Q3 2019 Earnings Call

Thank you for calling the conferencing Center account words coordinator will be with you momentarily. Thank you.

I'm all participants ones are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need a press star one on your telephone. Please be advised that today's conference is being recorded if you're acquiring any further citizens. Please press star zero I would now like to hand, the Congress or your speaker today, Jeff Farmer. Thank you. Please go ahead Sir.

Thank you Danielle good morning, everyone welcome to the at its peak semiconductors third quarter 2019 earnings call with me on the call today as Rick Clemmer, acting CEO , Kurt Cbres X piece, President Peter Kelly our CFO .

If you're not obtained a copy of our earnings press release. It can be found out our company website under the Investor Relations section.

It's called being recorded and will be available for replay from a corporate website. Our call. Today will include forward looking statements that involve risks and uncertainties that could cause ex piece 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 a specific end markets in which we operate the sale of new and existing products and our expectations for the financial results for the fourth quarter 2019, please be reminded that NXP undertakes no obligation to revise or update publicly any forward looking statements.

For full disclosure on forward looking statements. Please refer to our press release. Additionally, during our call today, we will make reference to certain non-GAAP financial measures, which exclude the impact of purchase price accounting restructuring stock based compensation impairment merger related costs and other charges that have driven primarily by discrete events that management does.

Not considered to be directly related to Sps underlying core operating performance.

Pursuant to regulation G. NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2019 press release.

Which will be furnished to the FCC out a form 8-K as available it adds piece web site at the Investor Relations section I'd like to now turn the call over Rick Thanks, Jeff for those informative details and welcome everyone to our conference call today.

NXP delivered revenue of $2.3 billion for the third quarter.

Our sales were near the high end of our guidance, we demonstrate good expense control and we successfully delivered improved operating profitability above the high end up our guidance range.

Taken together this resulted in $631 million a free cash flow generation curtain Peter will provide specific detail later.

Looking forward, we continue to be optimistic that our product portfolio investments.

Our addressing our customers long term requirements.

We see initial signs that the demand environment from our customers appear to it somewhat stabilized.

We believe the worst of the year on year declines in our strategic automotive and industrial markets are behind us.

Specifically, our Q4 guidance for automotive points to a low single digit decline year on year versus the high single digit decline we've experienced year to date.

Additionally, our guidance for industrial business points to a mid single digit decline versus the mid teens decline seen year to date.

While we are encouraged by the recent stabilization and in some cases improved demand the shape and timing of any significant market re acceleration is clearly uncertain.

What we continue to do is manage our cost and expenses and believe as a company we are well positioned for a resumption in consistent demand.

[noise], regardless of the current demand environment, our focus is on delivering unique and differentiated solutions.

While enabling our customers to be successful when their target markets.

We measure our success by attaining high RMS are relative market share positions in our target markets to drive true leadership, which should result in defensible long term franchise is based on truly innovative and competitive solutions.

As we were successful in this regard we we are rewarded with lasting customer relationships and we gained valuable insight into long term requirements, which enable us to optimize our R&D decisions in investments.

Ultimately this creates a virtuous cycle, a product and customer alignment that will enable will enable us to continued to deliver solid results to our shareholders.

Over the course of the last year, we've reviewed with you several new product initiatives that reflected in underpin our strategic investment process. As an example in automotive we've discussed our goes far level, two and level three eight us business.

Specifically in radar, we continue to see our order rates rising and increasing customer engagements, which reinforce our projected 25% to 30% compounded annual growth over the next several years.

Additionally, in Q4, we will begin to ramp our RF Cmos 77, gigahertz front end transceiver to a leading north American solution supplier.

Along with our market, leading radar processors connectivity in software in the complete system solution.

This is a great validation of investments in customer commitments, we made over the last several years.

The success, we have seen with our multiple chip our multi chip radar solution sets the stage for the investments and the integration of the radar transceiver in process or into a single chip solution, which we've already begun to undertake.

Additionally, a few years ago, we invested in vehicle to everything our secure be to X solutions based on DSR see Wi Fi technology, another offering in our eight us portfolio.

It's taken longer than we anticipated to see material transaction of this technology and use case. However, we are pleased that Volkswagen has announced the new 2020 golf their high selling vehicle in Europe , which will come standardly equipped with the NXP Road link secure BDX solution.

Yeah.

Currently European roads are being equipped with DSR sea based fee to X technology with 5000 kilometers plan through the end of 2019.

While fee to exit is not yet material in terms of revenue generation. It is another clear proof point.

That our automotive customers view NXP is a thought leader, which is making the right long term investments to invade will their success and to reduce the number of accidents and save lives.

In addition to radar Nvidia ex the other new automotive product initiatives. We've shared with you include BMS as witnessed by our success with the Volkswagen NDP platform digital clusters and ultra wide band are all progressing as we had anticipated.

This reinforces our belief that our automotive growth subset can grow 25% to 30% compounded growth rate in total even in a more challenging global production environment.

In the industrial now T. market, our crossover processors are continuing to see solid traction with revenue run rate tracking at nearly a 60 million dollar per year run rate.

Very nice performance for an innovative new product and we are in the early days of design to revenue cycle with multiple customers, which should result in the doubling of our crossover business in 2020 and several following years.

Within the mobile in market interest in our new Ultrabroadband products, which really enables an intersection of the mobile in auto access market continues.

Both the MW in books wagon to announce support for the next P. based solutions during the most recent quarter for the secure access that prediction and other use cases.

And the increased attach rate of our secure mobile wallet continues as the customers base continues to broad.

Now the one area that we've not spend a lot of time own about our efforts in the communication infrastructure end market in specifically around the transition towards Fiveg networks.

We had several opportunities in the Buildout of Fiveg networks.

The first is in radio frequency power solutions. These are sub systems, which are installed in the remote radio head unit up on the cellular dollars our products take analog signal signals and amplify the signals in radio frequency domain, enabling communication between cell towers and mobile handsets.

In the Fourg generation and base stations, we offer high power Ldmos power amplifiers for one to four transmitter radio systems.

To provide our customers with increased bandwidth in a fixed frequency spectrum. We have developed a wide range of low power highly integrated products for massive mimo RF power systems.

This can be thought of as raise of amplifiers in nearly the same physical footprint as fourg remain remote radio heads, but with up to 32 or 64 distinct transmit paths, providing upwards of 10 times the data rate versus the Fourg systems.

As the industry transitions towards the Fiveg standard with higher frequency bands, we have developed solutions across the complete subsidy scheme to hurt spectrum.

Leveraging either our market, leading ldmos organic base massive mimo solutions.

Interestingly, we've innovated our ldmos process technology to be able to operate up to about 3.5 gigahertz, roughly 30% higher frequency versus the fourg generation, while still delivering the required output power and efficiency.

Furthermore, with our proprietary Siggy process technology, we have developed millimeter wave array based solutions supporting frequencies greater than 24 gigahertz for dense urban environments that we don't anticipate broad based global.

Millimeter wave.

Build outs to begin in earnest until late 2020 early 2021.

Taken together NXP has the broadest most innovative footprint of RF power amplifiers for base station applications across the entire fiveg frequency spectrum.

From a market perspective, our analysis points to a serviceable market BARDA power systems for cellular base stations growing to about two and half billion dollars by 2024, or a 13% five year compounded annual growth rate.

With NXP holding the number one position in this market.

With the relative market share position of one point Eightx the number two player.

Additionally.

Additionally, we have other opportunities in the Fiveg buildout for NXP.

Our digital networking team has been awarded designs with a few Oems to deploy CP and also repeater equipment, which will compliment and leverage the buildout of last mile solutions in dense urban areas.

These solutions leverage our innovative 64 bit arm multi core layer skate processors, which embed our unique and proprietary best programmable base band engines.

This is a market, which we bring unique programmable hardware and software capabilities developed over many years focusing on the service provider market.

These are purpose built and optimized solutions, which result in high performance in low power consumption.

It's also a market with few focused competitors and we believe our solutions operating expenses solid differentiation.

From a market perspective, the deployments are tied to the build out of Fiveg macro base station for last mile solutions, which we estimate will begin broad based rollout global volume production in late 2020 or early 2021.

Our analysis points to serviceable market for these last mile solutions growing at a 30% to 35% bases on a five year compounded annual growth rate.

We believe NXP has an opportunity to capitalize on the rollout of these last mile solutions and further highlights customer belief in our fundamental IP and product development.

In summary, our strategy continues to yield positive results, we will continue to drive focusing our strategic end markets engaging with customers to deliver superior highly differentiated products, regardless of the short term fluctuations in demand.

I'd like to now pass the call over to occur to discuss the result of the current quarter.

Thanks, very much rich and good morning, everyone.

We really appreciate you joining our call this morning.

Overall, our Q3 results were above the midpoint of our guidance.

With the contribution from the mobile and the industrial Iot markets strong of implants.

While demand in the communication infrastructure buckets will slightly weaker.

And our automotive business performed schuff as anticipated.

Taken together and Exp delivered revenue of $2.3 billion.

Which combined with gross margin improvements and good expense control enabled us to successfully delivered operating profitability above the higher end of our guidance range.

Let me turn to the specific trends in Q3 in our focus end markets.

Starting with automotive.

Revenue was $1.05 billion down 7% year on year inline with our guidance.

During the quarter, our automotive revenue declined 7% versus the year ago periods as anticipated.

As a lesser rate of decline than in the previous quarter end, showing 2% sequential growth.

Our core automotive product lines declined year on year, a reflection of lower auto production and the associated supply chain rationalization.

However.

Revenue from the subset of our automotive growth product lines grew in the high single digit race year on year during the quarter.

Moving to industry that island.

Revenue was $426 million.

Down 14% year on year, and up 9% sequentially slightly better than our expectations.

During the quarter the primary source of weakness in industrial and Aiotv continued to be our general purpose microcontroller products.

Remember our industrial business is primarily serviced through our global distribution partners.

And it is heavily indexed to customers in the Asian markets, which appear to be particularly affected.

By the continued us China trade pensions.

Turning to mobile revenue was $321 million up 2% year on year and up 8% sequentially above the high end of our guidance.

During Q3, despite reduced order rates at the largest Chinese handset customer, we did see robust seasonal ordering pedals from both.

Other Chinese handset Oems as well as our premium handset customer.

Both trends taken together underpin our view that growth in our mobile business will continue to be driven by increasing attach rates of our secure mobile wallet technology associated with new use cases.

Like transit ticketing amongst others.

Lastly, communication infrastructure, and although revenue was $470 million.

Down 2% year on year and down 6% sequentially below our guidance.

From a product line perspective, we continue to see robust year on year growth trends associated with our RF power solutions, So just a little less than our plans.

