NXP Semiconductors NV (NXPI) — Q1 2026 Earnings Call Transcript

Thank you, Lisa. Good afternoon, everyone. Welcome to NXP Semiconductors First Quarter Earnings Call. With me on the call today is Rafael Sotomayor, NXP's President and CEO; and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for the financial results for the second quarter of 2026. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2026 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section. Now I'd like to turn the call over to Rafael.

Thank you, Jeff, and good afternoon. We appreciate you joining us today. Our first quarter performance exceeded expectations with broad-based improvements across all our focus end markets, led by our company-specific growth drivers and, importantly, with momentum now visibly broadening into the core of our business. What we're seeing today is the compounding result of sustained investment, disciplined execution and deepening customer adoption across our differentiated portfolio that is increasingly well positioned for the most durable secular trends in semiconductors: software-defined vehicles, physical AI and, now with greater visibility than before, data center infrastructure. The remainder of 2026 is set up to be stronger than we anticipated just 90 days ago. Now I want to walk you through the key drivers behind that improvement. Turning to the quarter. We delivered revenue of $3.18 billion, up 12% year-over-year and seasonally down 5% sequentially. All end markets grew year-over-year. And in aggregate, we outperformed by $31 million, above the midpoint of our guidance. Our company-specific strategic growth drivers across the automotive and industrial & IoT end markets grew 18% year-over-year and represented roughly one-third of first quarter revenue, 120 basis points above last year and 40 basis points above the midpoint of our guidance. Taken together, we delivered non-GAAP earnings per share of $3.05, $0.08 above the midpoint of our guidance. Now turning to end market performance. In automotive, revenue was $1.78 billion, up 6% year-over-year and in line with expectations. Adjusted for the sale of the MEMS Sensors business, automotive growth was 10% year-over-year. During the quarter, the growth was driven primarily by accelerating customer software-defined vehicle programs, improved electrification trends and continued momentum in radar and connectivity. Together, the auto accelerated growth drivers contributed nearly 90% of the year-over-year growth. From a customer adoption perspective, we're seeing strong design-win traction for our S32N and S32K5 products, platforms that will serve as the backbone of our automotive processing franchise for years to come. We also secured new radar awards for imaging radar solutions, along with wins for our 10-gigabit automotive Ethernet products. These are multiyear platform commitments that expand NXP content per vehicle and deepen the structural relationship with our customers. The automotive opportunity is a long-duration compounding story and our progress reinforces that trajectory. In industrial & IoT, revenue was $628 million, up 24% year-over-year and near the high end of our guidance. Growth was driven by our newer industrial processing solutions, including i.MX, RT and MCX. Together, these products grew about 75% year-over-year and contributed nearly half the end market growth versus Q1 2025. Within the end market, industrial was strong with notable strength in factory automation, data centers and energy storage. Looking ahead, the industrial & IoT market is entering a transformative phase as physical AI moves intelligence into real-world systems and robotics. This is creating significant content growth opportunities for NXP, particularly in processing, connectivity and security. As AI is deployed at the edge, customers need greater processing headroom to future-proof their platforms. As a result, we're seeing customers making deeper multigenerational commitments to NXP because of the strength of our AI-enabled product portfolio. Now I want to take a moment to speak directly about our data center exposure because this is an area that we haven't previously emphasized. In 2025, revenue related to data center applications was about $200 million, and it was reflected evenly in both our industrial & IoT and communications infrastructure end markets. Based on our other programs now ramping, we believe this business will be north of $500 million this year with a similar end market split. We have established meaningful positions in system cooling, power supply, board management and control-plane switching applications. Across these subsystems, customers choose NXP for our processing depth and security capabilities. Based on customer engagements, we are reinforcing our i.MX application processor family for this opportunity, creating a durable and expanding revenue presence in data centers. With communications infrastructure, revenue was $380 million, up 21% year-on-year and at the high end of our guidance. Growth was driven by digital networking exposure to data center and continued ramps of our UCODE RFID product. And lastly, mobile revenue was $391 million, up 16% year-over-year and in line with guidance, reflecting continued strength in our secure mobile transactions franchise. Now turning to the second quarter. Our outlook is better than we anticipated 90 days ago. We are guiding second quarter revenue to $3.45 billion, up 18% year-over-year and up 8% sequentially. This sequential growth represents an acceleration of our company-specific drivers. We expect all regions and all end markets to be up year-on-year, a reflection of expanded customer adoption of our differentiated portfolio. At the midpoint, we expect the following trends in our business during Q2. Automotive is expected to be up in the low double-digit percent range year-over-year and up in the high single-digit range sequentially. Adjusted for the sale of the MEMS Sensors business, our guidance implies a high-teens percentage growth year-over-year and 10% sequentially. Industrial & IoT is expected to be up in the high-30% range year-over-year and up in the high-teens range sequentially, continuing the acceleration we saw in Q1. Mobile is expected to be up in the low single-digit percent range year-over-year and down in the low double-digit percent range on a sequential basis. And finally, communications infrastructure and other is expected to be up in the mid-30% range versus Q2 2025 and up in the mid-teens percent range versus Q1 2026. In summary, our second quarter outlook and our growth trajectory in 2026 reflect the story of breadth, depth and acceleration. Our company-specific growth drivers are performing as designed. Our core business is inflecting. And today, we have made the growth of our data center revenue transparent to support your understanding of our exposure to this important market. Data center revenue is ramping now, and it will more than double in 2026 from a year ago. We remain disciplined in how we invest, how we allocate capital and how we manage the factors we can control. Our framework is unchanged: invest for growth, pursue targeted M&A to strengthen the portfolio and return excess cash through dividends and buybacks, consistent with our long-term model. And now, I would like to pass the call to Bill for a review of our financial performance.

