NXP Semiconductors NV (NXPI) — Q4 2024 Earnings Call Transcript

Thank you, Daniel, and good morning, everyone. Welcome to NXP Semiconductor's Fourth Quarter Earnings Call. With me on the call today is Kurt Sievers, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the first quarter of 2025. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure for forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth quarter 2024 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section at nxp.com. Now, I'd like to turn the call over to Kurt.

Thank you, Jeff, and good morning, everyone. We really appreciate you joining our call today. I will review both our quarter four and our full year 2024 performance, and then I will discuss our guidance for quarter one. Beginning with quarter four, our revenue was $11 million better than the midpoint of our guidance. The revenue trends in our end markets were slightly above in Automotive, in line in Mobile, slightly below in Industrial & IoT, while communication infrastructure and other missed our expectations. So taken together, NXP delivered quarter four revenue of $3.11 billion, a decrease of 9% year-on-year. The non-GAAP operating margin in quarter four was 34.2%, 140 basis points below the year-ago period and about 10 basis points above the midpoint of our guidance. Year-on-year performance was the result of the lower revenue and the related gross profit fall-through, partially offset by lower operating expenses. From a channel perspective, we kept distributing inventory flat at eight weeks, below our long-term target of 11 weeks. From a direct sales perspective, we supported Western Tier 1 automotive customers with their continued digestion of on-hand inventory in a cloudy auto demand environment. For the full calendar year 2024, revenue was $12.61 billion, a decrease of 5% year-on-year. Full year non-GAAP operating margin was 34.6%, a 50 basis point compression versus the year-ago period due to lower revenue and the related gross profit fall-through, partially offset by lower operating expenses. While the second half of 2024 did not play out as we had originally expected, we rigorously focused on what is under our own control to minimize the impacts on our financial performance. And now let me turn to the specific full year 2024 trends in our focus end markets. In Automotive, full year revenue was $7.15 billion, down 4% year-on-year, primarily a reflection of declining automotive production in Europe and Japan exacerbated by inventory digestion at Western Tier 1 customers in an uncertain automotive demand environment. Against this backdrop, we experienced company-specific growth in our accelerated growth drivers, S32 for the software-defined vehicle, automotive connectivity, radar, and electrification. For quarter four, automotive revenue was $1.79 billion, down 6% versus the year-ago period and near the high end of our guidance. Turning to Industry and IoT. Full year revenue was $2.27 billion, down 3% year-on-year, a reflection of ongoing weakness in end demand and tight control of distribution channel inventories. For quarter four, Industry and IoT revenue was $516 million, down 22% versus the year-ago period and slightly below our guidance. In Mobile, full year revenue was $1.49 billion, up 13% year-on-year, thanks to easy compares in the first half of 2023. For quarter four, mobile revenue was $396 million, down about 2% versus the year-ago period and in line with our guidance. In communication infrastructure and other, full year revenue was $1.69 billion, down 20% year-on-year. The year-on-year decline was due to lower sales across the entire portfolio. For quarter four, revenue was $409 million, down 10% year-on-year and below our guidance. Now, I will turn to our expectations for quarter one, 2025. We are guiding quarter one revenue to $2.825 billion, down 10% versus the first quarter of 2024 and down 9% sequentially. From a sequential perspective, this is consistent with our original outlook for quarter one to be seasonally down in the high single-digit range. At the midpoint, we expect the following trends in our business during quarter one. Automotive is expected to be down in the mid-single-digit percent range versus both quarter one 2024 and quarter four 2024. Industrial and IoT is expected to be down in the low double-digit percent range year-on-year and about flat versus quarter four 2024. Mobile is expected to be down in the high single-digit range year-on-year and down in the high-teens percent range versus quarter four 2024. And finally, communication infrastructure and other is expected to be down in the mid-20% range versus quarter one 2024 and down in the upper 20% range versus quarter four 2024. Zooming out, as we enter 2025, we continue to see weakness in Europe. The Americas appear to be bouncing off the bottom