The digital networking business came in line with expectations.

While the secure car business was a little below our expectations.

Let me highlight here several notable trends in the communication infrastructure markets, which we do believe are truly benefiting NXP.

These includes the continued shift towards massive mimo solutions, leveraging both ldmos as well as gallium nitride based products.

We also see early traction with our millimeter wave engagements for dense urban areas.

The positive tailwinds for our communication infrastructure business our robust.

Now, let me turn to our expectations for quarter four.

Our guidance reflects the ongoing stuff that I station in the month mentioned earlier in our prepared remarks by Rick.

We do believe the outlook appears to have stopped getting worse on a seasonal basis.

So it is still not reflective of a return to growth.

We are guiding quota for revenue at $2.27 billion.

Flat sequentially on the third quarter within the range of don't want to up 2%.

From a year over year perspective. This represents a decline of about 6% versus the same periods a year ago.

Well finish about 120 basis points is the elimination of the M&A versus a year ago period.

At the midpoint, we are anticipating the following sequential trends.

Our four businesses.

Automotive is expected to be up mid single digits versus Q3.

Industrial and I would T is expected to be down in the mid single digit range on a percentage basis.

Mobile is expected to be slightly down in the low single digits on a percentage basis.

And finally communication infrastructure and other is expected to be down in the low single digits on a percentage basis.

In summary, our new product introductions customer engagement levels and design win momentum.

And our strategic focus areas continue to be very very positive.

And we do continue to be very optimistic about the mid to long term potential of NXP.

Now I would like to foster cold Peter for a review of our financial performance Peter over to you. Thank you Kurt and good morning to everyone on today's call.

Kostas over to cover the drawn as the revenue during the quarter us and provided on revenue outlook for the full quarter I'll move to the financial highlights in summary of third quarter revenue performance was near the high end of our guidance range, which combines with good expense control resulted in very strong non-GAAP operating profit.

Focusing on the details of the third quarter total revenue was $2.27 billion down 7% year on year of which 120 basis points was the elimination of liana sites versus a year ago period.

We generated $1.3 billion, a non-GAAP close gross.

On reported a non-GAAP gross margin of 53.7% of 70 basis points.

Year on year on in line with the midpoint of our guidance.

Total non-GAAP operating expenses were $531 million.

$32 million year on year down 10 million from Q2.

This was $5 million better than the Midpoints of all guidance.

From a total operating profit perspective, non-GAAP operating profit was 697 million a non-GAAP operating margin was 30.3%.

30 basis points year on year to sponsor to $180 million drop in revenue over the same period.

non-GAAP interest expense was $66 million cash tax ongoing operations were $39 million, a non controlling interest was $10 million.

With cash tax and interest expense modestly better than the midpoint of guidance.

Stock based compensation, which is not included in our non-GAAP earnings was $84 million.

Now I'd like to turn to the changes in our cash and debt.

Total debt to the on the Q3 was 8.51 billion down $33 million sequentially. As we retired the remaining stood portion of our June 2021 debt.

Cash was three point following 4 billion a net debt of 4.97 billion of decline sequentially because of solid cash generation during the third quarter.

We exited the quarter over the trailing will 12 month adjusted EBITDA of $3.13 billion on a ratio of net debt to trailing 12 month adjusted EBITDA of the end of the third quarter was 1.5 million tons.

non-GAAP interest coverage was 10.4 times, but liquidity is excellent and on balance sheet continues to be very strong.

During the third quarter, we paid 70 million in cash dividends on announced a 50%.

Increasingly annual dividend rate.

Capital return policy continues to be to return all excess cash to shareholders I would remind you that since July 2018, we have returned $6.6 billion to all shareholders, including buying by 18% of diluted share count.

Turning to working capital metrics days of inventory was 98 days a decrease of two days sequentially.

Quarter on quarter decline of $10 million.

We continue to aggressively manage all distribution channel inventory in the channel is a very healthy 2.3 months on within our long term targets with those slightly below the 2.4 months weve normally expect to them.

Thanks receivables were 52 days flat sequentially and days payable was 74 days, an increase of seven days versus the prior accruals.

Taken together, our cash conversion cycle was 56 days, an improvement of nine days versus the prior quarter.

Cash flow from operations was $746 million net capex was $115 million, resulting in free cash flow of $631 million.

Turning to our expectations for the full quota as Curt mentioned, we anticipate fourth quarter revenue to be about $2.27 billion, plus or minus 30 million and at the midpoint. This is flat sequentially. We expect non-GAAP non-GAAP gross margins will be about 54.2% plus or minus 30 basis points.

Operating expenses are expected to be about $545 million, plus or minus about 7 million and taken together, we see non-GAAP operating margin to be about 30.2% plus or minus about 50 basis points.

We estimate non-GAAP interest expense to be around 69 million unanticipated cash tax related to ongoing operations to be about $39 million non controlling into interest will be about 9 million for the fourth quarter, we suggest for modeling purposes.

Use an average share counts are about 285 million shares.

Finally, I have a few closing comments that I'd like Tonight.

Why don't we currently have $3.5 billion, a cash on our balance sheet.

On December 1st we plan to use $1.1 billion of this cash to pay down our convertible debt and we anticipate using $1.76 billion to close all transaction for the mobile assets, Although we're still waiting for the final regulatory approval from Taiwan.

As Kevin pointed out we're pleased with our performance in the third quarter, while revenue was slightly better than guidance with the contribution from the mobile and industrial I O T markets spoke a bit stronger than expected.

While the automotive market was in line with our expectations on the Coleman for certain market was slightly weaker.

The challenge at this stage is to predict when a positive inflection in demand will occur until we see a decidedly improved demand environment. We'll keep will continue to keep a tight control on those items, which are under our control, including gross margin operating expenses on working capital aiming to maximize the performance of the company.

Our non-GAAP non-GAAP gross margin has steadily improved over the last year, even as we navigate to the challenging topline demanding environment.

Our non-GAAP gross margin improved improved again in the third quarter and we anticipate further improvements into the fourth quarter. However, as our guidance reflects given our topline visibility we do not believe we will achieve the 55% gold in Q4.

This is a significant disappointment driven by luck of volume and the resulting in the recovery across to all costs.

However, like continues to our confidence in our ability to manage the costs, which are ones are all control.

So further I would like to reiterate curtain ricks comments.

The market continues to be uncertain and although we've certainly seen some positive signs, we're not ready yet to declare victory.

In fact up to five quarters of year on year declines achieving a flat year on year revenue for the first quarter.

First quarter of 2020 would feel like a positive move in an uncertain market environment.

Equally I would remind you will that operating expenses generally increase from Q4 to Q1 as we feel the impact of annual bonuses on fringe benefit resets.

So with that I'd like to now turn it back to the operator.

Also any questions you may help.

As a reminder to ask a question you will need a press star one on your telephone to withdraw your question press the pound key in the interest of time, we as you. Please limit yourself to one question and one follow up please standby, while we compile the Q name roster.

Our first question comes from Ross Seymore with Deutsche Bank. Your line is now.

Hi, guys. Thanks, certainly ask a question I wanted to focus on the automotive side first it's good to see that thats up sequentially in the quarter. So can you just talked about what's driving that up in the fourth quarter and then for the full year, you did very well getting closer to SAR. How are you thinking about what an excuse growth rate and auto can be relative to SAR conceptually in 2020.

You have inventory versus share gains in a bunch of potentially offsetting vectors.

Hi, Good morning lost business crops, Let me, let me take that question.

Let me maybe start with saying bolt on our latest market insights are.

So I address just published their latest sorrow numbers for this year and the forecast for next year.

They are saying they see a 6% decline for the star for 2019 annually over 18.

And Dave.

Estimate of both about flat for next year. That's the latest inside we have so unfortunately that indeed indicates that it has who have deteriorated. This year, though we had earlier in the year minus 4% plan was 5% and all they end up at some of minus 6% defined for 19.

We have always sets that on a quarterly basis, you cannot really benchmark our revenue performance against the SAR given all the supply chain effects in between.

At the same time, we do continue to clearly say that.

We have all reason to believe that our business is outgrowing the SAR thanks to the.

At a chronic content increase per car.

And I think we are now at the points going into Q4, there it appears that the supply chain.

Become more or less clean.

Our growth, which you see in our business becomes more reflective of the true automotive demand.

From the Oems.

And Thats is indeed, then leading to a annual and Thats, how we look at an.

Annual growth rate in Q4, which is only minus two was much higher decline in the earlier quarter Lifemiles seven and minus 10 in Q3 in Q2.

We don't really guide for next year.

Ross.

And yet I would say that once the supply chain is clear we should expect that our growth.

By content should be reflected again in our numbers against the against the sour. So there is some optimism here.

But with more clean supply chain going forwards.

We should be should return to growth based on a plethora.

Great. Thanks for that and then for my follow up question just wanted to hit on margins one for Peter I think overall people understand the gross margin side you guys are going to good job in a tough revenue comp was a little surprise. The OPEC is opex is going up as much as it is in the fourth quarter given the discretionary tightness you guys have done so well that.

Control throughout the year can you just talk about a little bit about why that's going up in does the increase in the fourth quarter diminish the size of the increase that we otherwise would have seen in the first quarter sequentially.

Yes, the single biggest item.

Is actually have a positive thing we have a really significant number I think as such we just a bit over 10 million of tape outs.

An excess of what we're showing the and the third quarter.

The.

That's the that's the single biggest like terminals.

Good thing because thing.

We're getting the some of our npis out and shipping those to customers and so there's a cost obviously as we take those but those.

And moved those two ward said engagement with customers are off.

Thank you. Our next question comes from William Stein with Suntrust. Your line is now open.

Great just following up on that a little bit.

Peter can you help us understand I think we know or we're we're expecting margins to deteriorate a little bit in Q1 as you give.

Price to customers in automotive and and.

You have to incur some incremental accruals on the Opex side any quantification that will help us modeling sequentially as we think our chime in Q1, and then how that might abate as we did that affect might abate as we go through the year.

Hi.

I mean, clearly I don't want to guide.

Q1 of their studies I think I think you're right.

Well in the sense.

From a gross margin perspective, you know you have the single biggest item as the annual price increases.

From Opex you have resets on bonus so now as an example, this year we didn't they fell targets so.

The bonus accrual is relatively small and you're probably talking about maybe an average of $10 million a quarter.

Whereas in 2000 20 million, if we were to assume a full but we haven't come on.

All of our targets for 2020, you'd be talking more like $35 million.

Quarter.

You'd see over an 8 million dollar increase roughly for fringe benefits.

We should I don't think.

Must also be of high in Q1 of them are in Q4.

