NASDAQ:NXPI NXP Semiconductors Q2 2024 Earnings Report $193.55 -0.02 (-0.01%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$192.81 -0.74 (-0.38%) As of 04/25/2025 07:57 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast NXP Semiconductors EPS ResultsActual EPS$3.20Consensus EPS $2.82Beat/MissBeat by +$0.38One Year Ago EPS$3.04NXP Semiconductors Revenue ResultsActual Revenue$3.13 billionExpected Revenue$3.13 billionBeat/MissBeat by +$1.53 millionYoY Revenue Growth-5.20%NXP Semiconductors Announcement DetailsQuarterQ2 2024Date7/22/2024TimeAfter Market ClosesConference Call DateTuesday, July 23, 2024Conference Call Time8:00AM ETUpcoming EarningsNXP Semiconductors' Q1 2025 earnings is scheduled for Monday, April 28, 2025, with a conference call scheduled on Tuesday, April 29, 2025 at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by NXP Semiconductors Q2 2024 Earnings Call TranscriptProvided by QuartrJuly 23, 2024 ShareLink copied to clipboard.There are 14 speakers on the call. Operator00:00:00Good day, and welcome to the NXP 2Q24 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 and instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Jeff Palmer, Senior Vice President of Investor Relations. Operator00:00:20Please go ahead. Speaker 100:00:22Thank you, Michelle, and good morning, everyone. Welcome to NXP Semiconductor's 2nd quarter earnings call. With me on the call today is Curt Sievers, NXP's President and CEO and Bill Betts, 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. Speaker 100:00:49These 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 Q3 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 Q2 2024 earnings press release, which will be furnished to the SEC on Form 8 ks and available on NXP's website in the Investor Relations section. Speaker 100:01:48Before 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 7. The pre registration website will be opened on the NXP Investor Relations website beginning on August 7. As 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 Kirk. Speaker 200:02:15Thanks very much, Jeff, and good morning, everyone. We appreciate you all joining our call today. Let me begin with quarter 2. Revenue trends in all our focus end markets were in line with the midpoint of our guidance range. NXP delivered quarter 2 revenue of €3,127,000,000 down 5% year on year and flat sequentially. Speaker 200:02:43The non GAAP operating margin in quarter 2 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 1. 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. Speaker 200:03:34In Automotive, revenue was SEK1.73 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 €616,000,000 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 €345,000,000 up 21% versus the year ago period and in line with our guidance. Speaker 200:04:25And finally, in Communication Infrastructure and Other, revenue was €438,000,000 down 23% year on year and in line with our guidance. Now I will turn to our expectations for the Q3 2020 4. We are guiding Q3 revenue to SEK 3,250,000,000 down 5% versus the Q3 of 2023 and up 4% sequentially. In the automotive end market, our revenue troughed in the 2nd quarter and we will resume sequential growth in quarter 3. 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. Speaker 200:05:13At 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 twenty twenty four, we continue to ship below automotive end demand in the somewhat softening automotive macro. In the industrial and IoT end markets, 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. Speaker 200:06:04And 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 Q3. Automotive is anticipated to be down in the low single digit percent range versus quarter 3, 2023 and up in the mid single digit percent range versus quarter 2, 2024. Industrial and 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 3, 2023 and up in the mid teens percent range versus quarter 2, 20 24. Speaker 200:07:03Finally, Communication Infrastructure and Other to be down in the mid-twenty percent range year on year and down in the mid single digit percent range versus quarter 2 'twenty four. In summary, NXP troughed in the first half of this year and now we expect to resume sequential growth through the second half. Therefore, during quarter 3, 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. Speaker 200:07:56As 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 sixty-forty manufacturing joint venture between Vanguard International Semiconductor and NXP. Speaker 200:08:57The 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 Vision Power Semiconductor Manufacturing Company or BSMC 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. Speaker 200:10:03When 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, NSP will make a total investment of €2,800,000,000 between 2024 and 2028, with the peak investment periods being in 2025. Speaker 200:11:03This investment enables NXP to address about €4,000,000,000 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. Speaker 300:11:35Thank 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 $3,127,000,000 down 5% year on year. Speaker 300:12:16We generated $1,830,000,000 in non GAAP gross profit and reported a non GAAP gross margin of 58.6 percent, up 20 basis points year on year and 10 basis points above the midpoint of our guidance range. Total non GAAP operating expenses were $760,000,000 or 24.3 percent of the revenue, down $11,000,000 year on year. This was $5,000,000 below the midpoint of our guidance due to lower than anticipated hiring. From a total operating profit perspective, non GAAP operating profit was $1,070,000,000 and non GAAP operating margin was 34.3 percent, down 70 basis points year on year and up 30 basis points above the midpoint of our guidance. Non GAAP interest expense was 67,000,000 dollars with taxes for ongoing operations of $169,000,000 or a 16.8% non GAAP effective tax rate. Speaker 300:13:29Non controlling interest was $6,000,000 and stock based compensation, which is not included in our non GAAP earnings, was $114,000,000 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 $10,180,000,000 with our cash balance of $3,260,000,000 down $49,000,000 sequentially due to the cumulative effect of capital returns, CapEx investments and cash generation during Q2. The resulting net debt was $6,920,000,000 and we exited the quarter with a trailing 12 month adjusted EBITDA of 5,300,000,000 dollars 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 $260,000,000 in cash dividends and repurchased $310,000,000 of our shares. Speaker 300:14:53Taken together, we returned $570,000,000 to shareholders, representing 99% of non GAAP free cash flow. After the end of Q2 and through Friday, July 19, we repurchased an additional $69,000,000 of our shares under an established 10b5-1 program. Turning to working capital metrics, days of inventory was 148 days, an increase of 4 days sequentially, while distribution channel inventory was 1.7 months or just over 7 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. Speaker 300:15:53Taken together, our cash conversion cycle was 111 