and China has implemented several incentive programs. All of this correlates with the reported manufacturing PMI being around 50 with China and the US slightly above and Europe and Japan below. Against this backdrop, we continue to have poor forward visibility, and we are experiencing relatively high turns business, reflective of our short-order terms. On the customer front, we have completed the majority of our annual price negotiations for calendar year 2025, and we continue to be confident in low single-digit price erosion year-over-year, consistent with our prior commentary. When it comes to inventory in the market, our quarter one guidance contemplates decreasing inventory dollars in both the direct and the distribution channels reflecting under shipment against true end demand. We expect distribution channel inventory to be eight to nine weeks, below our long-term target of 11 weeks. Now, before turning to your questions, I would like to review two strategic acquisitions, which we announced over the last 90 days. Both are vital building blocks to accelerate and expand NXP's CoreRide vision for next-generation software-defined vehicle platforms. Our CoreRide platform comprises a complete suite of secure hardware and software solutions, including processes, connectivity, functional safety and power management as we had laid out in our Investor Day in November. So first, in mid-December, we announced our intention to acquire Aviva Links for $243 million. Aviva is a five-year-old Silicon Valley startup, whose founders have a proven track record in the multi-gigabit Ethernet market. The company is focused on multi-gigabit automotive connectivity technology based on the ASA-MLE standard, which is ideally suited for asymmetric point-to-point connectivity of ADAS sensors and IVI display applications. Asymmetry ASA links are cost and performance optimized for one-way data traffic typical for ADAS and IVI applications, whereas Ethernet is optimized for two-way data traffic going in both directions at the same speed. This addition is fully complementary with NXP's market-leading positions in automotive networking processors, gateways and broad in-vehicle networking solutions. Aviva is an innovation leader in open standards based asymmetrical ASA service with the first to market best-in-class 16-nanometer quad-port 16 gigabit per second uplink product. The company is pre-revenue and has received design awards from OEMs and Tier 1 customers aiming to replace proprietary solutions. We expect Aviva to enhance and complement our broad automotive networking business beginning in 2027. With this, we are capturing a growing application area we have not taken part in by our standards-based solution. This acquisition reinforces our company's specific automotive connectivity accelerated growth driver. And secondly, in early January, we announced our intention to acquire TT Tech Auto for $625 million, a division of TT Tech, a privately held software company based in Austria. TT Tech Auto has extensive knowledge and expertise in the automotive market, especially in the domain of vehicle safety and real-time integration. Its software product called MotionWise, is focused on safety and deterministic real-time performance, key attributes of the software-defined vehicle. MotionWise bridges the silicon hardware layer to the operating system layer, enabling deterministic and safe management of the application software layer. MotionWise is already deployed in over 4 million vehicles with a pipeline of awarded projects, which will enable another 7 million vehicles. The combination of NXP’s CoreRide and TT Tech Auto's MotionWise will reduce our customers' integration efforts, enabling software reuse and delivering optimal system performance. The combined expertise of NXP and TT Tech Auto will allow us to drive faster time to market and lower cost solutions in direct collaboration with automotive OEMs. Taken together, these acquisitions enhance our long-term competitive position in the automotive end market. We expect the regulatory approvals should be complete by the end of quarter three '25. These transactions are consistent with our long-term strategic efforts and will begin to contribute revenue within a brief period after close. However, they will not have a material impact on the financial model we recently shared at our Investor Day in November. By 2028 and beyond, these assets will be accretive to our current financial model and will help bootstrap and accelerate our capabilities in specific functional areas. I am very excited about how they will help NXP to offer complete system-level solutions for tomorrow's automotive markets. We do look forward to welcoming the talented teams to NXP. And with that, I would like to pass the call over to you, Bill, for a review of our financial performance.

Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q4 and provided our revenue outlook for Q1, I will move to the financial highlights. Overall, our Q4 financial performance was good. Revenue and non-GAAP gross profit were both modestly above the midpoint of our guidance range, while operating expenses were in line with the midpoint of our guidance. Taken together, we delivered non-GAAP earnings per share of $3.18 or $0.05 better than the midpoint of our guidance. Furthermore, we continue to tightly manage sales into the distribution channel with weeks of inventory in the channel flat sequentially at eight weeks. I will first provide full year highlights and then move to the Q4 results. Full year revenue for 2024 was $12.61 billion, down 5% year-on-year due to a weak macro in the Western markets, while China continued to be resilient. We generated $7.33 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.1%, down 40 basis points year-on-year. Total non-GAAP operating expenses were $2.96 billion or 23.5% of revenue, slightly above our long-term operating expense model as we continue to invest in our strategy, supporting long-term profitable growth. Total non-GAAP operating profit was $4.37 billion, down 6% year-on-year. This reflects a non-GAAP operating margin of 34.6%, down 50 basis points year-on-year and in line with our long-term financial model. Non-GAAP interest expense was $275 million. Taxes related to ongoing operations were $686 million or a 16.8% non-GAAP effective tax rate. Noncontrolling interest was $32 million and the results from equity account investees associated with our joint venture manufacturing partnerships was zero. Stock-based compensation, which is not included in our non-GAAP earnings, was $461 million. Turning to full year cash flow performance. We generated $2.78 billion in cash flow from operations and invested $693 million in net CapEx or about 5.5% of revenue. Taken together, this resulted in $2.09 billion of non-GAAP free cash flow or about 17% of revenue. During 2024, we repurchased 5.73 million shares for $1.37 billion and paid cash dividends of $1.04 billion or 37% of cash flow from operations. In total, we returned $2.41 billion to our owners, which was 115% of the total non-GAAP free cash flow generated during the year. Now, moving to the details of Q4. Total revenue was $3.11 billion, down 9% year-on-year, modestly above the midpoint of our guidance range. We generated $1.79 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57.5%, down 120 basis points year-on-year and in line with the midpoint of our guidance range. Total non-GAAP operating expenses were $725 million or 23.3% of revenue, down $66 million year-on-year and in line with the midpoint of our guidance range. From a total operating profit perspective, non-GAAP operating profit was $1.06 billion, and non-GAAP operating margin was 34.2%, down 140 basis points year-on-year and above the midpoint of our guidance range. Non-GAAP interest expense was $74 million, while taxes for ongoing operations were $164 million, or a 16.5% non-GAAP effective tax rate. Noncontrolling interest was $10 million and results from equity account investees associated with our joint venture manufacturing partnerships was zero, although $2 million better than our expectations. Stock-based compensation, which is not included in our non-GAAP earnings, was $117 million. Now, I would like to turn to the changes in our cash and debt. Our total debt at the end of Q4 was $10.85 billion, up $672 million sequentially due to the attractively priced loan from the European Investment Bank. Our ending cash balance was $3.29 billion, up $144 million sequentially due to the cumulative effect of additional liquidity, capital returns, CapEx investments, and cash generation during Q4. The resulting net debt was $7.56 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $5.06 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q4 was 1.5 times, and our 12-month adjusted EBITDA interest coverage was 21.3 times. During Q4, we paid $258 million in cash dividends and repurchased $455 million of our shares. After the end of the quarter and through January 31, we bought an additional $101 million of our shares under established 10b5-1 program. Turning to working capital metrics. Days of inventory was 151 days, an increase of two days sequentially, while we maintain distribution channel inventory at eight weeks. As we have highlighted throughout the previous year, given the uncertain demand environment, we continue to make the intentional choice to control the increase of channel inventory. Days receivables were 30 days, flat sequentially, and days payable were 65 days, an increase of five days compared to the prior quarter due to improving our payment terms with suppliers. Taken together, our cash conversion cycle was 116 days, an improvement of three days compared to the prior quarter. Cash flow from operations was $391 million, and net CapEx was $99 million or 3% of revenue, resulting in non-GAAP free cash flow of $292 million or 9% of revenue. During Q4, we paid a $275 million capacity access fee related to BSFC, which is included in our cash flow from operations. Additionally, we paid $50 million into our equity accounted foundry joint venture under construction in Germany, which is included in our cash flow from investing. Turning now to our expectations for the first quarter. As Kurt mentioned, we anticipate Q1 revenue to be $2.825 billion, plus or minus about $100 million. At the midpoint, this is down about 10% year-on-year and down about 9% sequentially. We expect non-GAAP gross margin to be about 56.3% plus or minus 50 basis points, driven by the return of our annual price concessions and lower revenue fall-through over our fixed costs. Operating expenses are expected to be about $700 million, plus or minus about $10 million. The sequential decline is driven by restructuring the business and lower variable compensation. Taken together, we see non-GAAP operating margin to be 31.5% at the midpoint. We estimate non-GAAP financial expense to be about $80 million. We expect the non-GAAP tax rate to be 17.5% of profit before tax. Noncontrolling interest will be about $5 million and results from equity accounted investees to be about $1 million. For Q1, we suggest for modeling purposes, you use an average share count of 256 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance, to be $128 million. Taken together at the midpoint, this implies a non-GAAP earnings per share of $2.59. Turning to uses of cash. We expect capital expenditures to be around 5% of revenue, we also made a $125 million capacity access fee into the SMC, which was originally planned for Q4. Additionally, we will make a $32 million equity investment into ESMC and a $76 million equity investment into VSMC, our two equity accounted foundry joint ventures under construction. For full year 2025 modeling purposes, consistent with comments from our recent Investor Day, we expect operating expenses to stay with our long-term model of 23% for the year. We will see a step-up of operating expenses due to the annualized merits, the $15 million annual license fee, along with variable compensation movements depending on actual performance. We suggest using a non-GAAP tax rate of 17.5%, plus or minus 50 basis points. For stock-based compensation, we suggest using $475 million. For noncontrolling interest, we suggest modeling $30 million, plus or minus a few million. And for equity accounted investees, we suggest modeling a $10 million loss, plus or minus a few million depending on the build progress for both ESMC and VSMC joint venture from our front-end facilities. For capital expenditures, we expect to stay within the long-term model of 5% or less. In closing, I would like to highlight a few focus areas for NXP. First, as you can see, we have taken some restructuring charges in Q4 as we are creating space for our recent acquisitions to prevent dilution and to ensure we stay within our long-term operating expense model. Second, our internal front-end utilizations will remain in the low 70% range. Consistent with our hybrid manufacturing strategy, we are now also concretely planning the consolidation of our internal 200-millimeter factories. And lastly, as visibility remains very cloudy, we will rigorously focus on managing what is in our control to navigate a soft landing while executing our growth strategy. And of course, there is no change to our capital allocation strategy. With that, I would like to turn it back to the operator for your questions.