I'm not sure line.

Our forecast Opex lower in Q1 than Q cool.

I'm not ready yet to give you that absolute number.

But it's still really helpful. Peter Thanks for that and one follow up if I can.

The mobile strength in Q3, it sounds like that was more of a units thing than a content thing relative to your expectations at the start of the quarter is that fair and is the demand.

It sounds like it's a bit more dispersed than concentrated.

Maybe maybe you could just done provided way I guess the units comes from the content. So either directly linked so you can't really separate the two I think the good point was if you recall in Q2, we had our largest Chinese OEM that had a strong uptake is they broaden the the deployment of the mobile.

While it into more of their portfolio and in Q3, clearly we had a broader base.

As well as the our tier one customer.

Increased volumes as well, but but all the other Chinese customers have showed strength in Q3 also so yes, we had really strong quarter in Q3, and and I think it does continue to bode well for the continued deployment.

Associated with the mobile wallet in the uptake associated with it as we projected going into next couple of years, where we thinking can be 50% about the.

Smartphones.

Thank you. Our next question comes from John Pitzer with Credit Suisse. Your line is now open.

Good morning, guys. Thanks for the me ask the question Rick I wanted to ask you a little bit good given you have sort of unique vantage point on the whole China us trade issues I'm kind of curious how you think that that's impacting your business theres been some concern the investment community that perhaps Chinese customers are pulling forward inventory there has been other sort of.

Chips that would suggest im trying to keep inventory lean clearly you're not suffering from any bands, but to be I'd be kind of curious to think whether or not theres. A second derivative effect on bands on your revenue was well and how you might think business will trend. If there is a train resolution.

Well I think if theres a trade resolution be very positive. So I don't think theres any down about that.

I think though that.

We don't see a lot of inventory being put in place.

In Q2 is we talked about it the largest Chinese.

Handset they clearly we're ramping their supply chain is they brought in the portfolio associated with it.

But we didnt see a lot of the inventory of was really a associated with their supply chain.

There has been comments that I've heard about other technologies like have PPA case, where.

Some of the Chinese guys were concerned about having adequate supply and put inventory in place, but we don't see really a lot of that in the areas that we serve it all John and.

We think it continues to bode well clearly I think our relationship with the Chinese customers has been positive and then we'll continue to be positive bars going forward.

That's helpful and then Rick just a follow up on some of your prepared comments about fiveg in the common infrastructure space you guys. It's kind of put out a three year CAGR target for revenue in that space of somewhere between zero to up to is it fair to say that once you talked about today on the RF power side and sub six is contemplated in that but as we go.

At a millimeter wave that it's not an if thats the case.

Mike millimeter wave and your opportunity there impact that kind of CAGR that you have out there its target.

Welcome John when we set those targets.

We were coming out of the period of several years of declines in both the RF power in the digital networking business clearly with the digital networking business going from around 800 million at the time, we did the merger with Freescale down the you know in more or like the 500 million range. So.

We did set those conservatively I think what what we're talking about clearly with the fiveg opportunity should increase that growth rate, but we don't think it will change the total because it really just gives us room to cover the downturn that we've been through in automotive and industrial and still have the confidence in achieving our 5% to 7% comp.

On the growth going forward.

I do think that Theres, a real opportunity as we talked about neenah paper low teens growth rate in RF power business with Fiveg deployment over the next few years and with our leadership position, but this isn't a good position and we're just making some early investments in the last mile with some of the customer engagements they could bode very well as.

Well in the end up with a couple hundred million dollars year revenue and then not too distant future. So all of that's positive, but we're just kind of leaving our growth rates that we set a year and a half are so we'll go intact and not really changing those bye bye piece at this point John .

Thank you. Our next question comes from Blayne Curtis with Barclays. Your line is now open.

Hey, guys. Thanks for taking my question I just wanted to go back in the Auto segment, you mentioned I think the growth areas growing teens I'm just kind of curious what you also mentioned a stabilization.

And with improving Saar next year, the growth that you're seeing or the better than seasonal I.

I guess in December you're seeing or are you seeing any restocking of kind of the core components or is the now performance led by the growth area.

Idling disk.

Hey, principal let me slightly corrects will you just said I think I didn't say that hi, it's Jeff talked about an improvement into next year. They see a flat power on the low level, which was the chief at the end of this year.

I think it's a minor but may be important detail.

Venue will think about us indeed.

I'd say that the improvement you're seeing is probably not restocking, but it's just that the consumption reflects more the and the empty moms bear earlier.

At least in our business with smaller accounts through distribution.

It was it was marked by building down inventories.

And that appeals to ultimately be overhaul, which means we just see the real demand coming back again.

I am I would be careful to say that's already we started rolling off.

Yes, the packages to add something I think one of the things if you look at it Blaine and look at Hs projections.

At SEC first half a 20 will be slightly yep.

From a second half of 19, so that says we kind of gotten to a minimum run rate based on their projections now and then they will see a resumption of growth in the second half of 20, so but I do think that when you look at some of our our customers in China and other places that we served through distribution.

We are beginning to see a little more of an uptick which I think means that they kind of work their way through their inventory basis, and we're beginning to see a little more to but positive perspective associated with it.

Thanks, and I just wanted to ask on the wife I transition.

Transaction, you had targeted Q1 close but thought might you could do a little earlier it sounds like you're waiting for Taiwan. Just curious if you expect to close that in December and if anything in the guidance from that.

Within the guidance GOGAS nothing's in the guidance and we would anticipate closing it no sooner than the first quarter, but.

Given the fact that.

There's a process in Taiwan that we really don't.

Have clear insight into how long it will take it would be inappropriate for us to really second guess the actual timing.

Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is now open.

Hi, guys. Thanks for taking my questions on.

First just Jim.

Yes.

[noise] safety safety, Stacey safety, you're kind of cutting out we can't really here.

I'm sorry can you hear me now yep perfect.

Let's try that again, so the language in the release is obviously a little bit improved this time I Havent heard you talk about short term demand environment stabilizing well while.

At the same time, we're hearing a fair amount about sort of a distinct challenges bottoming is this statement just purely a channels statement things have sort of bottomed in terms of the inventory wash.

And we're just more representative now were abandoned and you actually see to the extent that you have any visibility actual improvement.

Customer into them.

So so I think Stacy what we're seeing is we'd seen things stabilize we seen some pockets of improvement our increased orders, but but really what we're trying to point to is the fact that if you look at it you know when our industrial now T. segment, we were mid teens year over year decline through the first three quarters at this year.

And if you look at the midpoint of our projection will be kind of mid single digit so thats definitely a significant improvement and if you look at automotive it's been kind of high single digit decline year over year through the first three quarters and what we're at the midpoint, we're kind of at a 2% decline. So I think thats really what we're trying to talk about.

That's the basic indicator that we had that things are improving is based on the run rates that we have from our customers and their demands.

We see that improving now you also have to look at our mobile in communications infrastructure to get to the total and you know in total we'd been.

If you adjust for the MSR.

And that we changed in the county, we we'd been kind of mid single digit with the exception of Q2 were little less than that and we'll be will be kind of.

And we'll have a couple points improvement in the total even with a little bit a downtick in the communications in mobile.

In Q4, but so I think we clearly have seen a stabilization and some pockets of improved demand the increased demand, but not anything that would lead us to really talk about every boasts robust recovery underway at this point.

Got it thank you and maybe to follow up on that on the longer term.

[noise] lawsuit against doses.

Okay can you hear me now various Jen.

Okay very strange.

To follow up on that your long term growth target is still being articulated by December holding to it and that was originally put forth as a cagar. It was 2080.

Yes, it's we've got a decline in 2019, so what is the right way to think about this growth model given.

[noise] or do you still think we can get something closer to that three year Cagar. After 2018 would which would imply you know more growth in 2020, 2021, and I guess, if that's the case what would be the drivers of that like how do we think of it.

In the context, what we starting from.

So Stacy I think what we're committed to is the 5% to 7% growth rate. We said the categories maybe different than what we talked about a year and a half ago. As we look at that we may not be able to quite achieved what we laid out at the high end of automotive or the high end of industrial based on the fact that we've gone through this downturn the the Pos.

Good thing is is mobile is.

Is growing quite nicely.

With the increased mobile wallet deployment as well as now ultra wide band begin beginning to be shipping next year in in 2021, and clearly the fiveg deployment gives us some upside I mean that could drive that zero to two two you know kind of high single digit growth potentially but in total we still are committed to define.

To 7% growth rate and I think the key is is that we have different knobs to turned to be sure that we can achieve that and accomplish that.

Thank you. Our next question comes from Craig Hettenbach with Morgan Stanley . Your line is no.

Yes. Thank you just a question for current any update on BMS and in particular things that you would highlight versus some of the incumbents that you think you're doing just from a feature set perspective.

Yes, Thanks, Craig.

The update is that we are on track, which is suspicious definitely good news.

And I think we've all seen in Q3, a very large European OEM, making a major announcements about their commitments relative to new electric vehicles coming off.

And as we has kind of sign posted earlier VR, we are quite a bit involved in this more than one model, but actually across the board.

So if you will this is a very clear evidence on our success over incumbents.

With one of the most.

I would say bullish commitments from a car company into into building electric vehicles.

And Thats stopped shipping as we speak so I mean this is not just someone in the future, but actually the first models, although fearful of fleet across a couple of brands of that OEM are shipping as we speak.

So what that means below the line as we are on track.

Two hour.

Yes roll off as we as we have discussed earlier with pretty high growth rates.

Into into the next few years.

Let me just highlight freight that we why we speak a lot about this one OEM and since since the public announcements that's very convenient for us to speak about it we have to significantly broader base off of design wins to date.

Differentiate us against incumbents remain to be able to the functional safety performance on the system level.

As well as the scalability, given our approach with Microcontrollers and analog high precision front ends.

And I guess, the only thing I would add 10, Craig is weak I follow personally the announcement by some of the incumbents and always track that and every time, we go back and look at it we still think we have a superior performance and a better product.

In some of the announcements that they're making.

Got it thanks to that and then just to follow up with heater understanding is still some headwinds from a revenue on on the gross margin line can you talk about just some of the levers you been pulling to improve gross margin and also maybe some benefits of mix over the next 12 to 18 months.

Yes, I mean, I think the the same same things I think in the long term.

So over the next few years on mix definitely helps us.

As we looked at kind of the MTR coming out.

You're not going to suddenly see his job, but you'll you'll see gradual gradual improvements in gross margin in the long term.

The short term, it's all about blocking and tackling making sure all.

Partners give us around pricing is making sure we're managing yields.

Test onto a lack of so 50 to be honest issue I have at the moment.