days, an increase of 6 days versus the prior quarter. Cash flow from operations was 761,000,000 and net CapEx was $184,000,000 or 6% of revenue, resulting in non GAAP free cash flow of $577,000,000 or about 18% of revenue. Turning to our expectations for the Q3. As Curt mentioned, we anticipate Q3 revenue to be 3,250,000,000 dollars plus or minus about $100,000,000 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 percent plus or minus 50 basis points. Speaker 300:16:51As Curt 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 $760,000,000 plus or minus 10,000,000 dollars Taken together, we see non GAAP operating margin to be 35.1% at the midpoint. We estimate non GAAP financial expense to be $67,000,000 with the non GAAP tax rate to be 16.8 percent of profit before tax. Non controlling interest and other will be about 9,000,000 dollars For Q3, we suggest for modeling purposes to use an average share count of 258,500,000 shares. Speaker 300:17:50We expect stock based compensation, which is not included in our non GAAP guidance to be 116,000,000. Dollars 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 BSMC joint venture as discussed by Kurt earlier. The total cost of the joint venture will be $7,800,000,000 The NXP investment into the venture is $2,800,000,000 made up of $1,600,000,000 commitment for a 40% equity stake in the joint venture and an additional $1,200,000,000 investment for long term capacity access. Vanguard will invest $3,100,000,000 made up of $2,400,000,000 for a 60 percent equity stake and an additional $700,000,000 for long term capacity access. Speaker 300:18:59The 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 accounted 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 stacking when buying material in the commercial foundry market. Speaker 300:20:04So in closing, looking through the remainder of 2024, I would like to highlight 3 areas of focus. First, with the VSMC and ESMC Investments, there is no change to our capital allocation policy. We have returned $2,400,000,000 or 81 percent of the free cash flow generated over the last 12 months. Furthermore, we will continue to be active in the market repurchasing NXP shares. 2nd, we will continue to be disciplined to manage what is in our control and stay within our long term financial model. Speaker 300:20:45Specifically, 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. Thank Speaker 400:21:16you. Operator00:21:23Our first question comes from Vivek Arya with Bank of America Securities. Your line is open. Speaker 500:21:30Thanks 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 to 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? Speaker 500:21:56Or is this all kind of channel inventory refill? I'm just trying to understand the dynamics as you see it for Q4 right now. Speaker 200:22:06Yes. Thanks and good morning, Vivek. Certainly, it's not the channel refill. I try 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. Speaker 200:22:26So we want to really tune this to the growth in the coming quarters in a careful manner. So know 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 Q3 and then maybe a little bit further up in the Q4. 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 4, is a reacceleration of automotive. Speaker 200:23:00You see that actually in the Q3. I mean, we turned the corner from a quarter 2 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 2 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. Speaker 200:23:35That will be getting less. While at the same time, I also had to say in this call, it takes longer than we thought. So it reaches now into the 3rd quarter. We were hopeful it would end a little earlier. So that is protracted longer, which is one of the reasons why actually the second half growth is a little less than we had assumed earlier. Speaker 200:23:57Still, 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 Q4. And we are also optimistic that Industrial and IoT will keep growing from our lean inventory position in the channel. Speaker 500:24:22Got it. 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, I guess, they were recovering. Do you think that process is now behind us? Speaker 500:24:41Do you think they will hold to those levels? Do you think they will start to go back to the prior trends? The reason I asked 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 3 months ago? Speaker 200:25:21Yes. So yes, 1st of all, indeed, the latest S and P forecast for SAAR for the calendar year 2024 dropped a little to 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 at the Tier 1 automotive customers, which is the direct customers of NXP. Speaker 200:25:55So that is the 60% of our automotive business, which goes through direct. That takes longer, which indeed is a function of 2 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 2 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 2 week target. Speaker 200:26:27We 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, keeps us growing a little bit less into quarter 3 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, BVAC. Speaker 200:27:05So 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 2 12 weeks, and we still have a little bit of work to do in the Q3 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. Speaker 600:27:54Thank you. Operator00:27:59Our next question comes from C. J. Muse with Cantor Fitzgerald. Your line is open. J. Speaker 400:28:05Muse:] Yes. Good morning. Good afternoon. Thank you for taking the question. I guess first question just to follow-up on the auto side. Speaker 400:28:12Can you kind of drill down by end market between radar, BMS, 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? Speaker 200:28:36Yes, CJ. So relative to how is the inventory at the Tier 1s between those different product segments, it is completely customer specific, CJ. There is no overriding pattern because it really depended on what they thought they had to order through all of this NCNR time during the last 2 years. So we don't have a pattern there, CJack. There is no answer to that question because it is absolutely different customer by customer. Speaker 200:29:07We also have Tier 1 customers where we are done with inventory digestion, which is actually driving the growth into the Q3, 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 Wirik earlier, targets range between 2 12 weeks. So the one would declare 12 weeks as being on target and no over inventory. Speaker 200:29:37The other with 3 weeks says, I still have a week too much because my target is 2. 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 write 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 called it 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, CJ. 