Yeah. Good morning, good afternoon. Thank you for taking the question. I guess high level, all eyes are on the rate of recovery off of a likely Q1 bottom for you guys as well as the industry. So, would be curious if you think we're set up for normal seasonal trends into Q2 and beyond? And if you could kind of parse through that, where you're seeing relative strength and perhaps where you see relative weakness or where you see concerns where perhaps trends won't be as strong as seasonal?

Thanks, CJ, and good morning. I want to emphasize again that our visibility is quite limited. Due to short order lead times, there's a lot of last-minute ordering from customers. Overall, our visibility is restricted. Specifically addressing your question, the 9% sequential decline in Q1 is at the lower end of what we expected and soft guided in the previous quarter. I would say that automotive and industrial are performing reasonably well, with the year-on-year decline in automotive being similar to what we saw in Q4, which is a mid-single-digit decline. In industrial IoT, we remain flat from Q4 to Q1. The area that has significantly declined is the communications infrastructure segment, where there's been an accelerated decline related to the end-of-life for some former digital networking products. This segment has become notably weak, as we had indicated last year. Regarding your inquiry about Q2, given our minimal visibility, we cannot make a definitive statement. I realize you require guidance for your model, and I would suggest considering a flat to slightly up trend for modeling purposes, though this isn't grounded in strong forward visibility at this moment. Nonetheless, flat to slightly up seems to be the best estimate we can provide at this stage.