Is.

We have long term mobile 55 to 57.

I'd really like to get to 55 for full year 2020.

But with the current market environment.

I'd say the lack of visibility rather than visibility we have it's hard to see how we do not really.

When you show that in Q4.

So I do need.

Hi to admit to it but until you need a pickup in.

In volume.

To be able to get to the to the 54%.

A level.

I know him. So im surprised you Didnt ask the question one of the questions. We were anticipating from you guys is given revenue was towards the higher under the guidance in Q3, why why Didnt gross margin.

Improve a little bit above the guidance of 53 seven.

The answer to that is our.

Assembly and test in General Assembly and test utilization was was weaker than we still think.

Q3, now to be honest 30 basis points to $6 million. So it's no big in them, but anyway.

But the current environment running the levels of revenue we have it makes a really really tough.

To get the revenue, but I believe aftermarket does come back, we'll we'll be able together Craig just to be specific I think our long term target is 53% to 57, we talked about 55 in the near term, but otherwise electricity Fox said 50 does just wanted to clarify 50 above the midpoint yet.

But utilization will be key to.

That is well and I think thats, an important element of our continued gross margin improvement.

For the impact of is just revenue in managing our inventory in Illinois.

Thank you. Our next question comes from CJ Muse with Evercore. Your line is now open.

Good morning, Thank you for taking the question.

Yes, I guess first question one of the more encouraging I guess data points coming out of your 10-Q is that your OEM sales were flat year on year well just these sales down 10%. So I guess two part question. There. One are you comfortable with where we are from a disti.

Inventory perspective, and then too.

Do you see a recovery at least standing here today do you think it'll be just to your OEM led.

Well I think.

I think your point is a it's a great observation that most of the weakness that we have comes out of distribution.

If you look at what we've done on the distribution inventory, which significantly reduced inventory over the last few quarters.

To be able to maintain that.

2.4 months and actually down at 2.3 months.

In the Q3 timeframe, which we would anticipate would go back to the 2.4 months in Q4, we actually add some late shipments out on Pos.

Late in the quarter that actually allowed our inventory to go down to the 2.3 months I think it will see we will see a an uptick in distribution I think it.

Has tended as you pointed out to be more volatile than that OEM side.

And I think it will be more relevant to the warrants the.

Uptick associated with it.

But as far as inventories I think we're in good shape in.

And I don't think.

Theres any issue associated with that but I would anticipate that that will be one the early points, where we'll see a real improvement in the total revenue.

Very helpful. As my follow up and I know.

Don't want to guide to Q1, so not asking near term, but as you think about just.

Generally for 2020.

And you look at your mobile business and the increased tax rate of secure mobile wallet. How are you thinking about and what is your visibility look like today into the growth factor.

Into 2020.

Correct.

I would be I would say we are confident that the attach rate increase which is actually what is driving our mobile growth attach rate increase also mobile wallets and associated application that continue I mean, there could always be quarterly fluctuations mobile have a lot of seasonality but for.

From a year over year perspective, we are very well on track with what we said in our analyst day last year.

But we see this attach rate growing from I think we set 30% to 50% over the next three years.

And we actually did affect earlier.

How are we on that journey and it looks like we can be confident that we are very well on track on the training and that would indicate that the growth should should reasonably continue.

I think CJ one of the things that will be a really interesting. The second half next year is as we begin to ship ultra wide band. It just solidifies that position in mobile and solidifies our position with the mobile wallet. So I think that will be a significant contributing factor for us and continued to demonstrate our leadership as well as solidifying our our.

Overall position.

We'll take one last question here today.

Thank you. Our final question comes from Chris Caso with Raymond James Your line is now open.

Yes. Thank you good morning, just a follow up question on the gross margins and Peter last quarter.

You talked about.

Getting to the the potential of getting to 55% quarterly run rate on about flat year on year revenue.

I would suggest around the 2.4 billion level is that still the right way to think about a going forward kind of once we kind of get to that revenue level. That's when we get to that in a quarterly basis than obviously the full year walls, yes.

Okay.

Okay sorry.

That's right quick quick answer [laughter].

Okay.

Kind of rhetorical question really [laughter].

Right Okay. The.

The follow on from that is.

There's been some talk with some of the trade tensions that.

Some of the that the Chinese customers, perhaps are attending defense too.

Favour some of the non U.S. solutions, giving some of the trade situations and security of supply and such.

Is that something you'd pending to senior business now and going forward do you think that provide you with somewhat of an advantage being domiciled outside the U.S., yes.

No seriously I think you know in with discussions with our customers I think they.

They appreciate.

The complex these.

Dealing with different source technology, and I think they have a lot of discussions about trying to.

Moved some of their production and too.

US as well as other non U.S. sourced deep providers. So.

We think that could be positive, obviously that doesn't happen overnight or immediately but it takes period of time associated with it.

Thank you ladies and gentlemen. This concludes our question answer session I will now let's turn the call.

Back over to Rick Clemmer for any closing remarks. Thank.

Thank you very much operator, so thanks for joining us today, obviously, a worry we feel better than we did in previous quarters with this stability, we see and are encouraged about the fact that the year over year decline is significantly reduced with our guidance in Q4 and puts us in a solid position.

And to get ready to move into 2020.

With the ramp up of new products that we will continue to differentiate NXP and show our leadership in deploying technology to be able to drive solutions for our customers. So thank you very much for your support and have good day, great. Thank you everyone. Thank you Donna.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Ladies and gentlemen, thank you for standing by welcome to the NXP semiconductors third quarter 2019 conference call.

All participants ones are in listen only mode. After the speakers presentation, there will be a question answer session.

And during the session you only a press star one on your telephone please be advised to todays conference is being recorded.

If you're acquiring any further citizens please press star zero.

Now I'd like to hand, the Congress or your speaker today, Jeff.

Please go ahead Sir.

Thank you Danielle good morning, everyone welcome to the NSP semiconductors third quarter 2019 earnings call with me on the call today as Rick Clemmer acting CEO , Kurt Savers, NXP is probably that Peter Kelly our CFO .

If you're not attained a copy of our earnings press release. It can be found out our company website under the Investor Relations section.

It's called gain recorded and will be available for replay from a corporate website.

Call. Today will include forward looking statements that involve risks and uncertainties that could cause actual results could differ materially from management's current expectations.

These risks and uncertainties include but are not limited to statements regarding the macro economic impact on a specific end markets in which we operate the sale of new and existing products and our expectations for the financial results for the fourth quarter 2019 <unk>.

Please be reminded that NXP undertakes no obligation to revise or update publicly any forward looking statements were full disclosure on forward looking statements. Please refer to our press release. Additionally, during our call today, we will make reference to certain non-GAAP financial measures, which exclude the impact to purchase price accounting restructuring stock based compensation and permit.

Merger related costs and other charges that have driven primarily by the screen. If that's the management does not consider to be directly related to NXP underlying core operating performance.

Pursuant to regulation G. NXP has provided reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2019 press release.

Which will be furnished to the FCC out a form 8-K as available at aspens website at the Investor Relations section I'd like to now trying to call a direct thanks, Jeff for those informative details and welcome everyone to our conference call today.

NXP delivered revenue of $2.3 billion for the third quarter. Our sales were near the high end of our guidance. We demonstrate good expense control and we successfully delivered improved operating profitability above the high end up our guidance range.

Taken together this resulted in $631 million, a free cash flow generation.

Kurt repeat or will provide specific detail later.

Looking forward, we continue to be optimistic that our product portfolio.

Investments.

Our addressing our customers long term requirements.

We see initial signs that the demand environment from our customers appear to it somewhat stabilized.

We believe the worst of the year on year declines in our strategic automotive and industrial markets are behind us.

[noise], specifically, our Q4 guidance for automotive points to a low single digit decline year on year versus the high single digit decline we've experienced year to date.

Additionally, our guidance for industrial business points to the mid single digit decline versus the mid teens decline seen year to date.

While we are encouraged by the recent stabilization and in some cases improved demand the shape and timing of any significant market re acceleration is clearly uncertain.

What we continue to do is manage our cost and expenses and believe as a company we are well positioned for a resumption inconsistent demand.

[noise], regardless of the current demand environment, our focus is on delivering unique and differentiated solutions.

While enabling our customers to be successful when their target markets.

We measure our success by attending high RMS are relative market share positions in our target market to drive true leadership, which should result in defensible long term franchise is based on truly innovative and competitive solutions.

As we were successful in this regard we we are rewarded with lasting customer relationships and we gained valuable insight into long term requirements, which enable us to optimize our R&D decisions in investments.

Ultimately this creates.

Virtuous cycle, a product and customer alignment that will enable will enable us to continued to deliver solid results to our shareholders.

Over the course of the last year, we've reviewed with you several new product initiatives, the reflecting underpin our strategic investment process. As an example in automotive we've discussed arcos bar level, two and level three eight us business.

Typically in radar, we continue to see our order rates rising and increasing customer engagement, which reinforce our projected 25% to 30% compounded annual growth over the next several years.

Additionally, in Q4, we will begin to ramp our RF Cmos 77, gigahertz front end transceiver to a leading north American solution supplier.

Along with our market, leading radar processors connectivity and software in the complete system solution.

This is a great validation of investments in customer commitments, we made over the last several years.

The success, we have seen with our multiple chip our multi chip radar solution sets the stage for the investments and the integration of the radar transceiver and processor into a single chip solution, which we've already begun to undertake.

Additionally, a few years ago, we invested in vehicle to everything our secure BITA ex solutions based on DSR see Wi Fi technology, another offering in our eight us portfolio.

It's taken longer than we anticipated to see material transaction of this technology and use case. However, we are pleased that Volkswagen has announced the new 2020 golf their high selling vehicle in Europe , which will come standardly equipped with the NXP wrote link secure BDX solution.

Currently European roads are being equipped with the Src based fee to X technology with 5000 kilometers plan through the end of 2019.

While feed to exit is not yet material in terms of revenue generation. It is another clear proof point.

That our automotive customers view NXP is a thought leader, which is making the right long term investments to invade pull their success and to reduce the number of accidents and save lives.

In addition to radar envy the ex the other new automotive product initiatives. We've shared with you include BMS as witnessed by our success with the Volkswagen They may be platform digital clusters, and ultra wide band are all progressing as we have anticipated.

This reinforces our belief that our automotive growth subset can grow 25% to 30% compounded growth rate in total even in a more challenging global production environment.

In the industrial now T. market, our crossover processors are continuing to see solid traction with revenue run rate tracking at nearly 60 million dollar per year run rate.

Very nice performance for an innovative new product and we are in the early days of designed to revenue cycle with multiple customers, which should result in the doubling of our crossover business in 2020 and several following years.