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. Speaker 400:30:32Very 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? Speaker 300:30:48Yes. Hey, CJ, 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. Speaker 300:31:07And 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 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. Speaker 400:31:33Thanks so much. Operator00:31:37Thank you. And our next question comes from Ross Seymore with Deutsche Bank. Your line is open. Speaker 700:31:44Hi, guys. Thanks for asking the question. I want to pivot over to the Industrial and IoT segment. Kirk, 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 It is Speaker 600:32:13indeed in our view Speaker 800:32:13a demand issue in the U. S. And Europe, a truly a demand issue? Yes. Speaker 200:32:14Thanks. Good morning, Ross. It is indeed in our view a demand issue in the U. S. And Europe. Speaker 200:32:21So 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 3rd Q4 is actually more from China. Speaker 200:32:44And that is more or less 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. Speaker 700:33:29Thanks for that. I guess as my follow-up then switching gears over to one for Bill. I know you guys aren't changing your capital allocation, but you talked about the DSMC 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, etcetera? Speaker 300:33:58Yes. Hey, Ross. Relates 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 dividend is at 25% of our cash flow from operations. As right now, I think we're around 28% on a trailing standpoint. Speaker 300:34:17We're going to continue to do some small M and A tuckings 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 5 years where the 1st 3 years represent about 75% of the $2,800,000,000 that talked about and the remainder over the 2 years. As you know, we also have an investment of a 10% equity position in ES and C, again similar with different timing in equity. Speaker 300:35:11And then there's a portion of we break that out, of that $2,800,000,000 that I talked about, the $1,600,000,000 is equity, the $1,200,000,000 will come out of working capital operations. It's more of a guarantee of supply where we have to actually get more supply upfront 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 timeframe. 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 remodel at 6%. I don't see us going above that anytime soon. Speaker 300:35:56And again, we will probably update the CapEx as a percentage of revenue during our November 7 Investor Day. Thank you. Operator00:36:06Thank you. And our next question comes from Francois Bouvignies with UBS. Your line is open. Speaker 900:36:14Hi, 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 second half of the year as one of the driver for improvement. Could you be a bit more specific, give more details on what platform and what You mentioned radar, but I was wondering if you could be a bit more specific. Speaker 900:36:42You 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 have to dig on this company specific drivers on the platforms. And then I have a follow-up if I can. Speaker 200:37:06Yes. Sure, Francois. So the growth in automotive in the second half is really having 2 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, where we have ramps with at least 2 Tier 1 automotive companies, which are operating absolutely globally. Speaker 200:37:43So they are serving OEM platforms across the globe. So we are pretty well hedged here relative to an end demand from an end demand perspective. And those are design wins, Francois, which we made probably 3 years ago or so, which are now finally coming into production. Everything is being prepared. And yes, of course, I mean, with the SAAR of -2%, there is always something which is a little less and something which is a little more. Speaker 200:38:12But 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 facing and side radar platforms for global OEMs. Speaker 900:38:37Great. Good. Speaker 200:38:38Thanks. And maybe Francois, if you need 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. Speaker 900:38:57I appreciate the color. Thank you, Kurt. And maybe the follow-up is on the maybe more for Bill on the pricing dynamic. And 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. Speaker 900:39:19So 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. Speaker 300:39:29Sure. 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. Speaker 300:39:40Again, 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 costs, but this is being offset by slightly unfavorable product mix that we plan to ship. So therefore, at the moment, those 2 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. Speaker 300:40:19Now 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 at 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 with the fixed costs as we demonstrated in Q3, but unfortunately the mix is slightly going the other way. Speaker 300:40:53Timing of the replenishing our distribution channel, it carries higher average higher margins. And so you heard her 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 a big, big drive on really focusing on additional long tail customers with their distribution partners, which over time should benefit. Speaker 300:41:21As 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 20 28 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 7. And you all know I've hinted many times that 58% is not our final destination. Speaker 900:41:56Great. Thank you very much. Operator00:41:59Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Speaker 1000:42:07Hi, guys. Thanks for taking my questions. For my first one on your auto commentary, 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've got some company specific drivers like are your auto expectations better for yourself or worse than they were 3 months ago? Speaker 1000:42:33Like 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? Like 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. Speaker 200:42:48Yes. Hi, Stacy. I would say our order 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. Speaker 200:43:09So we have lower headwinds 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. Speaker 200:43:34The 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 changes on the inventory targets they have, which I explained in earlier questions. Speaker 1000:43:49Thank 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? Speaker 1000:44:02Is it industrial and auto? And it did sound like I think I heard Speaker 600:44:06maybe it was Bill say the 2.5 target would be Speaker 1000:44:06for 2025. So are you still planning to go back to 2.5 months, as we get into the year? Yes. So, yes, 2.5 months, as we get into the Speaker 200:44:15next year? 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. Speaker 200:44:30And 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? Speaker 200:44:59No, 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. Speaker 200:45:32For 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 pick it up. It's really across segments, 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. Speaker 200:45:54And 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. So 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. Speaker 1000:46:18Got it. That's helpful. Thank you so much. Operator00:46:23Thank you. And our next question comes from Thomas O'Malley with Barclays. Your line is open. Speaker 1100:46:29Hey 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 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? Speaker 1100:46:54And how should we think about that business into the back half of the year? Obviously, September, you're saying calm down kind of mid single digits. But is there a continued RFID growth with other stuff falling off faster? Just could you give us the profile how that business should trend going forward? Speaker 200:47:08Yes. 