Very helpful. And then maybe a question for you, Bill. Our gross margins, given where we are in the cycle, 56.3% is spectacular. Would love to hear kind of how you see a recovery playing out from utilization rates from mix, from bringing in higher-margin distribution? Would love to kind of how you see things evolve.

CJ, absolutely. As you could see, the gross margins declined as we anticipated by about 120 basis points. And the attributes, again, we are now returning to our normal annual price negotiations. And as Kurt alluded to, down to low to mid single-digit range. So when you do the quick math, you can understand that effect. And then as we enter toward in Q4 guidance, we would lose some of the fall-through over our fixed costs, which actually happen. But on the bright side, which is more of a tailwind, we were able actually to partially offset some of those headwinds through the improved mix in Q1. And also, we are getting lower supplier and operating costs, which are tying throughout the year to offset that total pricing effect that occurred in the first quarter. So the cost adjustments come throughout the year. Overall, I would say at these revenue levels. And as I mentioned, we're running front-end internal utilizations in the low 70s, I feel pretty confident that we will remain at these gross margin levels, plus or minus the normal 50 basis points, driven by mix. I'd say once we return to revenue growth, we will then move back into our long-term gross margin range of 57% to 63%.

Hey, guys. Thanks for taking my question. I wanted to focus in on the regional trends. It sounds very similar, what you're kind of talking about, at least on the auto side with some inventory at the North American guys with potentially some better environments elsewhere. Could you just maybe talk about the inventory situation at the North American customers versus three months ago? Do you feel like that's coming to a bottom here with some inflection from this point forward or are you still kind of working that down? Any additional color there would be helpful.

Yeah. Thanks, Tom. I hear two parts in your question. One is the regional one and the other one, the inventory. On the regional side, in quarter four, clearly, Asia, led by China was on the brighter side of things with Europe and the US being very weak, and that very weakness was certainly driven both by inventory digestion as you're hinting to and a weak end demand. That was pretty much as we had anticipated. So I'd say quarter four, there was nothing really changing through the quarter versus our anticipation. And going into quarter one, overall, I'd say we do see some early strength in Asia for industrial IoT. You saw that we sequentially guided that flat. Also for auto, Asia is robust. So, it's kind of the same situation like 90 days ago from a regional split perspective with a strong Asia and a relatively weak or especially weak Europe and maybe the US getting a little better. Now on the inventory side, so the answer, first of all, Thomas, yes, we continue to digest on-hand inventory at our direct Tier 1 customers. That process continues, and it is both for the US as well as for the European Tier 1 customers. How much it is and how long that still lasts? I can't really tell you. And I would also not put Q1 into comparison to Q4 in terms of its less or more. No, we have individual plans there with each single customer, and we got to see how that plays out. But that is clearly still weighing on our revenue performance, especially in automotive, keeping it at a sub end demand level. At the same time, and I for completeness, I have to say that also the discipline on the general inventory holds, you saw that we kept it flat at eight weeks in the fourth quarter. For Q1, I had in my prepared remarks, something like eight to nine weeks. It's a bit hard to say, to pin it down exactly about, say, eight to nine weeks. So, and in total, by the way, a reduction in dollars in the inventory. So the important piece is we continue to do this from inventories, both at distributors as well as direct customers go down from a dollar perspective. So at some point, that must come to an end because the rate of under-shipment against end demand in a flat SAAR environment, that must come to an end. I gave up to try and call when exactly. But if you do the math, it cannot take that long anymore.

Super helpful. And then just as a follow-up, I think you gave a lot of really good pieces there. So the inventory is low. You talked about low 70s range in terms of internal utilization. Like clearly, visibility going into this year is really difficult for you guys right now. But can you just maybe walk through for us on the line, when do you start to make decisions about internal utilization? Like, is it like two or three quarter out scenario where, hey, things are getting better, we're going to reduce a bit. It seems like things are at a healthy level right now from the utilization perspective. But when do you make that call? And maybe what levers do you look at when you think about potentially reducing that if demand isn't coming back?