Within the mobile end market interest in our new Ultrabroadband products, which really enables an intersection of the mobile and auto access market continues.

Well the MW in both wagon to announce support for the NXP based solutions during the most recent quarter for the secure access that prediction and other use cases.

And the increased attach rate of our secure mobile wallet continues as the customer base continues to broad.

Now the one area that we've not spend a lot of time own about our efforts from the communication infrastructure end market in specifically around the transition towards Fiveg networks.

We had several opportunities in the Buildout of Fiveg networks.

The first is in radio frequency power solutions. These are sub systems, which are installed in the remote radio head unit.

Up on the cellular collars, our products take analog signal signals and amplify the signals in radio frequency domain, enabling communication between cell towers or mobile handsets.

In the Fourg generation and base stations, we offer high power Ldmos power amplifiers for one to four transmitter radio systems.

To provide our customers with increased bandwidth in a fixed frequency spectrum. We have developed a wide range of low power highly integrated products for massive mimo RF power systems.

This can be thought of as raise the band flip buyers and nearly the same physical footprint as fourg remain remote radio heads, but with up to 32 or 64 distinct transmit pads, providing upwards of 10 times the data rate versus the Fourg systems.

As the industry transitions towards the Fiveg standards with higher frequency bands, we have developed solutions across the complete sub.

Gigahertz spectrum.

Leveraging either our market, leading LD miles are Gan based massive mimo solutions.

Interestingly, we've innovated our ldmos process technology can be able to operate up to about 3.5 gigahertz roughly 30% higher frequency.

Does the Fourg generation, while still delivering the required output power in efficiency.

Furthermore, with our proprietary Siggy process technology, we have developed millimeter wave array based solutions supporting frequencies greater than 24 gigahertz for dense urban environments that we don't anticipate broad based global.

Millimeter wave.

Build outs to begin in earnest until late 2020 early 2021.

Taken together NXP has the broadest most innovative footprint of RF power amplifiers for base station applications across the entire fiveg frequency spectrum.

From a market perspective, our analysis points to a serviceable market for RF power systems for cellular based actions growing to about two and a half billion dollars by 2024, or a 13% five year compounded annual growth rate.

With NXP holding the number one position in this market.

With the relative market share position up one point eightx the number two player.

Additional Additionally, we have other opportunities in the Fiveg buildout for NXP.

Our digital networking team has been awarded designs with a few Oems to deploy CP and also repeater equipment, which will complement and leverage the buildout of last mile solutions in dense urban areas.

These solutions leverage our innovative 64 bit arm multi core layers cake processors, which embed our unique in proprietary best programmable base band engines.

This is a market, which we bring unique programmable hardware and software capabilities developed over many years focusing on the service provider market.

These are purpose built an optimized solutions, which result in high performance in low power consumption.

It's also a market with few focused competitors and we believe our solutions operating XP solid differentiation.

From a market perspective, the deployments are tied to the build out of Fiveg macro base station for last mile solutions, which we estimate will begin broad based rollout global volume production in late 2020 or early 2021.

Our analysis points to serviceable market for these last mile solutions growing at a 30% to 35% bases on a five year compounded annual growth rate.

We believe NXP has an opportunity to capitalize on the rollout of these last mile solutions and further highlights customer belief in our fundamental IP and product development.

In summary, our strategy continues to yield positive results, we will continue to drive focusing our strategic end markets engaging with customers to deliver superior highly differentiated products, regardless of the short term fluctuations in demand.

I'd like to now pass the call over to Curt and discuss the results of the current quarter.

Thanks, very much right.

Good morning, everyone.

We really appreciate you joining our call this morning.

Overall, our Q3 results were above the midpoint of our guidance.

With the contribution from the mobile and the industrial markets trauma and plant.

While demand in the communication infrastructure markets will slightly weaker.

And our automotive business performed as anticipated.

Taken together NXP delivered revenue of $2.3 billion.

Which combined with gross margin improvements and good expense control enabled us to successfully delivered operating profitability above the higher end of our guidance range.

Let me turn for the specific trends in Q3 in our focus and markets.

Starting with automotive.

Revenue was $1.05 billion down 7% year on year inline with our guidance.

During the quarter, our automotive revenue declined 7% versus the year ago periods as anticipated.

As a lesser rate of decline than in the previous quarter and showing 2% sequential growth.

Our core automotive product lines declined year on year, a reflection of lower auto production and the associated supply chain rationalization.

However.

Revenue from the subset of our automotive growth product lines grew in the high single digit race year on year during the quarter.

Yes.

Moving to industrial Iot.

Revenue was $426 million.

Down 14% year on year, and up 9% sequentially slightly better than our expectations.

During the quarter the primary source of weakness in industrial and Aiotv continued to be our general purpose microcontroller products.

Remember, our industrial and I would see business is primarily services.

Through our global distribution possible.

And that is heavily indexed to customers in the Asian markets, which appear to be particularly affected.

By the continued use China trade patterns.

Turning to mobile revenue was $321 million up 2% year on year end up 8% sequentially above the high end of our guidance.

During Q3, despite reduced order rates at the largest Chinese handset customer, we did see robust seasonal ordering patterns from both.

Other Chinese handset Oems as well as our premium headsets customer.

Both trends taken together underpin our view that growth in our mobile business will continue to be driven by increasing attach rates of our secure mobile wallet technology associated with new use cases.

Like traffic tickets thing amongst others.

Lastly, communication infrastructure and other revenue was 470 million boss.

2% year on year.

And down 6% sequentially below our guidance.

From a product line perspective, we continue to see robust year on year growth trends associated with our RF power solutions.

Just a little less than our plans.

The digital networking business came in line with expectations.

While the secure car business was a little below our expectations.

Let me highlight here several notable trends in the communication infrastructure markets, which we do believe Fox really benefiting NXP.

These include the continued shift towards massive mimo solutions, leveraging both ldmos as developed gallium nitride based products.

We also see early traction with our millimeter wave engagements for dense urban areas.

The positive tailwinds for our communication infrastructure business.

Robust.

Now, let me turn to our expectations for quarter four.

Our guidance reflects the ongoing stabilization in the month mentioned earlier in our prepared remarks by rig.

We do believe the outlook appear to have stopped getting growth on a seasonal basis.

So it is still not reflective of a return to growth.

We are guiding quarter for revenue at $2.27 billion.

Flat sequentially on the third quarter within a range of don't want to up 2%.

From a year over year perspective. This represents a decline of about 6% versus the same period a year ago.

Of which about 120 basis points, if the elimination of the M&A versus a year ago period.

At the midpoint.

Our anticipating the following sequential trends.

Our four businesses.

Automotive is expected to be up mid single digits versus Q3.

Industrial and I would T is expected to be down in the mid single digit range on a percentage basis.

Mobile is expected to be slightly down in the low single digits on a percentage basis.

And finally communication infrastructure and other is expected to be down in the low single digits on a percentage basis.

In summary, our new product introductions customer engagement levels and design win momentum.

And our strategic focus areas continue to be very very positive.

And we do continue to be very optimistic above the mid to long term potential of NXP.

Now I would like to pass the call to Peter for a review of our financial performance Peter over to you.

Good morning, so everyone on today's call.

There is already covered the drawn as the revenue during the quarter us and provided on revenue outlook for the fourth quarter I'll move to the financial highlights in summary.

Third quarter revenue performance was near the high end of our guidance range, which combines with good expense control resulted in very strong non-GAAP operating profit.

Focusing on the details of the third quarter total revenue was $2.27 billion down 7% year on year of which 120 basis points was the elimination of Vms sites versus a year ago clarity.

We generated $1.2 billion, a non-GAAP gross gross profit on reported a non-GAAP gross margin of 53.7%.

70 basis points.

Year on year.

Along with the Midpoints of all Douglas.

Total non-GAAP operating expenses were $531 million.

$32 million year on year down 10 million from Q2.

This was $5 million, but to the midpoint of our guidance.

From a total operating profit perspective, non-GAAP operating profit was 697 million.

non-GAAP operating margin was 30.3%.

30 basis points year on year to sponsor to $180 million troponin revenues over the same period.

non-GAAP interest expense was $66 million cash tax ongoing operations were $39 million, a non controlling interest was $10 million.

Cash tax and interest expense modestly better than the midpoint of guidance.

Stock based compensation, which is not included in our non-GAAP earnings was $84 million.

Now I'd like to censor the changes in our cash and debt.

Total debt to the on the Q3 was 8.51 billion down $33 million sequentially. As we retired the remaining portion of our June 2021 day.

Cash was 3.54 billion on net debt to 4.97 billion a decline sequentially because of solid cash generation during the third quarter.

We exited the quarter over the trailing well 12 month, adjusted EBITDA of $3.13 billion than a ratio of net debt to trailing 12 month adjusted EBITDA of the end of the third quarter was 1.59 times.

non-GAAP interest coverage was 10.4 times, but liquidity is excellent on our balance sheet continues to be very strong.

During the third quarter, we paid 70 million in cash dividends on announced a 50%.

Increasingly annual dividend rate.

Capital return policy continues to be to return all excess cash to shareholders.

I'd remind you that since July 2018, we've returned $6.6 billion to all shareholders, including buying by 18% of the dominant share counts.

Turning to working capital metrics days of inventory was 98 days a decrease in two days sequentially.

Quarter on quarter decline of $10 million.

We continue to aggressively manage our distribution channel inventory in the channel is a very healthy 2.3 months on within our long term targets slightly below the 2.4 months, we'd normally expect to them.

Thanks receivables were 52 days flat sequentially. They favor was 74 days, an increase of seven days versus the prior quarter.

Taken together, our cash conversion cycle was 56 days, an improvement of nine days versus the prior quarter.

Cash flow from operations was $746 million net capex was $115 million, resulting in free cash flow of $631 million.

Turning to our expectations for the full quota as Ken mentioned, we anticipate fourth quarter revenue to be about $2.27 billion, plus or minus 13 million and at the midpoint. This is flat sequentially.

We expect non-GAAP non-GAAP gross margins will be about 54.2% plus or minus 30 basis points.

Operating expenses are expected to be about $545 million, plus or minus about 7 million and taken together, we see non-GAAP operating margin to be about 30.2% plus or minus about 30 basis points.

We estimate non-GAAP interest expense to be around 69 million.

Anticipate cash tax related to ongoing operations to be about $39 million non controlling interest interest will be about 9 million for the fourth quarter. We suggest for modeling purposes is an average share counts and about 295 million shares.

Finally, I have a for closing comments that I'd like to Mike.

Along we currently have $3.5 billion, a cash on our balance sheet.