Thank you, Rafael, and good afternoon to everyone on today's call. As Rafael has already covered the revenue drivers, I will turn to the financial highlights. Overall, our Q1 results were solid, which were led by our company-specific growth drivers across our focused end markets, reinforcing the strength of our strategic priorities. We continue to ramp our new products and see strong customer adoption and design-win momentum across our latest products and solutions. This momentum reinforces the value of our long-term R&D investments and the strength of our product roadmap. In summary, revenue, gross profit and operating profit were all better than the midpoint of guidance, and we delivered non-GAAP earnings per share of $3.05 or $0.08 better than the midpoint. Non-GAAP gross profit was $1.82 billion, with a 57.1% non-GAAP gross margin, modestly above guidance, driven by solid fall-through on higher revenues. Non-GAAP operating expenses were $758 million or 23.8% of revenue, favorable to guidance, driven by efficiency gains. Non-GAAP operating profit was $1.05 billion, and non-GAAP operating margin was 33.1%, 40 basis points above guidance. Below the line, non-GAAP interest expense was $90 million and taxes were $173 million. Noncontrolling interest expense was $11 million and results from equity accounted investees were a $4 million loss. Taken together, below-the-line items were $3 million unfavorable to guidance. During the quarter, stock-based compensation was $109 million, and it is excluded from our non-GAAP earnings. Turning to changes in cash, debt and capital returns. Our balance sheet remains strong and provides flexibility to invest in our strategic priorities and hybrid manufacturing plans. We ended Q1 with $11.7 billion in total debt and $3.7 billion in cash. Cash usage during the quarter reflected debt repayments, joint venture investments, capital returns and CapEx, partially offset by cash generation, including $878 million of proceeds from the sale of the MEMS Sensors business. Net debt was $8 billion or 1.7x adjusted EBITDA, and our adjusted EBITDA interest coverage ratio was 14.5x. During Q1, we retired the $500 million, 5.35% tranche due in March. And after the end of the quarter, we retired the $750 million, 3.875% tranche due in June. In Q1, we returned $358 million to our owners comprised of $256 million in dividends and $102 million in share repurchases. After quarter end, we repurchased another $32 million under our 10b5-1 program. We remain committed to our long-term capital allocation strategy, balancing returns to shareholders with disciplined investments in the business to support long-term profitable growth. Turning to working capital. Days of inventory were 165 days, including 7 days of prebuilds. Receivables were 34 days and payables were 59 days, resulting in a cash conversion cycle of 140 days. Inventory levels remain aligned to support our future growth and our planned front-end factory consolidation plans. Cash flow from operations was $793 million, and net CapEx was $79 million, resulting in non-GAAP free cash flow of $714 million or 22% of revenue. From a cash deployment perspective, during Q1, we continue to advance our manufacturing strategy, which supports our long-term supply resiliency. Over time, this is expected to contribute approximately 200 basis points of structural gross margin expansion once the facility is fully operational in 2028. In the quarter, we invested $385 million in VSMC, our manufacturing joint venture in Singapore. This is comprised of $189 million in long-term capacity access fees and $196 million in equity contributions. Overall, we are about 67% through the investment cycle for VSMC and about 30% for ESMC. For VSMC, we expect an additional $425 million in 2026. For ESMC, we expect the 2026 investments to be about $50 million. Now turning to our expectations for Q2. We expect Q2 revenue of $3.45 billion, plus or minus $100 million. This is up 18% year-on-year and 8% sequentially. The expected first-half results support our view that NXP's growth is increasingly company-specific and reinforces our confidence in achieving our long-term revenue growth targets. We expect non-GAAP gross margin of 58%, plus or minus 50 basis points, up 150 basis points year-on-year and up 90 basis points sequentially. This is driven by higher revenue, product mix and front-end utilization improvements. We expect operating expenses of $800 million, plus or minus $10 million. This reflects the $17 million annual RFID licensing fee and normal annual merit increases. At the midpoint, this results in a non-GAAP operating margin of 34.7%. Below the line, we expect non-GAAP financial expense to be approximately $92 million and our non-GAAP tax rate to be 18%. We expect noncontrolling interest to be $14 million, including $4 million losses in our equity accounted investees. Stock-based compensation is expected to be approximately $107 million and is excluded from our non-GAAP guidance. This implies Q2 non-GAAP earnings per share of $3.50 at the midpoint. Turning to Q2 uses of cash. We expect capital expenditures to be approximately 3% of revenue with a capacity access fee payment to VSMC of $55 million and equity investments into VSMC of $125 million and for ESMC $10 million. Overall, our first-half performance and expectations reinforce the durability of our financial model, driven by our company-specific growth drivers finally shining through, gross margin back to expansion mode and improved efficiency in our operating expenses. In closing, we remain confident in delivering our 2027 financial commitments which implies double-digit revenue growth in both 2026 and 2027, gross margin expanding towards 60-plus percent and continued discipline in our operating expenses. I would like to now turn the call back to the operator for your questions.