Yeah. Let me take this one. Obviously, we're focused on what we control. At the same time, our internal inventory from a dollar perspective is up quarter-over-quarter. We expect those dollars going into Q2 as Kurt alluded to, on flat to slightly up, from a dollar perspective is to stay flattish. So that's what we're balancing, the dollars and the utilization from an internal standpoint as well as we have to adjust our foundry and subcon orders with current revenue levels. So again, we're balancing all that. I would say if the second half comes up and we’re planned and ready for that, that's probably when that will take effect when we would increase our utilization. But again, we're going to be very cautious as Kurt alluded to, we kind of got this wrong last year, so we're just going to take it one quarter at a time.

Thank you for allowing me to ask the question. Kurt, the Industrial IoT segment has remained flat sequentially. You mentioned a slight improvement in Asia, but I believe this flat performance is a pleasant surprise for many. Could you provide more insight into what is happening in that segment and how you are managing to keep the business stable?

Yes, Ross. As I mentioned, the relative strength, though I hesitate to call it strength just yet, is indeed coming from Asia. Within Asia, it is primarily from China, where we have significant exposure. Our low channel inventory is advantageous in this situation because we don’t need to further reduce it. Any potential improvement in end demand is beneficial for us since we’re not having to deplete inventory levels. That’s how I would describe the situation. However, I also want to be cautious and not suggest that this indicates clear positive trends or anything like that. While it appears slightly better in Asia, it's still too early to identify a lasting trend.

Thanks for that. And then I guess as my follow-up, switching over to the comms business and other. You've mentioned about kind of an accelerated end-of-life process. Is that now behind us? And so the business a little under $300 million, I guess, in the first quarter for your guide is now going to act along with whatever demand does? Or is there more room that, that has to be taken down?

Yeah, let me try to parse this. So when exiting last year, calendar '24, think about the comms infra segment with roughly the following split. So 50% was in the secure card area, which includes also RFID, 20% in the radio power for the mobile base station networks and 30% in this digital networking business. So, that's about the size we talk about here and that end-of-life situation still continues, Ross. It goes into Q1, but I would expect it to further continue beyond Q1.

Thanks for taking my question. Kurt, on the first one, maybe a little deeper into the Automotive segment. There's a lot of talk of tariffs, et cetera, this year. Have you seen any change yet in customer behavior, pull in, push out, mix of EV, et cetera? Just how are you reflecting this kind of evolving landscape in your thinking for 2025?

First of all, I want to emphasize that due to the uncertainty and various factors at play, we haven't reflected that in anything we've discussed today. There are many unknowns, and we could easily be mistaken. Most of what we are currently hearing suggests an indirect impact on NXP. For example, regarding Canada and Mexico, we won't be affected since we do not ship from those countries into the US, so it's not relevant to us. However, the situation with China does eventually involve us since we have some production there, including a back-end facility in Tianjin, which does ship to the US. We've examined this, and it will have a negligible impact on us. That's the only situation I can clearly describe, as we have a good understanding of it and it is indeed immaterial for us. We can discuss the complexities behind this at another time. Thus, the straightforward answer is that nothing else has been considered in what we communicated today.

And maybe one for Bill, just kind of a hypothetical, if I sort of take what was said about Q2, and I completely understand visibility is limited. But if I assume some semblance of normal seasonality in the back half, I kind of get it conceptually sales down high single-digit or so this year. So I'm not asking you to endorse that. But let's say that was the situation what would be the right way to mathematically think about gross margins and OpEx this year? Thank you.

Yeah. Similar to last quarter, the best metric, I think, for modeling purposes, without knowing all the different movements and visibility, I would just go back to whatever you put in your model for those types of revenues and look at from a historical standpoint. That's all I can provide, to be honest with you, because as you know, there's many moving parts, but that's, I would say, a fair representation for modeling purposes.

