its fleet of future vehicles beginning mid-decade. Moving to Industrial and IoT. We are in line with our expected growth range of about 25% 3 year CAGR for our accelerated growth drivers. Both our crossover and i.MX application processor families grew nearly 50% year-on-year in 2022. However, we did see a deceleration in revenue in the consumer IoT portion of the end markets during the second half of 2022. Finally, we announced our new MCX microcontroller portfolio that is scalable, optimized foundation for energy-efficient industrial and IoT edge applications, addressing the heavy real-time workloads for the next wave of innovation. In addition, we recently announced our new analog front-end family for high-precision data acquisition and condition monitoring systems for factory automation. Moving to Mobile. We are below our expected revenue growth range for the accelerated growth driver of ultra-wideband due to the well-documented weakness in the Android handset market, which is the focused mobile market for our ultra-wideband solutions. However, for ultra-widebands, the ecosystem build-out and design win activity and traction in both Mobile and Auto are going well. And we believe as the Android market rebounds, awarded design wins will result in the expected revenue growth for ultra-widebands. Lastly, within Communications and Infrastructure, we are in line with our expected revenue growth range for RF power amplifiers. The industry transition to gallium nitride from LDMOS technology has occurred faster than expected. The revenue for our gallium nitride-based solutions has doubled year-on-year and demand continues to outstrip our increasing supply capability. In review, 2022 was a very good year for NXP, with strong execution resulting in record revenue, solid profit growth and a healthy free cash flow generation. Additionally, we experienced unprecedented year-on-year design win traction across the entire portfolio. Now let me turn to our expectations for quarter one, 2023. We are guiding quarter one revenue to $3 billion, down about 4% versus the first quarter of '22. From a sequential perspective, this represents a deceleration of about 9% at the midpoint versus the prior quarter. At the midpoint, we anticipate the following trends in our business. Automotive is expected to be up in the mid-teens percent range versus quarter one '22 and flat versus quarter four '22. Industrial and IoT is expected to be down in the low 30% range year-on-year and down in the low 20% range versus quarter four '22. Mobile is expected to be down about in the mid-40% range, both on a year-on-year and sequential basis. Finally, Communication Infrastructure and Other is expected to be about flat, both on a year-on-year and sequentially. In summary, as we head into 2023, our Automotive and Core Industrial businesses remain supply constraints in select areas. Within Automotive, the increase of global production levels and the secular adoption of xEV are tailwinds to continued content increases. In Industrial and IoT, we expect relative strength in the core industrial submarkets as our products enable critical infrastructure and companies to be more efficient. However, the Consumer IoT and the Mobile segment will continue to be dependent on a cyclical rebound. And lastly, in Communications Infrastructure, we expect our supply capability to improve against pent-up demand, specifically in our RFID packing solutions, secure access products and e-government identification. Within the 5G base station markets, growth in '23 will be dependent on the build-out, especially in India. At the same time, we do believe from an external macro perspective, the general demand environment is offering much higher levels of uncertainty than last year. And in the very short term, we are expecting a dip in China due to the spike in infection rates following the policy shift relating to COVID. Additionally, we expect continued cyclical weakness in demand for consumer-oriented products and a potential correction of customer inventory. In this more uncertain demand environment, we will focus on prudently managing what is in our control. And especially while we have plenty of orders, we will continue to very vigilantly manage general inventory to a 1.6 months level, which is about a month’s below our long-term target, equaling approximately $500 million of revenue. We intend to maintain that 1.6 months channel inventory in the first quarter, while we are well positioned with our on-hand inventory to increase channel inventory, if and when demand in China evolves. So far, quarter-to-date, our distribution sales through in China is off to a slow start as is incorporated in our guidance. Over the midterm, we are cautiously optimistic given customer engagement levels, design win momentum in our strategic focus areas and a potential rebound in China. And now I would like to pass the call to you, Bill, for a review of our financial performance. Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of revenue during Q4 and provided our revenue outlook for Q1, I will move to the financial highlights. Overall, our Q4 financial performance was very good. Revenue was slightly above the midpoint of our guidance range and both non-GAAP gross profit and non-GAAP operating profit were above the midpoint of our guidance. I will first provide full year highlights and then move to the Q4 results. Full year revenue for 2022 was $13.21 billion, up 19% year-on-year. We generated $7.64 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57.9%, up 180 basis points year-on-year as a result of higher internal factory utilization and fall-through on higher revenue, which is at the high end of our long-term financial model. Total non-GAAP operating expenses were $2.86 billion or 21.6% of revenue, below our long-term financial model. Total non-GAAP operating profit was $4.79 billion, up 32% year-on-year. This reflects a non-GAAP operating margin of 36.3%, up 340 basis points year-on-year and above our long-term financial model. Non-GAAP interest expense was $386 million. Cash taxes for ongoing operations were $558 million, non-controlling interest of $46 million and stock-based compensation, which is not included in our non-GAAP earnings, was $364 million. Full year cash flow highlights include $3.9 billion in cash flow from operations and $1.06 billion in net CapEx investments or 8% of revenue, resulting in $2.83 billion of non-GAAP free cash flow, up 23% year-on-year or a healthy 21% of revenue. During 2022, we repurchased 8.33 million shares for $1.43 billion and paid cash dividends of $815 million or 21% of cash flow from operations. In total, we returned $2.2 billion to our owners, which was 79% of the total non-GAAP free cash flow generated during the year. Now moving to the details of Q4. Total revenue was $3.31 billion, up 9% year-on-year, in line with the midpoint of our guidance range. We generated $1.92 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58%, up 70 basis points year-on-year and consistent with the midpoint of our guidance range. Total non-GAAP operating expenses were $713 million or 21.5% of revenue, which is up $32 million year-on-year and down $17 million from Q3, slightly favorable to the midpoint of our guidance. From a total operating profit perspective, non-GAAP operating profit was $1.21 billion, and non-GAAP operating margin was 36.5%, up 160 basis points year-on-year, above the midpoint of our guidance range, reflecting solid fall-through in operating leverage on the increased revenue level. Non-GAAP interest expense was $95 million, with cash taxes for ongoing operations of $126 million and non-controlling interest was $12 million. Stock-based compensation, which is not included in our non-GAAP earnings was $97 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q4 was $11.17 billion, essentially flat sequentially. Our ending cash position was $3.85 billion, up $86 million sequentially due to the cumulative effect of capital returns, CapEx investments and cash generation during Q4. The resulting net debt was $7.32 billion, and we exited the quarter with a trailing 12 month adjusted EBITDA of $5.47 billion. Our ratio of net debt to trailing 12 month adjusted EBITDA at the end of Q4 was 1.3 times, and our 12 month adjusted EBITDA interest coverage was 14.9 times. Cash flow generation of the business continues to be healthy and our balance sheet continues to be very strong. During Q4, we paid $221 million in cash dividends and repurchased $475 million of our shares. Additionally, the NXP Board of Directors has approved a 20% increase in our quarterly cash dividend, bringing the quarterly cash dividend to approximately $1 per share. These actions are all aligned with our capital allocation strategy. Turning to working capital metrics. Days of inventory was 116 days, an increase of 17 days sequentially and distribution channel inventory was 1.6 months. As we mentioned on our last quarter's call, given the uncertain demand environment, we made the intentional choice to limit the months of inventory in the channel, while keeping inventory on our balance sheet to enable greater flexibility to redirect product as needed. Furthermore, given our manufacturing cycle times, combined with the uncertain demand environment in the first half of 2023, we will continue with this approach in Q1, and we expect DIO to increase in the quarter. Days receivable were 26 days, down one day sequentially and days payable were 105 days, an increase of 9 days versus the prior quarter due to the timing of material. Taken together, our cash conversion cycle was 37 days, an increase of 7 days versus the prior quarter. Cash flow from operations was $1.08 billion and net CapEx was $233 million, resulting in non-GAAP free cash flow of $843 million or approximately 25% of our revenue. Turning now to our expectations for the first quarter. As Kurt mentioned, we anticipate Q1 revenue to be $3 billion, plus or minus about $100 million. At the midpoint, this is down 4% year-on-year and down 9% sequentially. We expect non-GAAP gross margin to be about 58% plus or minus 50 basis points, driven by favorable mix, offset by the lower revenue. Operating expenses are expected to be about $710 million, plus or minus about $10 million. Taken together, we see non-GAAP operating margin to be 34.3% at the midpoint. We estimate non-GAAP financial expense to be about $77 million. We anticipate the non-GAAP tax rate to be 16.5% of profit before tax. Non-controlling interest and other will be about $10 million. For Q1, we suggest for modeling purposes you use an average share count of 261.4 million shares. Taken together, at the midpoint, this implies a non-GAAP earnings per share of $3.01. For full year 2023 modeling purposes, we suggest for a non-GAAP tax rate you use a range between 16% to 17%. This is lower than our previously anticipated effective cash tax rate of 18% and is based on current tax legislation. For stock-based compensation, we suggest you use $410 million, no change from the model. For non-controlling interest, we suggest you use $30 million to $40 million lower than 2022 and for capital expenditures, we expect to invest approximately 8% of our revenue. In closing, looking ahead into 2023, I'd like to highlight a few focus areas for NXP. First, we plan to execute and drive our six company-specific accelerated growth drivers. Second, we will manage our internal and channel inventory thoughtfully based on market conditions. Thirdly, we will continue to be disciplined with our operating expenses, while protecting our long-term R&D investments. Taken together, we plan to operate within our long-term financial model ranges in what is a dynamic macro environment. I'd like to now turn it back to the operator for questions. Thank you. Q - Christopher Caso: Yes, thank you. Good morning. I guess to start, Kurt, perhaps you could speak to your comments on managing the channel inventory. And of course, one of the concerns investors naturally have is the worry that customers order more than they need given the constraints at the present over the last year and then potentially you overship that. Can you speak to how you're ensuring that what you're shipping to customers now is actually going to real demand rather than inventory? And I guess that's particularly as some of the foundry capacity loosens up, gives you a little - a little more access to wafer supply? Kurt Sievers: Yeah. Thanks, Chris, and thanks for taking the first question. Yes, the very, very vigilant management of the channel inventory is a very deliberate choice Bill and I took. And we do this while we have more than enough orders at hand to actually ship, say, another $500 million in the quarter into the channel and still hitting our target of 2.4 or 2.5 months of inventory. But we take the choice because we specifically now in China see a weakness. Actually, we think the weakness in China, which for us is almost entirely distribution. We see that connected to the change of corporate policy, which they took in early or first half of December and the spike of infection rates following that. And we just want to be responsible through this period of weakness in China, but watching the situation very carefully. So as soon as we would see signs of consistent rebound in China, we have both the orders, but also the product at hand to actually fill back the channel. So it's kind of our choice, which we took here, and I have to say this is across all segments. So that weakness, which we see in China, is not really segment specific, it is distribution specific across the board related to this policy change and infection spike in China. Maybe important to highlight that at the very same time, we are seeing across the board very strong trends in our direct customers. So it's - we have a very diverging - last quarter, we spoke about the dichotomy, very diverging picture now that from a segment perspective, Auto and Core Industrial remain strong. But now we have an additional effect here that we see this short-term weakness in China, which we try to be prudent about with the choice of the channel inventory stable. Christopher Caso: Got it. Thank you. As a follow-up, if I could pivot to Auto. And question is what's a reasonable expectation for Auto revenue for the year, if not quantitatively, at least qualitatively? And it was flat last quarter, you're managing to be flat again. Is it - should it stay flat from here? Are you trying to get additional capacity in the process nodes needed for Auto. So that quarterly revenue would at one point rise and catch up on that backlog? Kurt Sievers: Yes. Let me give you some color on Q4, Q1 and then directionally for the year. Indeed, Q4 was flat from a quarter-on-quarter perspective, by the way, nicely up year-on-year really because of supply constraints. I mean we just did - we couldn't ship more because we didn't have more products in Q4. In Q1, it's a bit more of a mixed bag. We are getting more products. But at the same time, we - Automotive in China distribution falls under what I said earlier. So we have a bit of a decline when you think about Automotive distribution in China, while the rest is actually going up at the same time. In the mix, it turns out to be then flat quarter-on-quarter and again, nicely up from a year-on-year perspective. Maybe more importantly, for the full year, yes, we are optimistic, Chris. We see, according to IHS, a far increased to about 85 million, so I think 82 million cars last year, going to 85 million this coming year, which is 3.5 or so percent increase and more importantly, definitely a continued increase of xEV, electric vehicle penetration. Again, according to IHS, I think going to 35% of the total car production having hybrid or fully electric drivetrains, which is significant and continues to be a significant boost from a content perspective for us. At the same time, we are gradually as through the last quarters, getting access to more supply. I dare to say from today's perspective that probably through the end of the calendar year '23, I hope we have most of the shortages behind us. I mean that will never be totally complete, but I think we are getting closer to a better balance towards the end of the year. And finally, pricing continues to play a role. I think I talked about the pricing specifics for last year in my prepared remarks. Now when you think about this year, input cost continues to go up, especially in those areas which continue to be tight from a supply perspective. So there is also, specifically in Automotive, continued pricing tailwind to be expected. Operator: Our next question comes from Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thanks for taking my question. Kurt, when I look at the two areas facing the most headwind, Consumer IoT and Mobile, and I think they could be below 20% of sales as you get into Q1. Should we assume that is sort of the cycle look when I look at Mobile, I think it's back to like Q1 '19 level? So do you think Q1 kind of marks the cycle low for these two most problematic areas? Or do you see them slipping further in Q2? Kurt Sievers: Honestly, Vivek, we don't know. I would go over my skis to make a firm statement here. But indeed, Mobile, of course, has a couple of specifics which are driving it really low. There is a seasonal element to this, obviously. Secondly, we do have in Mobile executed our NCNR orders last year, which gives us a headwind from an inventory perspective, if you will. We firmly executed these NCNR orders because these are custom-specific products where we have no chance otherwise to move them around and give them to other customers. And then finally, there is the well-known and documented Android weakness, which continues to be. I'd say the following, as you see, we are very disciplined with customer inventory and mind you that our Mobile business, to the largest extent, is going through the channel. So if and when end demand picks up, rebounds, which I think it will, at some point, we should indeed very quickly see it. Is that exactly for the second quarter? I don't know, but we are very close to the post given the way how we treat this. I mean I'm glad you are asking, Vivek, because this whole thing around our almost brutal discipline on the 1.6 channel inventory moves us very close to as soon as there is pickup in end demand, we will also see it in our numbers. Vivek Arya: Got it. And then on gross margin, I think, Bill, you mentioned something about mix that is helping you keep gross margins at the high end of your target range of 58%. So conceptually, let's say, if your Q1 is the bottom-in sales and sales are flat to up from here. Then do you think gross margins can stay at 58%? Or do you think there is something in mix or utilization in the following quarters that can change gross margins below this level? Or it's 58% kind of now the new baseline of gross margins for NXP? Bill Betz: Vivek, thank you for your question. Let me talk about Q4 and the Q1 guide and also looking ahead. First, as you know, we did slightly better than our guidance and I mentioned it was improved by product mix for Q4. Again, as we look into Q1, despite those lower revenues, we see this positive product mix offsetting lower fall-through on the revenue. Also, we have lowered our internal front-end utilization rates. In Q3, we were running in the high 90s. In Q4, we're about 90%. And again, remember, this is all linked to that non-auto industrial type of products because of market softness we're seeing. For Q1, we do expect to lower our front-end utilization again to about 85%, which is where we still remain constrained in our internal auto IP processing technologies and so forth. And again, I'd say, looking ahead, we expect to stay within our long-term gross margin forecast of 55% million to 58% as our cost structure today is more variable in nature than the past. Also, our factories, if you think about it, become more efficient when they run at normal utilizations and we have a disciplined inventory approach with their channels. So we're going to stay with that range. We're not revising it, but we feel very good about our gross margin performance. Operator: Our next question comes from Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi, guys. Thanks for letting me ask the question. Kurt, I want to go back to your core Automotive and, I guess, Core Industrial business, not the consumer IoT side. I believe you said the demand was largely holding in well there, except for some of the channel dynamics in China. I guess overall, is that true? Is the core industrial especially holding in? And how do you delineate between the channel weakening and isolating that to a variable other than demand? Obviously, you can see this is coming out of China, and we know the COVID policy. But to the extent it's weakening, people aren't really going to care if the source is coming from this is having too much inventory or OEM slowly demand. Either way, it's kind of slowing even though the latter could by some sort of a temporary aspect. So any sort of color you could give on your core demand would be helpful? Kurt Sievers: Yes. Thanks, Ross. It is actually easier to speak to this in Automotive because we have a much larger portion of direct customers where we can also triangulate with the demand from the OEMs, from the end customers. And we have these discussions actually with all three parties on the table. So we cannot be misled by inventory builds or anything from the Tier 1s because we really cleaned this out now all the way to the OEMs. And I think what I said to Chris earlier about the optimism on the Auto business through the year is the answer to your question. So there is a short-term disturbance in China, but that's really more about the distributors than anything else when it comes to Automotive. In Core Industrial, Ross, it is indeed harder [ph] to be that specific because the majority of our business goes through the channel. So it is much harder to say from the perspective of what do we know from end customers really, which is also why into Q1, I'd say also Core Industrial probably drops sequentially. But again, it is very hard to decompose this from the China situation. So it could just be because of this particular China situation since we have such a high exposure in Industrial - also in Core Industrial to China. I can, however, tell you that the direct accounts in the Core Industrial business, but they are a minor portion of our business. They are holding up quite well. So for that reason, you could say there is some data points, which would tell us that also Core Industrial is robust. But I have - it's less certain given the channel exposure, which we have in that segment. Now from a content increase perspective from - if you think more from a macro perspective, what these applications are doing in critical infrastructure in driving efficiency of industrial customers, I think there is any reason to believe that we should also for Core Industrial continue to be optimistic for the year. Finally, what I said about pricing earlier, pricing for Automotive holds true also for Core Industrial. Similar technologies, similar continued pressure on supply, which is very different, obviously, to the Consumer and Mobile businesses. Ross Seymore: Thanks for the color. And I guess one kind of on utilization, inventory and gross margin all tied into one for Bill. It's impressive to see that your utilization is dropping and your gross margin is still staying at 58%. I guess, in the DIOs, is there a limit to which you would go on the upside there? I know your long-term target is 95%. I also know that you've been very clear as to why you're going above that right now. But is there a limit to how high you would go on days of inventory internally before you'd really have to ratchet the growth - the utilization down? And if so, how does that fold into what the gross margin that would be the outcome in that scenario? Bill Betz: Thanks, Ross. Yes, you are correct in a way that when we look at inventory, we look at both the internal and the channel together. So as you can imagine, right, the channel inventory today at 1.6 months, basically, we can move that up by about another 25 days if we wanted to, to our target of 2.5 months of sale. Clearly, with the softness in several of the areas, we are monitoring this. We're keeping it strategically on our channel. And as Kurt mentioned, as conditions do approve, we will release some of that and want to go sell-through one-to-one. Now the good news is the inventory we have on hand is all long lived and has very low obsolescence risk. At the same time, I'd say, unfortunately, we're still constrained in several selective nodes. Remember, we buy about 60% externally. We do about 40% internally. That 40% really - more than two thirds of that internal capacity is linked to Auto and Industrial. So that's going to keep us at nice levels of utilization for the rest of the year. So again, we're going to be more flexible, yet disciplined to support our customer service levels and the potential for future growth. But to give you an example, right, if we have the orders, as Kurt mentioned, and we shipped that $500 million and went to 2.5 months of sales, assuming none of it sells through, this would basically have an effect on our revenue and our COGS and basically say NXP's internal inventory would have been below 90 days. So you have to look at them combined. We're doing this very proactively and intentionally to prevent inventory buildup. So I think from an internal DIO, if we kept the channel at 1.6, I'm comfortable holding probably another 15 to 20 days on top of the level that you see today. Operator: Our next question comes from C.J. Muse with Evercore. Your line is open. C.J. Muse: Yeah, good morning. Thank you for taking the question. I guess a follow-up question on gross margins. You started the call talking about expectations for higher ASPs given higher input costs. It sounds like you're very optimistic around accelerated growth areas that should benefit mix. You've cut back utilization, and it sounds like that should trend higher over time, and that's focused more on proprietary mixed signal, which I assume, again, is better mix. And then you guided CapEx essentially flat to down year-on-year, which means depreciation shouldn't be moving higher. So the question is this, I guess, are there any kind of headwinds to gross margins that we should be thinking about in '23? Bill Betz: I mean the only thing I would say that could cause gross margin to go below the long-term model that 55% to 58% is probably a prolonged global recession, that affects all of us, right? But if we're having the - what we're seeing right now, we think we'll - we will and plan to stay within that 55% to 58%, C.J. C.J. Muse: Thank you. And I guess as my follow-up, on the Comps Infrastructure and Other line, can you give a little more color on what led to the weakness in December? And how we should be thinking about the different moving parts for that business for all of '23? Thanks so much. Kurt Sievers: Yeah, C.J. I'm happy to do that. Q4 was purely supply. We were a bit ahead of our, say, skis with the guidance because we know that more supply is coming up, and that's also why Q1 is now going much better. And that - there were some operational issues and we didn't get it going in Q4. So Q4 fail against guidance had nothing to do with demand, that was purely about a supply base. Now going forward, it is indeed such that I would say we are cautious when it comes to the radio power part of the business because the one area where we see build-outs in network infrastructure this year then it's India. So it's all about to what extent at what pace is this going to happen through the year. What is for sure is that it is much more and much faster leaning to gallium nitride versus LDMOS, which is favoring us and we just have to do a good job in increasing our supply capability to actually run up here. The one other piece within this Comm Infra and Other segments, which will matter this year, is actually the RFID tagging, secure and access cards and government identity products. There is a significant amount of pent-up demand C.J., which we could not serve the last 2 years which was our choice. I mean it is a technology which we have to use for other segments and other products. That is a classic demand, which doesn't disappear because it is about infrastructures, it is about government IDs, which people need around the world. So the demand is still there. Now we are actually moving the supply capability from other areas where the demand has softened into this and we are starting to serve it. So from a sub-segment dynamic perspective, C.J., think about this part being the one which is actually going to generate growth this year. Operator: Thank you. Our next question comes from Joseph Moore with Morgan Stanley. Your line is open. Joseph Moore: Great. Thank you. I think you've talked about being for your Auto business having backlog coverage for the year. With the disruption in China, kind of would you still say that's the case? And as a follow-up, how are you guys thinking about NCNRs on your backlog this year? How flexible are you going to be if, for example, the China situation causes people to want to reschedule deliveries? Kurt Sievers: Yes. So Joe, first of all, the supply capability through the year. Clearly, the number of escalations has moderated. We still have a number of nastily short technologies. And I would call out 180 nanometers, 9055 gallium nitride and the high-voltage analog mixed signal, which is proprietary to NXP. This is, of course, in size less than it used to be, but it still leads to significant customer escalations and shortages, which we think will go through the year, but hopefully moderating towards the end of the year. If we translate this back into supply capability, I think we said on the last call, we would be able to serve about 85% of kind of risk-adjusted backlog for the year. I'd say for this year, for '23, this is now more like 90% to 95%. So you see it's better. It's not yet on target. We are not yet in a position that we have visibility to serve everything we want, but we are coming closer. Now you might be confused with the high DIO and still me saying that we can't serve Automotive. The matter of the fact is that if you would pass it the DIO in two segments. And I mean, I will not give you numbers, but the auto part of it so the product which is specific to the lease in Automotive is actually well below target. So it's just very variable between the segments, and it's not fungible, as you know. Now that leads me to the second part of your questions around NCNRs. I gave you one example earlier where we have very strictly executed NCNRs and that was the Mobile last year, which indeed is a bit of a headwind now getting into this year because product was not fungible. I mean it's customized in software, so there was no way to let customers of the hook. Going through this year, there is not a one-fits-all answer, Joe. So I'd say we are flexible if the product is fungible. I mean we do not force one customer to absolutely take it if we can at the same moment, sell the same product to somebody else. I mean, that wouldn't make sense. We are very strict if it would go against any take-or-pay liabilities, which we have to our suppliers. I mean there is no way we would let our customers off the hook. Then it depends on overriding commercial agreements, which we have with customers, in some cases, which might be of forcing functions. And then - and that's especially in Automotive, which is a large part of our NCNR backlog. We are working with ODMs. So if a Tier 1 comes to me and says, I want to discuss about the NCNR level, I say, okay, then we discussed together with your end customer. And we want to understand if that is in the best interest also for the end customer which puts quite a bit of pressure on the system and actually enforces some of the NCNR through that channel. So you will see - I cannot say the 100% always in force. We would not do this where you would see that we create a problem for ourselves later. I mean that's the same philosophy, which we are applying with the channel inventory. Why would we? I mean that wouldn't be smart. But in many cases, we still do, given the dynamics I just mentioned. Joseph Moore: Very helpful. Thank you. Operator: Thank you. And our next question comes from William Stein with Truist. Your line is open. William Stein: Great. Thanks so much. The last couple of questions in particular are very helpful in understanding the sort of shape of demand. I'm hoping maybe we can talk a little bit about longer-term competitive dynamics, in particular, in the Automotive end market, you seem to be doing well in these growth areas. But Kurt, I'm hoping you can talk more about your position with the emerging Chinese OEMs, which especially in EVs have started to deliver some very strong growth. Can you compare your competitive position with those OEMs relative to how you've done historically with the bigger global ones? Thank you. Kurt Sievers: While - Bill, while I cannot speak on a customer-specific level, obviously, I dare to say when I look at the win rates and then the shipment rates, we are very well balanced when it comes to EVs, both geographically but also between, say, big OEMs and start-ups. And that has been an attention point for me right from the start because actually, many years back already I always thought that China might become a leading force in electrification, given that they didn't have the legacy to change their companies from combustion engines to electric drivetrains. I mean there is significant advantage. And so for many years already, we tried to stay very close to start-up companies, which, by the way, is not just in China, but that's often between China and California. I mean there is a lot of combined companies there. So, no, I would not say that we have a, if you will, negative buyers only to the big guys and would not participate in the growth provided by start-ups, which largely are in China. It has also to do with our product portfolio, Bill. I mean, we are so broad and so leading in automotive, how would we only work with one part of the market. It's almost impossible. So no, that's not the case. I'm optimistic here. William Stein: Great. Thank you. Operator: Thank you. And our next question comes from Matt Ramsay with Cowen. Your line is open. Matt Ramsay: Thank you very much guys for squeezing me in. Kurt, in your prepared script, you referenced the model from the Analyst Day sort of the $15 billion in revenue in 2024, and sort of reiterated the targets for sort of the core business and the new growth areas. But as we start on a sort of $12 billion run rate, and I know a couple of the segments are really down in the first quarter. But just on an annualized basis, I think we need to get to 6%, 7% growth or something like that for this year and next to hit that target. So maybe you could just give us a little more color on the specific drivers, not just in the next quarter or two, given the volatility, but over the next, like, 24, 36 months of how you see getting there from where we're starting? Thanks. Kurt Sievers: Yes, Matt. So indeed, I mean, the Q1, given China and everything we discussed in the last 25 minutes is indeed a bit of a - probably a bit of an outlier. I think the growth rates, which contribute to the 8% to 12% for the company, being led by Automotive and Industrial IoT, that is still how we look at the growth for the next 3 years. So we do believe that if you look across NXP, the content increases and our strong position in Automotive will let automotive growth above corporate average. I think we said 9% to 14% relative to the 8% to 12% for the total. Since this is half of the company, Matt you will understand that, that has a significant dynamic for us. And in Automotive, it's also fair to say, and I gave you some details for last year that pricing is a positive further contributing element which maybe was not always fully comprehended in the initial forecast. And in a similar way, I would speak to Core Industrial, mind you, that is 60% of the Industrial IoT segment. There, indeed, and that's maybe where your question was going to the more cyclical businesses being the consumer IoT as part of industrial IoT segment, as well as Mobile, there it will all depend on timing. I mean we really have to see what the timing of a rebound is going to be. Where at the same time, if you look at history of these segments, they are very fast moving. I mean you can very quickly have significant changes through the quarters, especially when China makes a move. But again, strategically, I think the growth algorithm guiding us to the 8 to 12 for the company is pretty much intact. There possibly automotive has a bit more momentum even than we would have anticipated in the first place Matt Ramsay: Got it. Thanks, Kurt. Just a quick follow-up for Bill. You guys pretty tight on OpEx in the first quarter. I think maybe a tiny bit above the 16% and 7% of revenue that you sort of laid out in the model, Bill, but on a pretty big down revenue quarter in a couple of segments, we potentially reaccelerate off the bottom in a couple of the segments that are challenged in China. Have you - are you going to reaccelerate OpEx at the same rate? Or is there a sort of - how should we think about that into the back half as the revenue potentially recovers? Thank you. Bill Betz: Thanks, Matt. Let me address operating expenses. I think we continue to manage our operating expenses pretty well with the uncertainty in the macro markets. So in Q4, we were a bit more favorable than our guidance driven by the lower variable compensation, and we managed our discretionary spend. In Q1, we're keeping our OpEx relatively flattish, I would say despite you all know the typical headwind that we experienced in the U.S. employee benefit rates and so forth. So we're doing a good job there. And as I mentioned in my opening remarks, we are going to navigate and control our spend. It's one of those levers that we have. And for 2023, I'd say we'll plan for the full year to make sure that we're below that 23% for modeling purposes. So maybe a quarter here, it may go out of balance, but for the full year, we expect to be within 23%. Operator: Our next question comes from Stacy - yes, sir? Jeff Palmer: That will be our last question. We'd like to pass it over to Kurt for some final remarks get right here to the end. Kurt Sievers: Yeah. Thank you - thank you very much, Jeff. Now as we have discussed, clearly, the level of uncertainty currently is higher than what we've had through the past couple of quarters. The stance we take is that we want to be prudent and disciplined to those elements, which are in our control. We just discussed about OpEx. But much more importantly, I think this is all about inventory management. There, we don't want to be blocked by a lot of over shipping into the channel and not having a deal anymore what the true end demand is. So that's why we focused on this call and also for our guide very much on that approach. For the channel, which mind you, is more than 50% for NXP, more than 50% of our revenues are going through the channel. So that discussion is a very important piece for us. With that, we are actually in a position to certainly navigate in a good way through this period of uncertainty and at the same time, remain very prepared for a potential rebound which we think could happen in the time to come, especially in China when the infection rates come down again after this policy change. With that, thanks for your attention. Thank you very much. I speak to you all soon. Thank you. Jeff Palmer: Thank you, everyone. We can disconnect now. Operator: Thank you for your participation. This does conclude the program, and you may all disconnect. Everyone, have a great day.