On December 1st we plan to use $1.1 billion of this cash to pay down our convertible debt and we anticipate using $1.76 billion to close all transaction for the mob Lss, although were still waiting for the final regulatory approval from Taiwan.

As I pointed out we're pleased with our performance in the third quarter revenue was slightly better than guidance with the contribution from the mobile and industrial Iot CE, Mark spoke a bit stronger than expected.

While the automotive market was in line with our expectations on the Coleman for certain market was slightly weaker.

The challenge at this stage is to predict when a positive inflection in demand will occur until we see a decidedly improved demand environment or Kate will continue to keep a tight control on those items, which are under our control, including gross margin operating expenses on working capital aiming to maximize the performance of the company.

Our non-GAAP non-GAAP gross margin is steadily improved over the last year, even as we navigate to the challenging topline given the environment.

Our non-GAAP gross margin improved improved again in the third quarter and we anticipate further improvements into the fourth quarter. However, as our guidance reflects given our topline visibility we do not believe we will achieve the 55% gold in Q4.

This is a significant disappointment driven by elective volume and the resulting on the recovery it drives to our costs.

However continued confidence in our ability to manage the costs, which offerings are all control.

So further I would like to reiterate some rigs coming.

The market continues to be uncertain and although we've certainly seen some positive signs.

Not ready yet to declare victory.

In fact up to five quarters of year on year declines achieving a flat year on year revenue for the first quarter.

First quarter 2020 would feel like a positive move in an uncertain market environment.

Equally I would remind you all that operating expenses generally increase from Q4 to Q1 as we fairly impact of annual bonuses on fringe benefit resets.

So with that I'd like to now turn it back to the operator.

As for any questions you may have.

As a reminder to ask a question you will need a press star one on your telephone to withdraw your question press the pound key in the interest of time, we ask that you. Please limit yourselves to one question and one follow up please standby, while we compile the Q name roster.

Our first question comes from Ross Seymore with Deutsche Bank. Your line is now.

Hi, guys. Thanks, certainly ask a question I wanted to focus on the automotive side first it's good to see that thats up sequentially in the quarter. So can you just talked about what's driving that up in the fourth quarter and then for the full year, you did very well getting closer to SAR. How are you thinking about what an excuse growth rate auto can be relative to SAR conceptually in 2020.

You have inventory versus share gains in a bunch of potentially offsetting vectors.

Hi, Good morning lost business crops, Let me, let me take that question.

Let me maybe start with saying what our latest market insights are.

So I address just published their laid a solid numbers for this year and the forecast for next year.

They are saying they see a 6%.

Decline for the Saar for 2019 annually over 18.

And they.

Estimate of books about flat for next year Thats. The latest inside we have so unfortunately that indicates that it has further deteriorated. This year. So we had earlier in the year minus 4% in spite of 5% and all they ended up.

At minus 6% decline for 19.

We have always sets that on a quarterly basis, you cannot really benchmark our revenue performance against the SAR given all the supply chain effects in between.

At the same time, we do continue to clearly say that.

We have all reason to believes that our businesses outgrowing the SAR thanks to the.

At a chronic content increase per car.

And I think we are now at the points going into Q4, there into Pos that the supply chain should become more or less clean.

So our growth, which you see in our business becomes more reflective of the true automotive demand.

From the Oems.

And Thats is indeed, then leading to a annual and Thats, how we look at an.

Annual growth rate in Q4, which is only mindless too was much higher decline in the earlier quarter Lifemiles seven and minus 10 in Q3 in Q2.

We don't really guide for next year.

Ross.

And you have I would say that once the supply chain is clear we should expect that our growth.

By content.

Should be reflected the getting our numbers against the against the sour. So there is some optimism here.

That with a more clean supply chain going forward.

We should we should return to growth based on a plethora.

Great. Thanks for that and then for my follow up question just wanted to hit on margins one for Peter I think overall people understand the gross margin side you guys were doing a good job in a tough revenue comp was a little surprise. The OPEC is opex is going up as much as it is in the fourth quarter given the discretionary tightness you guys have done so while the control.

Throughout the year can you just talk about a little bit about why that is going up in does the increase in the fourth quarter.

Diminish the size of the increase that we otherwise would have seen in the first quarter sequentially.

The single biggest item.

Is actually a positive thing we have a really significant number of and construction just a bit over 10 million of tape outs.

An excess of what we saw in.

And the third quarter.

And.

That's the that's the single biggest Latam Ross.

Good thing good thing.

We're getting the some of our Npis al and shipping those to customers and so there's a cost obviously as we take those but those.

And move those two words.

Engagement with customers are off.

Thank you. Our next question comes from William Stein with Suntrust. Your line is now open.

Great just following up on that a little bit.

Peter can you help us understand I think we know or were expecting margins to deteriorate a little bit in Q1 as you give.

Price to customers in automotive and and you have to incur some incremental accruals on the opex side any quantification that will help us modeling sequentially as we think out China Q1, and then how that might abate as we that effect might abate as we go through the year.

Hi.

I mean, clearly I don't want to guide.

Q1 of this size I think I think you're right.

Well in the sense.

From a gross margin perspective, you know you have the single biggest item as the annual price increases.

From Opex you have resets on bonus so.

Bullish and we've been they fell targets so.

The bonus accrual is relatively small and you're probably talking about maybe an average of $10 million a quarter.

Whereas in 2021, and we were to assume a whole bunch.

Hello.

All of our targets for 2020, we talk more like $35 million.

Quarter.

Yeah.

8 million Rolla increase roughly for fringe benefits.

We should I don't think.

Must also be higher Q on Q4.

Im not sure arrive.

Our forecast reflects lower in Q1 than Q call.

I'm not ready yet to give you that absolute lumber.

But it's still really helpful. Peter Thanks for that and one follow up if I can.

The mobile strength in Q3, it sounds like that was more of a units thing than a content thing relative to your expectations at the start of the quarter is that fair and is the demand.

It sounds like it's a bit more dispersed than concentrated.

Maybe maybe you could just.

Provided way I guess the units comes from the content so and they are directly linked so you can't really separate the two I think the good point was if you recall in Q2, we had our largest Chinese OEM that had a strong uptake is a broaden.

The deployment.

The mobile wallet into more of their portfolio and in Q3, clearly we had a broader base.

As well as the our tier one customer.

Increased volumes as well, but but all the other Chinese customers have showed strength in Q3 also so yes, we had really strong quarter in Q3, and and I think it does continue to bode well for the continued deployment.

Associated with the mobile wallet in the uptake associated with it as we projected going into next couple of years, where we thinking can be 50% of all the.

Smartphones.

Thank you. Our next question comes from John Pitzer with Credit Suisse. Your line is now open.

Good morning, guys. Thanks for the me ask the question Rick I wanted to ask you a little bit given you have sort of unique vantage point on the whole China us trade issues Im kind of curious how you think that that's impacting your business theres been some concern the investment community that perhaps Chinese customers are pulling forward inventory there has been other sort of.

Checks that would suggest there trying to keep inventory lean clearly you're not suffering from any bands, but to be I'd be kind of curious to take whether or not theres. A second derivative effect on bands on your revenue as well and how you might think business will trend. If there is a train resolution.

Well I think if theres a trade resolution be very positive. So I don't think theres any down about that.

I think though that you.

We don't see a lot of inventory being put in place.

In Q2 is we talked about it the largest Chinese.

Handset, they clearly we're ramping their supply chain and say broaden the portfolio associated with it.

But we didnt see a lot of inventory of was really associated with their supply chain.

There has been comments that I've heard about other technologies like half PPA base were.

Some of the Chinese guys were concerned about having adequate supply chain pud inventory in place, but we don't see really a lot of that in the areas that we serve it all John and.

We think it continues to bode well clearly I think our relationship with the Chinese customers has been positive and we'll continue to be positive bars going forward.

That's helpful. And then a number just a follow up on some of your prepared comments about fiveg in the common infrastructure space you guys kind of put out a three year CAGR target from revenue in that space of somewhere between zero to up to is it fair to say that what you talked about today on the RF power side and sub six is contemplated in that but as we go.

Good and millimeter wave that it's not an if that's the case.

Mike millimeter wave and your opportunity there impact that kind of CAGR is achieved you have out there as a target.

Welcome John when we set those targets.

We were coming out of the period of several years of declines in both the RF power in the digital networking business clearly with the digital networking business going from around 800 million at the time, we did the merger with Freescale down the you know in more or like the 500 million range. So.

We did set those conservatively I think what what we're talking about clearly with fiveg opportunity should increase that growth rate, but we don't think it will change the total because it really just gives us room to cover the downturn that we've been through in automotive and industrial and still have the confidence in achieving our 5% to 7% comp.

On the growth going forward.

I do think that Theres, a real opportunity as we talked about neenah paper low teens growth rate in RF power business with Fiveg deployment over the next few years and with our leadership position, but this is a good position and we're just making some early investments in the last mile with some of the customer engagements that could bode very well as.

Well in the end up with a couple hundred million dollars year revenue and then not too distant future. So all of that's positive, but we're just kind of leaving our growth rates that we set a year and a half or so ago intact and not really changing those bye bye piece at this point John .

Thank you. Our next question comes from Blayne Curtis with Barclays. Your line is now open.

Hey, guys. Thanks for taking my question I just wanted to go back on the Auto segment, you mentioned I think the growth areas growing teens, just kind of curious what you also mentioned a stabilization.

With improving Saar next year, the growth that you're seeing or the better than seasonal I.

I guess in December year, seeing or are you seeing any restocking of kind of the core components or is the now performance led by the growth areas.

I'd like to Scott I first of all let me slightly correct. What you just said I think I didn't say that ISS talked about an improvement in saw next year. They see a flats are on the low level, which was achieved at the end of this year.

I think it's a minor but may be important detail.

Venue will think about us indeed.

I'd say that the improvement you're seeing is probably not restocking, but it's just that the consumption reflects more the and the demand there earlier.

At least in our business with smaller accounts through distribution.

It was it was marked by building down inventories.

And that appeals to possibly be overhaul, which means we just see the real demand coming back again.

I am I would be careful to say that's already we start rolling off.

Yes, they packages to add something I think one of the things if you look at it Blaine and look at Hs projections.

SEC first half a 20 will be slightly yep.

From second half of 19, so that says we kind of gotten to a minimum run rate based on their projections now and then they will see a resumption of growth in the second half of 20, so but I do think that when you look at some of our our customers in China and other places that we served through distribution.

We are beginning to see a little more of an uptick which I think means that they kind of work their way through their inventory basis, and we're beginning see a little more to but positive perspective associated with it.

Thanks, and then I just wanted to ask on the Wi Fi transition.