Hi, guys. Thanks for taking my questions. I wanted to go back to gross margins. You said gross margins would probably stay here, give or take, until revenue started to grow. You suggested Q2 would be maybe flattish or up a bit. So I assume Q2 gross margins in that environment don't really go up very much. Hopefully, that revenue grows in the second half. Before, you had suggested that margins for the full year would land still within your range of 57% to 63%. Given you're going to be in the 56% is in the first half, do you think you can still get into the range for the full year? And if you do, is it like very close to the low end because I'm having a hard time getting it much more than that without a lot of growth in the second half.

Yeah, Stacy, first off, related to the gross margins, you're right. For Q2, I said at similar levels, plus or minus the 50 basis points. We never guided the full year and said we would stay within the financial model for...

That's what you said. At the Analyst Day, you said that.

Correct. We have said that, and a lot will depend on the second half related to return of growth. So, as I mentioned earlier to another question, I said if the second half grows above the first half, we will then get back into our long-term gross margin range of 57% to 63%, but a lot depends on the recovery of the second half.

You don't know if you'll be there for the full year now?

I'm not guiding that at this point in time with the low visibility we have.

Okay. And I guess on that point of visibility, you said you have a lot of turns. What is your percentage of orders that are coming from turns right now? And, like, how does that differ across the different segments?

We don't disclose that. All I can tell you is the trend has picked up over the last three quarters, and they're getting larger and larger.

Hi, good morning. Thanks so much for taking the question. My first one is on the automotive business. Just from a business planning perspective, and again, I realize you've got a little visibility and a lot of moving parts here. But from a planning perspective, what kind of global SAAR or global unit production are you expecting for the year? And more importantly, Kurt, you talked about the secular drivers that you guys have been speaking to the 32 connectivity radar, et cetera, what rate of outperformance or content growth should we or can we expect in calendar '25 versus '24?

Hi, Toshiya. The first part is straightforward. We estimate around 89 million units in car production this year, which represents a slight decline overall. It's important to note that while China is more stable, Europe and the US are experiencing a slight downturn. As Vivek mentioned, we’re unsure how tariffs will impact this, but we expect flat to slightly reduced car production for the year. For the company-specific growth drivers, I recommend using the percentage growth rates we provided during our Analyst and Investor Day last November, adjusted for the overall business challenges due to under-shipment as we manage inventory. However, the difference between the core business performance and the accelerated growth drivers remains consistent, as they all have similar inventory levels. Therefore, it doesn't make sense to model any difference in inventory, and they all face the same challenges. The delta is the same for all. Last year, despite the overall decline in the auto sector, all three of our key segments grew year-on-year, and we anticipate this trend to continue this year.

That's helpful. Thank you. And then as my follow-up, you mentioned for the year, you're expecting blended pricing to be down in the low single-digits. I'm curious what your expectations are in terms of foundry costs or wafer costs in '25 versus '24? And then somewhat related to that, Bill, you talked about potentially consolidating 8-inch facilities. If you can expand on that and kind of speak to timing and magnitude in terms of potential gross margin tailwind in future years, that would be helpful. Thank you.

Sure, I can address the first part of your question. I can confirm that we are experiencing low single-digit price erosion this calendar year, following a stable pricing situation last year. I want to clarify that we were neutral on pricing last year, as we had expected. This year, we anticipate a low single-digit decline with high confidence. Additionally, the input costs are starting to improve, which will help us mitigate the impact on gross profit from the price erosion. However, there's a timing aspect to consider, as a significant portion of the pricing changes have already occurred, while the input cost reductions will unfold over the entire year. We’ll need to progress through the year to balance that out. Fortunately, the environment is becoming more favorable, which will assist in offsetting the price decline. Bill, could you elaborate on the consolidation aspect?