Rafael, I was hoping that you could give us a sense for what is driving the growth in your automotive business, both within China and outside of China. And then how much of a pricing benefit are you seeing because everything appears to be in kind of short supply right now, and I was wondering if NXP is seeing any benefit from the pricing side of the equation? Or do you think this is more company-specific and these are more unit rather than pricing given growth upside that you're seeing right now in autos?

Yes. Thank you, Vivek, for the question. Let me tackle the question on auto. There is constant news of SAAR being down and that can be confusing about what it means for our auto business. SAAR gives you how many vehicles are produced, but it does not tell you semiconductor content per vehicle. In this environment, our auto business at NXP is performing well. As you can see from the print in Q1, it grew 10% after you account for the sensor business, and the Q2 guide implies high-teens year-over-year growth on the same basis. So the momentum is improving. This is not necessarily a story about unit growth; this is a story about the architecture transformation that is driving content growth. So my answer is architecture-led. For us, it's a content story that's starting to show in our numbers. This growth is increasingly structural. Our accelerated growth drivers have been growing double digits since Q4, and that also happened in Q1 and will continue in Q2, contributing to 90% or more of the growth of the segment. That tells you our growth is increasingly structural. Regarding China, despite production declines there, every region in automotive is up year-over-year for us. Despite the sequential decline in the quarter, we're growing year-over-year in every region, and that continues into Q2.

And for my follow-up, perhaps on the communications infrastructure segment. Last call you broke it out between tagging products, digital networking and RF power. At your Analyst Day, you had said a flattish outlook from 2024 to 2027. What is the right way to think about this business? How much of this do you still plan to exit? How much are you reinvesting in? What is the true growth rate of your communications infrastructure business in 2026 and 2027 that we should be looking for versus what you thought of at the Analyst Day?

Let me answer by stating we're not changing the long-term model for communications infrastructure. Your question on composition is valid. At Analyst Day we said this end market would be roughly flat CAGR between 2024 and 2027. Last year we experienced a decline of about 25% in this segment. We closed the year with about 50% of the revenue tied to secure cards, about one-quarter to digital networking and one-quarter to RF power. The communications infrastructure end market is recovering, primarily driven by secure cards; RFID is increasing and our exposure to data centers through digital networking products is rebounding. The composition is shifting from RF power, which we are deemphasizing and which will likely decelerate in 2027, toward digital networking. Secure cards are likely to remain around 50%. That is how you should think about the segment going forward.