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. Speaker 200:47:34So 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. Speaker 200:47:54And 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 8 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 a downward slope. Speaker 200:48:32So basically think about this whole comms intra 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. Speaker 1100:48:52Super helpful. And then if I think about that trajectory, what you normally see with mobile in the Q4 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 Q4. 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? Speaker 1100:49:22Or are you expecting most of that sequential growth into the Q4 to get you to that low single digits year over year to come from industrial and IoT? Speaker 200:49:29Thank you. Hey, Thomas, look, you are really pushing it a step too far now. We try to give a lot of color for the second half with the guidance of the Q3. I really can't give you all the breakout on how each segment is going to do in the Q4. And honestly speaking, Tom, we also don't know that. Speaker 200:49:50I mean, there are things which are constantly moving around, especially relative to this to 2 things. 1 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. Speaker 200:50:09We 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 trends and that piece I will tell you, the trend in automotive is a positive one. I mean, it's we left the trough in automotive behind us. I want to be that clear. Quarter 2 was the trough in automotive, which I think was a 9% peak to trough for automotive, and it is now coming up. Speaker 200:50:36How fast is something we have to see because it's really a function of the inventory digestion. Speaker 1100:50:42Thank you, Kurt. Operator00:50:46Thank you. Our next question comes from Blayne Curtis with Jefferies. Your line is open. Speaker 1200:50:52Hey, thanks guys. Thanks for choosing me in. Actually two questions on auto processors. So Kurt, I wanted to ask you one of your European competitors been talking about share gains. I know it's kind of fair while you're correcting and talk about share. Speaker 1200:51:04But 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? Speaker 200:51:17Yes. Hi, Blayne. So first of all, I just want to be sure everybody knows, we are the number 1 in auto processes worldwide. Whatever you hear from peers is typically related to parts of that, which is the microcontroller part or the application processor part, etcetera. If you put it all together, you find enough third party evidence that NXP is the number 1 and keeps being the number 1. Speaker 200:51:43And that holds also for China. So I think in China, we have a fairly strong position in processes. 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. Speaker 200:52:11I 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 processes, 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 plan. So I feel actually we are in a good place. Now when it comes to manufacturing, absolutely right. Speaker 200:52:40In 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. Speaker 200:53:16So 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. Speaker 1200:53:31Thanks Kurt. And then if I just follow-up on what you just said there, the 16 nanometer domain zone was something you outlined in I think 2021 Analyst Day. Could you just Speaker 200:53:40maybe talk about I know you're going Speaker 1200:53:41to 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 look into next year? Speaker 200:53:58Yes. Well, the 60 nanometer ones are in full production, Blaine. So they absolutely contribute to one of the 3 accelerated growth drivers, which we highlighted in our 2021% to 2024% growth. So I think we guided 9% to 14% for automotive and there were 3 high growth drivers. One of them is the S32 platform, which is the performance processing for automotive. Speaker 200:54:23And the big part of that is indeed 16 nanometer processors. And what I can say now ahead of the November 7 Analyst Day is that in for that piece, we will be ahead of targets. So we laid out growth targets and the automotive processing will be actually above the target, which we had laid out in November 2021. Speaker 1200:54:44Thanks, Kirk. Operator00:54:46Thank you. We have time for one last question. And that question comes from Chris Danley with Citi. Your line is open. Speaker 1300:54:54Hey, 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? Speaker 200:55:11Yes. Hi, Chris. Yes, I'd 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 ex EVs in China in 2024 over 2023, which is a staggering growth. Speaker 200:55:47And that reflects also back into our business. So yes, I would call out China. Speaker 1300:55:52Thanks. And then just a quick follow-up on your own inventory days that 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? Speaker 1300:56:09Where is the end goal? Where do you expect that to trend? Speaker 300:56:13Sure, 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. Speaker 300:56:35When 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 end. 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. Speaker 1300:57:07Great. Thanks Bill. Speaker 300:57:09Thank you. Operator00:57:11Thank you. That concludes our question and answer session. I'd like to turn the call back over to Curt Sievers for closing remarks. Speaker 200:57:18Yes. Thanks, operator. Yes. 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. Speaker 200:57:44In 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. Speaker 200:58:17Those factors play then into our guide for the year being more of a low single digit decline annually over last year, which is towards 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. Operator00:58:49Thank you. This does conclude the program. You may now disconnect. Everyone, have a great day. Speaker 100:58:54Thank you. Operator00:58:55You're welcome.