As action you had targeted Q1 closed but thought might you could do a little earlier it sounds like you're waiting for Taiwan. Just curious if you expect to close that in December and if anything in the guidance from that.

Within the guidance Gcgs nothing's in the guidance and we would anticipate closing it sooner than the first quarter, but.

Given the fact that.

There's a process in Taiwan that we really don't.

Have clear insight into how long it will take it would be inappropriate for us to really second guess the actual timing.

Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is now open.

Hi, guys. Thanks for taking my questions.

Okay.

Would you.

Yes.

[noise] safety safety, Stacey, saying, you're kind of cutting out we can't really here.

I'm sorry can you hear me now.

Perfect.

Let's try that again, so the language in the release is obviously a little bit improved this time I haven't heard you talk about short term demand environment stabilizing or while.

At the same time, we're hearing a fair amount about sort of the Disty channel just bought I mean is this statement just purely a channels statement that things have sort of bottomed in terms of the inventory wash.

And just more representative now abandoned or you actually seen to the extent that you have any visibility actual improvement.

Customer into them.

So so I think Stacy what we're seeing is we'd seen things stabilize we seen some pockets of improvement our increased orders, but but really what we're trying to point to is the fact that if you look at it when our industrial and I'll T. segment, we were mid teens year over year decline through the first three quarters of this year.

And if you look at the midpoint of our projection will be kind of mid single digit so thats definitely a significant improvement and if you look at automotive it's been kind of high single digit decline year over year through the first three quarters and what we're at the midpoint, we're kind of at a 2% decline. So I think thats really what we're trying to talk about.

That's the basic indicator that we have that things are improving is based on the run rates that we have from our customers and their demands we see that improving now you also have to look at our mobile in communications infrastructure to get to the total and you know in total we've been.

If you adjust for the MSR.

And that we changed in the county, we we'd been kind of mid single digit with exception of Q2, where we are little less than that and we'll be will be kind of.

And we'll have a couple of points improvement in the total even with a little bit a downtick in the communications in mobile.

In Q4, but so I think we clearly have seen a stabilization and some pockets of improved demand the increased demand, but not anything that would lead us to really talk about every boasts robust recovery underway at this point.

Got it thank you and maybe to follow up on that on the longer term.

[noise] lawsuit against.

Okay.

Okay can you hear me now very soon.

Okay very strange.

To follow up on that your long term growth target is still being articulated 5% to 7% you're holding to now that was originally put forth as a CAGR. It was 2080.

Yes, it's we've got a decline in 2019, so what is the right way to think about this growth model given.

Yes.

Or do you still think we can get something closer to that three year Cagar. After 2018, with which would imply more growth in 2020, 2021, and I guess, if thats. The case, what would be the drivers of that like how do we think about that long term growth model in the context, where we're starting from.

So Stacy I think what we're committed to is the 5% to 7% growth rate. We said the categories maybe different than what we talked about a year and a half ago. As we look at that we may not be able to quite achieve what we'd laid out at the high end of automotive or the high end of industrial based on the fact that we've gone through this downturn the the positive.

Thing is is mobile is.

Growing quite nicely.

With the increased mobile wallet deployment as well as now ultra wide band begin beginning to be shipping next year and in 2021 and clearly the fiveg deployment gives us some upside I mean that could drive that zero to two to kind of high single digit growth potentially but in total we still are committed to the Bob.

To 7% growth rate and I think the key is is that we have different knobs to turned to be sure that we can achieve that and accomplish that.

Thank you. Our next question comes from Craig Hettenbach with Morgan Stanley . Your line is no.

Yes. Thank you just a question for occurred.

Data on BMS and in particular.

Thing by and welcome to the NXP Semiconductors third quarter 2019 conference call. At this time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further systems. Please press star zero.

I would now like to hand, the conference over to your Speaker today, Jeff Farmer. Thank you. Please go ahead Sir.

Thank you Danielle good morning, everyone welcome to the NXP semiconductors third quarter 2019 earnings call with me on the call today as Rick clever acting CEO , Kurt favors annex piece President Peter Kelly our CFO .

If you're not paying a copy of our earnings press release. It can be found at our company website under the Investor Relations section.

This call is being recorded and will be available for replay from our corporate website.

Call. Today will include forward looking statements that involve risks and uncertainties that could cause nx piece 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 a specific end markets in which we operate the sale of new and existing products and our expectations for the financial results for the fourth quarter 2019, please be reminded that NXP undertakes no obligation to revise or update publicly any forward looking statements.

For full disclosure on forward looking statements. Please refer to our press release. Additionally, during our call today, we will make reference to certain non-GAAP financial measures, which exclude the impact of purchase price accounting restructuring stock based compensation impairment merger related costs and other charges that have driven primarily by discrete events that management is.

Not considered to be directly related to nsps underlying core operating performance.

Pursuant to regulation G. NXP has provided reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2019 press release.

Which will be furnished to the FCC out a form 8-K as available and aspens website at the Investor Relations section I'd like to now turn the call over to Rick Thanks, Jeff for those informative details and welcome everyone to our conference call today.

NXP delivered revenue of $2.3 billion for the third quarter. Our sales were near the high end of our guidance. We demonstrate good expense control and we successfully delivered improved operating profitability above the high end up our guidance range.

Taken together this resulted in $631 million of free cash flow generation curtain Peter will provide specific detail later.

Looking forward, we continue to be optimistic that our product portfolio.

Investments.

Our addressing our customers long term requirements.

We see initial signs that the demand environment from our customers appear to it somewhat stabilized.

We believe the worst of the year on year declines in our strategic automotive and industrial markets are behind us.

Specifically, our Q4 guidance for automotive points to a low single digit decline year on year versus the high single digit decline we've experienced year to date.

Additionally, our guidance for industrial business points to a mid single digit decline versus the mid teens decline seen year to date.

While we are encouraged by the recent stabilization and in some cases improved demand the shape and timing of any significant market re acceleration is clearly uncertain.

What we continue to do is manage our cost and expenses and believe as a company we are well positioned for a resumption in consistent demand.

Regardless of the current demand environment, our focus is on delivering unique and differentiated solutions.

While enabling our customers to be successful in their target markets.

We measure our success by attaining high RMS are relative market share positions in our target markets to drive true leadership, which should result in defensible long term franchises based on truly innovative and competitive solutions.

As we were successful in this regard we we are rewarded with lasting customer relationships and we gained valuable insight into long term requirements, which enable us to optimize our R&D decisions in investments.

Ultimately this creates a virtuous cycle of product and customer alignment that will enable will enable us to continued to deliver solid results to our shareholders.

Over the course of the last year, we've reviewed with you several new product initiatives that reflected underpin our strategic investment process. As an example in automotive we've discussed our goes far level, two and level three eight us business.

Specifically in radar, we continued to see our order rates rising and increasing customer engagements, which reinforce our projected 25% to 30% compounded annual growth over the next several years.

Additionally, in Q4, we will begin to ramp our RF Cmos 77, gigahertz front end transceiver to a leading north American solution supplier.

Along with our market, leading radar processors connectivity in software in the complete system solution.

This is a great validation of investments in customer commitments, we made over the last several years.

The success, we have seen with our multiple chip our multi chip radar solution sets the stage for the investments in the integration of the radar transceiver in processor into a single chip solution, which we've already begun to undertake.

Additionally, a few years ago, we invested in vehicle to everything our secure be to X solutions based on DSR see Wi Fi technology and other offering in our eight us portfolio.

It's taken longer than we anticipated to see material transaction of this technology and use case. However, we are pleased that Volkswagen has announced the new 2020 golf their high selling vehicle in Europe , which will come standardly equipped with the NXP road linked secure BDX solution.

Yeah.

Currently European roads are being equipped with DSR sea based fee to X technology with 5000 kilometers plan through the end of 2019.

While fee to exit is not yet material in terms of revenue generation. It is another clear proof point.

That our automotive customers view NXP is a thought leader, which is making the right long term investments to invaluable their success and to reduce the number of accidents and save lives.

In addition to radar Nvidia ex the other new automotive product initiatives. We've shared with you include BMS as witnessed by our success with the Volkswagen NDP platform digital clusters and ultra wide band are all progressing as we had anticipated.

This reinforces our belief that our automotive growth subset can grow 25% to 30% compounded growth rate in total even in a more challenging global production environment.

In the industrial now T. market, our crossover processors are continuing to see solid traction with revenue run rate tracking you that nearly a 60 million dollar per year run rate.

Very nice performance for an innovative new product and we are in the early days of designed to revenue cycle with multiple customers, which should result in the doubling of our crossover business in 2020 and several following years.

Within the mobile end market interest in our new Ultrabroadband products, which really enables an intersection of the mobile in auto access market continues.

Both the MW in books wagon announced support for the NXP based solutions during the most recent quarter for the secure access that prediction and other use cases.

And the increased attach rate of our secure mobile wallet continues as the customer base continues to broad.

Now the one area that we've not spend a lot of time own about our efforts from the communication infrastructure end market in specifically around the transition towards Fiveg networks.

We had several opportunities in the Buildout of Fiveg networks.

The first is in radio frequency power solutions. These are sub systems, which are installed in the remote radio head unit up on the cellular dollars our products take analog signal signals in amplify the signals in radio frequency domain, enabling communication between cell towers and mobile handsets.

In the Fourg generation and base stations, we offered Highpower Ldmos power amplifiers for one to four transmitter radio systems.

To provide our customers with increased bandwidth in a fixed frequency spectrum. We have developed a wide range of low power highly integrated products for massive mimo RF power systems.

This can be thought of as a raise of amplifiers in nearly the same physical footprint as fourg remain remote radio heads, but with up to 32 or 64 distinct transmit pads, providing upwards of 10 times the data rate versus the Fourg systems.

As the industry transitions towards the Fiveg standard with higher frequency bands, we have developed solutions across the complete subsidy scared to hurts spectrum.

Leveraging either our market, leading LD miles are Gan based massive mimo solutions.

Interestingly, we have innovated, our ldmos process technology to be able to operate up to about 3.5 gigahertz, roughly 30% higher frequency versus the fourg generation, while still delivering the required output power inefficiency.

Furthermore, with our proprietary Siggy process technology, we have developed millimeter wave array based solutions supporting frequencies greater than 24 gigahertz for dense urban environments that we don't anticipate broad based global.

Millimeter wave.

Build outs to begin in earnest until late 2020 early 2021.

Taken together NXP has the broadest most innovative footprint of RF power amplifiers for base station applications across the entire fiveg frequency spectrum.

From a market perspective, our analysis points to a serviceable market for RF power systems for cellular base stations growing to about two and half billion dollars by 2024, or a 13% five year compounded annual growth rate.