One of the lines you said in your preamble, Rafael, as well as in your press release was about the momentum accelerating throughout the rest of the year. Can you just talk about what that is? I'm not trying to get you to guide for the back half of the year, but is your visibility improving? What gives you the confidence in that? How much is cyclical versus secular?

That's a fair question. I'm not going to guide the second half today, but the setup has clearly improved. If you take the Q2 guide, you can estimate about 15% growth in the first half of 2026 versus the first half of last year, and 18% if you adjust for sensors. We're starting the year stronger. What has changed is visibility has improved: direct order books continue to strengthen and the distribution backlog continues to improve. Those signals give us confidence that the momentum of our company-specific growth drivers will continue throughout the year and drive growth in the second half.

For my follow-up, thanks for breaking out the data center side. Talk a little bit about that 200 more than doubling this year. Are these new products? Is this just the rising tide of CapEx lifting all boats? Or is this a strategic area you are targeting? How is NXP differentiated?

Let me explain our exposure to data center so it's not confusing. We're not claiming exposure to the data plane: no GPUs, no accelerators, and no high-speed AI connectivity. Our domain is the control plane. As data centers scale, constraints include power, cooling, uptime and secure controls, and this is where NXP plays. Our products include Layerscape networking processing for control-plane networking, i.MX products for board management, and MCUs for root of trust or cooling systems. We play in parts of the system that need high reliability and long lifecycle applications, where NXP's industrial-strength portfolio is differentiated. The growth from last year to this year is underpinned by products that customers are designing and ramping. This is about making sure the momentum continues into the second half.

On the channel, you went from 9 weeks to 10 weeks and now to 11 weeks. Clearly, the demand profile for the rest of the year is stronger. Do you have any additional views on the channel? Would you expand it given the stronger demand profile? Are you comfortable with it at that 11-week mark?

In Q1 we went to 11 weeks. Our prior guidance already reflected the one-week increase in our inventory, primarily to service stronger demand. If you look at our industrial & IoT growth in Q1, it grew over 20%, and 80% of that business is serviced through distribution. We had anticipated strength there. Our Q2 guide in industrial & IoT, with 80% coming from the channel, is guiding to the high-30% range. So we are clearly servicing the channel. The Q2 guide is based on channel inventory staying flat at 11 weeks. We intend to stay at our long-term target of 11 weeks.

As a follow-up on the data center side, you mentioned gross margin benefit from volume and mix. You don't give segment gross margin targets, but can you give a flavor: are these new products beneficial to corporate gross margins? As data center scales, should we see a tailwind on the gross margin line?

Tom, thanks for your question. Let me address gross margin. Our gross margins continue to expand, driven by higher revenue, product mix and utilization levels. Think about front-end utilization in the first half being in the low 80s and the second half in the mid-80s. We will get benefit from those utilization levels for gross margin. All investments we make and servicing of customers are focused on being accretive to corporate gross margins. So to your question: yes, these areas are favorable to corporate gross margins, and we'll continue to focus there.

I wanted to follow up on pricing dynamics. We have seen pricing increase in the industry since the beginning of the year, and some reports indicate NXP is involved in these pricing dynamics. You don't talk much about pricing, so maybe it's not a big impact yet. Should we view pricing moves for the rest of the year as an upside potential if supply tightens? Bill, you mentioned mid-80s in the second half of the year. Maybe you are reaching a level where you could increase pricing over time. Is that possible?

Francois, our view relates to inflationary costs and pricing. Cost pressure is always a challenge and we address it. Our first reaction to cost increase is to mitigate through operational efficiency; that is our preferred approach. That said, in selected areas we are seeing high input cost pressure, and we are taking selectively smart pricing adjustments to protect business economics. The reason we haven't talked about it is because the Q2 impact is immaterial. We will continue to be disciplined and protect gross margins when cost inflation requires a response, and we'll keep you updated if things change.

Makes sense. On the broad-based recovery across all products and China: when you said China is also growing, of course China domestic car sales were down meaningfully year-over-year. Do you see China still strong year-on-year in Q2 and for the remainder of the year? Or do you see impact from those domestic sales declines? Any color on China specifically would be great.