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNXP Semiconductors Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) NXP Semiconductors Earnings HeadlinesBarclays Lowers NXP Semiconductors (NASDAQ:NXPI) Price Target to $190.00April 25 at 3:31 AM | americanbankingnews.comNXP Semiconductors: Lower Rates Could Boost Auto-Focused IoT NamesApril 24 at 3:43 PM | seekingalpha.comHere’s How to Claim Your Stake in Elon’s Private Company, xAII predict this single breakthrough could make Elon the world’s first trillionaire — and mint more new millionaires than any tech advance in history. And for a limited time, you have the chance to claim a stake in this project, even though it’s housed inside Elon’s private company, xAI.April 26, 2025 | Brownstone Research (Ad)NXP Semiconductors NV (NXPI) Shares Up 4.04% on Apr 23April 23 at 1:46 PM | gurufocus.comNXP Semiconductors price target lowered to $190 from $230 at BarclaysApril 23 at 11:51 AM | markets.businessinsider.comNXP Semiconductors Earnings Preview: What to ExpectApril 23 at 11:51 AM | msn.comSee More NXP Semiconductors Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like NXP Semiconductors? Sign up for Earnings360's daily newsletter to receive timely earnings updates on NXP Semiconductors and other key companies, straight to your email. Email Address About NXP SemiconductorsNXP Semiconductors (NASDAQ:NXPI) N.V. offers various semiconductor products. The company's product portfolio includes microcontrollers; application processors, including i.MX application processors, and i.MX 8 and 9 family of applications processors; communication processors; wireless connectivity solutions, such as near field communications, ultra-wideband, Bluetooth low-energy, Zigbee, and Wi-Fi and Wi-Fi/Bluetooth integrated SoCs; analog and interface devices; radio frequency power amplifiers; and security controllers, as well as semiconductor-based environmental and inertial sensors, including pressure, inertial, magnetic, and gyroscopic sensors. Its products are used in various applications, including automotive, industrial and Internet of Things, mobile, and communication infrastructure. The company markets its products to various original equipment manufacturers, contract manufacturers, and distributors. It operates in China, the Netherlands, the United States, Singapore, Germany, Japan, South Korea, Taiwan, and internationally. N.V. was incorporated in 2006 and is headquartered in Eindhoven, the Netherlands.View NXP Semiconductors ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 14 speakers on the call. Operator00:00:00Good day, and welcome to the NXP 2Q24 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 and instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Jeff Palmer, Senior Vice President of Investor Relations. Operator00:00:20Please go ahead. Speaker 100:00:22Thank you, Michelle, and good morning, everyone. Welcome to NXP Semiconductor's 2nd quarter earnings call. With me on the call today is Curt Sievers, NXP's President and CEO and Bill Betts, 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. Speaker 100:00:49These 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 Q3 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 Q2 2024 earnings press release, which will be furnished to the SEC on Form 8 ks and available on NXP's website in the Investor Relations section. Speaker 100:01:48Before 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 7. The pre registration website will be opened on the NXP Investor Relations website beginning on August 7. As 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 Kirk. Speaker 200:02:15Thanks very much, Jeff, and good morning, everyone. We appreciate you all joining our call today. Let me begin with quarter 2. Revenue trends in all our focus end markets were in line with the midpoint of our guidance range. NXP delivered quarter 2 revenue of €3,127,000,000 down 5% year on year and flat sequentially. Speaker 200:02:43The non GAAP operating margin in quarter 2 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 1. 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. Speaker 200:03:34In Automotive, revenue was SEK1.73 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 €616,000,000 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 €345,000,000 up 21% versus the year ago period and in line with our guidance. Speaker 200:04:25And finally, in Communication Infrastructure and Other, revenue was €438,000,000 down 23% year on year and in line with our guidance. Now I will turn to our expectations for the Q3 2020 4. We are guiding Q3 revenue to SEK 3,250,000,000 down 5% versus the Q3 of 2023 and up 4% sequentially. In the automotive end market, our revenue troughed in the 2nd quarter and we will resume sequential growth in quarter 3. 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. Speaker 200:05:13At 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 twenty twenty four, we continue to ship below automotive end demand in the somewhat softening automotive macro. In the industrial and IoT end markets, 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. Speaker 200:06:04And 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 Q3. Automotive is anticipated to be down in the low single digit percent range versus quarter 3, 2023 and up in the mid single digit percent range versus quarter 2, 2024. Industrial and 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 3, 2023 and up in the mid teens percent range versus quarter 2, 20 24. Speaker 200:07:03Finally, Communication Infrastructure and Other to be down in the mid-twenty percent range year on year and down in the mid single digit percent range versus quarter 2 'twenty four. In summary, NXP troughed in the first half of this year and now we expect to resume sequential growth through the second half. Therefore, during quarter 3, 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. Speaker 200:07:56As 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 sixty-forty manufacturing joint venture between Vanguard International Semiconductor and NXP. Speaker 200:08:57The 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 Vision Power Semiconductor Manufacturing Company or BSMC 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. Speaker 200:10:03When 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, NSP will make a total investment of €2,800,000,000 between 2024 and 2028, with the peak investment periods being in 2025. Speaker 200:11:03This investment enables NXP to address about €4,000,000,000 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. Speaker 300:11:35Thank 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 $3,127,000,000 down 5% year on year. Speaker 300:12:16We generated $1,830,000,000 in non GAAP gross profit and reported a non GAAP gross margin of 58.6 percent, up 20 basis points year on year and 10 basis points above the midpoint of our guidance range. Total non GAAP operating expenses were $760,000,000 or 24.3 percent of the revenue, down $11,000,000 year on year. This was $5,000,000 below the midpoint of our guidance due to lower than anticipated hiring. From a total operating profit perspective, non GAAP operating profit was $1,070,000,000 and non GAAP operating margin was 34.3 percent, down 70 basis points year on year and up 30 basis points above the midpoint of our guidance. Non GAAP interest expense was 67,000,000 dollars with taxes for ongoing operations of $169,000,000 or a 16.8% non GAAP effective tax rate. Speaker 300:13:29Non controlling interest was $6,000,000 and stock based compensation, which is not included in our non GAAP earnings, was $114,000,000 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 $10,180,000,000 with our cash balance of $3,260,000,000 down $49,000,000 sequentially due to the cumulative effect of capital returns, CapEx investments and cash generation during Q2. The resulting net debt was $6,920,000,000 