Operator: Hello. Thank you for standing by and welcome to the NXP Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Josh and good morning everyone. Welcome to the NXP Semiconductors' third quarter 2022 earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products, and our expectations for the financial results for the fourth quarter of 2022. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2022 earnings press release, which will be furnished to the SEC on Form 8-K and be available on NXP's website in the Investor Relations section at nxp.com. Now, I'd like to turn the call over to Kurt. Kurt Sievers: Thank you, Jeff and good morning everyone. We appreciate you joining our call today. Now, let me begin with a review of our quarter three performance. Our revenue was $20 million better than the midpoint of our guidance with performance in the Mobile, Automotive, and Communication Infrastructure markets all better than our expectations. For the consumer exposed IoT subset of the Industrial & IoT market, we started to experience weaker sell-through in the channel. And let me remind you that our consumer IoT exposure is approximately 40% of the Industrial and IoT segment revenue. It is made up of thousands of customers primarily in China and serviced through our distribution partners. Taken together, NXP delivered quarter three revenue of $3.45 billion, an increase of 20% year-on-year. Our non-GAAP operating margin in quarter three was a record 36.9%, 340 basis points better than the year ago period and 80 basis points above the midpoint of our guidance. Our results reflect strong execution with solid profit fall-through on the incrementally higher revenue and better than guided operating leverage. Notwithstanding our results, which surpassed our guidance, we are facing a tricky demand environment. On the one hand, the demand trends from automotive and core industrial customers are very resilient. And we continue to face supply constraints across multiple microcontroller and advanced analog products. And on the other hand, we see weakness in the broad consumer IoT and in the Android mobile market. Given that unbalanced dynamic of the demand environment, we are going to pull those levers that are in our control, namely stringent channel inventory management and discipline and discretionary operating expense. In terms of inventory, we have decided to take a Draconian approach to managing our distribution channel inventory. Specifically, our quarter four guidance contemplates a channel inventory at the 1.6 months of supply level, which is in line with quarter three and well-below our long-term model. We prefer to keep any incremental inventory on our balance sheet, where we have the ability to control and redirect shipments as needed. And in terms of discretionary spending, amongst others, we are slowing the rate of hiring. All-in-all, we believe these measures are a prudent approach until such time as we see a clearer and more consistent view of the demand environment. Now let me turn to the specific trends in our focus end markets. In automotive, revenue in Q1 was -- in Q3 was $1.8 billion, up 24% year-on-year, near the high end of guidance. In Industrial and IoT, revenue was $713 million, up 17% year-on-year, $32 million below our guidance. In Mobile, revenue was $410 million, up 19% year-on-year, $30 million better than our guidance. And lastly, Communication Infrastructure & Other revenue was $518 million, up 14% year-on-year, slightly above our guidance. Now let me look at key operating indicators relative to the noted demand dynamics, where we see the following. In terms of quoted product lead times, overall, we dropped to just below 70% of our portfolio with lead times that are greater than 52 weeks. This metric was greater than 80% a quarter ago. While this is in aggregate an improvement from prior periods, we continue to be sold out through 2023 in the automotive and core industrial end markets. In terms of our NCNR program, most of our automotive and core industrial customers continue to demand assured supply for 2023. Our 2023 NCNR order book continues to surpass our 2023 supply capability as well as the level of NCNR orders, which have been requested for 2022. And in terms of inventory, as noted previously, our Q4 guidance contemplates distribution channel at 1.6 months, well-below our long-term target of 2.5 months. With respect to on-hand inventory at NXP, our DIO has increased five days sequentially to 99 days, and it will increase further. Given the application-specific nature of our product portfolio, we are comfortable with this direction. Now let me turn to our expectations for quarter four. We are guiding revenue at $3.3 billion, up about 9% versus the fourth quarter of 2021, within a range of up 5% to up 12% year-on-year. And from a sequential perspective, this represents a decline of about 4%, at the midpoint versus the prior quarter. At the midpoint, we anticipate the following trends in our business. Automotive is expected to be up in the high teens on a percent basis versus quarter four 2021 and flattish versus quarter three 2022. Industrial and IoT is expected to be down in the low double-digit range on a percentage basis year-on-year and down in the high teens range versus quarter three 2022. Mobile is expected to be up in the low single-digit range year-on-year and down in the upper single-digit range versus quarter three 2022. And finally, Communication Infrastructure and Other is expected to be up in the low teens range versus the same period a year ago and flattish on a sequential basis. Now in summary, there is a real dichotomy in the various end markets that we serve. The potential for some demand destruction in the consumer end markets that we noted as a concern last quarter has materialized. While we could ship more into the channel, we are taking a proactive stance to limit channel inventory buildup. And conversely, we are seeing very resilient customer demand in the Automotive and core Industrial segments, where demand continues to outpace supply, which hinders us from shipping to the true end demand. So, overall, we remain cautious in the near term due to the uncertainties in the macro environment. And with that, now I would like to pass the call over to you, Bill, for a review of our financial performance. Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q3 and provided our revenue outlook for Q4, I will move to the financial highlights. Overall, our Q3 financial performance was very good. Revenue was $20 million above the midpoint of our guidance range. And both non-GAAP gross profit and non-GAAP operating profit were above the midpoint of our guidance. Now moving to the details of Q3. Total revenue was $3.45 billion, up 20% year-on-year, notwithstanding weakness in the consumer-centric portion of the Industrial and IoT segment. We generated $1.99 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58%, up 150 basis points year-on-year and both above the midpoint of guidance range, as a result of higher factory utilization and higher sales volume. Total non-GAAP operating expenses were $730 million or 21.2%, up $73 million year-on-year and up $6 million from Q2, better than our guidance range and below our long-term model. From a total operating profit perspective, non-GAAP operating profit was $1.27 billion, and non-GAAP operating margin was 36.9%, up 340 basis points year-on-year and both above the midpoint of the guidance range. Non-GAAP interest expense was $91 million, with cash taxes for ongoing operations of $160 million or 13.6% effective cash tax rate. And non-controlling interest was about $12 million. Stock-based compensation, which is not included in our non-GAAP earnings, was $89 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $11.16 billion, flat sequentially. Our ending cash position was $3.76 billion, up $214 million sequentially, thanks to improved operating performance. The resulting net debt was $7.40 billion. And we exited the quarter with a trailing 12-month adjusted EBITDA of $5.3 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q3 was 1.4 times, and our 12-month adjusted EBITDA interest coverage was 13.8 times. Turning to working capital metrics. Days of inventory was 99 days, an increase of five days sequentially, as we continue to experience incrementally improved supply trends. The increase in on-hand inventory was evenly split between raw materials and work in process to support revenue growth in subsequent periods and an increase in finished goods due to the noted weakness in the Android mobile market and the consumer-centric portion of Industrial and IoT. As Kurt mentioned, we continue to tightly manage our channel inventory. Inventory in the channel was 1.6 months and continues to be well below our long-term target. Days receivable were 27 days, flat sequentially. And days payable were 96, an increase of two days versus the prior quarter. Taken together, our cash conversion cycle was 30 days. Our working capital management, balance sheet and channel metrics continue to be very strong and well managed. Cash flow from operations was $1.14 billion, and net CapEx was $281 million or 8.2% of revenue, resulting in a non-GAAP free cash flow of $863 million or 25% of revenue. During Q3, we paid $223 million in cash dividends, and we repurchased $400 million of NXP shares. In addition, since the beginning of Q4 through October 28, we purchased an additional $260 million of shares under established 10b5-1 program. On a trailing 12-month basis through the end of Q3, we have returned 98% of our non-GAAP free cash flow back to the owners of the company, consistent with our capital allocation strategy. The cash flow generation of the business continues to be excellent. Now turning to our expectations for Q4. As Kurt mentioned, we anticipate revenue to be about $3.3 billion, plus or minus about $100 million. At the midpoint, this is up 9% year-on-year and down 4% sequentially. We expect non-GAAP gross margin to be about 57.8%, plus or minus 50 basis points. Operating expenses are expected to be around $720 million, plus or minus about $10 million, which is down about 1% sequentially, driven by lower incentive compensation and discretionary spending. Taken together, we see non-GAAP operating margin to be 36% at the midpoint. We estimate non-GAAP financial expense to be about $81 million, driven by higher interest income. And we anticipate cash tax related to ongoing operations to be about $140 million or about a 13% effective cash tax rate, which is below our communicated model, leading to a full year effective tax rate of 13%. Non-controlling interest should be about $12 million. And for Q4, we suggest for modeling purposes, you use an average share count of 262 million shares. For CapEx, we suggest you use 8%, bringing total year CapEx to 8% versus our prior expectations of 10% due to delays in equipment deliveries. Finally, I have an update to our reported financials, beginning with our guidance for Q1 2023. We will begin to apply an estimated annual tax rate to our GAAP and, thus, our non-GAAP profit before tax. This change will enable NXP to report a non-GAAP earnings per share on a go-forward basis, consistent with SEC guidelines. Given current tax legislation, we believe our new estimated tax rate will be consistent with our long-term cash tax rate of 18%, as provided at our Analyst Day in November of 2021. Overall, despite the uncertain macroeconomic conditions which are impacting some of our more consumer-oriented markets, as Kurt mentioned, we will navigate what is in our control, such as channel inventory and discretionary spending. Furthermore, over the foreseeable future, we will continue to operate within our long-term financial model. Thank you, and we now can turn the call back over to the operator for questions. Operator: Thank you. [Operator Instructions] Our first question comes from Ross Seymore with Deutsche Bank. You may proceed. Ross Seymore: Hi guys. Thanks for letting me ask the question. Kurt, I wanted to ask about the inventory side of the equation, both on the channel and on your balance sheet. On the channel side of things, you guys are, like you said, well below target about 1.6 months, well below where you were at similar points where people were worried about us being at a peak cycle. So, I guess the question is, could you ship more into the channel if you wanted to? And what's led to the philosophical shift to significantly lessen the channel and more on your balance sheet as in prior cycles it seems to be the opposite prioritization? Kurt Sievers: Yes, good morning and thanks, Ross. Yes, the answer is a blunt yes. We could have shipped more into the channel against open orders actually in this fourth quarter, and that especially into the consumer IoT part of our segments. But as I mentioned, given the whole macroeconomic uncertainty, we just feel it is a much more prudent approach to actually limit this channel inventory at this very low level of 1.6 months and mind you that the delta to 2.5 months in terms of revenue would be about $500 million. And that's the level of open orders, which we would easily have, which we could serve. But we think it's more prudent because it's unclear how the macro is going to further develop and how the demand in that part of the market is going to develop. So we feel it's a better idea to keep what we have already in the pipeline to keep in-house and on the balance sheet, also for eventually being in a position to redirect it to other customers. Now that's the one side of the house. I just have to also remind you that at the same time, Ross, we have this real situation that in the auto and core industrial side of the house, we have the opposite situation. We do not have enough supply, so we continue to be sold out. And also there, we could actually -- if only we have the supply, we could make more revenue in quarter four. We have a lot of open orders, which are very real. We checked all of them, but can't really serve them. But again, back to your initial question, yes, we could sell more, but we found it is much more wise to stick to this very low channel inventory of 1.6 months at this time. It's not a long-term target, though, but at this particular period in the cycle, we feel it's the best thing we should do. Ross Seymore: Thanks for that color. I guess as my follow-up, one is for Bill on the gross margin side of things. I'm impressed that the gross margin is staying flat, maybe surprised would be the word more than impressed, given that the revenues are dropping 4% or so. Your predecessor had a very rough rule of thumb that a 5% drop in revenue was a 1% drop in gross margin. So how are you able to keep that flat? And what's the sustainability of that ability to keep the gross margin at this general level? Bill Betz: Yes. Thanks, Ross, for your question. And you're right, we did slightly better than our guidance driven by the higher revenues and fall-through. One area I think we need to understand a little bit better is that our internal utilizations remain in the high 90s as we are still well constrained specifically in our auto. And if you think about internally, more than two-thirds of our capacity is just pinpointed to our IP proprietary mixed-signal, auto-centric capacity internally. And we are constrained. As you heard Kurt mention, we are sold out, and we expect this to be well-utilized all throughout 2023. Second, as mentioned on previous calls, you're right, we mentioned we'd stay in a tight range, delivering toward our high-end model. And I think we've demonstrated that, and it's incorporated in our Q4 guide. And more longer term, what gets us to 58% is really those new product introductions, which are further out in the journey, I would say. Ross Seymore: Thank you. Kurt Sievers: Thanks Ross. Operator: Thank you. One moment for questions. Our next question comes from C.J. Muse with Evercore. You may proceed. C.J. Muse: Yeah, good morning. Thank you for taking the question. I guess, the follow-on on Ross's question, I guess, can you comment on the ability at all to repurpose wafers capacity? My sense is internal versus external, the answer is no. And then as part of that, before coming to the recovery, you had a gross margin construct, I think, of every 5% change in top line, 100 bps growth in gross margins. Now that you see a clear mix shift here in terms of auto, core industrial holding strong, yet consumer weaker, is there kind of a thought process or model we should be thinking about on the gross margin side as we push forward into some sort of further correction on the consumer side? Kurt Sievers: Hey C.J. good morning. Let me first go at the repurposing or the potential for repurposing of capacity. So first of all, yes, I can confirm directionally that indeed repurposing between internal and external is very limited. I mean that's really how we've built our supply strategy. When you then think about within internal and within external, repurposing between the different segments which we serve, and that's now specifically between the more consumer-oriented versus the more auto or core industrial-oriented markets to a limited level, it is possible. It is typically not at all possible on a finished product level. So once the product is completely manufactured. And sometimes program, we have hardly any products which are swappable. However, if you still speak about buyback, inventory for example, we do have the opportunity with several process nodes to actually swap between those markets, but not with all of them. I'll give you one example which is quite sizable for us. We have a lot of product going in 55 nanometers with embedded nonvolatile memory that for example, is very, very purely automotive, which means we are sold out we are short in that technology, but that same technology is also not used for any of the consumer applications. So the demand drop in consumer doesn't really help us there. However, there is other technologies, like 90 nanometers or 180 nanometers, where we can do this if the product is not yet finished goods. So it's a bit of an in between, but we have some liberty here. And that is also the reason why, amongst others, for example in parts of our [indiscernible] market in Q4, we start to see acceleration in our revenues because we actually could swap some of our existing capacity into those markets like the e-government markets or RFID markets, which were super constrained over the past 8 quarters. On the margin side, I'd say there is quite some variation of margin within each of the segments. So you cannot easily draw conclusions between the four revenue segments, what their mix is and what it means to the end margin of the company. It is more sophisticated, to be fair. Bill I'm not sure if you want to go a little bit deeper. But in the end, you cannot draw conclusions on the level of the total segment. Bill Betz: No, nothing else there. Kurt Sievers: CJ, did you have a follow-up? Q – C.J. Muse: Thanks guys. Yes, just a quick follow-up. The China IoT piece, I would have thought that, that would have shown weakness earlier, so I guess, are there particular kind of sub end markets that have proven to be more resilient, at least until today, that's kind of enabled that to hold up or kind of can you give us a little more color on how to think about the key drivers within that bucket? Kurt Sievers: Yes. It really started in, I'd say, August and then going into October to quite significantly drop. But again, of course, our approach to stick to the 1.6 level of month of channel inventory gives this a different color, CJ. I mean, in former days, honestly, we would just have kept shipping. So we it would have felt like, oh, finally, we get the channel inventory up. Now, it's very much our choice that we said we don't want to do this, and that's why it sees quite a harsh decline. But again, as I explained earlier, we think that's the better way to do it. But again, it started in August time frame. I would say, it's the consumer IoT market globally which is softening. It's just such that we have a relatively sizable exposure to China. But it's not that the non-Chinese consumer IoT customers would be still very resilient. I think this is globally weakening, but it hits us harder from a China perspective. And this is also where we have a very large channel exposure, which is why this general approach which I explained earlier, I think, makes a significant difference in how we want to deal with it. C.J. Muse: Very helpful. Thank you. Operator: Thank you. One moment for questions. Our next question comes from Vivek Arya with Bank of America. You may proceed. Vivek Arya: Thanks for taking my question. Kurt, for my first one, I'm curious to get your perspective on just the supply-demand equation in the automotive industry at your OEM and Tier 1 customers. Do you think they're still undersupplied or oversupplied or just kind of rightly supplied? And just what are the hotspots of over or undersupply right now? And just how is your visibility of growth into the first half of next year? I think you've added Q4 flattish, which I assume is more a supply variable. But just what's your perspective into the supply-demand balance at your auto customers right now? Kurt Sievers: Yes. Thanks, Vivek. First of all, let me just indeed unfortunately confirm that the sequential flat in auto into Q4 is purely a function of supply. I wish it was different, but it is a straight function of supply. Now it still has a nice year-on-year growth, by the way, but the sequential is a supply limitation. In general, many microcontrollers, if not all, in our portfolio and the large part of the analog products, which we have, continue to be significantly supply constrained in automotive. And that is after a very careful and very thorough analysis of the demand in this whole web from the OEMs through to Tier 1. So I think we have more transparent and more detailed discussions than ever before in trying to understand that. And it really shows also, given the NCNR order level which we are getting in automotive for all of last year, that those constraints will continue to be in place through a large part of next year, depending, of course, on how the supply possibly further improves above the visibility we have today. But with our current supply visibility, we will continue to be sold out in the automotive market through next year. If you’d ask me how much was the gap to true demand, probably it is in the order of -- that we have a supply coverage of 85% next year in Automotive and core Industrial versus true demand. Now there is still this golden screw problem, so I don't want to take this off the table. So sometimes one component is indeed missing from us or from another peer in the market, and then it takes a few weeks until stuff is being flushed through. But that doesn't take away that there is overall shortage in the key microcontrollers and analog products. Vivek Arya: Got it. So my follow-up, you continue to build inventory on your balance sheet. And when I couple that with the fact that you mentioned you're sold out in automotive and core industrial, that's almost two-thirds of your business, so is it fair to assume that you're planning for next year, I know you're not giving 2023 guidance, but are you planning for next year sales to be at least flattish year-on-year with auto and core industrial growth offsetting any weakness on the consumer side, or is that stretching right too much the conclusion from combining the fact that you still continue to build inventory and your auto and core Industrial demand is sold out for next year? Bill Betz: Hey Vivek, this is Bill. Let me take this one. First off, we're not guiding 2023, but let me go into the internal inventory and try to summarize for everyone. Yes, we've increased five days, which is about 50% raw material and work-in-process. And the remainder was in finished goods from a quarter-over-quarter perspective. Clearly, as Kurt mentioned, a portion of these finished goods was driven primarily by NXP preventing inventory buildup in the channel as we reroute this material to other customers in need or some of it's fungible and some of it is not. Areas where we have higher consumer or mobile inventory levels, we hold the wafers in die bank, as Kurt mentioned, before completing assembly and test in our back-end facilities. At the same time, we remain highly constrained in the wafer areas of 28, 40, 55, 65 and 90 in our auto and core industrial segments. And again, as we mentioned in both our opening remarks, it's better to keep control of your own inventory and putting it into the channel, which will just create future issues if demand falls. And again, majority of what we build is very application specific and long-lived, which gives us confidence to hold and be ready to service future demand. Kurt Sievers: Thanks, Bill. Let me maybe just add that one view on next year when it comes to automotive since you were asking earlier. We see no reason why the strong trend of content increase following, amongst others, electrification and ADAS would break. I think every quarter, we look at the ratio of electric cars of the total SAAR is higher than in the quarter before. For this year, we see now 27% of the total SAAR being ex EVs. And for next year, it's forecasted to be 34%. And you know what that means for the semiconductor content in a car. So from that perspective, I think there is, from a demand view, certainly good reason to believe that it continues to be a very strong and very resilient market, while at the same time, the extended supply chain in our view continues to be underfilled. It is still actually dysfunctional, because it is still too low level. So those two perspectives should maybe add to a pretty healthy view from an automotive demand perspective on 2023. Vivek Arya: Thank you. Operator: Thank you. One moment for questions. Our next question comes from Stacy Rasgon with Bernstein Research. You may proceed. Stacy Rasgon: Hi, guys. Thanks for taking my questions. The first one, I get the issues in consumer and mobile. Those seem to be in the numbers now at this point. But auto and industrial look really resilient. You're sold out. You've got these NCNRs. I guess why do you sound so worried given that long-term support in those core markets and presumably given how sustainable it is, like, are you seeing any signs at all of weakness, even small signs, any tiny upticks in cancellations or anything like that in those core markets? Kurt Sievers: Stacy, we have no cancellations or push-outs in auto or core industrial. At the same time, I don't have a crystal ball, and I don't want to take a position here to be the economic schedule is for the macro for next year. But -- so this -- also this guidance here is based on the orders and the supply capability which we have at hand for quarter four. But I can absolutely confirm no push-outs, no cancellations in core Industrial and Auto. And the one indicator which gives maybe a somewhat better feel on the longer term is the level of inventory sitting in the extended supply chains in those two markets. And from anything we can check and see there, that level continues to be super low. And that's why we continue to believe it should stay very resilient. Stacy Rasgon: Got it. Thank you. For my follow-up question, I wanted to, again, I guess, dig in on the channel inventories. So a lot of the consumer stuff which is weak goes to the channel, it sounds like you're not shipping that into the channel, but the channel inventories are still flat. So are you shipping other stuff into the channel that's making up for it? Like how is the mix, I guess, of end markets within that channel changing as the consumer stuff is weakening? Kurt Sievers: We will not speak about the mix because then it really becomes complicated. But it is not that we do not ship at all in the channel. We ship into the channel to keep a steady level of 1.6 months of inventory. So it's not to say that this is so dramatic that we have to stop all shipments. That's not how it works. We just -- we are very disciplined. Bill and I are actually sitting every week as we look at the sell-through and sell-in data with each of our distribution partners by segment. And then we make sure every week, that's not only at the end of the quarter, that's true for the quarter, that it doesn't surpass the 1.6. The change we wanted to communicate today is only that, so far, honestly, for eight quarters in a row, I was desperate to get it up. I mean, I would have wished we could have shipped more into it, in order to have a higher channel inventory. Now given those consumer trends, we are actually more disciplined to make sure it doesn't go higher, especially in those parts where actual demand is -- but it doesn't mean there is zero shipments. Stacy Rasgon: I understand that. I guess what I'm asking is, is it fair to say, even if you don't want to go to the mix, the detailed mix that the consumer mix within the channel is lower and mix of other stuff is higher now versus maybe a couple of quarters ago? Kurt Sievers: No. Stacy Rasgon: No? Okay. Kurt Sievers: I'm not sure why you think it should be. No, it is not. Stacy Rasgon: Well, I mean, if the consumer stuff is so much weaker, you said it's 40% of your Industrial business, and a lot of it goes through the channel, and clearly, demand there is weakening. And it sounds like they're limiting shipments of that stuff into the channel. That's all. But the total inventories look the same. Kurt Sievers: Yeah, Stacy, we are limiting shipments. But I mean I think about it this way. The industrial IoT segment is 18% of the total revenue of the company, and 40% of that is the consumer IoT, and that's still not at a zero shipment level. So it is not that dramatic from a change perspective. Stacy Rasgon: Got it. Okay. That’s helpful. Thank you guys. Appreciate it. Operator: Thank you. One moment for questions. Our next question comes from William Stein with Truist. You may proceed. William Stein: Sorry, I was muted. Thanks for taking my question. I'm hoping you might have some discussion in terms of the difference in demand levels and lead times and your level of constraints between automotive on the one hand and industrial on the other. I think in prior quarters, you've noted that industrial is even more constrained than automotive. That doesn't quite get the same level of attention. Can you update us on that dynamic, please? Kurt Sievers: We really don't have it broken down that way, but we’ll still -- the key shortages in the core industrial are indeed continuing to be highly escalated and quite painful. So I think I can repeat the statement I made earlier that while there continues to be a lot of public reports about the shortages in auto and much less noise about industrial, in our case, in the core industrial, we continue to be as short as we used to be before. I said it earlier, I think, in the context of a different question. Say for the next couple of quarters, I think about four or five quarters, we believe after risk adjusting our demand, we should have about 85% coverage against -- that used to be 80%. So you see we are five percentage points higher, but that is not necessarily because the supply capability in auto or industrial has gone up so much, it is just that the consumer IoT demand on the other side or for the total company has dropped such that in aggregate for the total we come up to 85%. But it continues to be equally painful in auto and industrial than it used to be. William Stein: Appreciate that. As a follow-up, I'd like to linger on this small pivot you're making in terms of the way you're dealing with the channel in your inventory. And I wonder if the company has evaluated potentially moving to a consignment oriented model, which would allow you to make even more control. There's only one company that I'm aware of that has perceived that in a big way this sort of an outlier in terms of how to deal with distribution. But I wonder if that's a growing thought given your approach that you're discussing today? Thank you. Kurt Sievers: Thanks, Bill. But that's a quick answer, no, we are not contemplating that. William Stein: Okay. Thanks. Operator: Thank you. One moment for questions. Our next question comes from Gary Mobley with Wells Fargo. You may proceed. Gary Mobley: Hey guys. Thanks for taking my question. I wanted to talk about one of your smaller businesses for a second, and that is the mobile side of the business. You highlighted what sounds like 8% upside to your Q3 revenue forecast for that particular business. And we step back and look at the full year. Based on your Q4 guide, you're going to grow that business by close to 10%, which is counterintuitive given some of the weak mobile handset-related data points. So what's helping you outperform there? Is it content growth, or is it inventory channel related? Kurt Sievers: It's got nothing to do with channel or inventory, because we put the same discipline on all segments. Now it has to do with our strategy, which is really on content growth. Think about the mobile wallet. Think about the kicking in ultra wide bands. And we also have, I'd say, directionally, it's not black and white, but we have a bias to higher-end mobile phone market, which comparably is doing better this year than the very low-end Android. So I'd say, therefore two answers. Our company-specific content increase in share gains are working out. I mean, that is very much in line with how we put it a year ago at our Investor Day. And secondly, you might say we are in a good position because we are somewhat more exposed to the higher end rather than the feature phones, with the Android phones. Gary Mobley: Thanks for that. As my follow-up, I want to ask about the latest US export restrictions. My hunch is you're not so much directly impacted from these US export restrictions. But I guess indirectly, can you speak to how it may result in some kitting issues in certain end markets and/or whether it requires you to change your manufacturing footprint? Kurt Sievers: Yes. So first of all, of course, at all times, we will 100% make sure that we are in total compliance with any export control regulations, and so we are also after these latest changes. All of our assessment so far of these latest changes in the regulations show that, if anything, we have super immaterial impact on our revenues. When it comes to second or third order effect, which you were hinting to, also there I must admit we haven't really found anything, which looks like being an issue for us. But of course, we keep researching it. But at this point, I can only say no, if anything, only super immaterial impact. Gary Mobley: Thanks, Kurt. Operator: Thank you. One moment for questions. Our next question comes from Matt Ramsay with Cowen. You may proceed. Matt Ramsay: Good morning. Thank you very much. Kurt, for my first question, you were very clear about the trends in your Automotive business and the business continues to do quite well. And I think to an earlier question, you mentioned that sort of on a quarterly basis, the SAAR numbers and the LTL 3 penetration numbers of ADAS continue to kind of go higher in your own estimates. But how do you guys made any changes to those kind of mix and content assumptions in the next year or two just based on interest rates? I think a lot of us externally saw some of the data out of CarMax and some other sources and the auto. New car purchases are obviously financed pretty heavily. So is there any assumptions that might have changed recently in your forecasting based on some of the interest rates? That would be interesting. Thanks. Kurt Sievers: Yes, Matt. So we -- I give you here two answers. The one is the short term. So when it comes to the guidance for Q4 is really based on orders at hand. I mean we don't -- it holds a bit done, but we don't make these strategic considerations for the next three months. This is really about orders and supply capability. Longer term, say next year, again, I don't want to say I have the crystal ball. So we use IHS typically for the SAAR, which I think just updated their forecast for next year for a 4% SAAR growth to, I believe, something like 85 million units. However, it really isn't that important at all. What really matters is the content increase, which has a lot to do with the mix to e-vehicles, premium vehicles and other features kicking in. So I think the whole discussion around interest rates and recessions looming left and right, I agree with you it could have impact on the demand behavior of people buying cars. But unless that drops incredibly far down, I believe that the content -- semiconductor content per car is actually dumping the moves on the SAAR itself. And that is for us much more relevant. But again, I mean, we don't guide next year. I don't know what it is going to be, but we really should more and more start to look at this as a semiconductor company and industry from a content perspective rather than a unit perspective in automotive. Matt Ramsay: Thanks for that. Really it’s a tough, big picture question. But it’s the one that we’re getting. As my follow-up, I wanted to ask, in the automotive sector, you guys obviously have a strong position in BMS, so managing the battery. But there's two sides to managing the battery. There's actually running the car, and then there's the charging side and lots of conversation on why, one, in batt semis and what it means for fast -- onboard fast chargers. And I wonder, as a full BMS solution managing the charging and the discharge of the battery, is that something that you guys are looking into, not the manufacturer or anything applied against it, but buying it from someone else and doing a fully integrated both side of the battery type solution? And any thoughts there would be helpful. Really appreciate it. Kurt Sievers: Well, actually, we not only look at it, but we work the system end-to-end. So we are also very busy with companies building and providing the charging infrastructure. I think we have revealed earlier, so I may use the name. We work closely with ChargePoint, for example, in the US. And that is not only on the charging, but that even includes payment to make this a very seamless process for the consumer. So our payment and identification and security technologies are also being included in this. So yes, we look at it as a -- from a total end-to-end basis. However, I have to say this still means we are not going into discrete power. So whenever these systems and wherever they need discrete power solutions, so like silicon carbide, this is not our focus. Our focus remains on the advanced analog and logic products, which we think is about 50% of that opportunity. Jeff Palmer: Josh, we’ll take the next question please. Operator: Thank you. One moment for questions. Our next question comes from Joseph Moore with Morgan Stanley. You may proceed. Joseph Moore: Great. Thank you. I know last quarter you guys have talked about the desire of the automotive companies to build up safety stock at the Tier 1 level. I think you talked about six months. Where are they in that process? I mean it definitely sounds like things are still pretty tight, but is there any indication that they're able to put any of that inventory into place? Kurt Sievers: Yeah. Indeed, that is strategic requirement, which, in many cases, OEMs are and have been putting on Tier 1s. My guess is -- it's very hard to get the full picture of this, but my guess is that in some few cases, they start to be able to start building somewhat on a lot of those core products which are plaguing us and others from a sheer built performance perspective, they are very, very far from achieving anything in this, because, again, even before that would happen, the whole supply chain, the whole extended supply chain needs to build a higher inventory level. That's not just in one company, but it's just that the whole trade becomes more functional. So, I would say, given the end demand trends and how I would judge the supply capability of us and the industry, this will take all of next year still, before we come even close to that requirement. Joseph Moore: Great. Thank you very much. Operator: Thank you. One moment -- Jeff Palmer: Joe, did you have a follow-up or is that it? Joseph Moore: No, I'm good, Jeff. Thank you. Jeff Palmer: This will probably be our last question. Operator? Operator: Thank you. One moment for questions. Our next question comes from Toshiya Hari with Goldman Sachs. You may proceed. Toshiya Hari: Hi. Good morning. Thanks so much for squeezing me in. I have two questions. First one is on pricing. I think if we take the midpoint of your Q4 revenue guidance, you're going to be growing around 19% for the full year. I think you gave really good color last quarter on how significant the tailwind is from pricing. If we can get an update on 2022 pricing, that would be great. And then your preliminary thoughts into 2023, again, from a pricing perspective particularly given, I think, the intent on your foundry supplier to raise pricing next year as well. Kurt Sievers: Yes, Toshiya, so as a good practice, as we've done for last year, we will provide the full year pricing impact for calendar year 2022 in quarter one of 2023. It's still very, very dynamic, I would almost say day-in, day-out. So we will give you and provide you the aggregate pricing impact on our revenue growth for this year in Q1 of next year. From an overall dynamic perspective, we continue to see quite sizable cost -- input cost decreases to us. That is from the foundry partners, but there's also a lot of other inflationary cost increases. And, of course, we absolutely walk the talk that we stick to our strategy to pass on those input cost increases to our customers to exactly that level that we can protect our gross profit percentage. And seeing how the supply-demand imbalance in our core markets is moving into next year, I guess, it is reasonable to assume that we will continue to raise prices also next year. We are now so much to the end of 2022 that I think it's fair to say it's highly likely that we will also continue next year's prices, just following those input cost increases. Toshiya Hari: That's helpful. Thank you. Sorry. Kurt Sievers: Yes. Go ahead. Toshiya Hari: Sorry about that. As my follow-up, just on how you're thinking about utilization rates and CapEx going forward, Bill, you talked about utilization rates being in the high 90s, given your comment on inventory growing in the quarter, my guess is you're keeping utilization rates to where they are but just wanted to clarify that. And then on CapEx, you mentioned you've had equipment delivery delays. Should we expect CapEx to be elevated into 2023, or is it a little bit premature to say at this point? Thanks so much. Kurt Sievers: So let me quickly take the utilization, and Bill is going to speak about CapEx. On the utilization, yes, we will stay very, very highly utilized because, as Bill put it earlier, the majority of our internal front-end factories are working for automotive and core industrial. So that's exactly there where we see the strong demand continuing, and that's why the utilization rates there will stay very high. Bill, over to you for CapEx. Bill Betz: Yes. Related to the CapEx, as I mentioned, we will do better this year, 10% going to 8%. And next year, we will be in the range between 6% and 8%. Toshiya Hari: Thanks so much. End of Q&A: Kurt Sievers: Yeah. I guess that gets us to the end of the call. So in summary, I would say we are cautious in the near-term given all the macro uncertainty. However, under the surface, we see what I call the dichotomy, which is really a very disciplined approach to a weakening consumer IoT market, where we want to stay ahead of the game and not trap the channel while, at the very same time, we continue to be supply constrained quite significantly in our core industrial and automotive markets, where we try to do everything in-house and with our foundry partners to get the supply the soonest in line with the pretty resilient demand signals, which we are having. And that sets it for the call today. Thank you all very much. Thank you. Jeff Palmer: Thank you, Josh. Appreciate everybody's attendance. That concludes the call today. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good morning, ladies and gentlemen. Thank you for standing by and welcome to the NXP Second Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator instructions] Please be advised that today's conference maybe recorded. I would now like to hand the conference over to your speaker host today, Jeff Palmer. Please go ahead sir. Jeff Palmer: Thank you, Lydia. Good morning everyone. Welcome to NXP Semiconductors' second quarter 2022 earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the third quarter of 2022. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven by – primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter 2022 earnings press release, which will be furnished to the SEC on Form K and is available on NXP's website in the Investor Relations section at nxp.com. Now I'd like to turn the call over to Kurt. Kurt Sievers: Thank you very much, Jeff, and good morning everyone. We appreciate you all joining our call today. Let me begin with a review of our quarter two performance. Our revenue was $37 million better than the mid-point of our guidance with automotive and industrial and IoT above our guidance while trends in the mobile and communication infrastructure markets were in line with our expectations. Taken together, NXP delivered quarter two revenue of $3.31 billion, an increase of 28% year-over-year. Our non-GAAP operating margin in quarter two was a record 36%, 400 basis points better than the year ago period and about 30 basis points above the mid-point of our guidance. Our results reflect strong execution with better than guided operating leverage and profit flow through on the incrementally higher revenue on top of improved gross profit. Now let me turn to the specific trends in our focused end markets. In automotive, revenue was $1.71 billion, up 36% year-over-year near the high-end of guidance. In industrial and IoT revenue was $713 million, up 25% year-on-year better than our guidance. In mobile, revenue was $388 million, up 12% year-on-year in line with our guidance. And lastly, communication infrastructure and other revenue was $498 million, up 20% year-on-year in line with our guidance. Looking at the trends across our end markets, we are not naïve to believe. NXP is immune from the clearly weakening macro environment. We are highly alert and we review frequently and very closely several key indicators relative to the dynamics of customer demand versus supply, inventory per channel, per end markets and per geography. When we look at demand signals, we have a high level of confidence in the intermediate term outlook. This is especially true in terms of demand trends in the automotive and industrial markets, which account for the majority of our total revenue. While there is well documented weakness in the low end Android handset markets, it is important to note that our mobile business is more biased towards the premium-tier members. And in aggregate, our mobile business accounts for only about 12% of our total revenue. In terms of the PC and broad consumer electronics markets, there are much smaller contributors in the IoT portion of our industrial and IoT segment. In terms of customer behaviors, we do not see any substantial weakening within the auto and industrial customer base. Relative to long-term committed customer demand, a large percentage of our major customers continue to firmly desire our supply assurance, commitments which are facilitated by placing non-cancelable non-returnable orders with us throughout 2023. And currently, the level of NCNR orders into 2023 is greater than our ability to service. In terms of key operating metrics, which inform our short term decisions, demand continues to outpace our gradually and incrementally improving supply capability. Furthermore, even as we actively de-risk our existing backlog for potential double or any stale orders, we judge supply to only address approximately 80% of the underlying demand. Additionally, we continue to redirect shipments to those customers, which are at risk of going limestone thus avoiding excess or stagnant inventory buildup. When looking at customer inventory, we continue to see a dysfunctional supply chain, which struggles to get the right product mix and complete kits to the correct location in the extended automotive and industrial markets. Now, in terms of our own on hand inventory, it has increased through quarter two on a dollar basis consistent with orders placed with suppliers and internal built plans. The primary area of increase is in raw material and work-in progress in order to fulfill firm customer commitments in future and especially in quarter three. On a days basis, DIO was 94, an increase of five days sequentially and closer to our long-term target of 95 days. Now moving to the distribution channel, which services about half of our total revenue, inventory continues to remain stubbornly below our long-term targets. During quarter two, the months of supply in the channel was barely 1.6, which is about a month below our long-term target and it is now the seventh consecutive quarter of an exceedingly tight supply situation in the channel. Finally, let me speak to our ability to service customer requirements. Lead times continue to be extended with more than 80% the whole products being quoted at 52 weeks or greater, which is actually on a similar level to last quarter. So in summary against this dynamic backdrop, our second quarter and the first half of the year was a good beginning to what we view will be a positive year for NXP. We do continue to see the second half of the year greater than the first on an absolute dollar basis. Now let me turn to our expectations for quarter three. We are guiding revenue at $3.425 billion, up about 20% versus the third quarter of 2021 within a range of up 17% to up 22% year-on-year. From a sequential perspective, this represents growth of about 3% at the mid-point versus the prior quarter. At the mid-point, we anticipate the following trends in our business. Automotive is expected to be up in the low 20% range versus quarter three 2021 and up in the mid single digit range versus quarter two 2022. Industrial and IoT is expected to be up in the low 20% range year-on-year and up in the mid single digit range versus quarter two 2022. Mobile is expected to be up about 10% year-on-year and down in the low single digit range versus quarter two 2022. And finally, communication infrastructure and other is expected to be up in the low double digit range versus the same period a year ago and up in the low single digit range on a sequential basis. Let me summarize. The growth we have anticipated for 2022 is materializing, notwithstanding the clear macro cross currents and the continued supply challenges. We do continue to see strong customer demand in the automotive and industrial segments as well as within our company specific accelerated growth drivers. Overall, demand continues to outpace increasing supply. However, we are staying paranoid about the macro environment and hence we will continue to work very diligently and in a very disciplined manner to assure inventory across all end markets remains lean. And with that, I would like to pass the – Bill over to you – the call over to you Bill for a review of our financial performance. Bill? Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q2 and provided our revenue outlook for Q3, I will move to the financial highlights. Overall, our Q2 financial performance was very good. Revenue was $37 million above the mid-point of our guidance range and both non-GAAP gross profit and non-GAAP operating profit were above the mid-point of our guidance. Now moving to the details of Q2, total revenue was $3.31 billion, up 28% year-on-year and above the mid-point of our guidance range. We generated $1.92 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57.8%, which is up 170 basis points year-on-year and both above the mid-point of the guidance range as a result of higher revenue and positive product mix. Total non-GAAP operating expenses were $724 million, or 21.9%, up $98 million year-on-year, and up $36 million from Q1 in line with our guidance range, but below our long-term model. From a total operating profit perspective, non-GAAP operating profit was $1.19 billion and non-GAAP operating margin was 36%, up 400 basis points year-on-year and both above the mid-point of the guidance range. Non-GAAP interest expense was $97 million with cash taxes for ongoing operations of $150 million or approximately 13.7% effective cash tax rate and non-controlling interest was $13 million. Stock-based compensation, which is not included in our non-GAAP earnings, was $89 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q1 was $11.16 billion, up $587 million sequentially as we issued $1.5 billion of new debt and simultaneously retired early the $900 million of debt, which was due in June of 2023. Our ending cash position was $3.55 billion, up $862 million sequentially due to a combination of the previously mentioned financing, CapEx investments and capital returns during Q2. The resulting net debt was $7.62 billion and we exited the quarter with a trailing 12-month adjusted EBITDA of $4.96 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q2 was 1.5 times and our 12-month adjusted EBITDA interest coverage was 12.7 times. Turning to working capital metrics, days of inventory was 94 days, an increase of 5 days sequentially and close to our long-term DIO target of 95 days as we continue to experience incrementally improved supply trends. The increase in on hand inventory was primarily in raw materials and work-in process to support revenue growth and subsequent periods, especially Q3. We continue to closely manage our distribution channel with inventory in the channel at 1.6 months. Well below our long-term target, days receivable were 27 days flat sequentially and days payable were 94, an increase of one day versus the prior quarter. Taken together, our cash conversion cycle was 27 days reflecting strong customer demand, solid receivable collections and positioning for customer deliveries for future periods. Our working capital management and balance sheet metrics continue to be very strong. Cash flow from operations was $819 million and net CapEx was $268 million or 8.1% of revenue resulting in non-GAAP free cash flow of $551 million or 17% of revenue. During Q2, we paid $222 million in cash dividends. On a trailing 12-month basis, we have returned 132% of our non-GAAP free cash flow back to the owners of the company, consistent with our capital allocation strategy. The cash flow generation of the business continues to be excellent. Turning now to our expectations for Q3. As Kurt mentioned, we anticipate revenue to be about $3.425 billion plus or minus about $75 million at the mid-point. This is up 20% year-on-year and about 3% sequentially. We expect non-GAAP gross margin to be about 57.8% plus or minus 50 basis points. Operating expenses are expected to be about $743 million plus or minus about $10 million, which is up about 3% sequentially driven by hiring, especially new college graduates and our normal project spend. Taken together, we see non-GAAP operating margin to be 36.1% at the mid-point. We estimate non-GAAP financial expense to be about $95 million and anticipate cash tax related to ongoing operations to be about $160 million or about a 14% effective cash tax rate consistent with our communicated model. Non-controlling interest should be about $13 million. For Q3, we suggest that for modeling purposes, you use an average share count of 265 million shares. Finally, I have a few closing comments I like to make. First, as Kurt mentioned in his prepared remarks, we have attempted to de-risk our Q3 outlook given the combination of the uncertain macroeconomic environment and well documented weakness in the mobile and consumer end-markets. Despite these potential risks, customer demand in the automotive and industrial remains strong and greater than our immediate ability to supply. Secondly, from a unique revenue growth standpoint, since November of last year at Investor Day, we discussed six accelerated growth drivers. Looking at our first half performance of 2022 versus the same period last year, we are very well on track to the targets we presented. Lastly, our people. We are very proud of our – all our team members globally, and especially those in China, who continue to overcome severe COVID restrictions while simultaneously dealing with global supply chain disruptions this past quarter. We continue to be amazed at our employees' incredible dedication and resilience. And for powering through these extremely tough times, our results are a testament to their hard work. With that thank you and I'll now turn it back over to the operator for questions. Operator: Thank you. One moment for our first question. Now, first question coming from the line of William Stein from Truist. Your line is open. William Stein: Great. Thanks so much for taking my questions and congratulations on the strong execution. My first question relates to your reference to risk adjusted backlog. Bill, you've done a – both Bill and Kurt have done a bit of explaining that in the prepared remarks. But I'm wondering if you can comment on your nominal backlog and it sounds like the reasoning is related to more things you see outside of the company than what you see in your actual order trends. Maybe you can talk about the thought process and the magnitude of that risk adjustment. Kurt Sievers: Yes, thanks. Thanks, good morning Bill. What I try to convey is indeed, first and foremost, that for the foreseeable period ahead of us we are actually only covered with 80% with our supply against true demand which we see. And when I say true demand then that comes back to the risk adjustment. For good reasons we have never revealed the size of our backlog through the past quarters, because I think I have always been clear that we’ve always believed inside the huge backlog there might be double orders which is just normally human behavior in times of slowness. Now over the past quarters we have clearly learned much more from a transparency perspective about the true minimum needs of our end customers across all markets. And we have very rigidly applied to that knowledge to try and actually risk adjust that backlog in order to come to a number which is mainly more meaningful. And I just want to emphasize after doing that Bill we still have only that 80% coverage of our increasing supply capability against that risk adjusted demand. So what we try to say is we try to be realistic around the size of the backlog that’s why we risk adjust it and that is different in each of the markets we serve, the result of it leads in the foreseeable future to 80% coverage of that adjusted demand. William Stein: All right, that’s helps a lot. May be the follow-up to that is pretty natural is what is the company doing to improve with internal capacity, your current foundry partners and is there any effort underway to extend foundry relationships that could allow you to sort of come closer to meeting your customer demand? Thanks so much. Kurt Sievers: Yes, clearly we absolutely stick to our hybrid manufacturing model. We continue to believe, and I think the results of the past six to eight quarters have given good evidence of that that this is for the portfolio we are serving a very superior model of serving the needs of our customers. And what that means is that indeed we are working on both ends of the equation, about 60% of our current wafer supply is coming from foundry partners and that is more and more predominantly tuned into seamless logic processes. Especially, when it comes to 300 millimeter and when it is below 90 nanometers. And in there, we are definitely ramping up significantly our partnerships and our strategic collaboration with key foundry partners. We've spoken about this in the past, and that is also what clearly is helping us in the past quarters. In the coming quarter, we talked about the sequential growth going forward and incrementally increasing our supply. At the very same time, we are remodeling our own factories, which are all 200 millimeter facilities to be the prime place for manufacturing proprietary, specialty processes which are unique to NXP. And by moving out more of the CMOS to our foundry partners, we are creating more space internally in our existing facilities to serve the increased and ever growing needs for these proprietary technologies going forward. So that is a refinement of the hybrid model, but it's still important that I really want to emphasize, we stick to the hybrid model, which again has also allowed us to outgrow our key pillars in that market over the last six quarters. William Stein: Great. Thank you. Operator: Thank you. One moment for our next question. And our next question coming from the line of Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi guys. Thanks for letting me ask a question. Kurt I wanted to dive a little bit into the potential disconnect of you guys doing everything you can to manage the backlog, scrub it, appreciate what's going on in macro, but yet the guidance seems fine in the quarter. And you said you are going to grow in the second half versus the first. So I guess, as you look at that, when do you think it will start to be a little bit more apparent what macro is doing, if it stays like it is? And maybe more pointedly, it's great that you are growing in the second half. But last quarter you said you thought you would grow sequentially in the third and fourth quarter. So does that growth in the second half imply that you would still believe you will grow sequentially in the fourth quarter? Kurt Sievers: Yes, so thanks Ross. First of all, indeed, we try to make sure that you all hear loud and clear that we are not neglecting the cross currents in the macro, which have also started to be visible in our orders, especially in the mobile market. Now mobile is for us relatively small, so it doesn't really impact the whole company very much. But the principle we are applying is to be hyper disciplined and hyper paranoid to not grow any inventory down the chain. So, we try to stay there as disciplined as we can be. And the first area where we are applying this as we speak is in our mobile market and to a certain extent in the small portions of consumer, more consumer-oriented segments inside our industrial and IoT sector. Now, when you ask about the second half, yes, we are confirming within that more turmoiled macro that the second half is going to grow sequentially over the first half in absolute dollar terms. We just gave you the guidance for quarter three. I don't have a crystal ball for quarter four, but I can tell you that we remain totally sold out for the rest of the year. I also tried to highlight that supply continues to ramp up sequentially into the next quarters. So I cannot really make a firm assessment on what mobile and other consumer markets will do into the fourth quarter. But clearly from the strength in the automotive and industrial sectors, which we are serving, we are quite optimistic for the second half to also continue to grow sequentially. Ross Seymore: Thanks for that color Kurt. I guess my follow-up one for Bill I noticed this was the first quarter in, I think, couple years that you guys didn't repurchase any shares. Lots of people trying to read into what that may or may not mean, but can you go into the thinking of what led you to stop the buyback for a quarter? Bill Betz: Yes. First off, thanks Ross for your question. And I wouldn't read too much into it. First off, there is no change to our capital return policy. I stated many, many times we will return all excess free cash flow on a trailing 12-month basis. During Q2, in my prepared, remarks, we returned 132% of our trailing 12 months for free cash flow. Remember we also raised our dividend in the quarter by 50%, and we still have authorization buyback of over $3 billion from our board. At the end of the year, we do expect to return to be at least a 100% or higher consistent with our state of policy. Ross Seymore: Thank you. Operator: Thank you. One moment for our next question. Our next question coming from the line of C.J. Muse with Evercore ISI. Your line is open. C.J. Muse: Yes, good morning. Thank you for taking the question. I guess first question, Kurt, I was hoping you could speak to how you are thinking about the overall state of the auto industry. This morning since auto missed, but it looks like their second half prior outlook was perhaps a bit aggressive. At this same time you have OEMs that are waiting for those golden screws and hopefully we'll get those. But as I look at your mix, obviously EV and ADAS along with higher input costs and higher ASPs, are sustaining excellent growth for you guys. So, curious how do you see things playing out? And when do you think we can normalize in the auto supply demand side of things? Is that in 2023 or might that be longer? Kurt Sievers: Yes thanks C.J. That's not an easy question. I dare to follow IHS in the first place, which, I think, hasn't changed the forecast for this year for the SAAR very much. I think they continue to speak about like a 5% growth of the SAAR this year, which would get us to, well, just short of 81 million cars this year. However, that includes a 9%, half two over half one growth in car production this year, which is not a big surprise because, I think, half one again has suffered massively from semiconductor shortages. And especially in the second quarter, it has suffered a lot from the COVID shutdowns in China, which impacted mainly the Japanese, Chinese and Southeast Asian car production. I mean, there was a little less pronounced for the Western world, but a lot in China and Japan. And mind you that China continues to be the largest car country in the world. So, from a shorter term perspective, C.J., I think half two car production will grow quite nicely over the first half, finally. And that trend should also continue according to IHS into the next year, which I think, will be another 8% growth or so. All of that in our views is still probably short of consumer demand. Now it will depend on the macro and looming recessions in different geographies to what extent consumer demand is muted for cars. But we think the car production is so low and so far below the highs in 2018 or early 2019 that even if consumer demand is muting, there is still a gap such that, I think, it's very realistic to assume the car production continues to grow. Now at the same time and I know we've discussed it to depth before, the bigger factor for us, however, certainly remains the content increase. And from a content increase, it's just amazing every quarter I come with new numbers here, especially EV penetration has accelerated again. I think the latest forecast for this year is now the 26% of the global car reduction is going to be XUVs. I think last quarter we talked about 23%. I mean, these are massive numbers and, and this 26% this year is in absolute terms of 46% year-on-year growth in XUV production. And again, mind you that with our battery management, inverter control and many, many microprocessors and micro controllers associated with XUVs and an overall semi contact which is more than 2x relative to combustion engine cars, this continues to be a massive momentum ahead of the car production, which in it itself is now also growing. So sorry for the lengthy reply, but we are quite animated about the fact that there continues to be a big gap there. And the content increase is pulling the cart for us. C.J. Muse: That's very helpful. As my follow-up, I heard the earlier comments around absolutely adhering to your hybrid manufacturing model. But you did speak to optimizing your internal capacity. And considering the eight-inch 90-nanometer and above demand that's out there. Is there a point in time where you would need to consider a new JV factory with TSMC? Kurt Sievers: Well, first off of your question, yes. Second half, I will not comment to, because the matter of the fact is yes what I described will very naturally with continuously growing demand leads to a moment where our internal four walls existing capacity, even after the reshuffling I described will not be enough to serve future demand. So yes, we will do something about it, but there is various different ways of achieving this C.J. So it don't get – got locked down into the idea with TSM. There is all sorts of options, which we can do including, but again, not exclusively, but also including the opportunities which are being provided by the trip techs in Europe and the U.S. where the majority of our facilities are. C.J. Muse: Very helpful. Thank you. Operator: And our next question, coming from the line of Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thanks for taking my question. Kurt, I wanted to ask about NCNR orders and pricing dynamics. Let's say if auto production is flat or down next year, I'm curious how enforceable are these NCNR orders and how defensive will the pricing strength be in that kind of market? Kurt Sievers: Yes, thanks Vivek. Let me start with the second part, the pricing. Given the very stubborn imbalance between supply and demand in most of the technologies needed for automotive I have a very high confidence that the pricing is very stable. I would actually, and maybe unfortunately go a step further. We do continue to see our input cost rising also into next year which would indeed force us to also continue to raise our pricing. So rather than thinking about pricing to become software again, I believe that especially in the automotive environment where there is supply demand imbalance is heading into next year there is a chance that pricing continues to go up into next year again. And I think I said it [indiscernible] a number of times, we have a very and very much transparent policy here that we are increasing our prices to the customers in line with the input cost increases, which we are experiencing in order to protect our cross margin percentages. So on that side from a pricing perspective even with a flat car production or maybe, as you said – as you suggested, which I don't think is going to be the case, reducing car production, I think, that would still be the case because of the content increases, which are driving so much demand anyway. Now the other side was the supply situation, per se, in a way I answered it, given content increases, surpassing the impact or out balancing the impact of the SAR so much, I unfortunately believe that even in a soft reduction of SAR next year, we would continue to see in many technologies, an imbalance between supply and demand next year. Vivek Arya: All right. And then my follow-up is on the margins. So gross margins are getting towards the high end of your target. And I think EBIT margins, from what I see you are guiding a little bit above the high end of your target model, is it time to revise the model? And let's say if Q4 grows sequentially can margins also continue to expand? Is there still positive leverage in the model? Thank you. Bill Betz: Hey Vivek, this is Bill. I'll take that question. So, related to the high end of our model, yes, we are performing at those levels at this current time. I would just like to remind everyone that we will focus on growing our top line or revenue and a faster growth at the top line of 1% will be greater and better than a 1% change in our margin as we go forward. We're not going to update our long-term model every quarter or every year. And we'll revisit this during our normal three-year long-term model that we provide, or if there's any material change to our business model. So no change, we feel very confident to run like I mentioned, last call in the – toward our high end of the model for the rest of the year. Vivek Arya: Thank you. Operator: Thank you. One moment for our next question. And our next question is coming from the line of Gary Mobley with Wells Fargo. Your line is open. Gary Mobley: Hey guys, thanks for taking my question. I appreciate your commentary with respect to how you de-risked in your third quarter guide, the different macro issues and what whatnot. But want to ask conversely, what can go right in the last two plus months of the quarter to maybe hit the high end of the expectation as it relates to COVID mitigation in China, kidney issues, additional supply and whatnot. Kurt Sievers: Well Gary, I mean, we give a guidance with a midpoint and a range in order to comprehend risks and opportunities at the same time. I think the elements you just listed are certainly part of both potential risk and potential opportunities. Again, we carefully thought about weighing the upsides and downsides, and that's why we landed on the midpoint of $3,425, as we just guided a couple of minutes ago. I would say the following. For us, the overall sentiment is given the big percentage in our revenue is obviously dominated by how automotive and industrial markets are going. And here a guidance for the next quarter is really driven by what we hear from our customers. I mean, it's such a short period of time in a way that it is really just tuned into the short term customer confirmed orders and our supply capability. And the way I would put it Q3 upsides are probably more than anything dominated by our supply capability since we are sold out for the quarter. Gary Mobley: Appreciate the color Kurt. As my follow-up, I wanted to ask about the six accelerated growth drivers that you began to outline [indiscernible] and continue to outline. Off the six I'm looking out over the next 12 months, which of those six would you expect to be the biggest contributor to your revenue growth? Kurt Sievers: Well, the six – the six accelerated growth drivers. I mean, we guided them for three years. When we did our Investor Day in November of last year that was really meant us a three year guidance. And you've also seen there the relative sizes between them and the relative growth speed. And I think, Bill, in his prepared remarks emphasized that we are – what did you say very well on track Bill for all six of them? So I think the way you should look at this is that all six are very much intact, and the relative contribution of them is in line with how we guided them at the Invested Day last November. There is no change, but what I think is important to say is that they're all on a very – on a very good track. Gary Mobley: Thank you, Kurt. Operator: Thank you. One moment for our next question. And our next question coming from the line of Joseph Moore with Morgan Stanley. Your line is open. Joseph Moore: Great. Thank you. You answered to your prior question you said you were going to be careful with sort of customers trying to build inventory, but there's also a clear message from your automotive customers that they do want to hold a larger amount of safety stock. Can you talk to that effort generally? Do you see that build having started yet? You know, where do you – do you plan to allow them to have to hold more safety buffer? And do you expect that to happen at the OEM level or at the Tier 1 level if that does happen? Thank you. Kurt Sievers: Yes, Stacy [ph]. That is an important dynamic indeed. So in general I'd say the OEMs try to leave that challenge with the Tier 1s. There might be exceptions here and there, but the, the more general direction is that the OEMs put this on the shoulders of the Tier 1s. Size of that is varying. We see and hear about requests, which are in the order of three months. We hear others which talk about six months of inventory. It is also not the same for each product. They categorize, I think more into very single-source, very strategic products versus more commodity like products. So it has all sorts of variations, but I think first of all general message more with the Tier 1s than the – than the OEMs. Has it started yet? No. The supply capability at least relative to NXP product, I mean, I can't make that that comment for my peers, but for our product, no, it hasn't started yet. Any inventory built, which accidentally might happen at Tier 1s at the moment is indeed more related to the golden screw problem where it builds for a while and then it flushes through again when the golden screw product becomes available, but that's not associated with or because of the intended safety stocks. I believe that someone in the course of next year that will Bill in a more methodical way start to be – start to be built. I do indeed believe that towards six months might be a consensus many of them want to achieve, but again only – only in the course of next year. Joseph Moore: Great. Thank you very much. Operator: Thank you. One moment for our next question. And our next question coming from the line of Stacy Ragson with Bernstein Research. Your line is open. Stacy Ragson: Hi guys. Thanks for taking my questions. The first one, Bill, I wanted a follow-up on a comment that you might have made in, in passing. I know you guys had talked about the risk in Q3 backlog, but Bill, you actually said that you de-risk Q3 outlook. I'm actually wondering, did you actually reduce the revenue outlook that you gave coincident with some of the cautions that you talked about? I'm not sure you did because it also sounds like your supply constrained anyways, but was there any sort of reduction at all in your outlook given the macros that you're seeing and if so like how much was it and which end markets? Bill Betz: Yes. So probably that is a matter of fact for especially the mobile market where you saw that we actually guided sequentially a touchdown since we are not overly but we are also exposed to the low-end Android players in China. And I have a total paranoia to not build any inventory there. So I'd say there is probably indeed a risk adjustment on, from the macro perspective relative to mobile in that particular part of our business. There at the same time in auto and industrial for the third quarter, I can only repeat what I said earlier. We are sold out and the revenue capability is much more detail mind by our supply capability in the third quarter. So it's a mixed picture where the maturity is, is clearly continues to be supply constraint. Stacy Ragson: Got it. Thank you. Bill Betz: The risk adjustment – let me take one more. Stacy Ragson: Yes go ahead. Bill Betz: The risk adjustment was also a longer term message which is really related to the assessment of about 80% supply coverage against demand. That is not just a statement for Q3. I mean, that is really a statement for the longer term period. I would go that far to say it includes very large parts of next year, actually where that judgment is done after risk adjustments and risk adjustments are also when we – when we get order patterns say in automotive from automotive customers and we add them all up and then we know what content increases should be. We know where the car production could possibly be next year. And then of course you see that all the different Tier 1s want to win market share. All the OEMs want to win market share against each other. And the sum of the parts is the bigger of what could be realistic. So then we make a risk adjustment to this because we know that the SAR can only be at a certain size next year. So that's, that's one of the elements, which I would label practically speaking risk adjustments, where we bring down what looks like overwhelmingly huge backlog. Stacy Ragson: Got it. That's super helpful. Thank you. For my follow-up, I wanted to repeat a question somebody else asked it, but I don't think you actually answered it. It was run the, the non-cancelable non-returnable orders. We've seen these from other companies and it turns out in practice, maybe they're not quite as non-cancelable as they appeared. How non-cancelable non-returnable are your seeing orders really? Kurt Sievers: Well, indeed. Sorry, I know that most part of an earlier question, I think I missed – I missed speaking to it. Well, it's like with every contract. There is clearly a legal system in place. But in the end of course reasonable behavior will prevail. What I can tell you, however is that so far every one of them has been – has been fulfilled. I mean, there is no – we don't see any in automotive industrial. There is no pushout, there is no cancellation. People want to have more products, now, how that looks at some time in the future, when maybe macro continues to change more, could be different. But fundamentally we put that system in place in order to make sure that our customers are serious. And think two times and three times about what level of orders they want to put on us and mind you that in many markets different products from different customers go into one end product. So we have to make sure that there is a proper allocation between them then otherwise the car company is only suffering in the end. I mean, if there is too much orders from one Tier 1 and the other one orders not enough, then it doesn't help the car company. That's another reason why we are really trying to put NCNR in arsenal place in order to hold people to the truth. Bill Betz: Let me just add to what Kurt mentioned. What we said this year, NCNRs were larger than our long-term commitment. Of those NCNRs we can't serve to them all. We have started our process for 2023 NCNRs and they were tracking to similar levels as well, which we won't be able to supply as we go forward. Stacy Ragson: Got it. That's super helpful guys. Thank you so much. Jeff Palmer: Lydia, do we have other question? Operator: Yes. Our next question coming from the line of Matt Ramsay with Cowen. Your line is open. Matt Ramsay: Yes. Thank you very much. Good morning. Bill, I wanted to ask a question about OpEx in sort of the context of the macro environment that we're talking about here. You guys have with the revenue growth and the gross margin expansion I think growing gross profit, I don't know it'll be 75% or something like that from 2020 to 2022. And that's allowed for a lot of expansion of the operating expense while you're still getting leverage. And I guess the question is with inflationary pressures and wages and all those things, it seems like there's still some, some upward pressure in the OpEx line, and I just wanted to know what, what kind of levers you had to control that and what the priorities would be to control that if in fact the macro did turn? And would you be committed to sort of holding the operating margin flat or is there a case where you're going to need to keep spending despite what might go on in the macro. I guess just puts and takes on OpEx would be helpful? Thanks. Bill Betz: Sure. Thank you for your question. Again, we continue to do very well here, as we are operating below the 23% long-term model. Q2 we finished at 21.9% and that was slightly better than our guide, and I think we just guided 21.7%. And again, that primary increase from an absolute standpoint is really being driven by our new college graduates joining the company and continuing R&D investment supporting our growth ambitions. Now, if there is a downturn, what will we do? We have a plan for that. It's well defined and it's all around protecting our free cash flow. Our plan actions would potentially include reducing variable compensation, reduced discretionary spending, reducing noncritical CapEx, we'll slow down our non-engineering hiring, and also right, our attrition runs around 10%, 12% we would obviously not back fill all of those depending on how severe it gets. But at all means we will protect our R&D engine of the company, which I've said in the past as well as Kurt is the lifeblood of our growth. And then similar with optimizing our costs, you have to remember the last two years we've been optimizing toward material shipments to prevent customer line downs, we haven't been focused on our mix or optimizing of costs or yields or cycle time. So that's another level that we have in our playbook to maintain our margins in our range that we shared during our Analyst Day. Matt Ramsay: Got it. Thanks Bill. Quick follow up for Kurt. I was interested in your prepared script; I think you mentioned that the same sort of ratio of your product portfolio still had 52-week lead times as was last quarter. We get a lot of investor questions about maybe there's shortages of Part X, but there's inventory builds of Part Y and Part Z and things are out of balance. It doesn't seem like that's the case with NXP business. I'd be interested if you could comment on that a bit further? Thanks. Kurt Sievers: Yes, absolutely. Matt, I guess that really has to do with the – with the mix of our end market exposure. So I would actually confirm that in mobile, we are probably moving away from supply constraints but those technologies are badly needed in other markets, which we are serving, which are heavily underserved while the demand there continues to go up. So it is of course a puzzle where we quickly try to redirect from where demand is softening, and again that's especially the low-end Android handsets. And some of the – some of the more consumer oriented products in China, which is little for us. I mean, that the whole point is this is not that much for us, but that little where we have it, we move it to other areas in auto and industrial, we are actually demand continues to go up such that in bottom line in the end we be unfortunately, and I really have to put it that way. We are still at a similar lead time pattern as we had indeed last quarter, which is did about 80% of the portfolio since at 52 weeks plus lead time, but it is different product. So that that's why I totally understand and support your question, it is not exactly on the same products because it's moving but in the mix it still – it still stays at that level. Jeff Palmer: Okay. Lydia, I think we'll move to the last question for the call today, please. Operator: Certainly. And our last question coming from the line of Toshiya Hari with Goldman Sachs. Your line is open. Toshiya Hari: Hi, good morning. Thanks so much for taking the question. I was hoping you can speak to trends that you're seeing in the China business particularly around industrial and distribution. I think historically it had been a fairly volatile part of your business, but clearly based on your overall industrial and IoT numbers you seem to be doing really well. So any sort of puts and takes around – particularly around the lockdowns going into it, coming out of it, any comments would be super helpful? Kurt Sievers: Yes. So first of all relative to the lockdowns, I mean, we had indeed also risk adjusted our quarter two guidance, which had to do much more with supply than demand that was about epoxy suppliers, leadframe suppliers and others. And as you can see from how we managed to make our actuals work, some of that exactly materialized, I mean, indeed we sold it, however, we see now since June pretty significant and impactful stimulus programs by the China government, which are starting to take effect, and that's both into the industrial as well as into the automotive market. So there is a slight optimism, notwithstanding the risk of further lockdowns, of course, in China, but from a government stimulus program perspective, there is optimism both for the industrial as well as for the automotive markets in China for Q3 and for the second half of the year. I had – I think, mentioned it briefly in my prepared remarks our channel inventory is sitting still only at 1.6 which is very low and mind you that the industrial business of NXP and with that especially in China is dominated by the distribution channel. So a lot of that is in China, and as you can see it, it really hasn't moved up much. I think we had 1.5 the last two quarters, 1.6 before. So we are still hovering at that very low level, which is a month below our 2.5 target actually. Toshiya Hari: Yes. That super helpful, thank you. And then as my quick follow up, separate topic but on the currency dynamics. Obviously you've seen the dollar appreciate significantly relative to other currencies and I recognize that customers don't swap in and out components given long qualification cycles and whatnot? But as we think about the competitive landscape and micro controllers over the next couple of years, just given how strong the dollar is today, is that something that we should be cognizant of and worried about as you compete with companies like STM and Renaissance, or is that not really a topic that we should be spending too much time on? Thank you. Kurt Sievers: Yes. I'll take that one. Thank you for your question. NXP is a global company. We're U.S.-based we're naturally hedge against the Euro. So I'm not really too concerned about it. Toshiya Hari: Thank you. Kurt Sievers: All right. So I think that gets us to the end of the call. And let me just highlight once again, we feel we have operated well in the second quarter in a pretty turmoiled environment. We are also very cognizant of the of the macro cross currents, which we also discussed quite a bit in this call. Yet the outcome is that in the majority size of our revenues which is the industrial and automotive markets, we continue to be sold out. We think the underlying secular growth trends especially from content increases both in industrial and automotive applications are also providing a pretty safe landing going forward relative to demand. The one thing which we are very paranoid and very hard working on is indeed making sure that our inventory down the chain remain low. We think today they are low. We have evidence of this in the channel with 1.6 months and our whole focus day-in day-out is to make sure that on the one-hand we organize more supply. But on the other hand we make sure that there is no excess inventory being built in the market down there. With that I want to thank you all on behalf of NXP for today's call, and see and speak to you all soon. Thank you very much. Thank you. Jeff Palmer: Thank you very much. This ends our call today. Thanks to everyone. Bye now. Operator: Ladies and gentlemen [indiscernible] our conference for today. Thank you for your participation. You may now disconnect today. Good day.