I acknowledge the China headlines. Production in China was weak, primarily driven by weakness in internal consumption, and some OEMs are focusing on exports to offset domestic challenges. But production volatility is small compared to content growth. China is no different than the rest of the world: production volatility exists, but content growth overcomes unit volatility. For us, China grew year-on-year in Q1; it wasn't massive, but it did grow and it continues to grow into Q2. If the story doesn't change, content growth will offset unit volatility.

Given your commentary about idiosyncratic growth drivers relative to 2026 and 2027, can you clarify that you are still on track to deliver the Analyst Day targets from 2024 into 2027? Can you confirm both the revenue and gross margin side of that?

Yes. On 2027, we were specific in our prepared remarks that we are confident in the trajectory driven by our secular growth drivers and that 2027 is achievable. We remain committed to our 2027 targets.

Just to add, the secular drivers continue to perform very well. We expect the auto drivers to be above the high end into Q2 and industrial & IoT growth rates to be above the high end of what we said for those company-specific drivers.

Relative to the data center disclosure you provided, that appears to be at or above the rate of data center growth for many of your analog peers. Can you talk about whether any specific areas are growing faster than the overall envelope? Do you plan to introduce any new products to further address that opportunity?

On data center, think of it as ramping. We're focused on the control plane and will likely outgrow the SAM because we're just ramping. Our SAM on the control plane grows about 10% to 11% per year; we expect to outgrow that since we're early in ramping. We're doubling down on products to seize current engagements and discussing next-generation products with customers. Our data center exposure includes about 20 to 25 products, with higher ASP products in networking and i.MX for management control. We're developing next-generation products with customers.

Can you share more color on the customer ordering patterns you've seen and what's changed over the past 90 days? Have you seen any impact from memory dynamics or Middle East conflict in order patterns or customer conversations?

Visibility on our backlog and distributors' backlog has improved significantly, and that gives us confidence going into the second half. Memory is always a topic; customers are doing everything possible to secure supply. This is more of a supply issue than a price issue. Our consumer customers are well-funded and able to secure needed supply. We haven't seen any impact on orders in industrial, IoT and automotive due to memory, though memory remains a major conversation in customer meetings.

Helpful. On the supply backdrop, are you seeing any tightness impacting the business as we see Tier 2 wafer pricing increases? Any update on VSMC or ESMC timing?

Both VSMC and ESMC are on schedule. For VSMC, tools are installed and ramping should start soon; we expect it to be fully operational in 2028 and contribute structural gross margin expansion of about 200 basis points. Regarding other supply factors, yes, supply in parts of the chain is tight and we're seeing inflationary costs. If we can't offset them through operational efficiency, we will need to pass costs to customers selectively. If things get very tight, we'll take measures similar to those we used during COVID to protect gross margins. We are seeing slight bottlenecks in parts of the supply chain.

Can you talk about the growth drivers in auto, since your business is improving? Is that an indication of 2027 model-year ramps? I think of these as five-year rolling programs. What gives you confidence to call this an inflection rather than something cyclical?

Auto growth drivers are now a very important part of the business and are changing revenue composition in auto. In Q1, the growth drivers were north of 45% of revenue composition and are growing strongly. We expect to end 2026 closer to a 50% composition versus the mid-40s. They are growing double digits, driven by the software-defined vehicle portfolio. NXP has processing products with no equivalents in the market that are well positioned for zonal and central compute architectures. We expect the transition to SDV to be a very strong tailwind and position NXP as a leader in automotive. It's driven by our SDV platform.

Is anything different about this in the China market? When you build car architecture from scratch it's probably easier to build around SDVs, but local suppliers exist. Is China different in terms of those growth drivers?

It's not different in adoption but in speed of adoption. For example, the S32K5, our 60-nanometer zonal product, is expected to go to production in China despite being sampled to Western customers first. The speed of next-generation adoption in China is different. Local competitors will emerge, particularly at the low end, but the architectural shift to zonal and central compute favors higher processing capabilities and redundancy. China is moving quickly to automation with Level 3 and Level 4 ADAS, requiring more redundancy, security and safety. That favors innovation in MCUs and MPUs, and our roadmap is well suited to win in that market.

On input costs: what are you seeing regarding foundry wafer pricing now? How is that affected as VSMC starts to ramp next year? Does it provide any advantage if pricing goes up as VSMC ramps?