and we exited the quarter with a trailing 12 month adjusted EBITDA of 5,300,000,000 dollars 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 $260,000,000 in cash dividends and repurchased $310,000,000 of our shares. Speaker 300:14:53Taken together, we returned $570,000,000 to shareholders, representing 99% of non GAAP free cash flow. After the end of Q2 and through Friday, July 19, we repurchased an additional $69,000,000 of our shares under an established 10b5-1 program. Turning to working capital metrics, days of inventory was 148 days, an increase of 4 days sequentially, while distribution channel inventory was 1.7 months or just over 7 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. Speaker 300:15:53Taken together, our cash conversion cycle was 111 days, an increase of 6 days versus the prior quarter. Cash flow from operations was 761,000,000 and net CapEx was $184,000,000 or 6% of revenue, resulting in non GAAP free cash flow of $577,000,000 or about 18% of revenue. Turning to our expectations for the Q3. As Curt mentioned, we anticipate Q3 revenue to be 3,250,000,000 dollars plus or minus about $100,000,000 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 percent plus or minus 50 basis points. Speaker 300:16:51As Curt 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 $760,000,000 plus or minus 10,000,000 dollars Taken together, we see non GAAP operating margin to be 35.1% at the midpoint. We estimate non GAAP financial expense to be $67,000,000 with the non GAAP tax rate to be 16.8 percent of profit before tax. Non controlling interest and other will be about 9,000,000 dollars For Q3, we suggest for modeling purposes to use an average share count of 258,500,000 shares. Speaker 300:17:50We expect stock based compensation, which is not included in our non GAAP guidance to be 116,000,000. Dollars 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 BSMC joint venture as discussed by Kurt earlier. The total cost of the joint venture will be $7,800,000,000 The NXP investment into the venture is $2,800,000,000 made up of $1,600,000,000 commitment for a 40% equity stake in the joint venture and an additional $1,200,000,000 investment for long term capacity access. Vanguard will invest $3,100,000,000 made up of $2,400,000,000 for a 60 percent equity stake and an additional $700,000,000 for long term capacity access. Speaker 300:18:59The 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 accounted 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 stacking when buying material in the commercial foundry market. Speaker 300:20:04So in closing, looking through the remainder of 2024, I would like to highlight 3 areas of focus. First, with the VSMC and ESMC Investments, there is no change to our capital allocation policy. We have returned $2,400,000,000 or 81 percent of the free cash flow generated over the last 12 months. Furthermore, we will continue to be active in the market repurchasing NXP shares. 2nd, we will continue to be disciplined to manage what is in our control and stay within our long term financial model. Speaker 300:20:45Specifically, 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. Thank Speaker 400:21:16you. Operator00:21:23Our first question comes from Vivek Arya with Bank of America Securities. Your line is open. Speaker 500:21:30Thanks 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 to 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? Speaker 500:21:56Or is this all kind of channel inventory refill? I'm just trying to understand the dynamics as you see it for Q4 right now. Speaker 200:22:06Yes. Thanks and good morning, Vivek. Certainly, it's not the channel refill. I try 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. Speaker 200:22:26So we want to really tune this to the growth in the coming quarters in a careful manner. So know 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 Q3 and then maybe a little bit further up in the Q4. 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 4, is a reacceleration of automotive. Speaker 200:23:00You see that actually in the Q3. I mean, we turned the corner from a quarter 2 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 2 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. Speaker 200:23:35That will be getting less. While at the same time, I also had to say in this call, it takes longer than we thought. So it reaches now into the 3rd quarter. We were hopeful it would end a little earlier. So that is protracted longer, which is one of the reasons why actually the second half growth is a little less than we had assumed earlier. Speaker 200:23:57Still, 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 Q4. And we are also optimistic that Industrial and IoT will keep growing from our lean inventory position in the channel. Speaker 500:24:22Got it. 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, I guess, they were recovering. Do you think that process is now behind us? Speaker 500:24:41Do you think they will hold to those levels? Do you think they will start to go back to the prior trends? The reason I asked 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 3 months ago? Speaker 200:25:21Yes. So yes, 1st of all, indeed, the latest S and P forecast for SAAR for the calendar year 2024 dropped a little to 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 at the Tier 1 automotive customers, which is the direct customers of NXP. Speaker 200:25:55So that is the 60% of our automotive business, which goes through direct. That takes longer, which indeed is a function of 2 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 2 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 2 week target. Speaker 200:26:27We 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, keeps us growing a little bit less into quarter 3 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, BVAC. Speaker 200:27:05So 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 2 12 weeks, and we still have a little bit of work to do in the Q3 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. Speaker 600:27:54Thank you. Operator00:27:59Our next question comes from C. J. Muse with Cantor Fitzgerald. Your line is open. J. Speaker 400:28:05Muse:] Yes. Good morning. Good afternoon. Thank you for taking the question. I guess first question just to follow-up on the auto side. Speaker 400:28:12Can you kind of drill down by end market between radar, BMS, 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? Speaker 200:28:36Yes, CJ. So relative to how is the inventory at the Tier 1s between those different product segments, it is completely customer specific, CJ. There is no overriding pattern because it really depended on what they thought they had to order through all of this NCNR time during the last 2 years. So we don't have a pattern there, CJack. There is no answer to that question because it is absolutely different customer by customer. Speaker 200:29:07We also have Tier 1 customers where we are done with inventory digestion, which is actually driving the growth into the Q3, 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 Wirik earlier, targets range between 2 12 weeks. So the one would declare 12 weeks as being on target and no over inventory. Speaker 200:29:37The other with 3 weeks says, I still have a week too much because my target is 2. 