Operator: Good day, and thank you for standing by. Welcome to the NXP First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Katherine, and good morning, everyone. Welcome to NXP Semiconductor's First Quarter 2022 Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the second quarter of 2022. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2022 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section at nxp.com. I'd now like to turn the call over to Kurt. Kurt Sievers: Thank you, Jeff, and good morning, everyone. We appreciate you joining our call today, and I can tell you, after two years, finally, I do very much look forward to a series of in-person investor meetings through the rest of this week. Now let me begin with a review of our quarter one performance. Our revenue was $36 million better than the midpoint of our guidance with automotive, industrial, IoT and mobile at or above our guidance. So trends in the communication infrastructure markets were just slightly below our expectations due to supply issues. Taken together, NXP delivered quarter one revenue of $3.14 billion, an increase of 22% year-on-year. Non-GAAP operating margin in quarter one was a strong 35.7%, 480 basis points better than the year ago period and about 70 basis points above the midpoint of our guidance. Our results reflect strong execution with good operating leverage and profit fall through on higher revenue, improved gross profit and modestly lower operating expenses. Now let me turn to the specific trends in our focus end markets. In automotive, revenue was $1.56 billion, up 27% year-on-year, in line with our guidance. In industrial and IoT, revenue was $682 million, up 19% year-on-year better than our guidance. In mobile, revenue was $401 million, up 16% year-on-year better than our guidance. Lastly, Communication Infrastructure and Other was $496 million, up 18% year-on-year just modestly below guidance as a result of ongoing supply changes. Overall, the demand in our strategic end markets continues to be robust, putting our customers' requirements in excess of our improved supply capability. And in that context, let me provide some data points of what we see in our daily engagements with our customers. In the distribution channel, which services about half of our total revenue, inventory remains [indiscernible] only below our long-term targets. During quarter one, the months of supply in the channel was 1.5 months, which is about a month below our long-term target. And it is now the sixth consecutive quarter of an exceedingly tight supply situation in the channel. Internal inventory days continue to be below our long-term target of 95 days. In quarter one, DIO increased by six days with all of the increase in support of our growth outlook for the second quarter. Lead times across the board continue to be extended, with more than 80% of all of our products being quoted at 52 weeks or greater. Essentially, we are supply constrained for all of 2022. The level of inbound supply-related customer escalations continues to be elevated across all focused end markets and regions. And lastly, let me zoom in on the trends we see in the automotive market. In the U.S., new car inventory at dealers is substantially below historic levels at 27 days versus the historic metric of 64 days. The pace to xEV vehicle penetration globally continues to rapidly accelerate hitting 19% of global production in 2021 and is expected to hit 23% penetration in 2022 and moving to 30% next year in 2023. With xEVs having roughly 2x to semiconductor content, this is another strong secular tailwind to semiconductor content growth. The Ukraine war has disrupted predominantly European Tier 1 suppliers and OEMs with shortages of wiring harnesses. In China, the COVID-related shutdowns are creating yet another level of significant supply uncertainty. The extended auto supply chain continues to be very lean, with reported days of inventory at the Tier 1s and at the auto OEMs out of sync with each other. And lastly, based on our very frequent and detailed customer conversations across the supply chain, the Tier 1s and OEMs continue to be challenged by kitting issues to complete module and vehicle assemblies. These kitting issues are not due to one semi supplier or shortage of just one common golden screw device. Against all of this dynamic backdrop, our first quarter was a very good beginning to what we view will be a positive year for NXP. In the face of the loaded customer escalations and elevated lead times, we are proactively and relentlessly working with our customers to redirect material to assure that customers get what they need, where they needed and when they needed. And zooming out, customers have begun to much better appreciate and embrace the strategic value of semiconductors play in their long-term success both from an innovation as well as a supply perspective. Hence, as a result of our adaptability, the level of engagements with strategic customers is resulting in unprecedented levels of customer intimacy. Our engagements are unlocking new and significant long-term customer arrangements and cooperation that is closer than ever, which will enhance our relative market share over the longer term. Now let me turn to our expectations for quarter two. We are guiding revenue at $3.28 billion, up about 26% versus the second quarter of '22 within a range of up 22% to up 30% year-on-year. From a sequential perspective, this represents growth of about 4% at the midpoint versus the prior quarter. At the midpoint, we anticipate the following trends in our business: Automotive is expected to be up in the low 30% range versus quarter 2, 2021 and are in the high-single digits range versus quarter one 2022. Industrial and IoT is expected to be up in the low 20% range year-on-year and up in the low single digits range versus quarter one, 2022. Mobile is expected to be up in the low double-digit range year-on-year and down in the low single-digit range versus quarter one 2022. And finally, Communication Infrastructure and Other is expected to be up about 20% versus the same period a year ago and flattish on a sequential basis. Our guidance incorporates several items to be aware of. First, the year-on-year comparison of our auto business in the second quarter benefits from the easy compare versus quarter two 2021 when we were impacted by the effects of the winter storms on our wafer manufacturing facilities in Texas. Second, our Tianjin back-end facility in China is fully running at maximum capacity. Remember, we lost about one to two weeks of output during the early part of quarter one. And lastly, our guidance does contemplate several tens of millions of dollars of potential supply and logistical disruptions due to the lockdowns occurring in China related to COVID outbreaks. Now before I pass the call to Bill, I would like to provide an update on our ESG journey, something our management team and I are personally committed to. On April 1, we published our annual corporate sustainability report, which included the achievement of several goals. On a year-over-year basis, we have reduced our normalized carbon footprint by 11% and have increased the use of renewable electricity in our facilities to 31% of our total consumption. Additionally, we have realized an 11% normalized decrease in our water consumption and 76% increase in our recycling efforts. These are all solid and positive steps, but I believe we can and should do more. Looking forward, we have committed to achieve carbon neutrality by 2035. We have formally committed in the science-based targets initiative, and we are transitioning toward 100% renewable energy sources in our facilities. This will all be a significant task for our organization, and we are committed to providing regular updates documenting our progress. From a global employee perspective, we grew by 8% during 2021, despite a difficult talent market and women now represent 37% of our total employee population. To keep the organization focused on the sustainability journey, I am proud to announce Jennifer Wuamett, our General Counsel, has been named NXP's Chief Sustainability Officer, and she will oversee our sustainability program. Finally, to demonstrate that we, as an organization, are all responsible to improve the impact we have in our environment the NXP Board has approved that a portion of our employee annual incentive compensation will be tied to achieving progress towards long-term sustainability goals. Now in summary, the robust growth we have anticipated for 2022 is materializing in spite of all supply challenges. We do continue to see strong customer demand, especially our company-specific accelerated growth drivers. Overall, demand continues to outstrip increased supply and inventory across all end markets remains very lean. And with that, I would like to pass the call over to you, Bill, for a review of our financial performance. Bill? Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q1 and provided our revenue outlook for Q2. I'll move to the financial highlights. Overall, our Q1 financial performance was very good. Revenue was $36 million above the midpoint of our guidance range and both non-GAAP gross profit and non-GAAP operating profit were near the high end of our guidance. Now moving to the details of Q1. Total revenue was $3.14 billion, up 22% year-on-year and above the midpoint of our guidance range. We generated $1.81 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57.6%, which is up 340 basis points year-on-year and both above the midpoint of our guidance range, driven by the improved utilization, higher revenue and positive product mix. Total non-GAAP operating expenses were $688 million or 21.9% of sales, up $88 million year-on-year and up $7 million from Q4, which was below our midpoint of guidance and the lower long-term model. From a total operating profit perspective, non-GAAP operating profit was $1.12 billion and non-GAAP operating margin was 35.7%, up 400 basis points year-on-year and both at the high end of our guidance range, reflecting solid fall-through and operating leverage on the increased revenue levels. Non-GAAP interest expense was $103 million with cash taxes for ongoing operations of $122 million and noncontrolling interest was $9 million. Furthermore, our stock-based compensation, which is not included in our non-GAAP earnings was $89 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q1 was $10.57 billion, flat sequentially. Our ending cash position was $2.68 billion, down $147 million sequentially due to capital returns and increased CapEx investments during Q1. The resulting net debt was $7.89 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $4.58 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q1 was 1.7x, and our 12-month adjusted EBITDA interest coverage was 12x. Turning to working capital metrics. Days of inventory was 89 days, an increase of six days sequentially. The increase in inventory was all in raw materials and work in process to support revenue growth and continues to be below our long-term target of 95 days. We continue to closely manage our distribution channel with inventory in the channel at 1.5 months, well below our long-term target. We anticipate the coming year will be very similar to 2021 where customer demand is in excess of incrementally improving supply. Days receivable were 27 days, down one day sequentially. Days payable were 93 days, an increase of six days versus the prior quarter as we continue to increase orders with our suppliers. Taken together, our cash conversion cycle was 23 days, an improvement of one day versus the prior quarter, reflecting strong customer demand, solid receivable collections and positioning for customer deliveries for future periods. Our working capital management and balance sheet metrics continue to be very strong. Cash flow from operations was $856 million and net CapEx was $279 million, resulting in non-GAAP free cash flow of $577 million. During Q1, we paid $149 million in cash dividends and repurchased $552 million of our shares. Overall, we returned 121% of our non-GAAP free cash flow back to the owners of the company, consistent with our capital allocation strategy. And again, the cash flow generation of this business continues to be excellent. Turning now to our expectations for the second quarter. As Kurt mentioned, we anticipate Q2 revenue to be about $3.28 billion plus or minus about $100 million. At the midpoint, this is up 26% year-on-year and up about 4% sequentially. We expect non-GAAP gross margin to be about 57.6% plus or minus 50 basis points. Operating expenses are expected to be about $720 million, plus or minus about $10 million, which is up about 5% sequentially, driven primarily by our annual merit increases. Taken together, we see our non-GAAP operating margin to be 35.7% at the midpoint. We estimate non-GAAP financial expense to be about $103 million and anticipate cash tax related to ongoing operations to be about $154 million or about 14.5% effective cash tax rate, consistent with what we communicated during Analyst Day of 15%. Noncontrolling interest will be about $13 million. For Q2, we suggest for modeling purposes, we use an average share count of 265 million shares. Finally, I have a few closing comments I'd like to make. First, as Kurt mentioned in his prepared remarks, we have attempted to derisk our Q2 outlook given the uncertain macroeconomic environment and the potential impact on our supply chain. Despite these potential risks, customer demand for NXP products remain very strong in the markets we serve. Secondly, from a revenue standpoint, we expect our second half revenue to be greater than our first half on an absolute basis as we continue to work on improving supply. From a modeling perspective, think of a gradual quarterly improvement sequentially through the remainder of 2022. But this improvement is still well short of the demand signals we are seeing and constantly monitoring from our customers. Overall, we believe supply will remain constrained and challenging throughout 2022. Lastly, barring any significant supply disruption we believe our gross margin should trend in a fairly tight range consistent with our performance in the first half of the year. We continue to see the business as generating strong cash flow, and we will continue to execute to our well-communicated capital allocation strategy consistent with past periods. With that, thank you, and we can now turn it over to the operator for questions. Operator: Thank you. [Operator Instructions] Our first question comes from Gary Mobley with Wells Fargo Securities. Your line is open. Gary Mobley: Good morning everybody. Thank you for taking my questions. I noticed in the 10-Q filing that your purchase commitments were down about 10% from the fiscal year '21 end. Was that the high watermark for fiscal year '21 end? Or should we think about NXP perhaps reloading on the purchase commitments? Kurt Sievers: Yes, hi, Gary. So indeed, it came down somewhat, which is simply a consequence of selling that part of it. So it's just the regular revenue, which -- so it was converted into revenue. Going forward, I would not exclude that we might again enter into longer-term obligations with our suppliers. Since the context and the environment of the, say, supply-demand situation has not fundamentally changed, which means we are effectively sold out for the rest of this year. Certainly in certain technologies and capacity buckets, we also see that demand will continue to outstrip available supply further into the future, so also going into next year. And with that, yes, I would not exclude that we also enter additional and separate supply commitments to the ones which are in place already. Gary Mobley: Thank you for that, Kurt. Bill, I think you mentioned previously that supply chain increases were a headwind to gross margin or tailwind to gross -- excuse me, headwind to gross margin in fiscal year '21, but you would expect it to be a tailwind your price increases that is going to be a tailwind for fiscal year '22. Is that still the case and perhaps if you can quantify that tailwind? Bill Betz: Sure, what we've mentioned related to pricing from our customers is that we're only passing on the higher input costs and inflationary costs that we're seeing on to our customers related to it. If I look internally, we do about 43% in-house on our front-end manufacturing side. And we are running in the high 90s compared to a year-ago when we were in probably the mid-80s. So we're maxed out internally from a utilization standpoint, expect our margins to be, as I indicated in my prepared remarks, to be at these levels, plus or minus the 50 basis points we talk about mix in any given quarter. Our #1 priority is really servicing our customers with as lines are down, escalations are occurring, and we're doing everything possible firsthand for our customers. Gary Mobley: Got it, thank you guys. Operator: Thank you. Our next question comes from Vivek Arya with Bank of America. Your line is open. Vivek Arya: Thank you for taking my question. Kurt, I had a question about just the quality of the demand signals that you're getting from your automotive customers. I believe you mentioned that days of inventory at Tier 1 and OEMs is out of sync because of kitting issues. I was hoping you could expand on that. And how does that impact your visibility and confidence in shipping to the automotive end market and give you the confidence you are shipping in line with demand. Because when I look at auto semiconductor sales and auto unit production, there is this kind of consistent, almost 40-point delta which was there last year, and it's probably there in Q1 also. So just what is giving you the confidence that you're shipping in line with demand, right, and that you're not over shipping just given the state of flux among your Tier 1s and OEMs. Kurt Sievers: Yes, good morning, Vivek. Indeed, I mean that question, we also watch that very carefully. And I can tell you from continued very personal experience. So I continue to spend a good time of my work week in escalation calls, especially with automotive and industrial customers. It is actually to the point now on this kitting that we are here and there redirecting product because it is falling so short in places that we actually go back to other customers and ask if not, they have a few parts, which they only maybe need a week later and then we use that week to redirect the part to somebody else. So I think we are extremely close to the pulse of the production of our customers and our customers' customers. So this is a triangular supply relationship with the Tier 1s and the OEMs, which is why I have a very, very high confidence that we are not at all over shipping but actually barely meeting the demand. I would actually say Vivek the reduction we have now seen from IHS in the forecast for the SAAR for this year, I think it came down from something like 8% to 9% in the last quarter to now a forecast of only 4.5%, so almost halved. A good part of that is due to semiconductors again. So all of these modulations you see there in terms of possible demand is actually above what we can service anyway. So that's why we still fight day in, day out to try to fill holes and actually meet production demand. From a bigger contextual perspective because you mentioned again this striking delta between SAAR and the, say, the semi shipments into automotive, it comes back to the same points we had mentioned earlier, which is a massive and accelerated content increase, thanks to the penetration of xEVs. And I have to mention also premium vehicles. So what we did now is we looked at the combination of premium ICE vehicles plus xEVS. And if you put that in one basket because it has similar levels of semiconductor content, you actually find it's about 30% of the global car production already. And along that is double from the levels we had in 2017 or 2018 pre this whole turmoil. So our content increase continues to be an accelerating very strong factor. Then there is certainly a portion of pricing. There are the NXP-specific share gains, which continue to be very much in check, I would say, with our planning. And finally, there is this inventory situation across the extended supply chain to actually keep it functional. And I can only say it continues to be dysfunctional, so the overall inventory level across the extended automotive supply chain is still too low, which means the whole thing is totally dysfunctional. Vivek Arya: Got it. And for my follow-up, Kurt, many investors are worried about some kind of demand slowdown, right, you've been talking about recession at some point over the next one or two years. How do you think about your trough gross margins if that were to happen, you have a very interesting hybrid model. So what steps would you take, let's say, semiconductor sales were to go down 5% or 10% hypothetically next year? What Steps would you take? And then how should we think about the bottom in your gross margins? Thank you. Kurt Sievers: Well, Vivek, I would say, in principle, we don't guide here next year. And in the end, what counts is the model which we have given you in our Investor Day back in November of last year. Yes, I think I can give you a few bits and pieces to this question. Clearly, our gross margin benefits from utilization of our internal facilities at the moment. We are running full out. Secondly, and Bill just replied this to a different question. We are compensating our input cost increases with price increases to our customers. And I absolutely do not believe that pricing will go backwards going forward. I think the environment is simply such that we move now to a higher level of pricing. And this is to stay. So that doesn't mean that there are not ASP erosion again going forward but from that higher level. So don't worry about that impact on the gross margin. I think the pricing is a step function, which has been or is being achieved, and then we operate from the new level through the next years. Vivek Arya: But the bottom of your range, the 55% to 58%, is that the right way to think about trough gross margins? Kurt Sievers: Well, we've given the model and we have the absolute intention to stick to our model, yes. Vivek Arya: Okay, thank you. Operator: Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Your line is open. Ross Seymore: Hi guys, thanks for me asking a question. I want to ask one short-term one and then a follow-up will be a longer-term one. Kurt, in the shorter term, I just wondered, you talked about derisking due to a lot of the macro events. We've seen different companies say basically it's not having any impact. Others take a big haircut with little precision. Just wondered where you fall in that spectrum, kind of any more details on what you're seeing on China? And maybe is it a bigger or smaller cut than what you experienced in the first quarter? Kurt Sievers: Well, so in the first quarter, I think we actually quantified it. I think I remember we said about $50 million, which is really what it was, which was this one to two week shutdown of our own Tianjin facility in the neighborhood of Beijing. For the second half, what I just said is a couple of tens of millions, which we see as impact, which is baked into the guidance, which we just gave you. Now what I think, how I would qualify this, Ross, is this is entirely a supply discussion. And I say that because I know that some of our peers talked about demand issues. I want to highlight that -- in our case, we clearly talk about derisking from a supply perspective. And that has to do with logistics issues in the Greater Shanghai area, and it also has to do with all sorts of suppliers from the Shanghai area into our own operations. Think about epoxy suppliers, substrate suppliers, et cetera. And that's the impact which is baked into our guidance. From a demand perspective, Ross, it's a little different. We -- in the meantime, I have numbers that solidly more than half of our customers in the Shanghai area are fully operational again. So they are running 100% of their operations again. And another third is say partially operational and rapidly coming back now. And during their shutdown periods, they pulled all the products because they all knew they would come back very quickly. We have been under shipping them anyway for 1.5 years now. So that's why that doesn't have any demand impact on us. So all of this derisking, Ross is a supply consideration and a couple of tens of millions. So I leave it to you how you want to integrate this from an exact number perspective, but it is about our supply situation out of the Shanghai area. Ross Seymore: That's very helpful. Thank you for that. And I guess a longer-term question. This kind of goes back to what if the world isn't as good at some point in the future. Earlier in your narrative, Kurt, you talked about the closer relationship with your customers, more intimate relationship, value-add, et cetera, et cetera. I was wondering, does that change your inventory strategy? And the last couple of downturns, you guys were very aggressive to cut your utilization. I know you don't have standard products that are very application specific, et cetera. But to the extent your customers are giving you more visibility, you have that more intimate relationship, is your willingness to go above the 95 days in a downturn and not cut utilization is your willingness for the channel to hold more inventory? Is that at all different from prior cycles or do you think that you will run it with just as abrupt if changes with your factory utilization as you have in the past? Kurt Sievers: Yes, we've been looking into this very carefully because indeed, we have certainly lots of discussions with our customers about longer-term supply assurance programs, et cetera. The solution to this is not to increase our internal inventory. So I have a clear-cut answer, Ross, no, the 95 days stand. I'm actually glad when we get there again because you see we are still below that. But no, we don't have an intention to change that because we kind of remodeled how we went into this crisis and what we find out is that even if we had more inventory, it would have -- it wouldn't really have made a significant difference to the whole situation at all. However, we are, of course, working with customers on all sorts of different models, their inventory at our customers in the chain, maybe distribution partners in cases is part of an overall package to have better supply assurance going forward. But one big element that you said it yourself is actually the transparency and knowledge about the ultimate end customer demand. I think in the past, we and I would dare to say the whole industry, we have too much relied on demand signals of our direct customers, not fully understanding and not having full transparency to the end customers. And that is something which in this relationship concept, which I mentioned, which has significantly changed over the last 1.5 to two years. So that gives me some confidence that we are in a better position to handle this going forward. Again, internal inventory is not going to be the one which is going to be changed. Ross Seymore: Thank you. Operator: Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my questions. So my first one, you talked about revenues kind of like ramping incrementally sequentially into the second half as supply improves. Are there any end markets where you think supply is getting better or worse? Are you prioritizing any particular end market in the second half? Like how should we be thinking about that trend like spread across your end markets, just given the supply trends and demand trend you're seeing? Kurt Sievers: Hi, Stacy, I think we are across the board continuously short of supply. So that applies to all of our four revenue segments. If I have to qualify it and I would say the worst case we have in industrial and automotive, so those two continue to have probably the biggest gaps between supply and continued growth in demand. And I also see that in those two, this is a longer-term situation ahead of us. When we speak about the gradual increase of revenue through the year then at least for this year, I would indeed say that is largely a function of supply becoming available, Stacy. So it isn't that much a question of what is the demand pattern in those four different markets. It is much more where are we coming closer through the year to the demand signal from a supply perspective. And as we discussed earlier, this is something -- it comes from different factories. It's internal supply ramping up. It is external, it's foundry supply going up, et cetera. So it's a pretty -- and it's also not the same each quarter. So I cannot qualify the revenue, the gradual revenue growth through the year by segment from a demand perspective because all of our supply is still under the demand signal anyway. Stacy Rasgon: Thank you, thank you. So my follow-up, I want to revisit the China COVID situation, and I heard what you said in a prior question. But at the same time, like you're calling for maybe 1% or less overall impact to next quarter from China. You're bigger -- your competitor obviously was calling for 10%. I know you talked about maybe differences in what you're seeing in terms of demand versus supply. But I think both of you have more than 50% of your revenues going into China. How can that be that one of them is seeing demand issues, but think their demand issues were also logistics related. Why do you think you're not seeing anything along those lines and they are? Is it just the nature, you have a channel so there is a bigger buffer in China? Or what are some of the differences you think are going on that actually could be driving you to not see an impact along the lines of like some of the others in the industry just given the amount of your revenue that's actually going into that region. Kurt Sievers: Stacy, obviously, I really cannot speculate and don't want to speculate about the specific strategies and situations of one or more of our peers. I just cannot. However, I can assure you that we put a lot of rigor and a lot of attention into assessing this particular question because it's been obviously very important for us to understand how to sit safely and confidently guide for this quarter in this turmoiled environment. Given that this is very near term, it is -- it really has to do with the order patterns we have on the books and with this particular customer situations we talk to. So this isn't much about strategic consideration, Stacy. It's really about what are we still getting out the next eight weeks of this quarter. And the bottom line of the analysis is, it is not about demand. It is all about the supply disturbances from this situation. And there, I feel we took a very balanced risk-balanced approach to figure that in. But again, I can't hold it against competitors because I really don't know what their exact chapters and other policies are. Stacy Rasgon: Thank you. Would you have the supply to ship the extra if there was no impact? Kurt Sievers: Yes, well the impact is on the supply, Stacy. That's the problem. So if we did not have the COVID-related shutdowns in the Shanghai area, we had a higher guidance. Absolutely, that's the answer. So that's what I tried to say. The whole reason of derisking is supply out of China. And that's a couple of tens of millions. And if that China zero COVID policy wouldn't hitting -- wouldn't be hitting now our Shanghai and possibly Beijing later in the quarter, we would have a higher guidance, yes. Stacy Rasgon: Got it, thank you guys. Operator: Thank you. Our next question comes from C.J. Muse with Evercore. Your line is open. C.J. Muse: Yes, good morning. Thank you for taking the question. I guess first question, I was hoping you could discuss plans for CapEx. I know you're 100% sticking with the hybrid model. But your CapEx intensity is now up to, I think, 8.9% in the quarter. Curious if that's sustainable through '22? And how should we think about beyond 2022? Bill Betz: Sure, C.J. This is Bill. As mentioned during last quarter and our Investor Analyst Day, our long-term model is 6% to 8%. However, we do expect 2022 will be a bit higher around that 10% and then come back within the range in 2023 and beyond. And just to look back again in 2020, we spent about 4.5%, 4.6%; at '21 6.9%. And as you can see here right, in Q1, we spent about 8.9%. C.J. Muse: Very helpful. I guess as my follow-up question. Mobility was unusually strong in Q1 -- in your K or Q rather. You suggested strength in China, secure mobile wallets as well as early adoption of UWB. Curious how we should think about kind of those drivers into the second half of '22. And is it UWB that really is the incremental driver or just overall handset units? Thanks. Kurt Sievers: It isn't really units. I think the mobile market, as we can all read is -- well, it's a bit patchy maybe globally. But we are still on this content growth strategy. I mean, in the end, it is indeed about mobile wallet and the early stages of ultra-wideband penetration and both are very much on track. The fluctuations between quarters is really supply related. I mean I talked painfully about very, very tough supply constraints in mobile in quarter three and quarter four of last year. And I was anticipating it would get better. It got better now in Q1, but it's not perfectly permanent. So I think this is a -- it was a bit of a catch-up from a supply perspective in Q1 not perfect going forward since you saw that we guided single-digit down actually sequentially into the second quarter, where, again, we also have to -- and this is a constant process we have to balance our available supply, very disfungible between segments to the extent possible. So we -- every quarter, again, in this current environment, we have to see where we have the possibility to that we are rebalancing between the segments where technology or capacity buckets are fungible with each other. And this is where it hits a bit the mobile one in the second quarter. So don't read too much into it. This is all -- it all has to do with supply between Q1 and Q2. C.J. Muse: Very helpful. Thank you. Operator: Thank you. Our next question comes from William Stein with Truist Securities. Your line is open. William Stein: Great. Thanks for taking my question. Congrats on the strong results and outlook. I'd like to ask if you could remind us of your capacity expansion plans overall. What are you telling your customers in particular as to how you're going to recover from the current situation and meet their demand? Kurt Sievers: That's a big question, Bill. So what we clearly communicate and break also to customers, of course, a bit more out in more detail as we can do it here is, A, what we do with the 10% CapEx, which Bill was speaking about. And I think still 6% to 8% probably in the coming years against the significantly elevated revenue. So this is from an absolute amount of significant CapEx increase to fulfill that demand. Secondly, and I think that was one of the first questions in this call. We have these long-term purchase agreements with foundry partners, which are assuring us capacity corridors going forward. Now the way how it plays out is that indeed, we see this year, but especially the next year. We see more strong increments coming online from our internal capacity expansions in the front end. I mean we have this all the time in the back end because you know that the cycle time to -- from putting tools and getting capacity out is much faster in the back drop. This is an ongoing process. But if you think about the investments into the front end, which is specifically in our mixed signal and analog processes in-house, that we see the positive impact from those coming late this year and then especially next year. And we work continuously with our foundry partners to give us more access to capacity. In the end Will, that is why Bill highlighted in his prepared remarks that we will grow second half revenue of this year over first half revenue, with gradual increase quarter-on-quarter. I mean that normally, we don't do this full-year kind of directional guidance's. But this since we have that supply in line of sight, unbroken demand signals, this is where -- what it's going to yield. Mid-term, I think, Will, the industry will continue to have quite significant capacity constraints, especially in the field of trailing edge. So if you think about technologies, say, above 16 nanometers, so especially in the area of 28, 40 and 90, I do believe that the industry in the end hasn't invested that much CapEx. Most of the CapEx went really into the leading edge. While the demand for those nodes, which is especially from automotive and industrial continues to be super robust through the coming period. William Stein: That's very helpful. Appreciate it. One more if I can. How much of the year-over-year growth achieved in Q1 and guided for Q2 approximately comes from units versus pricing versus mix? Kurt Sievers: Well, I think Bill kind of hinted to this earlier. We are not passing price and units on a quarterly level, Will. We -- I think we gave you the information for last year where we said that pricing was a very low single-digit element to our growth in revenue. And you will get a similar information for the full calendar year 2022 at the beginning of next year. William Stein: Great. Thank you. Operator: Thank you. Our next question comes from Blayne Curtis with Barclays. Your line is open. Blayne Curtis: Hey, thanks for taking my question. I just curious, when you talked about -- going forward, you pass through additional costs, gross margin kind of stable here. So I guess it is in balance. Just curious as you look to the rest of the year, do you foresee any increased costs going forward the way for back end? Kurt Sievers: Well, Bill can go into more detail, and I think he also in his prepared remarks, he hinted to how we see this. So Blayne, yes, I unfortunately, given this inflationary environment. We can, of course, not exclude continued input cost increases. But our principle stance that if that happens, we will raise prices to protect our gross margins accordingly. Now Bill, I'm not sure you want to add a little bit to this. Bill Betz: No, nothing more. Blayne Curtis: Great. And then I just want to ask, you said channel inventory is about a month below where they should be. When you look at sequential growth in over the year, it does brought some seasonality in your core end markets. I was wondering if you thought that you would make any improvement in that gap in the channel inventory? Kurt Sievers: Yes. Blayne, I wish we could. Again, I -- this is really the target of two and a half months, which we had held over years in the past is still our target. I am personally deeply convinced that it is a disadvantage that we currently do not have this two and a half months. So I wish we could get there. But we are just held back by supply. I mean the more we ship into the channel, it's being pulled through immediately. So it immediately translates into POS. So again, this is not a guidance, but I see little chance that we get this anyway near back to our target in the course of this year. Blayne Curtis: Thanks Kurt. Operator: Thank you. Our next question comes from Chris Caso with Raymond James. Your line is open. Christopher Caso: Yes, thank you. Good morning. The question on cash return. And last quarter, you did return more than 100% of free cash flow. Could you give us an update of kind of what your thinking is here? Obviously, the cash flow is very strong in this environment? And what are the plans for that? Bill Betz: Sure. I'll take that. Again, no change in our policy, and we continue to execute to our capital allocation strategy. As you mentioned, we returned 121%. If I just look at the trailing 12 months, I think we returned 185%. We'll continue to do so. We raised our dividend in Q1, as you all saw, and we also got approval for buybacks. Again, we've been very consistent here and we'll continue to execute to that strategy. Christopher Caso: Thank you. And as a follow-on, just another question on OpEx. And you talked about the 5% increase for this quarter on the merit raise. Does that tend to flatten out as you go through the year? And just generally, are you comfortable with the level of spending that you're at right now. I know some others have spoken about just kind of difficulty in hiring and getting access to talent? Bill Betz: Yes, related to OpEx, we continue to do very well here. And as you can see, we're operating below the 23% long-term model. Q1 finished at 21.9% of sales, better than what we guided at 22.4%. We also guided 22% of sales, again, which incorporates that higher annual merit increases in project spend as we continue to manage and execute our portfolio to our strategy very well. I'm not going to guide the second half, but with all the different signals, we just provided on revenue and gross margin, and we should be probably trending below our long-term model of 23%. So we're not going to get to 23% probably in the second half. Christopher Caso: Got it. Thank you. Operator: Thank you. Our next question comes from Matt Ramsay with Cowen. Your line is open. Matthew Ramsay: Thank you very much. Good morning, everybody. Kurt, there's obviously been a lot of conversation on this call about visibility and whatnot. But the one data point that really stood out to me was I think you mentioned 30% xEV penetration this year in the auto market in terms of units of production. And that was quite a bit higher than what we were modeling despite the bullish trends in EVs. So I wonder if you could give us a little context there. Is that supply constraints that are hitting ICE vehicles maybe more disproportionately than EVs? Is this new regulatory push? Is it infrastructure that's being build out more quickly for charging. I'm just trying to get an idea of why sort of a step-up or some bullishness on the xEV penetration? Thanks. Kurt Sievers: Yes. Thanks, Matt. And thanks for maybe then giving me the opportunity to correct what at least you understood, I'm not sure exactly what I said. The 30% I quoted, Matt, is the some -- the integral sum of xEVs and premium ICE vehicles this year. And to break it out, it's about 23% XEVs and 7% premium vehicles. But I put them together into this 30% number, because from a semi content perspective, they are in a similar ballpark, which is this at least two to three, sometimes 3x of the average car. So sorry if that was not clear. So the 30% is the sum of premium ICE and xEVs together. Yes, the principal holds, which you said because the xEVs, I think they were more like 19% last year and moving to 23% this year. So this is a significant increase. And I think next year, it's going to be another significant step up. But again, it is important to understand that concept of lumping into this also the premium ICE vehicles, because that number that 30% I quoted there is actually almost doubled from what it was between 2017 and '18, where it was more in the ballpark of 15%. And so there is an accelerated trend both to premium cars and to XEVs, and that's an enormously strong driver to semi-content. The xEV trend, by the way, is clearly pulled by China and Europe. It is a little lower still. I think it's also going to come, but it's a little lower still in the U.S. And as you rightfully said, in Europe, that has a lot to do with legislation and tax incentives and stuff. And in China, I think it has to do with in a way, an ideal situation for the industry because they don't have a lot of legacy from combustion engine cars. I mean they -- many, many start-up companies there jump right away into xEVs. Matthew Ramsay: Thank you for that, Kurt, and for clearing up the assumptions. As my follow-up, there's -- a lot of the call here has been focused on supply demand and visibility in the auto business. Maybe you could compare and contrast where you are closeness to customers' visibility in autos versus what you're seeing in industrial and comps? Thanks. Kurt Sievers: Yes. Auto is very hard to serve because of the supply constraints, but the transparency is actually, in the meantime, very good. I mean it's a complicated supply chain. But I think we have now after exercising more than one and a half years, very close and standing relationships to the Tier 1s and the OEMs when it comes to these supply challenges. So I think the transparency is good. And that's why I also probably radiated here a solid confidence that we know that we don't over ship, because we have very clear visibility. In industrial and IoT, it is obviously more complicated because a solid part of the business there is going through the channel such that the channel inventory, which we discussed earlier, the one and a half months, which is stubbornly low, is probably the best indicator we have there. That doesn't exclude the fact that also in Industrial and IoT, we are serving well-known, very big customers. I mean it doesn't harm to mention names like maybe Honeywell or Schneider or Siemens. I mean that kind of customers. We, of course, also serve and that's the more direct where we have a similar visibility level like in automotive. And I'm afraid I have to say I fear at the moment at least for us, for NXP, the shortages in industrial are even worse than in automotive. Operator: Thank you. And our last question comes from Toshiya Hari with Goldman Sachs. Your line is open. Toshiya Hari: Hi, Good morning. Thanks so much for squeezing me and Kurt, in response to a question, you talked about your wafer processing capacity, potentially taking kind of a leg up in 2023. Can you help us quantify how much your capacity been increase there? And related to that, consistent with what you said at your Analyst Day, you mentioned that capital intensity in the business should revert lower in 2023. Throughout the call, you sounded really, really confident about the sustainability of demand here and how in some of the more mature nodes, you're kind of in the structural undersupply. Why not keep investing at a high level in '23 and beyond? Kurt Sievers: Yes. That is actually because the level we need to achieve, Toshiya, with our own wafer facilities will then be satisfied to the possibilities we have. So that doesn't necessarily mean it closes all the gaps to demand, but it's as much as we can do with the four walls and the facilities we have. That does not mean, of course, that we would not continue to push very hard to get a higher supply from our foundry partners. And because in the end, within our hybrid manufacturing strategy the share of external foundry supply to NXP is only going to grow. I think we are currently at a 55% to 45% level, so 55% external, 45% internal. And I would there to forecast that this -- it will not take that long. It's going to be more like 60-40, et cetera. So that's why if you think about a revenue generation and customer satisfaction from that perspective, then the internal part on the mid-term is actually the smaller part of this. And the bigger part is coming from the foundries. And of course, they keep investing and we keep getting there more. Toshiya Hari: Got it. That's helpful. And then finally, as my follow-up. I think in your prepared remarks, you talked about supply issues in Q1 driving the very slight miss and comms. Can you sort of elaborate on that? And has that been resolved at this point? Thank you. Kurt Sievers: Yes, that's just -- it's just the normal stuff. I mean we have our LDMOS production in the RF comms business, which is running in those facilities, which are also serving automotive and industrial customers, and they are just full. So we were too ambitious, to be honest. I mean it's just a couple of million in the end, but we were too ambitious in what we could get out to these comms customers. So nothing dramatic in the end because you saw it also -- it still continued to grow very nicely from a year-on-year and quarter-on-quarter perspective. But we just had a two ambitious plan from an output perspective, but nothing special in a way. Kurt Sievers: Now with that, I guess we get to the end of the call. So many thanks for attending this morning. In summary, I would say that we very rigorously reviewed the quarter two guide given this uncertain situation out of China. I want to highlight again, we see this as a pure supply challenge. But we feel now very confident with the forecast, which we have given you that this is in line what we will achieve. And from a more longer-term perspective, I think the anticipated strong growth for the year is materializing, second half ahead of first half and we see a continued imbalance between supply and demand through the whole year, especially in our strategic segments of automotive and industrial, which have very secular growth trends. With that, many thanks, and I look forward to seeing some of you in-person later through the week. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the NXP Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Jeff Palmer: Thank you, Katherine, and good morning, everyone. Welcome to the NXP Semiconductors fourth quarter 2021 earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the first quarter of 2022. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth quarter 2021 earnings press release, which will be furnished to the SEC on Form 8-K and available on NXP's website in the Investor Relations section at nxp.com. Before we start the call today, I'd like to highlight, NXP will be attending the Morgan Stanley TMT Conference in San Francisco on March 7 and 8. Now, I'd like to turn the call over to Kurt. Kurt Sievers: Thank you very much, Jeff, and good morning, everyone. We really appreciate you all joining our call today. I will review both our quarter 4 and our full year 2021 performance, and then I will discuss our guidance for quarter 1. Beginning with quarter 4, our revenue was $39 million better than the midpoint of our guidance with most end markets stronger than planned and with the trends in the communication infrastructure markets more in line with our expectations. Taken together, NXP delivered quarter 4 revenue of $3.04 billion, an increase of 21% year-over-year. Non-GAAP operating margin in quarter 4 was a strong 34.9%, 440 basis points better than the year ago period and about 110 basis points above the midpoint of our guidance. Year-on-year outperformance was largely due to the impact of improved factory utilization and higher revenues. For the full year, revenue was a record $11.06 billion, an increase of 28% year-over-year. And as 2021 progressed, our customers continue to accelerate orders on NXP. We consistently found ourselves in a situation where robust demand outstripped available supply even as production levels both internally and from our supply partners improved across the year. We do anticipate a continuation of strong demand throughout 2022, likely better than we originally contemplated at our recent Investor Day in November. The full year non-GAAP operating margin was solid 32.9%, a 700 basis point improvement as a result of improved factory loadings, higher revenue and positive leverage on our operating expenses. Now, let me turn to the specific trends in our focus end markets. In Automotive, full year revenue was $5.49 billion, up 44% year-on-year, a reflection of the strong company-specific product drivers we noted at our Investor Day, the step-up in content per vehicle as OEMs prioritized premium vehicles in a limited supply environment and the accelerated transition towards electric vehicles, which have fundamentally higher semiconductor content. For quarter 4, Automotive revenue was $1.55 billion, up 30% versus the year ago period and slightly better than our guidance. Moving to Industrial and IoT. Full year revenue was $2.41 billion, up 31% year-on-year, driven by our solutions offering with a combination of industrial and crossover processes, wireless connectivity and our analog attached products, all driving the year-on-year growth. For quarter 4, Industrial and IoT revenue was $661 million, up 29% versus the year ago period and better than our guidance. In Mobile, full year revenue was $1.41 billion, up 13% year-on-year. During the year, we experienced continued strong adoption of our secure mobile wallet and early ramps of secure ultra-wideband solutions and a good traction for our mobile-embedded power solutions. These positive trends were modestly offset by a discontinuation of certain custom analog products. For quarter 4, mobile revenue was $374 million, down 9% versus the year ago period and better than our guidance. Lastly, I will move to Communication Infrastructure and Other. Full year revenue was $1.75 billion, up 3% year-over-year. The year-on-year growth was due to a rebound in demand for secure transit, tagging and access solutions as well as solid demand for RF power products for the cellular base station market, somewhat tempered by the anticipated moderation in demand for network processing solutions. For quarter 4, revenue was $457 million, up 16% year-on-year and in line with our guidance. In review, 2021 was an excellent year for NXP. We experienced significant design win traction across the entire portfolio and especially within the areas of our strategic growth drivers. Our priority has been to assure the health and safety of all our employees. And it is their engagement and performance which has been truly outstanding. We are extremely proud of their adaptability, dedication and hard work in the face of adversity. Now before I will turn to our expectations for quarter 1, I'd like to offer you some perspective on the coming year. For those who were able to join us at our recent Investor Day in November, you will remember, we offered a positive view of 2022, expecting revenue growth near the high end of our 8% to 12% long-term growth target. Now as we enter into early 2022, we are more optimistic about the opportunities in front of us, both in the short term as well as over the intermediate horizon. The demand signals from our customers continue to be very strong. Inventories across all end markets appear very lean, and our ability to supply continues to improve. Hence, we anticipate 2022 will be another year of demand/supply imbalance with lead times extending out across almost the entire portfolio and the level and intensity of supply-related escalation conversations with our customers remains elevated. Against this backdrop, we are guiding quarter 1 revenue at $3.1 billion, up about 21% versus the first quarter of 2021, within a range of up 18% to up 24% year-on-year. And from a sequential perspective, this represents growth of about 2% at the midpoint versus the prior quarter. At the midpoint, we anticipate the following trends in our business. Automotive is expected to be up in the mid-20% range versus quarter 1 '21 and flat versus quarter 4 '21. Industrial and IoT is expected to be up mid-teens year-on-year and flat versus quarter 4 '21. Mobile is expected to be up about 10% year-on-year and up in the low single-digit range versus quarter 4 '21. And finally, Communication Infrastructure and Other is expected to be up in the low 20% range versus the same period a year ago and up in the low double-digit range on a sequential basis. In summary, we do continue to see growing customer demand outstripping our improving supply as the inventory across all end markets remains very lean. Customer engagement levels and design win momentum in our strategic focus areas continue to be very positive. This underpins our continued confidence of robust growth throughout 2022, and we do continue to be very optimistic about the long-term potential of NXP. Now, at this point, I would like to pass the call over to you, Bill, for a review of our financial performance. Bill Betz: Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q4 and provided our revenue outlook for Q1, I will move to the financial highlights. Overall, our Q4 financial performance was very good. Revenue was above the midpoint of our guidance range, and both non-GAAP gross profit and non-GAAP operating profit were above the high end of our guidance. I will first provide full year highlights and then move to the Q4 results. Full year revenue for 2021 was $11.06 billion, up 28% year-on-year. We generated $6.21 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 56.1%, up 500 basis points year-on-year as a result of increased internal factory utilization, higher revenue levels and product mix. Total non-GAAP operating expenses were $2.56 billion or 23.2% of the revenue, in line with our long-term model. Total non-GAAP operating profit was $3.64 billion, up 63% year-on-year. This reflects a non-GAAP operating margin of 32.9%, up 700 basis points year-on-year and consistent with our long-term financial model. Non-GAAP interest expense was $365 million. Cash taxes for ongoing operations were $276 million. Non-controlling interest of $35 million. And stock-based compensation, which is not included in our non-GAAP earnings, was $353 million. Full year cash flow highlights includes $3.08 billion in cash flow from operations, $766 million in net CapEx investments, resulting in $2.31 billion of non-GAAP free cash flow or a solid 21% of revenue. During 2021, we repurchased 20.6 million shares for a total of $4.02 billion and paid cash dividends of $562 million. In total, we returned for that $4.58 billion to our owners, which was nearly 200% of the total non-GAAP free cash flow generated during the year. Now moving to the details of Q4. Total revenue was $3.04 billion, up 21% year-on-year and above the midpoint of our guidance range. We generated $1.74 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57.3%, up 440 basis points year-on-year and above the upper end of our guidance range, driven by improved utilization, higher revenue and product mix. Total non-GAAP operating expenses were $681 million or 22.4%, up $118 million year-on-year and up $24 million from Q3, in line with the midpoint of our guidance and again, consistent with our long-term model. From a total operating profit perspective, non-GAAP operating profit was $1.06 billion. And non-GAAP operating margin was 34.9%, up 440 basis points year-on-year, which is above the high end of our guidance, reflecting solid fall-through and operating leverage on the increased revenue level. Non-GAAP interest expense was $93 million, with cash taxes for ongoing operations of $100 million, and non-controlling interest was $8 million. Stock-based compensation, which is not included in our non-GAAP earnings, was $88 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q4 was $10.57 billion, up $979 million sequentially as we issued $2 billion of new notes at very attractive rates with longer durations and retired early the 2022 $1 billion notes with a rate of 3.875%. Our ending cash position was $2.83 billion, up $527 million sequentially due to the cumulative effect of the previous note debt repayments, capital returns increased CapEx investments and cash generation during Q4. The resulting net debt was $7.74 billion, and we exited the quarter with a trailing month adjusted EBITDA of $4.23 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q4 was 1.8x. And our 12-month adjusted EBITDA interest coverage was 11.6x. Cash flow generation of the business continues to be excellent, and our balance sheet continues to be very strong. During Q4, we paid $150 million in cash dividends and repurchased $750 million of our shares. Subsequent to the end of Q4, between January 1 and January 31, 2022, we repurchased an additional $400 million of our shares via a 10b5-1 program. Additionally, the NXP Board of Directors has authorized an incremental $2 billion in the company's repurchase capacity, bringing total new authorization and remaining authorization to $3.35 billion. Further, the Board has approved a 50% increase in the quarterly cash dividend, bringing the quarterly cash dividend to $0.845 per share. These actions are all aligned with our capital allocation strategy that we continue to execute to. Turning to working capital metrics. Days of inventory was 83 days, a decrease of 2 days sequentially, which is below our long-term target. We continue to closely manage our distribution channel with inventory in the channel at 1.5 months, also below our long-term targets. Both metrics reflect the continuation of customer shipments at a robust pace combined with supply challenges we continue to experience. We anticipate the coming year will be very similar to 2021, where customer demand is in excess of available supply. Days receivable were 28 days, down 3% sequentially. And days payable were 87%, an increase of 4 days versus the prior quarter as we continue to increase orders with our suppliers. Taken together, our cash conversion cycle was 24 days, an improvement of 9 days versus the prior quarter, reflecting strong customer demand, solid receivable collections and positioning for customer deliveries in future periods. Cash flow from operations was $785 million, and net CapEx was $266 million, resulting in a non-GAAP free cash flow of $519 million. Turning now to our expectations in the first quarter. As Kurt mentioned, we anticipate Q1 revenue to be about $3.1 billion, plus or minus about $75 million. At the midpoint, this is up 21% year-on-year and 2% sequentially. We expect non-GAAP gross margin to be about 57.3%, plus or minus 50 basis points. Operating expenses are expected to be about $693 million, plus or minus about $10 million. Taken together, we see non-GAAP operating margin to be about 35% at the midpoint. We estimate non-GAAP financial expense to be about $105 million and anticipate cash tax related to ongoing operations to be about $125 million. Non-controlling interest will be about $9 million. For Q1, we suggest for modeling purposes, you use an average share count of 266 million shares. Finally, I have a few closing comments I'd like to make. First, as a housekeeping reminder, we anticipate our cash tax payments will trend towards 15% in 2022 based on the current U.S. tax legislation and law. As can be seen in our Q1 guidance, we are expecting a slightly lower tax rate in the short term and anticipate it will increase as we progress through the year. Secondly, we are investing to support our more profitable long-term growth. We currently have about $4 billion of long-term material supply obligations as discussed at the Investor Day. Our CapEx investments for 2022 will be above the high end of our long-term CapEx model. These investments are focused on the combination of assured external foundry wafer supply, expansion of our internal back-end capacity and a modest expansion of our internal front-end capabilities. While significant, the investments we are committed to are more than balanced by the robust level of non-cancelable, nonreturnable orders from our customers. In closing, we are very confident in our profitable growth over the intermediate to long term, especially in the key areas of the Accelerate growth drivers as we highlighted during Investor Day. Our gross profit will continue to expand. And we have demonstrated solid control over our operating expenses while consistently investing in those areas which will enable our long-term growth. Together, these results in solid operating profit leverage and robust cash flow generation. And lastly, we have a proven track record of returning all excess free cash flow to our owners via our clear capital return policy. With that, I'd like to turn it back to the operator for questions. Operator: [Operator Instructions]. Our first question comes from Ross Seymore with Deutsche Bank. Ross Seymore: I guess, Kurt, the first question I have is on the full year commentary. At the Analyst Meeting, you talked about, I guess, at the high end of your range before about 12%, and now you're saying better than that. What changed? And do you have the supply necessary to grow sequentially through the year to what seems to be something that in the mid-teens, roughly, that you're guiding to now? Kurt Sievers: Yes. Hey, good morning, Ross. Thanks for your question. Indeed, the commentary I made is that we have grown optimism that we can grow above the high end of our long term growth range which was 8% to 12%, so about 12%. So, indeed. Yes, we do have the supply capability. We are gradually building more supply capability through the year. It's a huge amount of different actions, both in our own back-end test and assembly sites, in our internal front-ends. And mind you, that this year, we will be running full out with our internal front-end factories. While last year, we had the winter storm taking capacity away and we had only started to ramp the factories full up during the first and second quarter. So from a year-on-year perspective alone, that does give us more supply. But also with third-party foundry suppliers, and Bill just mentioned our supply commitments and obligations here, we purchase from our prospective obligations here. We are growing our supply capabilities. So yes, the supply capability is here. And while we will not guide the full year, Ross, it was still important I felt to make that comment because the demand situation has continued to be very, very strong. And I say continue to be very strong since our Investor Day in November. And we see the inventories, both our own ones, and I think we talked about the 83 days, we talked about the channel inventory even coming a little bit down. But also at our customers, we think inventories continue to be super lean such that we see the potential of outgrowing the 12% high end of our long-term growth trajectory. Ross Seymore: I guess as my follow-up, just sticking on the revenue line, it's been going a little shorter term for the first quarter. Are there any specific dynamics that are keeping automotive and industrial flat sequentially? Is it simply a supply issue? I think that's the first time in, I don't know, 6 quarters that those will have been flat sequentially. So the dichotomy between auto and industrial flat and the relatively smaller segments growing was a little surprising to me. So any color on those dynamics would be helpful. Kurt Sievers: Yes, it is actually totally supply regulated. I mean we have more than enough demand. It is all a function of supply. And maybe here, it is worthwhile to note that you all might have seen that in the City of Tianjin in China, there was a controlled movement order, which actually meant factory shutdowns. One of our test and assembly back-end sites is Tianjin. So we had a factory shutdown there for between 1 and 2 weeks. Think about maybe $50 million impact for the first quarter. And that is all sitting on industrial and auto, which is another factor which is actually hampering supply a little bit further than we would have wished into the first quarter. Mobile, on the other hand side, Ross, you know that the last 2 quarters, we've been really struggling with supply in mobile. I think we talked about this consistently in the call. This starts to get better, which actually helps us to start to do much better in Mobile. So all of the, say, the movements quarter-on-quarter are much more a function of supply capability rather than demand. Operator: Our next question comes from C.J. Muse with Evercore. Christopher Muse: I guess first question on gross margins. You're 70 bps away from the high end of your target. And in your prepared remarks, Bill, you talked about expectations for gross margins to continue to expand. So curious how you're thinking about upward bias here in '22? And then moreover, I guess, '23, '24 as new products that carry higher margins come through the model? Bill Betz: Hi, C.J., yes, for the rest of the year, we're not guiding. But our goal was to maintain, I'd say, a gross margin in the 57% range with the pluses and minuses we continue to talk about in any given quarter. Kurt just mentioned about the slight impact with Tianjin, which is impacting our margin a little bit in Q1. But that is offset by the higher revenue and volume that we're experiencing quarter-over-quarter by $60 million. So that kind of keeps it flat there for Q1. As we go forward, again, mix will play an important role as we are supply constrained. And then over the long, long term, as we talked about, is really driven by our new product introductions out further. Christopher Muse: Very helpful. And as my follow-up, I guess, Kurt, you talked in your prepared remarks about making real traction with some of the newer products. And I know, in particular, on the S32 domain processor side, there's significant architectural decisions being made today by your potential customers. So curious, any update in terms of the traction there? And I guess how to think about maybe some of these new products? And which we should be focused on in terms of driving real incremental growth into '23, '24? Kurt Sievers: Yes, C.J., absolutely. I think at Investor Day, we tried to give a bit more of the deep dive on where we are in this area. And it's indeed especially about what we call the S32 platform, which is a software compatible growing family of products, mainly for the networking infrastructure part of the car. And there is a very rapid, and I would also say very forceful rearchitecture action in place with all of the OEM customers. And one of the big features here is going to be over-the-air updates, including the required security. So to make sure that the performance of the car over its lifetime can be upgraded by software updates without changing the hardware. And the way to do this is over-the-air updates and then a very, say, both elegant and efficient network architecture inside the car. And the chip which does this over-the-air update is a gateway chip. And that's one of the flagship products which we are ramping. It's called S32G for gateway. And that is ramping with major OEM names through the next few years. So that's just -- it's just 1 nice example. There is obviously more. I'm actually proud to mention because it's always difficult with OEM names in that particular industry. But I'm proud to mention or reflect on the announcement which we did, I think, in November with Ford Motor company together where we spoke about the fact that their new F-150, the Bronco, the i.MX, they will all be using, amongst others, this S32G platform for the gateway functionality. Operator: Our next question comes from Vivek Arya with Bank of America Securities. Vivek Arya: I just wanted a clarification first. You identified the material weakness in internal controls in your earnings press release. I was just hoping you could maybe just discuss that issue. How much is any potential impact and how soon can those issues be rectified? Bill Betz: Hey, Vivek, I'll take that question. As shared in our EPR, as part of our annual year-end audit process, we did identify a potential material weakness associated with our general internal IT controls in the areas of user access, change management and documentation. At this moment, we are very comfortable there had been no impact on our current or past financial statements. We are actually very pleased with the fixes the teams are implementing, which just take time. And we feel confident that we'll be able to remediate these internal IT controls in 2022 and ensure the proper monitoring throughout the year. We want to disclose this now for full transparency. And we plan to disclose more about the details in our annual 10-K, per our normal scheduling in the late February. Vivek Arya: Great. Very helpful. And for my follow-up, Kurt, if I look at last year, we saw a nearly 40-point delta between auto unit production and your sales. I'm curious, what is the way you think about a more sustainable kind of content delta we should think about between units and sales over time? And what are you doing to ensure the quality of orders and the utilization of your products? So we are not surprised by any excess inventory, right, that might be there at your OEMs or Tier 1s? Kurt Sievers: Yes. Thanks, Vivek. So first, let me just highlight again that, indeed, we are not at all concerned about that delta between the 44% of our revenue growth and the 2.5%, I think, SAR growth last year. And that is given the content increases relative to premium vehicle mix changes and electric vehicle acceleration. But also the fact that in 2020 and already earlier '19, a lot of inventory in the very, very complex extended supply chain has been or had been depleted. And then, of course, I definitely see that we also have grown market share. So indeed, for the history, we are not concerned about this. On the contrary, I continue to be chased on a -- really on a daily level to ship more product into automotive. It's still low enough as we speak. Now the measures to cope with this are, one, a very, very much higher level of transparency, which we not only do with our Tier 1 customers, but also especially with the OEM customers. So we have a lot of direct relationships built up now with the OEMs and get multiyear forecasts, which are very specific by model, by equipment, which gives us a much better view into the future in what is realistic content growth and whatnot. And in the more shorter term, of course, we work with the NCR order concept, which I think Bill had in his prepared remarks, which we actually -- especially in automotive, not only in automotive but especially in automotive, which give us a confirmed and non-cancelable or non-reschedulable order pattern for the full calendar year 2022, which is a hell a lot of more stability than we've ever had in the past. I -- from just a directional perspective, I do believe the content increase continues to accelerate. And probably on the midterm, the 2 main factors are actually the acceleration of the share of xEVs, so electric and hybrid electric vehicles, which simply have so much more semiconductor content. But also the Level 2+, Level 3 autonomy efforts are getting more and more traction again, which is a big deal for us when you think about our position in radar. So we do believe that we will continue to outgrow this market, win share and have, at the same time, a faster market development given these changes. But with the NCR orders and our relationships to the OEMs, I think we have a good handle to keep this in good track. Operator: Our next question comes from William Stein with Truist. William Stein: There's been a clear imbalance between supply and demand for the last few quarters. It's triggering very extended lead times in the last year. I don't I've heard an update on that condition during the call or in the press release or presentation. I'm hoping you can update us as to how that's trended in the most recent quarter. I would imagine given the inventory decline that lead times are still quite stretched. Any normalization you anticipate for that through this year? Kurt Sievers: Yes. So Bill, clearly, it has not improved. If I think about it from a supply perspective or if I put my more positive perspective on this, the demand continues to be very, very strong. So if I look forward into Q1 and into the rest of the year, Q1, very clearly -- and I just want to be very explicit here relative to the guidance, this is completely kept by available supply. So much more demand than what we have in terms of supply. You mentioned some of the metrics which we can actually use in order to get a better feel on where this is going. Indeed, our internal inventory has further reduced. And I'm not happy to say that also the channel inventory dropped a little bit to 1.5 months. I mean we've been standing now at 1.64 for quite a long time all through last year. And mind you, this compares to a target of 2.4 to 2.5 months. And that's also the level we have come from. And the loan debt delta is about $500 million. So I do not think that we get out of this imbalance through this calendar year. It might get better in certain spots. But overall, in the markets which we are serving, and again, I don't make a comment here about the whole semiconductor industry, but I make a comment about the key markets we are being exposed to, there, I do not see that we totally come out of this imbalance until the end of the year. William Stein: That really helps. One other, if I can. I'm going to ask the content, automotive content question a little differently. It's clear and you've made a pretty good case that some of this content is a more permanent shift, like the new networking architectures and the like. But I think it's fair to say that some of the growth that we've seen in the last year has resulted from favorable mix shift to higher-end models and higher-end trims within those models that probably drive a little bit better semi content that's more profitable for the OEM customers. What should -- what would you encourage investors to think about for this trend over the coming year? Does it continue? Or would it reverse as availability becomes more plentiful? Kurt Sievers: Yes. So Bill, I completely confirm what you said. Definitely, last year has seen a spike in content increase due to the mix change to more premium vehicles. Absolutely agreed. I think this is going to find a natural balance. As long as overall supply of the semi industry into the auto industry will continue to be constrained, they will continue to build the more profitable, the premium vehicles. I mean that's very natural. And as soon as this maybe gets over time into a better balance, they will also start to build more of the volume cars again. But again, that is not a -- I cannot see this as a negative, Bill, because they want to build and could sell more cars anyway. I mean if you look at dealer inventories in the meantime, not only in the U.S. but also in China, they are just at rocking all-time lows, and it's getting worse and worse. So yes, it will change a little, but that is not going to go against -- as a negative against our demand because then they simply build more cars as a result. Operator: Our next question comes from John Pitzer with Credit Suisse. John Pitzer: Kurt, I wonder if you could spend a couple of minutes just talking about the impact of inflationary pressures on the business right now both on revenue and on OpEx. And I know you've said historically that you're not raising pricing above your increase in cost. But I'm trying to get a sense of how much of a tailwind price is to your view that you'll be above the high end of that 8% to 12% this year. And conversely, what's the impact it's having on OpEx relative to higher prices? Kurt Sievers: Well, in general, John, I absolutely want to reconfirm loud and clear that we will not use this current -- or have used, I would almost say, this current situation to pad our margins. So we do absolutely stick to the policy I've talked about before, which is that, of course, we are passing on the increased input cost and raise prices to our customers along with that. That is something we had to start doing last year and we have to continue to do through this year. This is a function of the kind and the type of business we are in, which is the opposite of a commodity business. It's very application-specific. It has, I think, very specific and long-term customer relations where this is the only way to do it. And trust me, it's not an easy one for us to do this. But yes, that's what we do. I anyway can't guide the year going out into Q2, 3 and 4. But I can tell you, John, that for last year, the impact of pricing was absolutely minimal to the revenue growth. So don't think about this being the key factor here. And maybe, Bill, you want to speak a little bit about the impact on OpEx? Bill Betz: Yes, sure. Hi, John. I'd say we continue to do well here and near our 23% long-term model. As you know, Q4 finished at 22.4% of sales, which was better than our guidance of the 22.7%. We just guided Q1 to be about 22.4%. And this is up mainly because of the U.S. benefits for FICA and 401(k) tending to be higher in the U.S. in Q1. But as you think ahead, and this is where you're going, we mentioned during Investor Day, we like to run around 23% with quarters fluctuating a bit. But we do see that we can get additional leverage on the model, especially in the SG&A side. John Pitzer: That's helpful. And then as my follow-up, Bill, you talked about in your prepared comments, CapEx this year being above target. I'm wondering if you could give us a little bit more granularity as to kind of what number you're thinking about for the full year? And Kurt, as he answers that, I'm curious as to what your internal versus external sort of capacity strategy is, especially in the auto business where historically, you've done more of the front end internally and especially against some of your peers that are looking to really expand their internal capacity, how confident are you that given the strong growth you expect, especially in autos over the next several years that you can get everything you need from your outsourcing partners? Kurt Sievers: Yes. Let me maybe get started, John, on the strategy here. We absolutely stick to our hybrid manufacturing strategy. And I also want to highlight, it has never been a function of doing this in auto and doing that in industrial and something else in mobile. It's much more a function of the kind of processing technology. There is simply anything which is below 90 nanometers, we will not do in-house. And we see no reason to change this. Honestly speaking, if you look at our results for last year, I think we've grown 28.5% year-over-year. We've probably grown faster than most of the comparable peers, which might partially have more of an in-house manufacturing strategy. I think last year, the flexibility which we could apply is actually a fantastic proof point that this manufacturing strategy is not wrong. Now going forward, we clearly are intensifying and working on long-term partnerships also with foundry partners. I mean as much as I talked earlier about the longer-term nature of our relationship with customers and the better transparency we gain here from a demand perspective, obviously, we are doing exactly the same thing on the foundry side in order to make sure this is in good balance. So no change here. There, of course, we are investing and increasing our output capability is in the -- on the back end. Because there, I think, currently, it's like 85% or so, which we are doing in-house. We don't see a reason to change that either. So here, we are continuing to expand. John Pitzer: And that will [jump up] this year? Bill Betz: Let me do that. Kurt Sievers: Yes, Bill, go ahead. Bill Betz: Yes. Thank you. Again, if you look at CapEx, just a quick recap, in 2020, we spent 4.6%. 2021, we spent 6.9%. And you just saw in Q4, we spent 8.8%. So we think that's going to go up a little bit more for 2021 without giving you the absolute guide, but think maybe another point or so on it related to it. Operator: Our next question comes from Stacy Rasgon with Bernstein Research. Stacy Rasgon: I wanted to first ask about the mobile strength into Q1. And I get what you said on some of the supply constraints in that business that have been there easing a little bit. But is there anything else there around customer pull-forward or anything like that? What is actually driving that strength? And how do we think about the sustainability of that profile into Q2 and beyond, just given the above seasonal nature of it into Q1? Kurt Sievers: Yes, Stacy, it's indeed 2 things. It is demand, and I speak about this in a second, and it is obviously supply. We've really been held back by supply the last 2 quarters. So Q3 and Q4 of last year, we clearly had a significant issue here from a supply perspective. By the way, not everything resolved, but at least improving into Q1. So that's one element. The other element is demand. And I mean I think I can understand why you are asking. But you know that we are not overly dependent on only one customer, on one mobile customer in that particular segment. So if you think about the mix of our customers, you will appreciate that there is a strong case to be made for demand going into the first quarter. And I also don't think about it as a spike, Stacy. This is not just a spike or something. It's -- I think it continues with our strategy of the attach rate of the mobile wallet. I mean that's the main factor in there and the more and more growing -- early growing part of the -- of our secure ultra-wideband solutions. Stacy Rasgon: Got it. My follow-up, I wanted to ask about Industrial, particularly in China. What are you seeing there? I mean they have COVID-zero. There were shutdowns as you mentioned on something, some of the data points are not great. Are you seeing any issues particularly around China, especially for the Industrial business? Kurt Sievers: No, we don't see it at this stage, Stacy. I mean I'm reading the same news. Our main concern is in Tianjin, China much more about our own production, which -- and I said this before, is in the meantime, fully up and running again. But that is actually where we see the issue, from a demand perspective, which indeed is largely the industrial markets largely served through distribution. We do not see any slowing at all. On the contrary, when you think about the fact that our channel inventory has further dropped, unfortunately, you know that a good -- a solid portion of that is actually in China. So, no, we are not concerned here about the demand slowing in Industrial in China. Operator: Our next question comes from Chris Caso with Raymond James. Christopher Caso: Kurt, I wonder if you could go through a bit about some of the commitments that you've had to make to secure that additional capacity. What is the commitment now to the foundry partners? And how has that changed versus prior cycles? And I'm guessing by your comments that your feeling is that that's backed up by the commitments from your customers to you. And how resilient do you think that will be over time as conditions change? And obviously, this seems like this is something different for the industry. Kurt Sievers: Yes. Thanks, Chris. Maybe Bill, you want to speak a little bit first about the $4-plus billion purchasing obligations, which we entered into? Bill Betz: Yes, that was in my prepared remarks. At the moment, we have $4 billion. And those are strongly supported by actually greater than our supply commitments, backed by the non-cancelable, nonreturnable orders that we see. So the demand continues to be strong. Our customers are actually coming to us. And unfortunately, we can't serve them all. Kurt Sievers: Yes. And then adding to this, Chris, on the NCNR, on the order side, I mean, it is as strong as a contract can be, Chris. We all know how the world can flip around. But I -- there is solid contracts behind that. So we really, really feel good about it. And I would tell you, we have actually customers who want more. So just no confusion here, it is not that we were hungry for these NCNR orders. It's actually the opposite. We cannot cover them all. So we are oversubscribed here. We cannot fulfill them all. And customers would love to place them actually over even longer periods of time. So reaching out into '23 and '24 where we are still seeing how we can best do this. So that dynamic is still going one way only. We don't see any softening. And I -- actually, I didn't say it before, but maybe I should just highlight this here. We see absolutely no order cancellation. We see no push-outs or no rescheduling of any backlog. Christopher Caso: Got it. That's very helpful. And for a follow-on question and we will return to pricing. And really kind of 2 questions on pricing. One is, obviously, we've seen foundry price increases announced last year. Do you think that is now behind us? Or with the continuing tight supply situation, is there potential for additional input cost increases as we go through the year? And then with that, I think there's an investor concern that some of these price increases are transitory because of the strong conditions and obviously, the input costs on you, you're passing along to the customers. So what's your view of the stickiness of these price increases that this is kind of a permanent ratchet up as opposed to something that's transitory just because of the supply conditions? Kurt Sievers: Yes. I actually think, Chris, unfortunately, there's always a chance for more cost increases. So this can never be totally ruled out. So on your -- on the first part of your question, I trust we have a good visibility and also good agreements for this year. But is it truly the end forever? I don't know. I mean there could always be something. On the durability of that, I have a very firm view that this is really a reset of the industry. So no, I do not think that things will go backward, and unfortunately, neither the input costs nor our pricing to our customers. I think the 4 or 5 quarters now of this really, really tough supply situation has learned the world a lot more about the value of semiconductors in many critical infrastructure and other applications. So I think the appreciation for this industry and for the kind of product which we do to enable applications, end applications has significantly grown. And with that, hand-in-hand, has gone a reset of the pricing structure. So I don't think this is going to go backwards. Operator: And our last question comes from Joe Moore with Morgan Stanley. Joseph Moore: You talked about non-cancelable backlog throughout the year. I think that was an automotive comment. Can you talk about your backlog coverage for the other businesses? And how far out does that extend? And do you see it -- if in the areas like auto, as you see it extending out a full year, do you think we continue to get that 1 year visibility as we move forward? Are people still looking out that far? Kurt Sievers: So Joe, yes, first, I talked about automotive, but this is not just a phenomenon in automotive. I'd say with all of our direct customers, this NCNR pattern is a big desire because all of our customers consider this as a way to secure supply over a short- to medium-term period. So it ranges well beyond automotive. I should maybe also highlight that the shortages in the industry are at least as bad in industrial and other applications as in automotive. It's just that automotive continues to catch better headlines in the news, but it's not that the situation is any easier in any of the other segments we are serving. I -- if you think about the order visibility, customers want to have it longer. I said -- I think earlier I might have mentioned it already that they would love to have NCNRs for 2 years out. So yes, I'm definitely sure on your question if they want to continue to go with a 1-year horizon. They definitely want to. I think, actually, if we are prepared for it, there might be also more cases coming where people want to have it even lower, so more than a year. And again, think about this commentary really being commentary mainly about automotive and industrial markets with very sticky products, very long life cycles, so it fits the nature of those industries. So I think it's a learning from our overall industry in order to better deal with the requirements of those markets. I don't know if this is ever going to be the case in markets like mobile and computing. It might be different there, where also the end product cycles are much shorter. So that's why my commentary is probably biased to the automotive and industrial side of the house where I think it is a big learning out of last year for the entire industry. I think -- yes, sure. Joe. I guess we run now to the end of the call. So I just want to summarize and highlight again. We feel we come off a very strong 2021 with more than 28% revenue growth. Maybe it's also worthwhile to say that if we look at the revenue growth over 2019, which was the pre-pandemic year, it is still a 25% growth. So '21 over 2019 is 25% growth. So we feel we are very well on track to our projected 8% to 12% long-term growth target. And if we look into -- more into the near term into this year, we feel increasingly optimistic, as I said, that we can be above the high end of that 8% to 12% for the calendar year 2022. Kurt Sievers : And with that, I would like to thank you all for your attention today and speak to you next. Thank you very much. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day. Thank you for standing by. Welcome to the NXP Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. [Operator Instructions]. And now I would like to turn the conference over to Mr. Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead, sir. Jeff Palmer: Thank you, Dexter. And good morning, everyone. Welcome to the NXP Semiconductors Third Quarter 2021 Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO, and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include but are not limited to statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products at our expectations for the financial results for the fourth quarter of 2021. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations to the non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2021 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section at nxp.com. Before we start the call today, I would like to remind everyone of our upcoming Analyst Day on Thursday, November 11, 2021. We are hosting a hybrid event. We will be in person in New York City, but also simulcasting the event from our website for virtual attendees. After the event concludes, we will post the slides to the Investor Relations website. I would like to turn the call over to Kurt. Kurt Sievers: Yeah, thanks very much, Jeff. And good morning, everyone. We appreciate you joining our call this morning. I will review our Q3 results and then discuss our guidance for Q4. Overall, our Q3 results were better than the midpoint of our guidance with the mobile end markets stronger than planned as a result of improved supply. At the same time, the trends in the Auto, Industrial IoT, and Communication Infrastructure markets, were all in line with our guidance. Taken together, NXP delivered Q3 revenue of $2.86 billion, an increase of 26% year-on-year, and $11 million above the midpoint of our guidance range. These are very good results given the constrained supply position we knew we would face entering the quarter. And we continue to view our channel and on-hand inventory metrics below our long-term targets. We exited quarter three with our distribution channels supply metric at 1.6 months, almost a full month lower than our long-term target. And we expect this to be the situation in quarter four again as well. Our non-GAAP operating margin in quarter three, was a strong 33.5%, which is 770 basis points better than the year-ago period. And 50 basis points above the midpoint of our guidance. Operating profit dollars were $19 million better than guidance, driven by higher revenue and lower expense. Now let me turn to the specific trends in our focus ends markets, starting with Automotive. Q3 revenue was $1.46 billion, 51% up versus the year-ago period, and in line with our expectations. In Industrial and IOT, Q3 revenue was $607 million, up 18% versus the year-ago period, and again, in line with our expectations. In Mobile, Q3 revenue was $345 million, up about 2% versus the year-ago period, and above our expectations. Lastly, in communication, infrastructure and other, quarter three revenue was 454 million, about flat versus the year-ago periods. And in line with our expectations. With this, let me move straight to our outlook for quarter four. We expect the midpoint of quarter four revenue to be 3 billion up 20% versus the fourth quarter of 2020, within a range of up 17% to up 23% year-on-year. From a sequential perspective, this is up 5% at the midpoint versus the prior quarter. And we again anticipate demand outstripping available supply in our quarter four outlook. At the midpoint of this range, we anticipate the following trends in our business. Automotive is expected to be up in the high 20% range year-on-year and up in the mid-single-digit range versus Quarter Three '21. Industrial and IOT is expected to be up in the high 20% range year-on-year and up in the mid-single-digit range versus Quarter Three '21. Mobile is expected to be down in the mid-teens range year-on-year and up in the low single-digit range versus Quarter Three '21. And finally, Communication, Infrastructure, and Other is expected to be up in the high-teens range versus the same period a year ago, and up in the low single-digit range versus Q3 '21. Over the course of the last 2 quarters, investors continue to ask how to reconcile the revenue performance of NXP's Automotive business with that of the global vehicle production numbers as they are reported by IHS. Specifically, NXP's Automotive segment revenue is expected to be up over 40% in 2021. Against this, the auto OEMs continue to struggle to match supply to strong consumer demands with the auto industry likely not able to meaningfully grow unit production versus 2020. Now let me make a few observations which may help you understand these diversions. First, the auto supply chain is very extended and complex, with multiple points of product transformation across the globe. This extended supply chain needs to coordinate the timing and delivery of up to 30,000 props and up to 1500 different semiconductors, from hundreds of suppliers to build just one single-car. During normal periods from the time at which NXP ships of finished components to when the final assembly is fitted into a finished car, it takes up to 6 months. And this is on top of the normal semiconductor manufacturing cycle times of 3 to 6 months. At each step of the transformation, thousands of parts move through a complex global network of suppliers. For the process to work efficiently, it is essential that all of the components needed to complete a car are available exactly where and when they are required. Now, we believe the extended auto supply chain significantly depleted on-hand inventory of all types of products, including semiconductors already by the beginning in the second half of 2018 and continuing through 2019 and most of 2020. That depletion was a result of global car production declining 6% in 2019 and another 16% in 2020. While NXP 's auto business, despite content increases, declined by 7% into 2019 and by another 9% into 2020. Let me illustrate the impact by using the NXP Distribution Channel as a proxy for overall auto supply demand trends, and how we have been directly affected. We consistently monitor and measure all component movements in inventory data at our distribution partners at the end-market level. Throughout 2021 these metrics for Automotive have been at record low levels, with on-hand inventory being about 1 month below our long-term target of 2.5 months, with demand in the intermediate term being consistently greater than our ability to rebuild inventory back to normalized levels. In our and my personal daily discussions with our customers throughout the auto supply chain, we hear the consistent message that they want significantly more products. And in some cases, Tier 1's are struggling to assemble fluid kits. And in other cases, the OEMs choose to build partially completed cars or hold their production lines all together. For NXP, lead times for about 75% of our automotive products continue to be above 52 weeks. Against this backdrop, our customers are placing NCNR orders to assure long-term supply. We in turn are making long-term supply commitments to our supply partners. In summary, we think the automotive supply demand equation, build continued to be out of balance through 2022. In addition, as a learning all of the current material shortage situation, and in order to mitigate the impacts of the Auto-AM's are experiencing today. Our Tier 1 partner explicitly demands that more supplies and inventories will be needed in the extended supply chain, which we believe cannot be broadly achieved before 2023. Now, with this currently dysfunctional supply chain as a backdrop, there are very clear and very positive trends that have simultaneously increased the demand for auto semiconductors industry-wide, as a consequence of content growth. We have seen multiple OEMs prioritized to production of premium vehicles, which require uploads of twice the semiconductor content from NXP and others. And another clear and emerging secular content driver for the auto semiconductor markets, is the fast exploration of fully electric and hybrid electric vehicles, which combines have moved from 8% of global production in 19% to about 20% of production in 2021. This is very impactful since the average semiconductor content on xEV is above $900, which is roughly 2 times that of an equivalent ICE vehicle. These trends have resulted in industry-wide content per vehicle increasing at 10% per year, over the last three years. And on top of all of this, NXP is consistently gaining share in our focused growth areas and increasing content. These content gains include 77 gigahertz radar safety systems, multiple electrification system opportunities, beyond just battery management, and new domain and zonal processing as well as others. Now for NXP, it's of course not just automotive driving our performance. Within the Industrial and IoT markets, we see our ability to provide complete turnkey connected etch processing solutions, consisting of processes, connectivity, security, and analog, all leading to increased customer traction. These are all just a few weeks samples that underpin our confidence in our Company-specific growth. As Jeff mentioned earlier, we plan to go into much greater detail at our Investor Day on November 11th, next week in New York. In summary, we continue to execute very well in a strong demand environment, notwithstanding the industry-wide supply challenges. From a Company-specific perspective, NXP is experiencing very positive customer traction of our newest products and solutions. Putting it all together, we are highly confident that the Company-specific drivers within our strategic end-markets, they will continue to build also beyond Q4 into Q1, as well as over the intermediate term through 2022. Now, before we move to the financial details of the quarter, I'd like to make a few remarks in the context of our recent announcement of Bill Betz as our new CFO. I have personally worked with Bill as a business partner and one of Peter Kelly's key finance leaders for over eight years. Bill brings both a strong track record and career in the semiconductor industry, as well as truly intimate knowledge of NXP and consistency to his new role. I personally drove the evaluation the interview process, in the viewing of wide number of external candidates, as well as Bill. And I concluded Bill is the right person to lead our NXP finance organization, and I'm personally truly excited to work with Bill and drive NXP's profitable growth going forward. At the same time, I would like to highlight the outstanding contribution Peter Kelly has played in the strategic evolution of NXP. Peter first came into the Company in an operations role, over a decade ago, and then quickly move into the CFO role to drive the financial discipline, our stakeholders have all come to expect. He has been a clear-thinking strategic advisor to myself, and a highly valued mentor to many on the NXP management team. Obviously, including both Bill and Jeff. We wish Peter the very best in the next phase of his life, and hope he gets to spend more quality time with his family. And with that, I would now like to pass the call to you Bill, for a review of our financial performance. Bill. Bill Betz: Thank you, Kurt and good morning to everyone on today's call. As Chair has already covered the drivers of the revenue during Q3 and provide our revenue outlook for Q4, I will move to the financial highlights. Overall, our Q3 financial performance was very good. Revenue was above the midpoint of our guidance range. And we drove an improvement of non-GAAP gross profit and non-GAAP operating profit, both of which were at the high end of our guidance range. Now, moving to the details of Q3, total revenue was $2.86 billion up 26% year-on-year and above the midpoint of our guidance range. We generated $1.6 billion in Non-GAAP gross profit and reported a non-GAAP gross margin of 56.5% of 640 basis points year-on-year and near the high-end of our guidance. Total non-GAAP operating expenses were $657 million up a $107 million year-on-year and up $31 million from Q2. This was 8 million below the midpoint of our guidance, due to lower material and mass spend during the quarter. From a total operating profit perspective, non-GAAP operating profit was 959 million and non-GAAP operating margin was 33.5% up 770 basis points year-on-year. This was also at the high-end of our guidance range, as a result of better fall-through on higher revenues. Non-GAAP interest expense was 94 million with cash taxes ongoing operations of 86 million and non-controlling interest was 7 million. Taken together, the -- below-the-line items were 8 million betters than our guidance. Stock-based compensation, which is not included in our Non-GAAP earnings was $81 million. Now, I would like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $9.59 billion flat on a sequential basis. Our ending cash position was 2.3 billion down 607 million sequentially due to higher Capex and robust capital returns during the quarter. The resulting net debt was 7.29 billion and we exited the quarter with a trailing 12-month adjusted EBITDA of 3.92 billion. A ratio of debt to trailing 12-month adjusted EBITDA at the end of Q3 was 1.9 times. And our 12-month adjusted EBITDA interest coverage ratio was 11 times. Our liquidity continues to be excellent and our balance sheet is very strong. During Q3, we re-purchased 1.16 billion of our shares and paid a 152 million in cash dividends for a total of 1.31 billion of capital return to our owners. Subsequent to the end of Q3 between October and November 1st, we repurchased an additional 300 million over shares of [Indiscernible] resulting in a total of 4 billion return to our owners year-to-date. Turning to working capital metrics, days of inventory with 85 days, a decline of three days sequentially. Our DIO continues to be below our long-term target of 95 days. We continue to closely manage our distribution channel with inventory in the channel at 1.6 months, flat sequentially and below our long-term targets. Both metrics reflect the continuation of strong customer deliver rates, in a tight supply environment. We continue to believe it will take multiple quarters before we're able to rebuild on-hand and channel inventories to our long-term target of those. Day’s receivables were 31 days down 4 days sequentially. And days payable were 83, a decline of 9 days versus the prior quarter. Taking together our cash conversion cycle of 33 days, an increase of two days versus strikes winner. Cash flow from operations was $924 million and net Capex was $200 million, resulting in non-GAAP free cash flow of $724 million. Turning to our expectations for Q4, as Kurt mentioned, we anticipate Q4 revenue to be $3 billion plus or minus $75 million. At the midpoint, this is up 20% year-on-year and up 5% sequentially. We expect Non-GAAP gross margin to be about 6 to 6.5% plus or minus 50 basis points. Operating expenses are expected to be about 680 million plus or minus about 10 million, consistent with our long-term model. Taken together, we see non-GAAP operating margin to be about 33.8% at the midpoint. We estimate non-GAAP financial expense to be about 94 million and anticipate cash tax related to ongoing operations to be about 100 million. Non-controlling interest will be about 9 million. For Q4, we suggest for modeling purposes, you use an average share count of 270 million shares, which is down 15 million shares from a year-ago period as a result of the consistent execution of our communicate capital return policy. Finally, I have a few closing comments I'd like to make. First, demand trends continue to be strong across our target end markets, and customer interest in our newest products continues to be very robust. At the same time, we are closely working with our customers and our suppliers to address order requests in a timely manner. Second, our Q4 guidance reflects the clear potential of our business model, both in terms of revenue growth as well as the significant profit fall through, which will enable us to consistently drive our non-GAAP gross margin above the midpoint of our gross margin targets. Thirdly, our business continues to generate significant free cash flow. And we are committed to our capital return policy and will return all access free cash flow to our owners, so long as our leverage ratio remains at or below 2x net debt to trailing 12-month adjusted EBITDA. I'd also like to take this opportunity to thank Peter Kelly for a significant contribution to NXP since he joined the Company in 2011. Not only did Peter guide NXP from a financial perspective, but he truly helped lead the Company and drive the strategy that made NXP what it is today. And on a personal note, I consider Peter a great leader, a mentor and a friend, and I will always be grateful for his support. And then finally, I'd like to thank all my colleagues across NXP for their outstanding work and dedication. We shouldn't forget that we're all still working under strict pandemic protocols. So, with that, I'd like to turn it back to the Operator for questions. Operator: Thank you. As a reminder to answer a question -- > [Operators Instructions] Our first question comes from the line of Ross Seymore. Your line is open. Ross Seymore: Thanks for letting me ask a question, and Bill, congratulations on the new role as CFO. My first question is for Kurt and it's one on customer behavior. You gave a great deep dive into the apparent disconnect between the auto-revs you have in production and all those explanations. And I really want to get into -- are the customers changing their behavior? And if so, is it just with longer visibility for you, greater certainty, or the profitability that all the auto semi production companies are going to be able to garner from this sector, starting to improve as well. Kurt Sievers: Good morning, Ross. Indeed, a couple of -- a couple of changes. First of all, very tactically and I just have to highlight that because it sits on top of my agenda every day in and out, there's continues to be no change in pressure to get more products. So, expedite, escalation calls, all sorts of weird actions to try to get products faster to their manufacturing locations has not slowed down by an inch. So, we see -- we see that continuing. From a more strategic and say learning perspective, I would say clearly the whole auto industry has realized now -- and that's where me, a step function and the resets at the same time has realized now how big the significance and importance of semiconductors is for their future. Today, but also years-old. I mean, that's about innovation, but obviously it's also bought for being able to build complete cars. And that has let too much closer and better relationships between us, and directly the OEMS in terms of understanding both their innovation needs, but also the from a more technical perspective, there -- their product supply needs in the near mid-term. All of that leads them to a number of significant, I would say quite significant changes. We are seeing longer-term orders. So, we get the so-called NCNR orders, which easily reach out for the entire next calendar year. These are coming from the Tier 1 customers so far. But of course, they do this since they get similar behavior from the OEMs. But we also get greater visibility into the longer term, which I find very important prospective which reaches then over to innovation. Because the intimacy which we can build with the OEMs now to think about future systems is a great help for us to construct the right roadmaps. Ross Seymore: Thank you for that color and I guess as my follow-up, just shifting gears quickly to a little bit of a nearer-term potentially question. And that's on the mobile business. It's good to see that it upside surprised in the third quarter versus your original guidance. But I guess if I put the two quarters together, I know supply is tight and maybe you're just doing some allocation. But the mobile business is a bit weaker, seasonally than we would have expected in the combination of the quarters. And I had thought that that was supposed to snap back a little bit in the third -- or in the fourth quarter, excuse me. So, can you just talk about what's driving the relative weakness on a year-over-year basis in that business? Ross Seymore: It's clearly a supply or the like there off was. So, as we -- when we went into quarter three, I think we talked about a sequential decline which we could -- which we could avoid. So, we could pull in some supply and that's the whole reason why we actually ended up in Mobile better than guidance. So, there is no difference in sockets or anything. It was just that we had the somewhat better supply capability and be continued to forecast a similar thing into the fourth quarter. But overall, if you take the full second half of this year, we are unfortunately significantly constrained in supply Kurt Sievers: into the mobile market. It is gradually getting better, which is why we have this performance I just quoted. But if you hold it just in total, it is pretty significantly suffering. From a year-on-year perspective for us, it's a more difficult compare. Last year Q3, we had the ban on Huawei coming into play which officially bumped up quarter three and quarter four one of our very large mobile customers needed a lot of products which also has to do with the phasing of the quarter of last year, which was later than normal. That's why the year-on-year comparisons, both for Q3 and Q4 need some bridging, given those two specific customer events. All in all, I just want to absolutely re-confirm, we haven't lost a single socket there, so everything is going as we had planned. We had supply constraints, but the bigger drivers being the adoption of mobile wallets, attach rates, and also the early penetration [Indiscernible] which are vital solutions? are fully on track with earlier targets and earlier planning. Ross Seymore: Thank you. Operator: Okay. Next, we have Vivek Arya. Your line is open. Vivek Arya: Thank you for taking my question and good luck to both, Peter and Bill. Kurt, on the automotive industry, if one had told you that auto production would be flat this year, but your auto sales would have been up 40%, would that have been predictable? And if not, what do you think surprised NXP other than some of the bad [Indiscernible] and the [Indiscernible] shutdown effect. Was it mixed that surprised you? Was it pricing? Was it content? What specifically was the surprise this year to create this big gap between production and sales. Kurt Sievers: Yeah, Hi, Vivek. I mean, very transparently and honestly, with some knowledge of today, of course, we could have predicted it with the knowledge at the time, no. So no, we didn't know. And now, what you call surprises is what actually happened, a few things. One, clearly, the mix change to premium vehicles, which is an optimization to higher profit on the OEM side, clearly is something we have not foreseen, I think nobody has anticipated that. And that has a significant impact on semiconductor consumption, given that premium vehicles can easily have twice the semi content of a mass volume car. And on the same note, again, the xEVs penetration, which I think is a result of the the big focus on the growth on CO2 targets, but also a lot of government subsidies in various countries to boost actually more electric vehicle. Those two elements, so the mix to premium and the much stronger penetration or faster penetration of xEVs, those have significant positive impact on the content increase for semiconductors. So even if the car production is flat, the content goes up massively. Again, think about that both of these elements, each one on its own right, are potentially bringing the semi content of a car to effectual of 2x. That's -- I mean, this is just outstripping any car production by far. The third element which I would say -- I use your language, surprised us. I would rather say, we gained more insight, is the enormous steps and complexity of the extended automotive supply chain. which means how many stages and companies sometimes are between us after we ship a product before that product ends up in a car. And, if that supply chain is enormously depleted, as it has been the case off to 2019 and 2020, it becomes incredibly dysfunctional. And we are still in the process of refilling that supply chain just to normalized levels. It's really important. This is not about building any strategic inventory, is just getting back to more normalized levels which allow for appropriate operational [Indiscernible] supply chain. And that's -- that we didn't see either. I would say, we had no idea how far it has been depleted, how deep it has been depleted, nor how deep it is. Which means how much elasticity is in there to be refilled in the first place, to make it -- to try to make it functional. Again, it is still dysfunctional at this stage. Vivek Arya: And for my follow-up, Kurt, just to continue that line of discussion, you mentioned over the last few years that the content Delta, right between units and sales have been, for the industry, has been about 10 points, so then XP doing better. If I look at the current IHS production forecast for next year, and I know that they keep on changing all the time, but right now it's about 10%-11% unit growth. Assuming that happens, what is the crystal ball saying in terms of that rough delta for the industry next year. Do you think it'll be that add that 10 points or it'll be closer, right, to the much bigger number we saw this year? Thank you. Kurt Sievers: Yeah, Vivek. So first of all, you just mentioned another very important elements which is obviously our performance in all of this. I mean, what I described to your earlier question was is how we think the industry surprised us all. The third element, clearly as CNXC's specific companies specific content gains where we grew share, which makes it even faster. Now how that all goes into all these means for the next year and the next years from both the content growth perspective as well as a NXP's specific revenue growth perspective. I'd just ask you to wait for a week -- next, next week when we have our Investor Day in New York, we will give you the detail you're looking for. We will guide the next few years, both, how we think the semi -market and auto is going to develop, as well as our performance relative to that. So, please hold your horses until next week. Vivek Arya: Thank you, Kurt. Operator: We have a question from John Pitzer. Your line is open. John Pitzer: Good morning, guys. Thanks for letting me ask the questions and congratulations on the solid results. Kurt, I think we all appreciate all the details you gave in your opening comments about the complexity around the auto supply chain. I'm curious. You can spend a couple of minutes just talking about your ability to grow supply from here, both internally, externally, both on the waver side, and on the back end and tests. I'm assuming that the nice sequential jump in autos means that some of the weather events in the first half of the year have reversed themselves. But specifically, as you look over the next several quarters, would you expect your ability to grow supply to be relatively linear or is it going to be chunky? And is there a point in time where your ability to grow supply accelerates in 2022? Kurt Sievers: Thanks, John. Let me give you a few pieces on this. The one is indeed the negative impact from the -- which we had some, I think early Q2 in Texas isn't deep behind us. I mean, just put this to file, both factories which were impacted are running very much at least on levels and we are good. Another element I have to mention here because it has impact on the industry. You've seen that over summer, there have been quite a few factory shutdowns for back-end test and assembly sites in Malaysia. I want to highlight that we have been in a very disciplined position to organize and manage our own factories in such a way that our shutdowns were very immaterial. So, we had a few days but by and large, we have very little negative impact from those shutdowns on our revenue. So, when you think about what we shipped in Q3, assume there was hardly any negative impact from COVID factory shutdowns from Southeast Asia and/or specifically Malaysia. Now going forward, we will clearly see improvements on the [Indiscernible] side. We talked about earlier that we are entering into long-term supply commitments with our supply partners. And that's largely on the wafer side, which is going to start benefiting us next year, but also the years after. And again, this is in balance against the NCNR orders which we are -- which we are collecting from our customers. The back-end test and assembly, which largely is in-house for NXP. We are forced to put all the Capex and all the investments in place to make sure that any wafer we get our hands around will also find enough capacity in-house to be tested and assembled into finished products. So, think about the test and assembly increase in capacity as pretty gradual because it is something which we are putting in tune with the wafers coming in. On the wafer side, it is in a way more discreet, but it's not [Indiscernible] shown because we have obviously several wafer suppliers and they don't improve all at the same time. From that perspective, what comes out into the revenue, think about something which is gradual, which doesn't have huge shoots step functions at any specific point in time. However, the result of all of business that clearly our supply capabilities as it has done through this year, they continue to grow also through next year. Now, finally, I should say this is clearly an over comment which is in any way or form specific to automotive business of broad comments. Because the supply shortages which we are facing is across all markets. We discussed earlier briefly mobile. Anyway, anybody knows about automotive, but we have the same negative impact on our industrial IoT business and partially in the content for our business. All of these improvements build health and build support revenue growth across all of our end market segments. John Pitzer: That's really helpful color Kurt. And then maybe for my follow-on, one for Bill. First, congratulations. Looking forward to working with you in your new role. I'm just curious on the gross margin line. Another really solid gross margin quarter. Given some of the logistic inflationary costs out there, often times it's hard to, within a quarter, to get all of that rate relative to pricing. Was there anything holding back gross margins from a cost side in the quarter? And I guess more importantly, as you look out across these LTAs, can you help us understand either how they're being constructed relative to your gross margin goals. I would assume it's much easier to price -- to value in this sort of environment. Does that mean we could see some ticks up -- tick up here in gross margins over the next several quarters? Bill Betz: Yes, thank you for your question. Let me give a bigger picture on the margin and more color about it. So as mentioned on our previous calls, our gross margin had improved drastically versus last year driven by the higher volumes and improved internal utilizations from our factories. For example, if I try to remember, I think Q3 utilizations last year, were in the mid-60s and today we are in the high 90s. And from a guidance standpoint, as you saw, we were slightly better from a quarter-over-quarter basis by 2030 bps, related to the improved product mix. Now, as we move forward over the next several quarters, it's going to be really difficult to have that additional fall through on our internal factories. As basically they're running full-out. To address your question on pricing. We are only passing on the increases of our input costs from our suppliers to our customers. And we're not having any of our margins in this process as we value our long-term relationships with our customers, I'd say. And we're really equally sharing the pain together. As you could see in Q4, we are guiding our gross margins to be flat quarter-over-quarter, And any additional margin expansion, I'd say would come in the short-term will be driven by that continued product mix. And more longer-term will be really driven by the expansion of our new NPIs. I'd say overall, we're very proud of achieving these levels and we look forward to continue delivering towards that higher end financial state of model 57% as we go forward. John Pitzer: Thanks guys. Operator: Our next question is from Stacy Rasgon (ph), your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. I wanted to follow up on the other pricing question. I know you're not trying to extract more, but to play devil's advocate a little bit, given the shortages out there, why not? You're in a period of time right now where the supply chain is probably tighter than it ever has been and ever will be. And there is demand for your products that's off the chart. You're locking customers in. At this point, why is this not the time even on a selective basis to try to extract more? Especially given it seems like some of your peers actually are going down that [Indiscernible] Why not you guys? Kurt Sievers: Yeah. Hi Stacy. There is a very clear answer to this, which is we are not in the commodity business. The very vast majority of our portfolio is application-specific. And with that portfolio, we are in very deep, longer-term relationships with our customers. So, what we do is, as Bill said, we pass on the input cost, which is already, in some cases a pretty significant element to digest for our customers. But we want to be transparent and we want to have long-term relationships which are built on trust with our customers. And in that context, we absolutely consider it the right thing to pass on the input costs, but not use it to pat on our margins. I would personally say from being in different markets in the past, in the commodity market that works different. But that's not the kind of market environment we are -- we are moving in. And I'm very very sure that this will pay off positively in the long term relative to the customer relations which we need to continue to build our business. In that context, it is also important to note that the whole -- the whole environment clearly has a lot of input costs which is going out for our customers. I mean, it's not just on semis. A lot of other things are also moving. So, it's a tough environment for all the participants where I think consistency, transparency, and trust in -- into the long-term relationships is a big value. And that's something where we do differentiate. Stacy Rasgon: Thank you. I guess for my follow-up, even to follow up on that a little bit, the historical pricing practices, at least at a high level, especially in automotive, was to have long-term price downs that were built-in to the contracts, and you'd be fighting that every year. I guess, understanding that we're maybe coming off a higher base now, at least on raising price because of the input cost increases, do you foresee like a similar type of long-term pricing behavior that'll be built into the long-term contracts? Are you still going to be fighting couple of 100 basis points of margin compression every year just off the higher base like as part of these long-term contracts? Or is the general pricing structure like long-term of these contracts different than it was in the past? Kurt Sievers: Yeah, Stacy that's indeed the other side of this discussion. I mean, I can't discuss any customer or very segment-specific trends here. But the overall situation indeed is a reset. And that is important and positive. And with reset, what I mean is that the step function, which we have to take is something it is here to last. And that comes with -- I think I made the comment earlier with the realization of all the industries we are serving, that's not just for automotive, of how important semiconductors are. It just represents a different value to them. And from that perspective, I think we make a step here, which is a reset, which is here to stay. How that goes then in individual cases, on individual prices year-on-year, it’s hard to anticipate, but I don't think it will go backwards. Stacy Rasgon: Got it. Thank you. Operator: Your next question is from William Stein. Your line is open. William Stein: Great. Thanks for taking my questions. First, I think you just spoke about this a moment ago, but can you talk about the magnitude and duration of your purchase commitments to foundry and your customer purchase commitments to NXP? Kurt Sievers: Well, Bill would fill in maybe with a bit more detail, but I'd say in general, it really varies. We have some of them on the NCNR site which is the customer orders, they would typically easily cover next year. So now, getting an order which stretches all the way until the end of next year. If you think then on the other side, which is the agreements with our foundry and supply partners, I think we actually published a new number, which if I remember right, is between $4.3 billion and $4.4 billion off agreed and signed supply commitments, which we have entered into with our supplier base. The vast majority of it is obviously in wafers. But mind you, this is not just for 1 year, this stretches out over multiple years to come, 4.4 billion to give you a feel. William Stein: That helps. Thank you. And Bill, I want to offer some congratulations on your new role. Of course, you have some pretty big shoes to fill given Peter's very strong performance and the Company's strong performance in the last 10 years or so. I'm hoping you might give us a preview of what you might say next week, at least in terms of your priorities as the new CFO. Thank you. Bill Betz: Yes, thank you for your question. First off, I'm very honored and thankful for the role. I've been in the semi-industry for about 20 years prior NXP. I've worked for Fairchild, LSI systems. And really no change as you have to remember, I've been with NXP for about 8 years supporting the Company's financial strategy alongside with Peter, Kurt and Jeff and the entire management team. I'd say my style's a bit different than Peter, but principles are the same. Focus on delivering like you mentioned, there's commitments and driving long-term value to our customers and employees and shareholders. Relay to Analyst Day, yes, I'll share that next week, relay to our long-term financial model. But we really like to save that for next week and not address that in this call. Operator: We have a question from Chris Caso, your line is open. Chris Caso: Thank you. Good morning. First question, I wonder if I could just ask about those long-term agreements that you're signing with your customers now. Can you tell us what what sort of commitments have your customers made to you under those agreements? And it sounds like you're using those agreements from your customers to backstop the agreements that you are making with your suppliers. Is that for specific volume commitments over a certain amount of time? and is pricing committed to -- in those agreements as well, such that you have visibility on both volume and pricing? Kurt Sievers: Since I really can't go into great detail on this, as you will understand, Chris. But the headline is indeed in line before you were saying those customer agreements would typically cover volume and price for say -- for example, a period of until end of next calendar year. And they even fixed it by quarter. So, it's not just one number for the whole year. But in many cases, it even goes to binding it two quarters. Chris Caso: And very helpful. And if I can follow up pricing as well, and clearly, over the past couple of quarters, you've been passing along as you've said, those -- those price increases you've gotten from suppliers. Can you give us a sense of the magnitude of the pricing benefit you've seen out of the -- this sort of 26% year-on-year increases you've seen in revenue? How substantial has price been in that calculation? And then as you go forward, are you expecting, as you go into next year, there's still going to be a pricing tailwind as the input costs rise? Kurt Sievers: Well, generally, as we discussed before, we will continue to match the rising input costs with adjusting the prices accordingly. Such that yes, since input costs will continue to go up also next year, they will also continue to be uprising adjustments into next year in general terms. For the rest of your question, I really cannot and don't want to go into greater detail in how much is what piece. It's really just important that the leading concept and philosophy of all of this is that the price increase is just matching the input costs increase, and that's it. But that is something which indeed we have this year and which is going to follow up next year too. Chris Caso: Thank you. Operator: Next question is from Blayne Curtis. Your line is open. Blayne Curtis: Hey, thanks for taking my question. I'll offer my congratulations to Peter and Bill as well. Just -- going back on the audio side, I just wanted to be clear. You've heard from some other companies that they are seeing the customers started to be more selective, trying to get kids together. Thanks for all the detail, Kurt on -- that supply chain seems very complex. I'm just curious, are you seeing that same behavior, maybe seeing offsetting strength elsewhere, or are you a bit different given the Company's specific [Indiscernible] and some of the secular growth that you're not seeing that selective behavior on certain parts? Thanks. Kurt Sievers: Blayne, I think what you tried to ask me is am I seeing a slowdown, and the clear answer is no. We absolutely don't see a slowdown and you can imagine that especially, the car companies with the pretty significantly negative impact to their car production numbers of this year, and the ambition to grow them next year by, I don't know 10% plus over this year? They clearly need more semiconductors. And that is not limited to one product or one technology. I think I also made the very open comment earlier that 75% of the product portfolio in our automotive business still has a lead time of above 52 weeks. I think that says it all. Blayne Curtis: Thanks. Maybe you can just [Indiscernible] to ask on the Industrial IoT. Maybe just kind of discussion about what the areas of strength are for you. And maybe you just described the supply chain as well for the back half of the year - to - year. Are you -- is it just as tight that'd be helpful? Thanks. Kurt Sievers: Yeah Blayne. It is very tight too. I would say, no different to automotive. Also, by the way, the impact of not shipping enough product is at least as significant as in automotive. It just catches less headlines in newspapers. But if you think about the impact on industrial automation, which are huge -- which is huge machinery, which cannot be built if -- if there was more semi -- semiconductor supply or in the smart home. It's equally drastic as -- as it is in automotive, just catching less headlines. Now, our big differentiator, more and more is our capability to offer complete solutions. Complete solutions around the processor. We've had that leadership in the -- in a very wide range and portfolio of processing solutions into industrial, but it's not very nicely complemented by connectivity, security, and analog attach, which really differentiates us from our competitors. I would dare to say it's a very unrivaled position and offering here, which by the way, is also going to be very much in the spotlight of our Investor Day next week to give you much more detail, what we have and why we think that makes us grow so much in the time to come. Now from a supply chain or channel perspective, a lot of that business indeed is going through distribution, which because it goes to thousands, literally thousands of small customers. And this is exactly why that solution capability of NXP makes such a big difference. Because many of these companies which we are serving there through distribution don't have the capability themselves to deal with the complexity of these connected etch applications. When and if --we can offer them a complete solution than -- that has a huge advantage for both time-to-market levels or from an R&D perspective for them. That's actually what I think is really a very very significant differentiator for us. Now, another element in the equation is we do have a relatively strong exposure to China. If you think about the industrial business, a lot is going through distribution and a lot is going into China. And just to anticipate the question, we do not see a slowdown there in China. But again, mind you, it's also that we are -- we continues to be supply kept. As I said earlier, also in industrial, we could certainly run higher revenues if only we have more supply. Good news is also there our supply capability, as we discussed with [Indiscernible] earlier, is improving every month so that over time also there be hopefully get into a better place. Blayne Curtis: Okay. Operator: I'll ask questions to C.J. Kurt Sievers: We'll take one last call. Operator: Okay. And our last question is from C.J. Muse. Your line is open. C.J. Muse: Yeah. Good morning. Thanks for squeezing me in. I guess first question for you, Kurt, in your prepared remarks, you talked about auto supply demand balanced, probably not achieved until 2023. And so curious, as you contemplate that, what kind of assumptions are you making in terms of what kind of future inventory management will look like, both at the Tier 1 and OEMs. I imagine there's more of adjusting case as opposed to just in time. So, we would love to hear your thoughts on kind of that evolution that is likely coming ahead for the auto industry. Kurt Sievers: Yes, C.J. Absolutely. I did indeed say that's I don't think there is broadly speaking enough supply next year. Two already stopped building those additional inventories. Because that's exactly what you're asking for, yes, we clearly see a demand by the OEMs to the Tier 1's and other participants in the extended supply-chain, explicitly not to semi companies, but in between, between us and the OEMs, the demand and the requirements to build more inventory. Typical, if you want to size this, a typical ask is somewhere between 3 and 6 months, sometimes longer. And it has a very simple reasoning that's the manufacturing cycle time for semiconductor product. In a very simple way, they say, " Okay, if this is the additional inventory, then that puts us maybe on the safe side for more flexibility. " And, yes, this is something which I don't see the industry has the capability to build [Indiscernible] next year, but let's stem for '23. C.J. Muse: Very helpful. And then I guess, my follow-up question, obviously we've seen positive mix shift on the EV side, which you spoke to earlier. I'm curious, as we're seeing more and more OEMs target full platforms, moving over to EV or hybrid as well. Curious how that has played with your full solution which I would think would fit nicely. I would love to hear your thoughts there. Kurt Sievers: We love it C.J. We talked a lot about our capability from -- actually also from a solution perspective in battery management solutions, which is greatly benefiting from this foster and accelerated penetration. We will open the [Indiscernible] next week a little bit more in the Investor Day and give you insight in what else we do in electrification, because we are not only with BMS exposed to this accelerated trends. It's a very good thing for NXP, and it goes beyond battery management. By battery management itself, obviously, is benefiting very, very greatly. I guess, with this we come to the end of the call. Which may be gets me in a position just to summarize very briefly. I mean, it's a turbulent time out there, but I'm really proud that we could deliver what I think is a very good quarter three, have a strong guidance into quarter four, but even more so, we continue to have excellent momentum also into next year, which means continued strong demand across our end markets. No inventory build out there. And we see that our supply capability is getting better and better and better up to stop matching that demand in the future. So with that, I thank you very much for your attendance today and I hope to hear and see quite a few of you also next week when we have our much more extended Investor Day in New York. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.