VSMC supply is one area we have more control over via capacity access agreements. For other capacity, when unexpected demand arises beyond agreements, we are seeing additional charges because capacity is tight and suppliers may need to add tools. From current agreements, there can be additional charges; if we cannot offset them internally, we pass them to customers.

As a follow-up, you reiterated confidence in Analyst Day targets implying double-digit growth for 2026 and 2027. Is there any particular visibility supporting that? Or is it confidence that you've turned a corner?

We have conviction on the path to 2027 because of traction in our accelerated growth drivers, data center exposure and progress in industrial & IoT. The targets can be achieved through different end-market contributions. For us, 2027 is a milestone and not a destination; what's important is how we close 2027 and enter 2028 with momentum in our focus markets, progress in our portfolio and mission-critical positions with customers. The progress in 2026 and last year supports a constructive view toward 2027.

To add, we have visibility for upcoming quarters. Order intake on secular growth drivers is at the high end or above what we said at Investor Day. There is a lot of company-specific growth, with content ramps and design wins now moving into production, giving us confidence.

Can you give an update on the integration of Kinara, Aviva, and TTTech? How is that progressing, and are these enhancements to existing roadmaps or independent commercialization?

Starting with TTTech: it's a great engineering organization now redeployed to our internal efforts for S32 CoreRide. We expect to sample a zonal K5 reference design that includes the K5, other MCUs and our 48-volt architecture, with customers engaged in POCs. That effort should accelerate K5 adoption into 2027. Aviva Links provides an open SerDes platform important for SDVs as sensors and displays multiply. We have customer awards and expect production in 2028; this is a new SAM for us with open standards enabling competition against entrenched proprietary solutions. Kinara is a strong fit with our i.MX application processor portfolio and expands our ability to engage customers on intelligent edge systems. Our sales funnel is large—over $1 billion—and we have more than 30 POCs. We expect combined Kinara and i.MX revenue in the second half of 2027 and into 2028. We are integrating Kinara IP into our industrial and automotive processors for monolithic integration into next-generation products.

On comfort with 2027 targets: given the sale of the MEMS Sensors business, should we think about the 2027 revenue milestone at about $15.4 billion instead of the previously discussed $15.8 billion?

Gary, on modeling, remember to adjust for the sale of the MEMS business. We've said we stand solidly behind our long-term growth rates. At the total company level, we continue to target 6% to 10% total company growth. You can model the implications for 2026 and 2027 yourselves, but we are not backing away from those targets. Our design wins are starting to go into production, and our clarity and belief in achieving those targets is increasing daily.

On IIoT: it looks like that business will hit a record revenue level in Q2. How much of that is broad-based industrial end-market recovery versus company-specific growth drivers? Quick follow-up for Bill after that.

You're right. Industrial & IoT strength started showing in Q3 last year, continued in Q4, continued in Q1 with over 20% growth, and now we're guiding to the high-30s. The strength is broad-based across geographies and markets. Half the growth came from our new industrial processing portfolio—the accelerated secular growth drivers. Encouragingly, the core part of industrial & IoT is also growing; it grew 15% year-on-year in Q1. So both the accelerated growth drivers and the core business are recovering, which explains the strong momentum into Q2 and likely the second half.

To put a number on it, the secular growth drivers in industrial & IoT represent about 37% of that business and are growing in the 40% to 50% range, just to give you a feel.

For Bill: you talked about about 200 basis points from VSMC and moving from 200-millimeter to 300-millimeter. As the facility comes online, how quickly do you get that benefit? Is it all in one year or several years to achieve the full 200 basis points?

It will take several quarters to get the full benefit depending on the ramp. The factory will need high utilization—think 90% to 95%—to fully realize the benefit. You should expect to see a partial benefit in 2028, and the full amount will depend on timing of the ramp.

Lisa, I think that will be our last question, and I'll pass it back to Rafael to conclude the call today.

Thank you, everyone, for joining us today and for your thoughtful questions. In closing, I would like to leave you with three takeaways. First, NXP's growth is driven by leadership in software-defined vehicles, physical AI and industrial & IoT. Second, our company-specific growth drivers are performing as designed. Lastly, we're reaffirming our Analyst Day commitments, which implies double-digit growth in both 2026 and 2027. This quarter reaffirms the strength of our execution against our strategy. We remain committed to disciplined investment, margin expansion and portfolio optimization to deliver sustainable long-term value for our shareholders. Thank you.