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 write 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 called it 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, CJ. 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. Speaker 400:30:32Very 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? Speaker 300:30:48Yes. Hey, CJ, 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. Speaker 300:31:07And 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 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. Speaker 400:31:33Thanks so much. Operator00:31:37Thank you. And our next question comes from Ross Seymore with Deutsche Bank. Your line is open. Speaker 700:31:44Hi, guys. Thanks for asking the question. I want to pivot over to the Industrial and IoT segment. Kirk, 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 It is Speaker 600:32:13indeed in our view Speaker 800:32:13a demand issue in the U. S. And Europe, a truly a demand issue? Yes. Speaker 200:32:14Thanks. Good morning, Ross. It is indeed in our view a demand issue in the U. S. And Europe. Speaker 200:32:21So 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 3rd Q4 is actually more from China. Speaker 200:32:44And that is more or less 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. Speaker 700:33:29Thanks for that. I guess as my follow-up then switching gears over to one for Bill. I know you guys aren't changing your capital allocation, but you talked about the DSMC 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, etcetera? Speaker 300:33:58Yes. Hey, Ross. Relates 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 dividend is at 25% of our cash flow from operations. As right now, I think we're around 28% on a trailing standpoint. Speaker 300:34:17We're going to continue to do some small M and A tuckings 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 5 years where the 1st 3 years represent about 75% of the $2,800,000,000 that talked about and the remainder over the 2 years. As you know, we also have an investment of a 10% equity position in ES and C, again similar with different timing in equity. Speaker 300:35:11And then there's a portion of we break that out, of that $2,800,000,000 that I talked about, the $1,600,000,000 is equity, the $1,200,000,000 will come out of working capital operations. It's more of a guarantee of supply where we have to actually get more supply upfront 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 timeframe. 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 remodel at 6%. I don't see us going above that anytime soon. Speaker 300:35:56And again, we will probably update the CapEx as a percentage of revenue during our November 7 Investor Day. Thank you. Operator00:36:06Thank you. And our next question comes from Francois Bouvignies with UBS. Your line is open. Speaker 900:36:14Hi, 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 second half of the year as one of the driver for improvement. Could you be a bit more specific, give more details on what platform and what You mentioned radar, but I was wondering if you could be a bit more specific. Speaker 900:36:42You 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 have to dig on this company specific drivers on the platforms. And then I have a follow-up if I can. Speaker 200:37:06Yes. Sure, Francois. So the growth in automotive in the second half is really having 2 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, where we have ramps with at least 2 Tier 1 automotive companies, which are operating absolutely globally. Speaker 200:37:43So they are serving OEM platforms across the globe. So we are pretty well hedged here relative to an end demand from an end demand perspective. And those are design wins, Francois, which we made probably 3 years ago or so, which are now finally coming into production. Everything is being prepared. And yes, of course, I mean, with the SAAR of -2%, there is always something which is a little less and something which is a little more. Speaker 200:38:12But 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 facing and side radar platforms for global OEMs. Speaker 900:38:37Great. Good. Speaker 200:38:38Thanks. And maybe Francois, if you need 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. Speaker 900:38:57I appreciate the color. Thank you, Kurt. And maybe the follow-up is on the maybe more for Bill on the pricing dynamic. And 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. Speaker 900:39:19So 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. Speaker 300:39:29Sure. 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. Speaker 300:39:40Again, 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 costs, but this is being offset by slightly unfavorable product mix that we plan to ship. So therefore, at the moment, those 2 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. Speaker 300:40:19Now 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 at 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 with the fixed costs as we demonstrated in Q3, but unfortunately the mix is slightly going the other way. Speaker 300:40:53Timing of the replenishing our distribution channel, it carries higher average higher margins. And so you heard her 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 a big, big drive on really focusing on additional long tail customers with their distribution partners, which over time should benefit. Speaker 300:41:21As 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 20 28 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 7. And you all know I've hinted many times that 58% is not our final destination. Speaker 900:41:56Great. Thank you very much. Operator00:41:59Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Speaker 1000:42:07Hi, guys. Thanks for taking my questions. For my first one on your auto commentary, 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've got some company specific drivers like are your auto expectations better for yourself or worse than they were 3 months ago? Speaker 1000:42:33Like 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? Like 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. Speaker 200:42:48Yes. Hi, Stacy. I would say our order 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. Speaker 200:43:09So we have lower headwinds 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. Speaker 200:43:34The 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 changes on the inventory targets they have, which I explained in earlier questions. Speaker 1000:43:49Thank 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? Speaker 1000:44:02Is it industrial and auto? And it did sound like I think I heard Speaker 600:44:06maybe it was Bill say the 2.5 target would be Speaker 1000:44:06for 2025. So are you still planning to go back to 2.5 months, as we get into the year? Yes. So, yes, 2.5 months, as we get into the Speaker 200:44:15next year? 