Operator: Good day and thank you for standing by. Welcome to NXP's 2Q '21 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead, sir. Jeff Palmer: Thank you, Crystal, and good morning, everyone. Welcome to the NXP Semiconductor's second quarter 2021 earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Peter Kelly, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that can cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the third quarter of 2021. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our Q2 earnings press release, which will be furnished to the SEC on Form 8-K and available on NXP's website in the Investor Relations section at nxp.com. Before we start the call today, I'd like to highlight our upcoming 2021 Analyst Day. At this time, we are planning on hosting an in-person event in New York City on Thursday, November 11, 2021. We will open up an online registration site over the next week, and we would suggest interested parties to pre-register as space will be limited this cycle. I would like to now turn the call over to Kurt. Kurt Sievers: Yes. Thank you very much, Jeff, and good morning, everyone. We really appreciate you joining our call today. I will review our quarter two results and I will discuss our guidance for quarter three. Furthermore, I will provide an updated perspective on how we view the current demand environment. Now let me start with quarter two. Overall, our results were better than the midpoint of our guidance with the contribution from the communication infrastructure end markets stronger than planned and above the high end of our guidance. At the same time, the trends in the auto, industrial and mobile markets were all slightly above the midpoint of our guidance. Taken together, NXP delivered quarter two revenue of $2.6 billion, an increase of 43% year-on-year and $26 million above the midpoint of our guidance range. These are very good results given the constrained supply position we knew we would face entering the quarter. Our non-GAAP operating margin in quarter two was a strong 32%, 1,130 basis points better than the year ago period and 70 basis points above the midpoint of our guidance. Our strong operating profit performance was driven by a richer product mix. Now let me turn to the specific trends in our focused end markets. In automotive, quarter two revenue was $1.26 billion, up 87% versus the year ago period and slightly above the midpoint of our guidance. In industrial and IoT, quarter two revenue was $571 million, up 31% versus the year ago period and slightly above the midpoint of our guidance. In mobile, quarter two revenue was $347 million, up 36% versus the year ago period and slightly above the midpoint of our guidance. And lastly, in communication infrastructure and other, quarter two revenue was $416 million, down 8% year-on-year, however, about $21 million better than our guidance. With this, let me move to our outlook. We are guiding the midpoint of quarter three revenue to $2.85 billion, up 26% versus the third quarter of 2020, within the range of up 22% to up 29% year-on-year. From a sequential perspective, this is up 10% at the midpoint versus the prior quarter. At the midpoint of this range, we anticipate the following trends in our business. Automotive is expected to be up in the low-50% range versus quarter three 2020 and up in the mid-teens range versus quarter two '21. Industrial and IoT is expected to be up in the high-teens percent range year-on-year and up in the mid-single-digit range versus quarter two '21. Mobile is expected to be down in the low-single-digit range year-on-year and down in the mid-single-digit range versus quarter two '21. And finally, communication infrastructure and other is expected to be up in the low-single-digit range versus the same period a year ago and up about 10% on a sequential basis. At this point, let me give you an update on NXP's current demand position. As I shared with you on our last earnings call, we had anticipated product supply to be a challenge in quarter two, and this is indeed what we experienced. With the continuation of robust demand, we expect supply to be a challenge for the foreseeable future. We do continue to work very closely with our customers on a day-to-day basis to accommodate their most pressing short-term requirements. During quarter two, based on the orders and all of the various actions we took over the last six to nine months, we began to see wafer supply from our foundry partners and internal fabs improve. We do anticipate continued increase of wafer supply during quarter three and beyond, which will support our revenue growth in subsequent quarters. However, with customer demand outstripping current supply, a situation that we see across all our end markets, we are working diligently to secure additional supply to achieve a healthy balance of demand versus supply. A significant number of our customers are also taking action by placing non-cancellable and non-returnable orders for the medium term. Furthermore, based on customer discussions and also based on our own analysis, we do not believe there is excess inventory of NXP components along the extended supply chain. Additionally, we continue to make significant investments as a direct result of the very detailed conversations and associated commitments concerning long-term demand across our customer base, especially within the automotive and industrial end markets. These investments include long-term contractual commitments to our front end foundry partners in order to assure supply as well as making investments to expand our internal front end capacity and our internal back end test and assembly capabilities so as to avoid potential bottlenecks as wafer supply materializes. Notwithstanding this challenging supply environment, our results and guidance clearly validate the excellent underlying long-term growth, profitability and cash-generating capability of our business. We continue to see our company-specific key revenue growth drivers in our strategic end markets unfold as we have long anticipated. These drivers include our 77 gigahertz radar systems, our e-corporate solutions, the domain and zonal processes and the electrification products, including our battery management systems, all in the automotive market. And within the broad-based industrial and IoT market, our significant and focused investments to enable complete secure connected edge processing solutions are being very well validated by strong customer design win awards. And these are just a few of the opportunities we have shared with you at our Product Teach-In, all of them will continue to contribute to our future growth. While we will not provide specific guidance beyond the current quarter, we do anticipate quarter four revenue will be greater than quarter three on an absolute basis. And we are highly confident that 2021 marks just the beginning of a longer term upside for NXP within our strategic end markets. In summary, we are very encouraged by the continued and consistent rapid rebound in demand across our end markets. Our employees are highly engaged to drive our success. We have a robust pipeline of new and innovative products. And the customer response engagement and design win momentum all underpin our optimism about the future potential of NXP. Before concluding my prepared remarks, I would like to speak to the impact the COVID-19 pandemic continues to have on NXP. The pandemic remains active with spikes that continue to plague multiple regions where we have operations, namely India in the second quarter and Southeast Asia most recently. We continued to remain very vigilant enforcing our safety protocols across all of our global sites. We have initiated successful vaccination drives in several countries for our team members and their families. However, the highly contagious Delta variant has required that we reverse to a complete work from home situation in several of our locations. I am extremely proud of all our employees for their dedication and for their resilience during this very challenging period. I would like to especially commend our manufacturing operations and customer-facing teams for their relentless focus and energy while assuring our customer success. It is their dedication and their hard work in the face of the pandemic and the very challenging supply environment at the same time, which truly make a difference. Now I would like to pass the call over to you, Peter, for a review of our financial performance. Peter? Peter Kelly: Thanks, Kurt. Good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during the second quarter and provided our revenue outlook for the third quarter, I'll move to the financial highlights. Overall, our second quarter financial performance was very good, revenues were above the midpoint of our guidance range and we drove an improvement of non-GAAP gross profit and non-GAAP operating profit, both of which were above the high end of our guidance range. Additionally, we have implemented long-term supply agreements with our foundry partners, which we believe will enable NXP to deliver robust growth in the coming periods. Now moving to the details of the second quarter. Total revenue was $2.6 billion, up 43% year-on-year and above the midpoint of our guidance range. We generated $1.46 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 56.1%, up 700 basis points year-on-year and above the high end of our guidance. Total non-GAAP operating expenses were $626 million, up $110 million year-on-year and up $26 million from the second quarter. This was $3 million above the midpoint of our guidance due to increased variable comp driven by an improved first half performance. From a total operating profit perspective, non-GAAP operating profit was $830 million and non-GAAP operating margin was 32%, up 1,130 basis points year-on-year and was above the high end of our guidance. Non-GAAP interest expense was $91 million, $4 million above guidance as we issued $2 billion of new debt early in the quarter. Cash taxes for ongoing operations were $50 million and non-controlling interest was $9 million. Taken together, the below the line items were $1 million better than our guidance. Stock-based compensation, which is not included in our non-GAAP earnings, was $93 million. Now I'd like to turn to the changes in our cash and debt. Our total debt at the end of the second quarter was $9.59 billion, an increase of $1.98 billion due to the previously mentioned debt issuance. Our ending cash position was $2.91 billion, up $1.07 billion sequentially due to new debt and cash generation, offset by capital returns during the quarter. The resulting net debt was $6.68 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $3.55 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q2 was 1.9 times, and our 12-month adjusted EBITDA interest coverage was 10 times. Our liquidity is excellent and our balance sheet continues to be very strong. During the second quarter, we repurchased $1.2 billion of our shares and paid $155 million in cash dividends for a total of $1.36 billion of capital return to our owners. Subsequent to the end of the second quarter between July 5 and August 2, we repurchased an additional $1 billion of our shares via our 10b5-1 program, resulting in a total of $3.37 billion returned to our owners year-to-date. Turning to working capital metrics. Days of inventory was 88 days, an increase of 7 days sequentially. Our DIO continues to be below our long-term target of 95 days, and a sequential increase in the quarter was due to an increase in work in process driven by wafer supplies -- wafer supply deliveries to support our Q3 revenue ramp, while finished goods continued to drain to very low levels. We continue to closely manage our distribution channel with inventory in the channel at 1.6 months, flat sequentially and below our long-term targets. Both metrics reflect the continuation of strong customer order rates and a tight supply environment. It will take several quarters before we're able to rebuild on-hand inventory -- on-hand and channel inventories to our long-term target levels. Days receivables were 35 days, up 5 days sequentially and days payable were 92, an increase of 13 days versus the prior quarter as we continue to increase material orders to our suppliers. Taken together, our cash conversion cycle was 31 days, an improvement of 1 day versus the prior quarter, reflecting strong customer demand, solid receivables collections and positioning for customer deliveries in future periods. Cash flow from operations was $636 million and net CapEx was $150 million, resulting in non-GAAP free cash flow of $486 million. Turning to our expectations for the third quarter. As Kurt mentioned, we anticipate Q3 revenue to be $2.85 billion plus or minus $75 million. At the midpoint, this is up 26% year-on-year and 10% sequentially. We expect non-GAAP gross margin to be about 56.3% plus or minus 30 basis points. Operating expenses are expected to be about $665 million plus or minus about $10 million, consistent with our long-term model. Taken together, we see non-GAAP operating margin to be about 33% at the midpoint. We estimate non-GAAP financial expense to be about $96 million and anticipate cash tax related to ongoing operations to be about $90 million. Please note, during the second quarter, we indicated that we anticipated full year cash taxes for 2021 to be approximately 9% and then it would be back end loaded into the second half of the year. Non-controlling interest will be about $9 million. And for Q3, we suggest that for modeling purposes, you use an average share count of 271 million shares, which is down about 13% -- sorry, down about 13 million shares from the year ago period as a result of the consistent execution of our communicated capital return policy. Finally, I have a few closing comments I'd like to make. One, demand trends continue to be strong across our target end markets and customer interest in our newest products continues to be robust. We are diligently working with our customers and our suppliers to address order request in a timely manner. Secondly, our third quarter guidance reflects the clear potential of our business model, both in terms of revenue growth as well as the significant profit flow through, which will enable us to drive our non-GAAP gross margin above the midpoint of our gross margin targets. Thirdly, our business continues to generate significant free cash flow. We continue to invest in our internal manufacturing capabilities, increasing CapEx to expand our back end capacity, but also to increase the output capacity of our existing front end wafer factories. We are steadfastly committed to our capital return policy and will return all excess cash free -- all excess free cash flow to our owners so long as our leverage ratio remains at or below 2 times net debt to trailing 12-month adjusted EBITDA. As Kurt mentioned, we believe the demand environment is strong. And notwithstanding the supply constraints, we continue to anticipate robust growth for the remainder of 2021 as well as into 2022. Finally, I'd like to thank all my colleagues for their outstanding work and dedication. We shouldn't forget that we are all still working on the stringent pandemic protocols. I'd like to now turn it back to the operator for your questions. Operator: [Operator Instructions] Your first question comes from the line of CJ Muse from Evercore. Your line is open. CJ Muse: Yes. Good morning. Thank you for taking the question. I guess, first question for you, Kurt. I was hoping you could speak more about the current state of the auto industry. I think there is a fear among some investors that the current auto run rate is closer to peak than trough and would love to hear your thoughts, what gives you confidence that strength is sustainable into '22 and beyond? Kurt Sievers: Yes, hi. Good morning, CJ. We are clearly convinced that we are far away from a peak, especially in the auto end market. The way to look at this is clearly that while the SAR this year probably is going to grow around 10%, that's the latest data point we have from IHS, there is broad consensus that it's going to grow another around 10% next year, and only then it will actually surpass the absolute volumes levels from the pre-pandemic year of 2019. But more importantly, CJ, as we've discussed many times in the past, our content gains, company-specific content gains, and I mentioned a few in my prepared remarks, like radar, eCockpit, zonal processes and the battery management in electrification, really, really drives specific strength and growth for NXP. And from a market perspective, I'd say that the content gains in general maybe are accelerating a little, especially thanks to the accelerated pace to xEVs. So we do see that the number of xEVs as a portion of the total car production is growing faster than anybody had anticipated. So the latest data we see, again, I'm quoting I think IHS here, it was like 12% of the total car production last year dedicated for xEVs. It's going to be more like a quarter next year and then growing fast from there further onwards. Since xEVs have a significantly higher silicon content compared to traditional combustion engine vehicles, this is another strong driver for the auto market. So far away from a peak. And finally, very tactically, because I know everybody wants to speak and wants to hear about that. I mean, trust me, I'm in daily contact with the CEOs of the both the Tier 1 customers of us, which are serving the car companies and the car companies themselves, on a daily level trying to make sure that we can fulfill their most pressing needs, really handholding shipments day in day out. So there is not a single piece of inventory anywhere in the extended supply chain. They want to build more cars. So I have any confidence that this keeps growing. CJ Muse: That's very helpful. Thank you. I guess, as a follow-up, Peter, gross margins are stellar. I think reading your 10-Q, you talked about the benefit of increased loadings, but that mix was not helpful and that you had higher personnel costs. How are you thinking about I guess COVID-related costs unwinding? What kind of impact that would have on a positive side? And from current levels, how should we be thinking about uplift from here as presumably loadings continue to move higher? Peter Kelly: I think the -- so first of all on the COVID test in terms -- in the context of our gross margin. To be honest, I think the costs are relatively low. We've been running our factories really much the same way we have in the past. I mean, obviously, you've got the cost of just disinfecting the factory more often. We've been paying for lots of kind of medical support, but I'm not sure it's big enough to really influence the margin. I think in terms of the additional utilization, you're seeing the benefits of that as we go from Q2 to Q3. So our guidance, 56.3% in Q3 really shows our gross margin with our factories running full out. So as we kind of expand our revenue and go into 2022, you won't see increased utilization because we actually have to add capacity. We're running pretty much full out in Q3. So I still think 56% is I think is a great number for us, and we've gotten there quicker than we thought we would do. And I think the answer to your question is still, 57% is still a couple of years away and is more around new product introduction. Mix helped us from Q2 into -- sort of Q1 into Q2, and that's why we did a little bit better in Q2. But the big impact from Q2 to Q3 is really the additional utilization and being able to run our factories, particularly the back end full out. CJ Muse: Very helpful. Thank you. Operator: Your next question comes from the line of Vivek Arya from Bank of the America. Please go ahead. Vivek Arya: Thank you for taking my questions. On the first one, Kurt, specific to autos, when do you think supply increases enough to meet demand? And importantly, what should investors look to be reassured that the industry supply response will be disciplined? So for example, if we see headlines around any specific foundry increasing microcontroller production significantly, how should we react to that? So I appreciate that you mentioned that you are in daily touch with customers and there isn't any inventory today, but as you also mentioned, the industry is increasing supply. So how should we be assured that the supply response is not going to overwhelm demand at some point? Kurt Sievers: Yes. Hi, Vivek. Good morning. Of course, we are watching this as always in through every cycle very, very carefully. But again, I want to reassure you, I think we really are quite far away from this, because at this point, and I mean you can read the headlines every day, the industry is still short from a supply perspective. And then you are referring to some foundry statements about 60% increase of microcontroller shipments, there isn't that much. I mean, our -- I think our auto supply or revenue in the first and second quarter taken together is also around 50% up over the last year, and that's also what the industry takes given the record lows of last year. So last year is not a good comparison. I think it's more meaningful to benchmark back to 2019 or even 2018 when the industry was more at peak levels from a car production perspective. So how do we check this? I mean, I would really say most of our product is very application-specific. So we are in extremely close contact. And that is new not only with the Tier 1 suppliers, but also directly with the OEMs where the product is going. So we have a very, very good visibility in the meantime on the true demand much more than ever before in history. And if you think about the portion which goes through distribution, we as always, continue to be super disciplined on the months of inventory with our distributors. And as we've published, we again stayed as a -- on a really low number with 1.6 months. I mean, that's not the same number we had the quarter before, but you know that our target model is more around 2.4, 2.5. So we watch it very carefully. Given the supply situation, I think the transparency has significantly increased, especially in what we are serving, which is very application-specific product. I could imagine that the whole question you are asking is certainly for more commodity like products, more difficult. In our case where it is so crystal clear which product goes where into what application at which car company, we have much less of a concern on this. And given that visibility, I'm very confident that we are still quite a bit away from the situation you're describing. Vivek Arya: Got it. Very helpful. And then for my follow-up, I'm curious why you're mobile sales, if I heard correctly, would be down sequentially and then also year-on-year, because isn't Q3 supposed to be a seasonally stronger quarter for shipments into that market? And are we to assume that mobile sales will stay subdued even into Q4? So just why are mobile sales not behaving kind of in line with the usual seasonal pattern we see in that industry? Thank you. Kurt Sievers: Yes. Vivek, I'd say, in general, there isn't much of a seasonal pattern this year anyway given the situation. But here specifically, yes, you're right, we are guiding sequentially and also annually a little bit down. It really has to do with the supply constraints. So we have a supply constraint for some products in the mobile market, which we know we will address later on, so this is just of a temporary nature. But for quarter three, it just hits us that we can ship to the amount which we want to ship. The good news is, it doesn't cost us any market share, so we don't lose any socket with this. We fully keep our momentum going, and it's of a temporary nature. If you do the annual comparison, I also might want to remind you that last year Q3 was a bit of a special quarter in mobile because it was the last quarter before the Huawei ban, which actually benefited quarter three in our mobile business since people had a bit more in Q3 than since it stopped totally in quarter four. So that's the simple background not more. Vivek Arya: Got it. Thanks very much. Operator: Thank you. Your next question comes from the line from the line of Stacy Ragson from Bernstein Research. Your line is open. Stacy Ragson: Hi, guys. Thanks for taking my questions. For my first question, I wanted to double-click once again on the content increase in auto. I mean, you've called out EVs specifically. I guess, a couple of things. Can you tell us how much of your auto business is being driven by EV today? I guess, of those content-specific drivers, which one do you think is the biggest driver in the near-term? And how much of the lift in the next quarter do you think is being driven just by end market unit growth versus like content increase because you're selling into higher content vehicles? Kurt Sievers: Yes. Stacy, in general, our key driver for revenue growth in xEVs is clearly the battery management solutions which have a fantastic exposure. I think in our Investor Teach-In, we told you that we would have 60% CAGR over the next couple of years. And I can absolutely reconfirm here that we are, at least, if not more than on track with that trend in battery management solutions. Now if you take it a little bit wider, it is actually more because a lot of our microcontrollers and other products are also very strongly exposed to the increased content of xEVs. We will actually go in a bit more detail on that particular question, Stacy, in our Investor Day, which Jeff has just highlighted, November 11 to parse it a little bit more in a more detailed way on how this shows up. But overall, just take it for granted that the double silicon content of a xEV versus the conventional drivetrain gives a significant benefit also to NXP. So we are significantly benefiting from a higher rate of xEVs, which is a strong push for our content growth story here. Stacy Ragson: Got it. Thank you. For my follow-up, I want to ask about the cash returns. So you've bought back a lot of stock. I think as of March, you upped the buyback. You had something like $2.6 billion in authorization and you're through like $2.2 billion right now. So you're almost through the whole authorization, but you're still guiding share counts down. So I guess, do we expect even more? Are you going to return more than 100% this year? And I guess, just given the strength of the buyback as it exists, can you talk a little bit about what that suggests? I suppose it shows that you have -- I guess, it reinforces that confidence you're talking about growth in the next year. But I guess, long picture, why you're buying back so much stock right now? And should we expect even more cash return as we go through the rest of the year since it seems like you're mostly through the buyback to date? Peter Kelly: So -- maybe I'll take that, Kurt. So I guess, the answer to your second or third question there is, we have a lot of confidence in terms of where the company is going. So clearly, we think buying our stock at the moment is a good investment. In terms of how much, it is really quite simple. We've said all along, we'll keep our net debt to trailing 12 months EBITDA at 2 times level. So we'd buy back to that level all the time, and we'll continue to do that for the foreseeable future. And if that results in us buying -- if that results in us returning more than 100% this year, that's what the result is. But to be honest, it's pretty mathematical. We're just staying at 2 times net debt. Stacy Ragson: Got it. That's helpful. Thank you, guys. Operator: [Operator Instructions] Your next question comes from the line of Ross Seymore from Deutsche Bank. Your line is open. Ross Seymore: Hi, guys. Thanks for letting me ask the question. I had one clarification and one question and then a follow-up, if I can be so bold. But have you guys shipped the $90 million in shortages out of Texas? Did you catch up on all of that in automotive or where have you? That's the clarification. And then I guess the longer term question maybe for Kurt on the auto side is, are you seeing the customers change their behavior at all? The just-in-time practices that that sector has adopted seemingly have backfired on them a bit with the velocity of demand recently. Are you -- any of the conversations you're having highlighting structural changes or is this all basically just short-term reactive movement and you don't think anything is really going to change a couple of years down the road for the industry as far as just-in-time? Kurt Sievers: Yes. Thanks, Ross. On the first one, we talked indeed about $100 million, I think I remember which we lost for the second quarter revenue given the winter storm in our two Texas facilities, that is correct. What I can tell you is indeed that both factories are up and running completely. So we are up to the pre-storm and higher output levels in both factories, so firing on all cylinders again. And with that, we have the output which we would have wished to have already in the first place. So that is good news, both from a revenue perspective going forward, because it is steady. I mean, this is not a one-time effect, but it's steady output. But it's also good news from a supply perspective since old factories had a significant exposure, as we discussed earlier to automotive and the comms infrastructure market which were badly waiting for these products. So we are glad and thankful to our employees who have restored operations in record time. On the other half of your question, Ross, I see signs of a structural change in the behavior of the auto, especially also of the auto and customers. And I think there are two pieces to this. The one is going to be indeed realizing that a just-in-time system is not totally compatible with the three to six months manufacturing cycle time in semiconductors if you don't have some sort of a buffer in between which is dealing with it. So some more inventory in the extended supply chain I think is going to be a result of this. Now when you ask me, is this being implemented? My answer is no, but it's just because the supply is not there. I mean, at this point in time, people are planning for this at some point, but they can't implement it yet. But I think this is going to be eventually a structural change. The other one is actually the -- first the transparency which we get directly from the car companies. As I mentioned earlier, we've never had so much clarity about what product in which application in which model year will run at what volume. So this is becoming much, much better than it has ever been because structurally we are just moving much closer in a collaboration with the car companies. And I think with that also the binding forecasts, so not only providing that forecast, but also making it more binding on a mid to long-term basis is going to be a structural change, and that's a significant one because that wasn't the case in the past. So a more binding forecast will also help to foresee and plan with the right capacities on our end. Ross Seymore: Thanks for that color, Kurt. One quickly for you Peter. You gave great color on the gross margin side of things. Another target you guys have given historically is the OpEx intensity, and I think it ranges anywhere between 20% to 24% as of your last Analyst Meeting, and I know you might be updating that later this year. But can you talk just a little bit about the leverage potential there? I think this year it looks like you're running kind of within that target range, but at the higher end kind of 23%, 23.5%. Do you foresee some leverage getting to the lower end of that range or just generally how should we think of OpEx relative to revenue growth? Peter Kelly: Certainly for the moment, I'd think of 23% of revenue, 16% for R&D and 7% for SG&A. There's probably some leverage in the SG&A number because although we typically increased sales and marketing, G&A, we'd more likely to hold flattened dollars. But I think certainly for the moment, 23% is a good number to plan on. Ross Seymore: Thank you. Operator: Thank you. Your next question comes from the line of John Pitzer from Credit Suisse. Your line is open. John Pitzer: Yes. Good morning, guys. Thanks for letting me ask the question. Congratulations on the solid results. Kurt, I wanted to ask a little bit about your comm infrastructure business which came in much better than guide for the June quarter and it's going to grow nicely in the September quarter. I know that pre the Huawei ban, you were very excited by some design wins you've had won there, but clearly had the kind of temper expectations with the ban, but it seems like you guys might be more levered to the 5G cycle than some of us think. Can you just walk through kind of what you think is driving that growth, especially given how good the margin could be in that business? Kurt Sievers: Yes. So John, indeed, we did talk last year about significant design win traction around the large Chinese customer which did fall apart. So indeed, this is still not there. I just want to be clear, the business which is now performing and which we guide for the next quarter is not related to this design win which we had talked about last year. The outperformance in the second quarter is actually across the segment. It does include some of the 5G build-outs, but it's just across all of the product sub-segments which are in this revenue segment. So it is not only 5G, but it does include 5G. Now if you think about the nice guidance for the third quarter in comms infra, then I'd say, yes indeed. As we had anticipated and actually I think discussed on a number of the last calls, we do see, I'd say, two trends around 5G which are letting us grow. We see the anticipated ramps for these multi-technology modules in the U.S. So multi-technology means LDMOS and gallium nitride, our new -- from our new gallium nitride both technology products and facility in Arizona, but it's also that we are nicely included in the China tenders, which are those macro base stations for the rural areas, which are actually in the frequency range sub 2.1 gigahertz. So somewhere between I think 700 megahertz and 2.1 gigahertz which is just perfect fit to our LDMOS capability and leadership. So it is those two, John, from a go-forward basis when you think about Q3 and beyond, which are indeed driving nicely our growth. The U.S. multi-technology modules for 5G and those CP3 tenders in China. John Pitzer: That's really good color, Kurt. And then, Peter, in your prepared comments you talked about the high class problem of needing to expect both front end and back end capacity. Is that mostly being done with outsourced partners, so it's more of a working capital hit than a CapEx hit or how do we think about CapEx over the next several quarters as you continue to try to make supply catch up to demand? Peter Kelly: CapEx will be about 7% this year. So yes, it will step up a bit in Q3 and Q4. Mainly, there's a lot of assembly and tests going in there, but also some bottleneck busting in our actual fabs. So CapEx will be up. I don't see working capital going up any time really. I mean, it's -- we definitely like more inventory if we could get it. But as fast as we get it, we tend to build, which is the comments I had around finished goods being at an all-time low. We do have a bit more raw material and work in progress from shipments from the foundries towards the end of the quarter that we received. So I guess, stepping back, we're definitely investing more in internal capacity and that will have a positive impact on us next year, and we continue to work very hard with our other suppliers just to get additional supply from them. But as fast as we get it, we build it and ship it to customers. So I don't really see our inventory levels getting anything back to anything like normal anytime soon. John Pitzer: Perfect. Thanks, guys, and congratulations. Operator: Your next question comes from the line of William Stein from Truist Securities. Your line is open. William Stein: Great. Thanks for taking my questions, and I'll add my congratulations especially on the guide, very strong. I'm wondering if you can remind us as sort of a clarification, the breakout within the comm infrastructure business. I think we tend to think about this as largely or all RF power amplifiers, but I know there is digital networking and I think there's still some ID card business in there as well. Can you remind us of the split and maybe how you expect the three of those pieces to grow over time? Kurt Sievers: So hi, Will. Thanks for your congrats on the guidance. The subset is indeed as you said, the RF power for infrastructure, it is about digital networking and there is some secure card business also in there. We will not break out the details between them, Will. But what I can say, and I think I mentioned it earlier, the outperformance in the second quarter was across all of them. So it wasn't limited to one of these sub-segments, but it was actually across all of them. When you think about the guide and the growth into the third quarter, it is probably less by the 5G-related comms infra RF power. William Stein: Thanks for that. And one more if I can there, sort of product question. I forget when, one or two years ago, perhaps, you started talking about the ultra wideband products and the growth that you anticipated seeing in handsets and automotive. And I'm wondering if you can provide some update in terms of your revenue traction in those two end markets for this product category and the outlooks for them today? Thank you. Kurt Sievers: Yes. Happy to do so, Will. This because it's really nicely on track, just to remind everybody that it's not just about product, this is a complete ecosystem play. There indeed, we offer the radio, the secure element and software for solutions across automotive, mobile and IoT. We are very much on track, Will, with I think what we said at the Teach-In to have some $300 million to $400 million revenue across those segments in '23. So in only two years from now. As of today, I'd say, mobile is actually happening as we speak. If you think about the Android world, I'd have to say, with all the major Android phone companies, we are working very closely. Automotive is now closely following, and that was just a function of mobile because obviously the automotive use case of using your mobile as a car key needs the phones to be in place firstly, this is now happening. So the first cars will be out in the market in the second half of this year and next year. And there, I'd dare to say with a relatively high degree of certainty that any car company which is working in and on an ultra wideband implementation is working with NXP. So we are highly and very positively exposed here. Finally, we also see a good traction with first IoT implementations. One of the early examples are those techs which help you to find stuff, which you might have lost. But it also -- we also see nice design wins in door locks for home properties, for example. There you would then use your mobile phone to open your front door and unlock it. So very much on track, Will. Again, the numbers which we had given were $300 million to $400 million revenue size for NXP in two years from now, and we think the market for this is growing at some 40% over the next couple of years. William Stein: Great. Thank you. Operator: Thank you. Your next question comes from the line of the Toshiya Hari from Goldman Sachs. Your line is open. Toshiya Hari: Hi, good morning. Thanks so much for taking the question. I just had one for Kurt or Peter. I wanted -- I was hoping you could elaborate a little bit on the LTSAs that you've already signed with foundry partners or perhaps you're looking to sign going forward? We read about price increases from the foundries going forward. How should we think about the balance between cost inflation for you guys versus your ability to price higher as well going forward? And my guess is the 57% number that Peter you alluded to embeds some of those dynamics, but wanted to clarify that as well? Thank you. Kurt Sievers: I'll let Peter answer, but I really want to make one upfront statement because that's -- this is -- it is important. Yes, input cost is rising. And yes, we pass on the cost increases. But this is not a tool for us to artificially increase margins. We are in a large application-specific and very trustful relationship with our customers for years to come. So we do pass on the input cost increases, but that's more the mechanism here to structurally increase margins. Peter, you might want to give more color. Peter Kelly: I think you just answered the question really, Kurt. Yes, it's -- we are not a commodity company, we don't raise prices when times are tight and reduce them when times are not tight. What's been very interesting about this whole change is there's really been two big factors. One, Kurt was talking about before, which is, it's enabling us to build deeper relationships with our customers and understand their requirements and their supply chains a lot better than we have in the past. And in terms of our suppliers, you can -- without kind of going into a lots of detail, you can actually find out who are your true partners and who will support you in the years to come and who are the guys who are a little bit more predatory. But ours is a market and supply chain where it's really built on long-term relationships and long-term sources of supply both for our customers and for ourselves and for a predictable level of pricing and profitability. Toshiya Hari: Thank you, and congrats. Peter Kelly: Thanks. Operator: Your next question comes from the line of Chris Caso from Raymond James. Your line is open. Chris Caso: Yes, thank you. Good morning. A question on the capacity additions and the CapEx that you said was stepping up here in the second half of the year. How -- for how long do you expect that to continue? I imagine that the equipment lead times are extended also. So you have to be giving your equipment suppliers some visibility on this. I guess the question is, how long will you -- do you need into continue adding capacity in order to get caught up with the level of demand right now? Kurt Sievers: Well, I guess, the very simple answer is we will continue to need capacity for the foreseeable future because we believe there is a really healthy cycle going on in terms of our product. So one thing that's really come out in the last six months is that for those people outside the semiconductor industry, they've really begun to understood -- understand that semis are a core part of everything we do. So to the extent that GDP grows over the next few years, you will see semiconductors grow at probably a faster rate. I think the thing to remember with us, about 70% -- just 70% to 80% of our assembly and test capacity is internal. So that will continue to be a kind of healthy source of capital requirements, and I think about 57%, 58% of our wafer supply is external. We're not likely to have built a new fab, but we're constantly updating the equipment we have there to keep them current. So I think in the past we've said, through the cycle we will spend 5% to 7% on CapEx. Last year it was below 5%. This year it will be at 7%. We'll probably update a more longer term view at the Analyst Day in November. Chris Caso: [Technical Difficulty] Kurt Sievers: I'm sorry, you're breaking up. Chris Caso: [Technical Difficulty] Peter Kelly: I apologize. I don't know if it was me, but I couldn't hear anything there. I don't know, Kurt, you could hear what he said. Kurt Sievers: I had the same problem. But I guess, you were asking about something of the cost of increased inventory? Chris Caso: Yes, I'm sorry. I'm not sure what happened. The question is, as the inventory -- as the automakers ask for more security supplies, more inventory, who bears the cost of that? Will that be inventory that the automakers will take possession of and pay for in advance? Will it be some combination of just more inventory on the hub? Who basically pays the cost of that? Kurt Sievers: Well, first, let me point out again, it's not something which happens to any extent today because the capability is not there. Once it will happen, it won't be us. I mean, it needs to be part of their business model. So it will have to be somewhere between Tier 1 suppliers, auto companies and maybe some distributors in some cases, but not on our end. Chris Caso: Got it. Thank you. Operator: Your next question comes from the line of Blayne Curtis from Barclays. Your line is open. Blayne Curtis: Hey, guys. Thanks for squeezing me in. I just wanted to revisit on the supply side, just the cadence that you're bringing it on. So when you -- the growth you're seeing in September, will you -- will inventory -- will you have to ship out inventories or are you able to match that with supply? Just trying to understand the cadence you're bringing it in. And then you mentioned mobile, you're kind of re-prioritizing for a quarter. Is that just kind of a one-off or are you -- are there other segments that even with the strong guide in September that you're having to prioritize away from them? Kurt Sievers: Well, Blayne, we continue to be constrained across the board. And of course, we need to take all the time certain priority decisions, and indeed, mobile is kind of suffering in the third quarter, but everything is relatively sought across the board. The additional supply coming online is really gradual from many different sources. I mean, we talked about it. We have increasing traction with the mid and longer term contracts with our foundry suppliers. We have Texas fully up and running by now. We have, as Peter alluded to, invested both into our internal testing, not only capability, but also looking at some expansions of our internal front end factories. So all of these things across the different technologies and products are happening gradually. So it's not a one-time event. But I would say with the demand being as strong as we continue to foresee it, it will remain tight for a while. But the one really suffering in Q3 is indeed mobile. Blayne Curtis: Thanks. And then just want to ask you on the auto side. One, source the content gains always new model year that typically make seasonality in auto is kind of a March heavy. It seems like maybe you're seeing '22 model year earlier? Just kind of curious, did you think about that content portion? You're obviously benefiting now from maybe a mix shift to EV, but just kind of auto seasonality, is it different this year? Are you seeing maybe model years earlier? Just kind of walk us through -- obviously, you don't want to guide for some remarks, but just any thoughts on kind of seasonality for the auto business off to September? Kurt Sievers: Well, Blayne, I think I said for the total business that we expect Q4 in absolute revenue terms to be above Q3. That's one. Secondly, I don't think there is really seasonality in auto at this point in time because dealer inventories are at record lows in the U.S. and in China, and they just can't build as many cars as they would wish to build. So I think it's more a function of supply availability in terms of when they would do what. So at this point in time, it is really supply constrained for them, which I think overwrites any seasonality. Blayne Curtis: Thank you. Operator: There are no further questions at this... Kurt Sievers: At this point, Jeff, I guess we are running against time, right? Jeff Palmer: Yes. That's correct, Kurt. Kurt Sievers: Yes. So let me then maybe from my end conclude the call with saying, I hope we could give you a good view and transparency into the continued very strong demand which we are seeing across the board. And at the same time, the news that we are seeing increased supply capability coming online, which drives the strong guidance into the third quarter from a revenue perspective. We also told you that quarter four is going to be yet higher than quarter three, and we continue to see this trend going into the next year. And at the same time, we see that our gross margins are now very much hitting the mark, which we had anticipated for a long time. With that, I thank you for your attendance today. Thank you. Operator: Thank you, all. This concludes our today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and welcome to the Q1 2021 NXP Semiconductors Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Palmer from NXP. Jeff Palmer: Thank you, Ron, and good morning, everyone. Welcome to the NXP Semiconductors first quarter 2021 earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Peter Kelly, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that include -- involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the second quarter of 2021. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release today. Additionally, we'll refer to certain non-GAAP financial measures, which are driven primarily by discrete events and that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2021 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section at nxp.com. Now, I'd like to turn the call over to Kurt. Kurt, your call. Kurt Sievers: Yes. Thanks very, very much, Jeff, and good morning, everyone. We really appreciate you joining our call today. Today, I will review our quarter one results and discuss our guidance for Q2. Furthermore, I will provide an updated perspective on how we view the current supply-demand environment, including the recovery of our two Austin-based facilities, which were hit by the severe winter storm in February. And additionally, I will discuss our efforts for sustainability. Now let me get started with quarter one. Our results were better than the midpoint of our guidance, with the contribution from the industrial and the communication infrastructure end markets, both stronger than planned. At the same time, trends in the Mobile and Auto markets were generally in line with our expectations, with Automotive being just slightly impacted by the severe winter storms in Texas. Taken together, NXP delivered quarter one revenue of $2.57 billion, an increase of 27% year-over-year and $17 million above the midpoint of our guidance range. Non-GAAP operating margin in Q1 was a strong 30.9%, 600 basis points better than the year-ago period, and about 50 basis points above the midpoint of guidance, driven both by improved mix and additional revenue. Now let me turn to the specific trends in our focus end markets. In Automotive, quarter one revenue was $1.23 billion, up 24% versus the year-ago period and about $13 million below our guidance. In Industrial & IoT, our quarter one revenue was $571 million, up 52% versus the year-ago period, and about $13 million better than our guidance. In Mobile, quarter one revenue was $346 million, up 40% versus the year-ago period and in line with our guidance. Reconciling for the sale of the voice and audio business, which closed during quarter one 2020, the underlying mobile end market growth was actually up a robust 46% year-over-year. And lastly, in Communication Infrastructure & Other, quarter one revenue was $421 million, up 4% year-on-year and about $17 million better than our guidance. Now, let me move to our outlook. We are guiding quarter two revenue at $2.57 billion, up about 40% versus the second quarter of 2020 within a range of up 38% to up 45% year-over-year. And from a sequential perspective, this is about flat at the midpoint versus the prior quarter. At the midpoint, we anticipate the following trends in our business. Automotive is expected to be up in the upper 80% range versus quarter two 2020 and up in the low single digits versus quarter one 2021. Industrial & IoT is expected to be up in the low 30% range year-over-year and flat versus quarter one 2021. Mobile is expected to be up in the mid-30% range and flat versus quarter one 2021. And finally, Communication Infrastructure & Other is expected to be down in the low-teens percent range versus the same period a year ago and down in the mid-single-digit range on a sequential basis. Now at this point, let me turn to an update on the current supply/demand environment. As I had shared with you on our last earnings call, as many of our customers started to resume full production during Q3 of 2020, we were faced with the challenge to balance a very accelerated rate of customer orders versus a very tight, if not sold out wafer supply situation. While our foundry partners have attempted to address our needs, it really has not been enough, and we were supply constrained in quarter one. This supply trend will continue through quarter two. And our current expectation is we will face a tight supply environment for at least the remainder of 2021. We would also note that in the medium-term, we have seen a significant increase in demand for our products, which is very consistent with our anticipated content gains and our design wins. In that very context, it is really insightful to compare to the pre-pandemic levels of 2019. When we look at total current revenue levels compared to the pre-pandemic levels in 2019, we actually plan to ship nearly 20% more in the first half of 2021 versus the first half of 2019. And more specifically, in automotive, we plan to ship at least 20% more in the first half of 2021 versus the first half of 2019. And this is while IHS suggests a drop of 10% in car production over the very same period. And now going forward, we see our overall revenue in the second half of 2021 being stronger than the first half of this year. And against these trends, we continue to have low channel and low on-hand inventory, which we do not anticipate rebuilding this year. Our customers are responding by placing long-dated, non-cancelable and non-returnable order requests. And we are making long-term strategic supply commitments to our partners in order to assure future supply. Against this challenging supply environment, we also had the very unfortunate and unexpected winter storms in Austin. And I am today pleased to share that our two wafer facilities in Austin are now fully back on line. And I would like to commend our manufacturing, our operations and our facilities teams for their superb effort and dedication to getting these two facilities back online in record time. Truly a job very well done. Notwithstanding the challenging supply environment or the natural disasters we faced, our results and guidance clearly validate the underlying long-term growth and profitability of our business. We acknowledge it has been a long process to deliver on our committed gross margin target. The next objective will be to demonstrate full year performance at the 55% gross margin target. And furthermore, on a positive note of recognition, NXP was added to the S&P 500 Index, which is a strong validation of a lot of hard work the entire NXP team has undertaken to drive growth, improve profitability and enhance free cash flow. Now before I pass the call over to Peter, I would like to take a minute and discuss our sustainability efforts, an area to which NXP has a long demonstrated history of commitment. At a more personal level, I do believe sustainability is a very important journey. We all need to embrace and undertake. And it's not just the finite destination. At NXP, we are dedicated to our long-term sustainability goals, which our employees, our customers, our suppliers and investors all believe are of the utmost importance. All our stakeholders are paying attention to the products we develop to how our company complements the communities we operate within and to how we attempt to lessen the impact our company has on our environment. And hence, we just recently published our annual Corporate Sustainability Report in our annual proxy statement, both of which set forth the progress we have achieved towards previously stated goals and lay out our vision for the future. In support of our continuous commitment to improve our environmental and social responsibility and our corporate governance metrics, there are a few areas I would like to highlight, starting with social responsibility. We have made clear our commitments to workplace diversity, equality, and inclusion. In order to ensure our working environment provides equal access and opportunity, we appointed a Head of Diversity, Equality and Inclusion, reporting directly to me and to our Executive Vice President of Human Resources. We are dedicated to creating an inclusive and diverse work environment where NXP appropriately mirrors to society and communities in which we operate. We have an ongoing commitment to improve and refine our corporate governance. In 2020, we have enhanced our human capital management disclosures, which expanded and detailed workforce demographics. We are committed to improving gender diversity throughout the organization, but especially within the company's leadership teams. Now, turning to environmental impact. In 2020, we met our 10-year goal of reducing our carbon footprint by 30%. We have achieved a 47% water recycling rate and we purchased 27% of our electricity from renewable sources, led by our factory in Nijmegen, which is running 100% on renewable energy. Finally, and certainly not least, our employees. We definitely believe our employees are the lifeblood of innovation and the spirit at NXP. We are dedicated to building a highly engaged workforce who will continuously push the boundaries of innovation. We view a highly engaged workforce as the very best early indicator of potential success for our company in the future. We measure this annually through a global employee survey called the winning culture survey. That survey looks at multiple early indicators of long-term employee engagement. It includes factors as employee views on company strategy, innovation, execution and leadership as well as culture, collaboration and a supportive work environment. And I'm proud to say that in 2020, we had a 90%-plus global participation rate. Now, in summary, we are very, very encouraged by the rapid rebound in demand across our end markets. Based on our customer conversations and order rates, it appears NXP is in the early stages of a longer-term company-specific growth cycle. Our employees are highly engaged to drive our success; we have a robust pipeline of new and innovative products; and customer response engagement, design win momentum all underpin our optimism about the future potential of NXP. I'm extremely proud of all our employees, but today, I would like to especially comment our manufacturing, our operations, and customer-facing teams for their relentless focus and energy while assuring our customer success. Their dedication and hard work in the face of a very challenging supply environment truly make a big difference. And now, I would like to pass the call to Peter for a review of our financial performance. Peter? Peter Kelly: Thank you, Kurt and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during the first quarter and provided our revenue outlook for the second quarter, I'll move on to the financial highlights. Overall, our first quarter financial performance was very good. Revenue was above the midpoint of our guidance range and we drove an improvement of both non-GAAP profit and non-GAAP operating profit. Moving to the details of the first quarter. Total revenue was $2.57 billion, up 27% year-on-year and above the midpoint of our guidance range. We generated $1.39 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 54.2%, up 240 basis points year-on-year and above the high end of our guidance. Total non-GAAP operating expenses were $600 million, up $55 million year-on-year and up $37 million from the fourth quarter. This was $10 million above the midpoint of our guidance due to increased variable compensation, driven by an improved first half performance. From a total operating profit perspective, non-GAAP operating profit was $792 million and non-GAAP operating margin was 30.9%, up 600 basis points year-on-year and was at the high end of our guidance. Non-GAAP interest expense was $87 million; cash taxes for ongoing operations were $40 million and non-controlling interest was $11 million; taken together, $13 million better than our guidance. Stock-based comp, which is not included in our non-GAAP earnings, was $91 million. Now I'd like to -- now I'd like to turn to the changes in our cash and debt. Our total debt at the end of the fourth quarter was $7.61 billion, essentially flat versus the fourth quarter. Our ending cash position was $1.84 billion, down $433 million sequentially, mainly due to share repurchases, offset by cash generation during the first quarter. The resulting net debt was $5.77 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $3.09 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA was at the end -- was at the end of quarter 1 was 1. 9x and our 12-month adjusted EBITDA interest coverage was 8.6x. Our liquidity is excellent and our balance sheet continues to be very strong. During the first quarter, we paid $105 million in cash dividends and repurchased $905 million of our shares for a total of $1 billion of capital return to our owners during the quarter. Turning to working capital metrics, days of inventory was 81 days, an increase of 3 days sequentially and continues to be significantly below our long-term target of 95 days. We continue to closely manage our distribution channel with inventory in the channel at 1.6 months, flat sequentially and below our long-term target. Both metrics reflect the continuation of strong customer order rates and we continue to be in a supply-constrained position. It will take several quarters before we are able to rebuild on-hand and channel inventories to our long-term target levels. Days receivable were 30 days, up 2 days sequentially and days payable was 79 days, an increase of 4 days versus the prior quarter as we continue to increase material orders to our suppliers. Taken together, our cash conversion cycle was 32 days, up 1 day versus the prior quarter, reflecting strong customer demand, solid receivables collections and positioning for customer deliveries in future periods Cash flow from operations was $732 million and net CapEx was $150 million, resulting in non-GAAP free cash flow of $582 million. Turning to our expectations for the second quarter. As Kurt mentioned, we anticipate Q2 revenue to be about $2.57 billion, plus or minus about $70 million. At the midpoint, this is up 41% year-on-year and flat sequentially. We expect non-GAAP gross profit to be about 55.5%, plus or minus 30 basis points. Operating expenses are expected to be about $623 million, plus or minus about $10 million. And taken together, we see non-GAAP operating margin to be about 31.3% to the midpoint. We estimate non-GAAP financial expense to be about $87 million and anticipate cash tax related to ongoing operations to be about $55 million. Non-controlling interest will be about $9 million and for the second quarter, we suggest that for modeling purposes, you use an average share count of 283 million shares. Finally, I have a few closing comments I'd like to make. Firstly, demand trends continue be strong across our target and markets and customer interest in our newest products continues to be robust. We are diligently working with our customers and our suppliers to address order requests in a timely manner. Our second quarter guidance reflects the clear potential of our business model, both in terms of revenue growth as well as the significant fall-through, which will enable us to drive our non-GAAP gross margin target to the 55% level. With the new United States administration in place, the potential increase the cost – sorry, thirdly, with the new US administration in place, the potential increase for corporate income taxes is a large topic of interest. Unfortunately, at this point in time, there are too many variables in play, and it just makes it impossible for any company to forecast. Therefore, it seems pointless to speculate until we can get more clarity. On a more positive note, we do expect our cash taxes to be slightly lower than the originally envisaged for 2021. So 2021 will likely be 9% versus the previously indicated 10%. Fourthly, as we've said in the past, our capital return policy is to return all excess free cash flow to our owners. During the first quarter, the Board approved a $2 billion buyback authorization as well as a 50% increase in our quarterly cash dividend. During the quarter, we returned $1 billion to shareholders and we will continue to execute our stated capital return policy. Fifthly, as Kurt mentioned, we believe the demand environment is strong. And notwithstanding the supply constraints, we believe the second half of 2021 will be greater than the first half of the year. Sixth, and finally, I'd like to thank all my colleagues at NXP for the dedication and the incredible job executing in a truly unbelievable environment. So with that, I'd like to turn it back to the operator for any questions you might have. Jeff Palmer: Renz, we'll poll for questions. Operator: Thank you, sir. [Operator Instructions] Our first question is from the line of C.J. Muse. Your line is now open. C.J. Muse: Yes, good morning, good afternoon. Thank you for taking the question. I guess, Kurt, intrigued by your commentary around being in the early ages of long-term growth cycle for NXP. And I think we all -- all of us on the call understand the growth drivers behind the story, but would love to hear what's changed in your view, say, in the last three months? And if you could walk through that, that would be great. Kurt Sievers: Yes, many thanks, C.J. Yes, absolutely. So, we do see us just being at the beginning of a longer term growth cycle. And I think, in that respect, I also tried to clarify that we do see the second half of the year growing again over the first half of this year. What has changed over the last three months is that the demand environment has, not only continued to be strong, but I would say we started to understand better and better some of the sustainable drivers of the demand environment. Now, with us being 50% exposed to the automotive end market, this is clearly one place where we do understand now how content increases are contributing significantly to this very, very robust demand environment where we absolutely see no reason why that should ease off or should go away. So, what I tried to say here is that our understanding of the demand environment has become better and deeper and with that, we better believe in it. Also, totally ruling out double ordering and any of these possible fears of piling inventories at any place. So, in our key segments and I can say that very explicitly for automotive, for industrial, but also for mobile, we do know and we do see that what we ship out is immediately being built into product and no inventory is being built in any place. C.J. Muse: Very helpful. If I could follow up, Peter. Obviously, reaching 55%-plus is a great thing, but the next question is always what have you done for me lately? So, curious, does the model hold true going forward, every 5% increase in revenues, you get a 100 bps uptick in gross margins or how should we be thinking about the trajectory from here? Peter Kelly: No, I wasn't thinking it that way. In 2019 and 2020, we were continually struggling on utilization. We were trying to use that kind of rule of thumb to explain what might happen as we go to full utilization. The good news now is we always said that around about 2.4, we could run 55%. So, we're a little bit above that 2.5 at 55.5%. We're pretty much now internally kind of at the high end of our utilization. So, I feel pretty good about the gross margin numbers where we are. But you'll see in our CapEx number, and for the full year, we'll probably do about 7% CapEx this year. We need to start adding -- or not we need, we are adding capacity, particularly in the back ends to cope with the additional revenue we're seeing. And also, over the last year or two, we've seen the amount of product we buy externally move up from the kind of low 50s to the high 50s percent. So, I think from a gross margin perspective, I'd say, clearly, the challenge, at the moment, is to demonstrate that we can consistently run at 55%, which we feel very, very comfortable about. And then over the next few years the things that will move us up to 57% and not so much revenue, they're more about the new product introductions and improving the cost performance of our products. Q – C.J. Muse: Very helpful. Thank you. Operator: Thank you. Our next question is from the line of Ross Seymore. Your line is now open. Ross Seymore: Good morning guys. Thanks for letting me ask the question and congrats on the strong results. Peter, I want to dive into the gross margin a little bit more tactically in the near term. Can you just discuss what drove the upside in the first quarter and the second quarter, and second quarter is especially impressive considering it appears that the mix between segments isn't really contributing significantly. So just a little bit of color on how you beat and then raised in the quarter and guide? Peter Kelly: Yes. So in the first quarter, the biggest move Ross, was mix. We shipped proportionately less auto and more coming for an IoT. And to be honest, $10 million gives you 40 or 50 basis points of margin. So we're not talking about huge numbers. And as we go in from Q1 to Q2, it's really all about utilization. So we're not only able to run; obviously, not Austin, but our other fabs full out. But also, we're getting really great utilization now in our back ends. So there's always a few small things moving in different directions. But I think Q1, it was about utilization that helped us beat – sorry, Q1 was about mix, which helped us beat the guidance. But Q1 to Q2 is really about utilization and that's – now that we've been able to optimize is maybe the wrong word, but certainly utilize things a lot better, that's what gives me confidence on our gross margin going forward, really. Ross Seymore: Great. I guess as my follow-up, one for Kurt. You talked about the confidence in the demand, the lack of double ordering second half over first half. I guess, if I narrowed it down to your automotive business, historically, we've had a typical delta of content above SAAR. And it sounds like you're confident that, that delta is actually expanding. So I guess, really, what's changed there? You have pretty long design cycles in that sort of business. And so, it's a little surprising to me that you would have something that would arise that -- in the short term that would increase your ability to outgrow SAAR as rapidly as you appear to do right now. So I guess just a little more color on what gives you that confidence would be helpful? Kurt Sievers: Yes, thanks Ross. It is actually not that much all of a sudden as you would portray it, because we’ve seen this already building through the last year. But obviously, it's been all snowed under by the shutdowns, especially in the first half in the factories. But if you think about content increases and that's why I made the comparison to 2019, which was more of a normal year, if you will then actually, over that period of time, it doesn't look that crazy at all. So that's one statement. But there is 2 more -- so it's not all of a sudden, but it's really been gradually building already over the period of the last 4 to 6 quarters, but very much disrupted by the by COVID. Now there is two more things which are really important here. The one is, yes, I do believe that especially the electric vehicle production rates are increasing faster than anticipated, which I believe makes it a content richer story than probably the initial forecast would have suggested. So the penetration of electric drivetrains is going faster, especially now, this year, than it was forecasted. Thirdly, and I think actually most importantly, we are now bearing fruit from all of the design wins in the focus areas we've been working on so hard over the past years. So what I'm saying is Ross, that some of this is clearly company specific. If I look at our growth rates in our focused businesses like radar, ADAS, battery management, the digital clusters, then it becomes very obvious that those are really pulling ahead the growth. So there is an underlying stronger momentum on content gains but I think a good part of this is also company-specific, meaning share gains for NXP. Ross Seymore: Thank you. Operator: Thank you. Our next question is from the line of Vivek Arya. Please go ahead. Vivek Arya: Thanks for taking my question. I had two as well. Just one more on gross margin. I'm curious, Peter, what role is pricing playing, if any, in your gross margin? And if let's say, your Q3 and Q4 sales are above your Q2 sales, then all else being equal, can gross margins also exceed 55% in each of those two quarters? Peter Kelly: In terms of pricing, it's having no impact whatsoever, Vivek. We said on our last call that although some suppliers were being very tactical and trying to take advantage of the situation, that was not our strategy. We said we would definitely pass on any cost increases that we have, and we're able to do that. But we have no intention of trying to improve our profitability through gouging our customers. And there's certainly no impact of anything even remotely like that in Q1 or Q2. In terms of the second half, as I said before to Ross, gross margin from here is not really driven by additional revenue. Yes, could there be some small impacts here? Sure. I think I'd say two things. One is I have a strong confidence that the level of – the level of gross margin we are at the moment. So I think that's a good thing. And I think as we go forward, our focus has to be on how we bring out our new products and new versions of our existing products to improve our profitability. But I think after all of the debate over the past few years on whether we can really run at 55%, I think that's most definitely behind us. Vivek Arya: Got it. And for my follow-up, Kurt, I'm curious how much of the unfulfilled demand that you are seeing this year can help to extend on the cycle into 2022? So for example, when I look at your automotive customers, and I think you have mentioned that given what the auto industry went through in this cycle, right, they might do things differently. So I was hoping you could talk about what they can do differently that helps to extend your demand cycle and visibility? And then outside of autos, when I look at your deficit on the distribution side, right, that's still close to, I think, 0.8 months, right? So usually 2.4 months and it's 1.6 months right now. So, when can that be addressed? And is it possible that it doesn't get addressed to the next year. So, overall, just how do you conceptually think about the cycle extending into next year? Thank you. Kurt Sievers: Yes, that's a great question. Let me answer to both elements, Vivek. Let me take the latter one, the difficult one first. So, yes, we indeed stayed at the record low 1.6 months in the first quarter just like we did in Q4. And yes, I mean, if you would just do some chainsaw math, this -- just bringing that back to a more normal level of 2.4 months, which we've historically had, is probably like $400 million. But no, I don't anticipate this -- that we reached that level anytime this year. I just think the sell-through is so strong that we don't get it up from a supply perspective back to that level. And that also gives you an indication for the very strong pull here, which is really a -- which is sell-through. I mean, if we ship more into distribution now, inventory wouldn't go up, but it would be actually selling through right away. On the automotive side, yes, that's -- I think this is indeed a significant discussion, but also exploration, which we are having across the industry. First of all, I'd say most of our products, if not all in automotive, are non-commodity product. So, it is indeed a matter of fact that demand, it just doesn't go away. I mean, if anything, then it's shifted because possibly a car here or there cannot be built and with that, it moves then into the next quarter or eventually into next year, as you say. At the same time, we are working very, very diligently, both with our customers, which is the Tier 1s, but also directly with the car companies on very prudently understanding the future demand patterns. I think one of the biggest learnings out of this current situation is to build much more transparency about the content increases, which are often application and module-specific, and how they map out over not just the next two quarters, which is far too short for us, knowing that we have a manufacturing cycle time of one to two quarters, but actually more over the next eight to 16 quarters in order to understand how that's going to map out. So, that work is underway and I can certainly say we do this with all of the top 10 car OEMs in the world. At the same time, we also work, of course, very hard with our suppliers, with our mainly wafer suppliers, but also back-end extensions, as Peter has mentioned, in order to quickly ramp up our supply capability at the same time. And I mean part of this is the reason why I said earlier that already, in the second half of this year, we will ship at higher revenue levels than we are doing in the first half. So, some of that demand obviously, it doesn't have to move into next year, but we are satisfying it already in the second half of this year. But yes, it's a long term -- it's really a long-term story. A lot of learning out of this situation. But at the bottom of it and I think that's most important, a more and more diligent understanding of a very robust demand environment. Vivek Arya: Thank you. Operator: Thank you. Our next question is from the line of Stacy Rasgon. Please go ahead. Stacy Rasgon: Hi guys. Thanks for taking my questions. So, my first question, I wanted to ask you about the channel inventory situation only to deal in. I know you said that you're confident that nothing you're shipping across your core margins auto, but also industrial and mobile, you think nothing is going on the shelf, everything is going into an end product, especially in industrial and mobile, how do you know that it's not going on the shelf and going into an end product instead? What gives you that level of confidence? I think in auto, I kind of get it, but in industrial and mobile, how would you know that your customers are not sticking the stuff on the shelf? Kurt Sievers: It's really the direct customer exposure, which we have there. You would probably say, yes, but how can you have that through distribution? I mean, in mobile, you know that the number of mobile end customers isn't that big. So I mean, there is a very direct and very specific contact. So we exactly know how much they need our product because they would love to have more, I can tell you. I mean, this is a direct chain. In the industrial space, it is arguably a much larger customer base, which is behind distribution. But also there, there are some big customers who are in very direct and very frequent contact also with me personally, and I know about their demand and build situation. So it's really based on a very personal exposure, I would almost say, what gives me and the team, it's not just about me, but all of our leaders here in NXP, that direct exposure to know that the product is directly fleshing through. Stacy Rasgon: Got it. So my follow-up, I wanted to drill into a little bit your comment on I guess, the auto trajectory. You said it's up like 20% in the first half of '21 versus the first half of '19, even with units down -- with end units down. Can you give us some view for how much of that 20% increase is actually content versus just an increase like like-for-like in terms of units? Kurt Sievers: That's actually hard to say. What I was saying is indeed that we will have at least 20%. If you look at the guidance in the Q1 results, you will find it's at least 20% growth over the first half of '19. But if you think about the content, be sure to include that this is 2 years of content increase. I mean, last year, clearly, the car production was very much down, but that doesn't mean that the content was coming to a stop because the content was driven by models which were to be introduced anyway, maybe at lower build rates. So if you compare the '19 to '21, it is 2 years stack of up from a content increase perspective. And I'd say, a 10% content increase per year is maybe realistic before price adjustments and that gives you already a 20% -- a 20% difference over those 2 years. Stacy Rasgon: Got it. So I guess it's fair to say like like-for-like, like you don't think it's a good burning. So it sounds like it's mostly coming from content, is that the right way to characterize it? Kurt Sievers: I would certainly say that because the car production itself is down by 10%, if I believe IHS and if you look at the Q1 numbers, then the build rates in the first half of this year are probably almost 10% lower than they were in the first half of 2019. So it must be content and share gains. Stacy Rasgon: Got it. Thank you. Operator: Our next question is from the line of John Pitzer. Please go ahead. John Pitzer: Yes. Good morning guys. Thanks for letting me ask the question. Congratulations on the strong result. Kurt, my first set of questions is just around kind of get a little bit more detail around the Austin shutdown and reopening. You talked last quarter about it being about a $100 million impact to Q2. Is that exactly what you saw? And I'd be more curious, at the time it happened, it was hard to figure out if there were incremental costs that bled into the model because of Austin. Were there any? And do you expect to recoup them vis-a-vis business insurance as the year unfolds? Kurt Sievers: Yes. So let me speak about – let me take the revenue side first, John. So first of all, I really have to say clearly, that was an extremely unfortunate and unexpected event, both for NXP, of course, in the first place, but in consequence also for our customers because the supply interruption as a consequence of this, in that current environment is clearly not something anybody would have wished to have. Now to frame it, all of this did happen on February 15, so mid of February. I think we released our press release on March 11, that we had resumed initial operations. And I can tell you that about eight to nine weeks after the fact or after Feb. 15, we have been fully up and running in both facilities again. So by now, both factories are 100% running again at the pre-storm – pre-winter storm levels, which is great moves and the great achievements in a very, very challenging and difficult situation. Yes, we had talked about $100 million impact on the revenues in Q2. I would still say, John, we – this is the impact which we have on Q2. Now you see that we guided sequentially flat. So obviously, we found other ways and means in other areas, with other products, to make up for that loss from the factory shutdown. Furthermore, we had a tiny little bit of impact already at the very end of the first quarter in automotive. I said this earlier, that a little bit, it's really more like maybe in the $10 million range was already impacting the very end of Q1 from a shipment perspective in automotive. I would further say that we are absolutely confident that the $100 million will be made up in the second half of the year. So again, why we made it up in the second – why we will make it up in the second quarter with other products, we will make up those $100 million which we lost in the first phase in the second half of the year because the factories are running again and we'll be shipping full out. Now Peter, maybe you pick up the part of the question, which was related to the cost impact. Peter Kelly: Yes. So the good news, John, is our ops team had started closing down the factories before the Texas authorities just with almost no notice of the power. So we didn’t have any fundamental damage to the factory. So obviously, various water pipes and that kind of thing with the cold. We have insurance to essentially cover everything. So the only real impact to our cost was the deductible, which is millions of dollars rather than tens of millions of dollars. So from a cost perspective, it hasn't really have any measurable impact. John Pitzer: That's really helpful. And then, Kurt, as my follow-up, I really like the way that you've kind of compared first half of this year to first half of 2019 because it helps to kind of take out some of the variability around sort of the 'cycle'. And especially for us that are trying to figure out how much of your growth is coming from cycle versus product-specific. It's a good comp. But I guess to that point, when I look at sort of your long-term growth rate target that you have out there of 5% to 7%, that 2019 to 2021 compare would sort of argue a 12% growth rate trend line, at least over that two-year period. And I don't want to steal thunder from your next Analyst Day. But when you look at the breadth of company-specific drivers out there, how do you think about that 5% to 7% growth rate historically or in the target model versus the 12% you've seen since 2019? Kurt Sievers: Well, John, as you rightfully said, I mean, we're going to update that model with our next Capital Markets Day. So, at this point, we cannot and will not give a new long-term guidance. And the only one which we have out is the 5% to 7%. However, I clearly said earlier that some of the content drivers are in good shape, certainly in automotive, with the stronger rate of electric vehicles with some of the trends which we have in mobile. We spoke a lot about ultra-wideband kicking in earlier. Things seem to look robust. But let's also not forget, John, that if you think about 2018, 2019, 2020, all three years were really not great years from a market perspective. So, it's always a bit tempting to take just two years, which looked in very good. So, we will have to look at this from a more longer term perspective again. But clearly, I do agree with you what matters for NXP should be increasingly the company-specific drivers from those focus areas where our really strong portfolio, which we've been building over years with organically and inorganically, which is now playing out very nicely. John Pitzer: Thank you. Operator: Thank you. Our next question is from the line of William Stein. William Stein: Great. Thanks for taking my questions. First, Kurt or Peter, I wonder if there's a product area or end market in which your ability to deliver lags greatest versus demand. It sounds like it's in the channel. I assume that's IoT and industrial and certainly automotive as well. Is it concentrated in those two? Is it specific products or sub-end markets within those or is it more broad? Any color there would be helpful. And then, I do have a follow-up. Kurt Sievers: Yes, Will, I would actually say it's quite broad. So, because it is in technology or capacity buckets, which also, in some cases, touch several markets. So, no, we couldn't say it's specific to automotive or specific to distribution end markets. I would just say that certainly, automotive is for maybe good reasons, catching a lot of headlines given the big impact it has on -- from a value leverage to complete cars, which might be impacted. But I said earlier that in large industrial applications, there is also shortages across the industry. So, no, it is not something which is sharply only in automotive or only in distribution markets. William Stein: Thanks for that. And maybe I'd like to hit on the capacity additions. So, second half revenue greater than first half. Part of that is going to be, I suppose, from the recovery of the $100 million shortfall in Q2 from the Austin fabs. But I assume there are other plans. I wonder if that's sort of incremental yields across the board or if there's anything more sort of step function from a capacity perspective that we should sensitize ourselves to coming online later this year? Kurt Sievers: Yes. Will, it's really 3 elements. The first one you mentioned, of course, we have the $100 million catch-up from the factory closures, which we had also front-end and back-end capacity. On the front-end side, our foundry partners and I mean, they've been quite loud about this publicly, that they are increasing either allocations for fundamental capacity and yields, which also benefits NXP. So we are seeing increases here from a foundry supply perspective to NXP. And at the same time also within NXP, and Peter talked about the 7% CapEx this year on increased revenue levels, we are expanding our back-end capacity as hard as we can. I mean, whatever we can do in the short time is being done. And these moves, so the $100 million from the closed factories, the better wafer supply from external foundries and the higher throughput through our own back-end and assembly is all helping to increase the Q3 and Q4 revenue levels. William Stein: Thank you. Operator: Our next question is from the line of Blayne Curtis. Your line is now open. Blayne Curtis: Hey thanks for taking my question. Kurt, just two questions. The $100 million, just to John's question, if the initial impact in March was in auto, is that where you primarily saw that $100 million you missed within the auto channel? And then, just in terms of that supply chain, you talked about catching up on your supply would take throughout the year and it sounds like your own inventory is probably well in the next year. Just some comments on the auto OEMs, when do you think that market will catch up? Kurt Sievers: Yes. So first on the $100 million, Blayne. So we will not decompose it here. The auto impact was earliest because the supply chain was just totally dry already before – while it happened. I mean, that's more a timing reasoning why that hit auto first. There is one other area, which is also being hit by this which is the -- our comms infra business. And that's also the reason why our, and you saw this in the guidance, our Q2 then becomes infra growth is sequentially down. That is just the direct impact from their dependence on these Austin factories. So that's a temporary thing, which we'll leave behind us after Q2. Talking about the auto OEMs, I really can't answer that question, Blayne, because we still don't have that long-term transparency I talked about earlier on the demand side. I can absolutely tell you that the supply is increasing. It does increase already in the second quarter, but it also increases further in the third and fourth quarter. But it's always a function of what does the demand do at the same time. So I would carefully say, I don't think it is completely easing off this year. And it will still continue somewhat into next year. How long? I don't know. But I don't see this being totally eased off by the end of this year. Blayne Curtis: Thanks. Operator: Our next question is from the line of Chris Caso. Please go ahead. Chris Caso: Yes, thank you. Good morning. I guess, the first question is it is getting a little more clarity on the capacity additions. And it sounds like certainly, there's some capacity coming on, both internally at the foundries in the second half of this year. Does more come on in the beginning of next year as well? And a follow-on to that, you talked about the fact that you didn't think that you would be able – your customers would be able to replenish inventory until the end of the year. Is that meant to say that by the end of the year, you think you will be fully meeting your customer demand with the capacity additions in place, perhaps a little more capacity comes next year, which allows you to catch up on inventories. Is that the right way to think about it? Kurt Sievers: Yes, Chris. So this is – I mean, this is constantly on the work – on the very hard work. So since this whole situation started, say, towards the end of last year, we are working super hard on all levels to increase capacity, and I just mentioned a few of them earlier. So yes, it is going to continue into next year from a capacity increase perspective. Absolutely. Peter talked about the 7% CapEx, I just give you one other number. We – by now, we have already more than $1 billion of firm commitments with long-term supply from our suppliers. So as I said, we are collecting and getting request for non-cancelable and non-returnable orders, long-term orders from our customers, and we enter into the same commitments in order to secure supply for next year with our suppliers. And there is already more than $1 billion out there, is firmly committed. And that is going to help indeed increase supplies into and over next year. But it doesn't stop there, Chris. I mean, this is not – it's not like a onetime thing. It's constant work and we keep moving it up. With that, I think from a timing perspective, Jeff, we probably have to get to the end of this session, right? Jeff Palmer: Correct. Correct. That was my last question. Would you like to provide some closing remarks, Kurt? Kurt Sievers: Yes. Thanks much, Jeff. So thank you all for being on the call today. So I trust we could paint a clear perspective on how we see this very continued and very rapid rebound in demand across all of our end markets. We are glad that we brought our Austin factories back online and are now with full capacity again, shipping. We wanted to make sure you hear us loud and clear that half two revenue is going to be above half one. And this is not just a factor of the $100 million catch-up from the closed factories. Actually, that's the smallest part in this. And we are very confident that we can continue to drive consistent growth with improved profitability levels and with that, enhance our free cash flow going forward. I thank you very much for your attention and speak to you next time. Thank you. Jeff Palmer: Thank you, everybody, for your interest, and that will be the end of the call today.