Yes, absolutely. Obviously, this is something we shared during Investor Day. I just hinted that we're basically planning and almost complete. When this occurs, it will occur sometime in 2025. And there will be a natural tailwind associated with the utilization as we start bridging some of the build plan for the transfers of those products. That would probably be my guess more of an impact in the second half of the year when we decide to announce this. And again, at this point in time, I could just show you, yeah, that's roughly basically, I would say there is a tailwind when we do and start that process. But we haven't yet.

Yeah, thank you. Good morning. The first question is, again, on some of the digital networking products that are going end of life. I want to make sure that we're calibrated on this correctly. So, I think what you said is that was about 30% of the common infrastructure segment. Should we expect that a large part of that goes away over the next few quarters? I guess I'm trying to quantify how much of the business is affected by end of life and sort of the timing that you expect for that to finally work its way down.

Yeah. So first of all, yes, I reconfirm you understood me correctly. It's about 30% exiting last year of the total revenue of the segment, which we discuss about here. And by the way, just as an aside, I mean, the RF power business in there is also pretty lumpy. It's not like everything else is golden, and that's the only concern. But that's the one we speak about. And yes, it will continue through the next couple of quarters to further decline given the end-of-life actions on several of these products. That doesn't mean it goes totally away, but think about the continued decline through the next couple of quarters of that 30% piece. Now at the same time, the secure card business is okay. In there, we have RFID. You know that RFID is a growth business for NXP. So there are many moving pieces in this comms infra segment, which is why for the next three years, we guided it to be just flat. I just wanted to show today to call out that, that 30% portion really sees a quite material decline through this year.

Hey, guys. Thanks for squeezing me in and taking my questions. Very much appreciate that you gave us the rough outlook for the second quarter, given the low visibility environment. I guess as you sit here today, do you expect to still be under-shipping in that second quarter? Is there any way to quantify that amount? And I assume within that flat to up number, that still includes the channel staying in sort of the eight to nine week range? Thank you.

This is an effort to guide expectations for the second quarter, which we hadn't planned to do. It's a matter of mathematics. If our numbers remain flat or show slight growth, we will still be under-shipping. We believe there’s a significantly higher natural demand than what is reflected. So, if our performance is flat to slightly up, it will still indicate under-shipment, which I think reflects our disciplined approach to the channel. Regarding the eight to nine weeks, that’s correct. Additionally, it likely indicates further adjustments in on-hand inventory, particularly with automotive Tier 1 customers. Again, this isn't a formal guidance, but if we interpret it as such, a flat to slightly up performance would indeed lead to that outcome.

Got it. I appreciate the information. Now, I'd like to ask about the TT Tech acquisition. You're making a deeper move into the software space and acquiring the middleware assets. Can you discuss how this might change your conversations with your OEM customers and the potential demand for your broader range of hardware solutions? Additionally, does this acquisition involve more competition with your customers? Thank you.

Thank you for that important question, Josh. This strategic move we announced is crucial as it facilitates engagement with automotive OEMs. It enables discussions around software-defined vehicle definitions and architecture, which are controlled by the OEMs. No single Tier 1 can manage this alone, as it requires a top-down approach for the entire vehicle. Therefore, it's owned by the OEMs. To establish NXP as a leading partner in designing the new infrastructures of vehicles, we realized we needed more software over the past few quarters, and that's where TT Tech Auto fits in perfectly. This acquisition allows us to engage in conversations and co-design STD architectures with OEMs. I wouldn’t consider it competition with our direct customers; instead, we are advancing up the value chain. Jens Hinrichsen, who leads our automotive business, mentioned during our Investor Day in November that TT Tech is a vital component in realizing our vision of co-architecting platforms with OEMs.

Yeah. Thanks operator. Yeah. Thanks for paying attention to today's call. We continue to be in a very cloudy environment where you saw our hesitation and cautiousness to call the bottom or to speak about the rest of the year. We take, however, a very rigorous focus on cost and gross margin management, which is under our control to continue consistently on that strategy of soft landing to be ready and best prepared for the upcycle when and if it comes. With that, I thank you for your attention. Thank you.