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. Speaker 200:44:30And 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? Speaker 200:44:59No, 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. Speaker 200:45:32For 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 pick it up. It's really across segments, 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. Speaker 200:45:54And 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. So 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. Speaker 1000:46:18Got it. That's helpful. Thank you so much. Operator00:46:23Thank you. And our next question comes from Thomas O'Malley with Barclays. Your line is open. Speaker 1100:46:29Hey 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 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? Speaker 1100:46:54And how should we think about that business into the back half of the year? Obviously, September, you're saying calm down kind of mid single digits. But is there a continued RFID growth with other stuff falling off faster? Just could you give us the profile how that business should trend going forward? Speaker 200:47:08Yes. 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. Speaker 200:47:34So 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. Speaker 200:47:54And 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 8 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 a downward slope. Speaker 200:48:32So basically think about this whole comms intra 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. Speaker 1100:48:52Super helpful. And then if I think about that trajectory, what you normally see with mobile in the Q4 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 Q4. 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? Speaker 1100:49:22Or are you expecting most of that sequential growth into the Q4 to get you to that low single digits year over year to come from industrial and IoT? Speaker 200:49:29Thank you. Hey, Thomas, look, you are really pushing it a step too far now. We try to give a lot of color for the second half with the guidance of the Q3. I really can't give you all the breakout on how each segment is going to do in the Q4. And honestly speaking, Tom, we also don't know that. Speaker 200:49:50I mean, there are things which are constantly moving around, especially relative to this to 2 things. 1 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. Speaker 200:50:09We 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 trends and that piece I will tell you, the trend in automotive is a positive one. I mean, it's we left the trough in automotive behind us. I want to be that clear. Quarter 2 was the trough in automotive, which I think was a 9% peak to trough for automotive, and it is now coming up. Speaker 200:50:36How fast is something we have to see because it's really a function of the inventory digestion. Speaker 1100:50:42Thank you, Kurt. Operator00:50:46Thank you. Our next question comes from Blayne Curtis with Jefferies. Your line is open. Speaker 1200:50:52Hey, thanks guys. Thanks for choosing me in. Actually two questions on auto processors. So Kurt, I wanted to ask you one of your European competitors been talking about share gains. I know it's kind of fair while you're correcting and talk about share. Speaker 1200:51:04But 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? Speaker 200:51:17Yes. Hi, Blayne. So first of all, I just want to be sure everybody knows, we are the number 1 in auto processes worldwide. Whatever you hear from peers is typically related to parts of that, which is the microcontroller part or the application processor part, etcetera. If you put it all together, you find enough third party evidence that NXP is the number 1 and keeps being the number 1. Speaker 200:51:43And that holds also for China. So I think in China, we have a fairly strong position in processes. 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. Speaker 200:52:11I 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 processes, 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 plan. So I feel actually we are in a good place. Now when it comes to manufacturing, absolutely right. Speaker 200:52:40In 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. Speaker 200:53:16So 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. Speaker 1200:53:31Thanks Kurt. And then if I just follow-up on what you just said there, the 16 nanometer domain zone was something you outlined in I think 2021 Analyst Day. Could you just Speaker 200:53:40maybe talk about I know you're going Speaker 1200:53:41to 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 look into next year? Speaker 200:53:58Yes. Well, the 60 nanometer ones are in full production, Blaine. So they absolutely contribute to one of the 3 accelerated growth drivers, which we highlighted in our 2021% to 2024% growth. So I think we guided 9% to 14% for automotive and there were 3 high growth drivers. One of them is the S32 platform, which is the performance processing for automotive. Speaker 200:54:23And the big part of that is indeed 16 nanometer processors. And what I can say now ahead of the November 7 Analyst Day is that in for that piece, we will be ahead of targets. So we laid out growth targets and the automotive processing will be actually above the target, which we had laid out in November 2021. Speaker 1200:54:44Thanks, Kirk. Operator00:54:46Thank you. We have time for one last question. And that question comes from Chris Danley with Citi. Your line is open. Speaker 1300:54:54Hey, 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? Speaker 200:55:11Yes. Hi, Chris. Yes, I'd 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 ex EVs in China in 2024 over 2023, which is a staggering growth. Speaker 200:55:47And that reflects also back into our business. So yes, I would call out China. Speaker 1300:55:52Thanks. And then just a quick follow-up on your own inventory days that 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? Speaker 1300:56:09Where is the end goal? Where do you expect that to trend? Speaker 300:56:13Sure, 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. Speaker 300:56:35When 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 end. 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. Speaker 1300:57:07Great. Thanks Bill. Speaker 300:57:09Thank you. Operator00:57:11Thank you. That concludes our question and answer session. I'd like to turn the call back over to Curt Sievers for closing remarks. Speaker 200:57:18Yes. Thanks, operator. Yes. 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. Speaker 200:57:44In 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. Speaker 200:58:17Those factors play then into our guide for the year being more of a low single digit decline annually over last year, which is towards 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. Operator00:58:49Thank you. This does conclude the program. You may now disconnect. Everyone, have a great day. Speaker 100:58:54Thank you. Operator00:58:55You're welcome.Read morePowered by