With NXP holding the number one position in this market.

With the relative market share position of one point Eightx the number two player.

Additional Additionally, we have other opportunities in the Fiveg buildout for NXP.

Our digital networking team has been awarded designs with a few Oems to deploy CP and also repeater equipment, which will complement and leverage the build out of last mile solutions in dense urban areas.

These solutions leverage our innovative 64 bit arm multi core layer scape processors, which embed our unique in proprietary best buff programmable base band engines.

This is a market, which we bring unique programmable hardware and software capabilities developed over many years focusing on the service provider market.

These are purpose built and optimized solutions, which result in high performance in low power consumption.

It's also a market with few focused competitors and we believe our solutions operating expenses solid differentiation.

From a market perspective, the deployments are tied to the build out of Fiveg macro base station for last mile solutions, which we estimate will begin broad based rollout global volume production in late 2020 or early 2021.

Our analysis points to serviceable market for these last mile solutions growing at a 30% to 35% bases on a five year compounded annual growth rate.

We believe NXP has an opportunity to capitalize on the rollout of these last mile solutions and further highlights customer belief in our fundamental IP and product development.

In summary, our strategy continues to yield positive results, we will continue to drive focusing our strategic end markets engaging with customers to deliver superior highly differentiated products, regardless of the short term fluctuations in demand.

I'd like to now pass the call over to occurred to discuss the results of the current quarter.

Thanks, very much Rick.

Good morning, everyone.

We really appreciate you joining our call this morning.

Overall, our Q3 results were above the midpoint of our guidance.

With the contribution from the mobile and the industrial Aiotv markets Stroma implants.

While demand in the communication infrastructure markets will slightly weaker.

And our automotive business performed schuff as anticipated.

Taken together NXP delivered revenue of $2.3 billion.

Which combined with gross margin improvements and good expense control enabled us to successfully deliver operating profitability above the higher end of our guidance range.

Let me turn for the specific trends in Q3 in our focus and markets.

Starting with automotive.

Revenue was $1.05 billion down 7% year on year inline with our guidance.

During the quarter, our automotive revenue declined 7% versus the year ago periods as anticipated.

As a lesser rate of decline than in the previous quarter end, showing 2% sequential growth.

Our core automotive product lines declined year on year, a reflection of lower auto production and the associated supply chain rationalization.

However.

Revenue from the subset of our automotive growth product lines grew in the high single digit range year on year during the quarter.

And.

Moving to industrial and IP revenue was $426 million down 14% year on year, and up 9% sequentially slightly better than our expectations.

During the quarter the primary source of weakness in industrial and Aiotv.

Continued to be our general purpose microcontroller products.

Remember, our industrial Iot tea business is primarily serviced through our global distribution partners.

And it is heavily indexed to customers in the Asian markets, which appear to be particularly affected.

By the continued use China trade pensions.

Turning to mobile revenue was $321 million up 2% year on year and up 8% sequentially above the high end of our guidance.

During Q3, despite reduced order rates at the largest Chinese handset customer, we did see robust seasonal ordering patterns from both.

Other Chinese handset Oems as well as our premium handset customer.

Both trends taken together underpin our view that growth in our mobile business. Good continued to be driven by increasing attach rates of our secure mobile wallet technology associated with new use cases.

Like transit ticketing amongst others.

Lastly, communication infrastructure, and although revenue was $470 million.

Down 2% year on year and down 6% sequentially below our guidance.

From a product line trend perspective, we continue to see robust year on year growth trends associated with our RF power solutions, So just a little less than our plans.

The digital networking business came in line with expectations.

While the secure car business was a little below our expectations.

Let me highlight here several notable trends in the communication infrastructure markets, which we do believe are truly benefiting NXP.

These includes the continued shift towards massive mimo solutions, leveraging both ldmos as well if gallium nitride based products.

We also see early traction with our millimeter wave engagements for dense urban areas.

The positive tailwinds for our communication infrastructure business our robust.

Now, let me turn to our expectations for quarter four.

Our guidance reflects the ongoing stabilization in demand mentioned earlier in our prepared remarks by Rick.

We do believe the outlook appear to have stopped getting worse on a seasonal basis.

So it is still not reflective of a return to growth.

We are guiding quota for revenue and $2.27 billion.

Flat sequentially on the third quarter within a range of don't want to up 2%.

From a year over year perspective. This represents a decline of about 6% versus the same periods a year ago.

Open about a 120 basis points is the elimination of the M&A versus a year ago period.

At the Midpoints, we are anticipating the following sequential trends in our four businesses.

Automotive is expected to be up mid single digits versus Q3.

Industrial and Aiotv is expected to be down in the mid single digit range on a percentage basis.

Mobile is expected to be slightly down in the low single digits on a percentage basis.

And finally communication infrastructure and other is expected to be down in the low single digits on a percentage basis.

In summary, our new product introductions customer engagement levels and design win momentum.

In our strategic focus areas continue to be very very positive.

And we do continue to be very optimistic above the mid to long term potential of NXP.

Now I would like to pass the cold Peter for a review of our financial performance Peter over to you. Thank you Kurt on good morning to everyone on today's call.

'cause there's already covered the drawn as the revenue during the quarter us and provided on revenue outlook for the fourth quarter I'll move to the financial highlights in summary of third quarter revenue performance was near the high end of our guidance range, which combines with good expense control resulted in very strong non-GAAP operating profit.

The focusing on the details of the third quarter total revenue was $2.27 billion down 7% year on year of which 120 basis points was the elimination of liana sites versus a year ago period.

We generated $1.2 billion, a non-GAAP close gross profit on.

On reported a non-GAAP gross margin of 53.7%.

70 basis points.

Year on year on in line with the midpoint of all Douglas.

Total non-GAAP operating expenses were $531 million down $32 million year on year down 10 million from Q2.

This was $5 million better than the Midpoints of all guidance.

From a total operating profit perspective, non-GAAP operating profit was 697 million a non-GAAP operating margin was 30.3%.

30 basis points year on year to sponsor to $180 million Retrophin revenues over the same third.

non-GAAP interest expense was $66 million cash tax for ongoing operations were $39 million, a non controlling interest was $10 million.

With cash tax and interest expense modestly better than the midpoint of guidance.

Stock based compensation, which is not included in our non-GAAP earnings was $84 million.

Now I'd like to turn to the changes in our cash and debt.

Total debt to the on the Q3 was 8.51 billion down $33 million sequentially. As we retired the remaining portion of our June 2021 debt.

Cash was 3.54 billion a net debt of 4.97 billion of decline sequentially because of solid cash generation during the third quarter.

We exited the quarter over the trailing will will 12 month adjusted EBITDA of $3.13 billion on a ratio of net debt to trailing 12 month adjusted EBITDA of the end of the third quartile is 1.5 million tons on a non-GAAP interest coverage was 10.4 times liquidity is excellent and on bouncy continues to be very strong.

During the third quarter, we paid 70 million in cash dividends on announced a 50%.

Increasingly annual dividend rate our capital return policy continues to be to return all excess cash to shareholders would remind you that since July 2018, we have returned $6.6 billion to all shareholders, including buying by 18% of the diluted share count.

Turning to working capital metrics days of inventory was 98 days a decrease of two days sequentially a quarter on quarter decline of $10 million.

We continue to aggressively manage all distribution channel on inventory in the channel is a very healthy 2.3 months on within our long term targets with those slightly below the 2.4 months weve normally expect to them.

Days receivables were 52 days flat sequentially and days payable was 74 days, an increase of seven days versus the prior quarter.

Taken together, our cash conversion cycle was 56 days, an improvement of nine days versus the prior quarter.

Cash flow from operations was $746 million, a net capex was $115 million, resulting in free cash flow of $631 million.

Turning to our expectations for the full quota as Curt mentioned, we anticipate fourth quarter revenue to be about $2.27 billion, plus or minus 13 million and at the midpoint. This is flat sequentially.

We expect non-GAAP non-GAAP gross margins of about 54.2% plus or minus 30 basis points.

Operating expenses are expected to be about $545 million, plus or minus about 7 million.

Taken together, we see non-GAAP operating margin to be about 30.2% plus or minus about 50 basis points.

We estimate non-GAAP interest expense to be around 69 million unanticipated cash tax related to ongoing operations to be about $39 million.

Non controlling interest interest will be about 9 million for the fourth quarter. We suggest that for modeling purposes use an average share counts of about 285 million shares.

Finally, I have a few closing comments that I'd like to make.

One we currently have $3.5 billion, a cash on our balance sheet.

On December 1st we plan to use $1.1 billion of this cash to pay down our convertible debt and we anticipate using $1.76 billion to close all transaction for them all bellessa, although we're still waiting for the final regulatory approval from Taiwan.

As Kevin pointed out we're pleased with our performance in the third quarter, while revenue was slightly better than guidance with the contribution from the mobile and industrial Iot CE, Mark you spoke a bit stronger than expected.

While the automotive market was in line with our expectations on the Colm infrastructure market was slightly weaker the challenge at this stage is to predict when a positive inflection in demand will occur.

Until we see a decidedly improved demand environment, we'll keep will continue to keep a tight control on those items, which are under our control, including gross margin operating expenses on working capital aiming to maximize the performance of the company.

Our non-GAAP non-GAAP gross margin is steadily improved over the last year, even as we navigate to the challenging topline demand environment.

Our non-GAAP gross margin improved boot improved again in the third quarter and we anticipate further improvements into the fourth quarter. However, as our guidance reflects given our topline visibility we do not believe we will achieve the 55% gold in Q4.

This is a significant disappointment driven by elective volume on the resulting on the recovery across to all costs.

However, I continue to our confidence in our ability to manage the costs, which all under our control.

So further I would like to reiterate keratin ricks comments.

The market continues to be uncertain and although we sent we've seen some positive signs, we're not ready yet to declare victory.

In fact up to five quarters of year on year declines achieving a flat year on year revenue for the first quarter.

First quarter of 2020 would feel like a positive move in an uncertain market environment.

Equally I would remind you will that our operating expenses generally increase from Q4 to Q1 as we feel the impact of annual bonuses on fringe benefit resets.

So with that I'd like to now turn it back to the operator.

Also any questions you may have.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key in the interest of Timeliness would you. Please limit yourself to one question and one follow up please standby, while we compile the kuni roster.

Our first question comes from Ross Seymore with Deutsche Bank. Your line is now.

Hi, guys. Thanks, certainly ask a question I wanted to focus on the automotive side first it's good to see that that's up sequentially in the quarter. So can you just talked about what's driving that up in the fourth quarter and then for the full year, you did very well getting closer to SAR. How are you thinking about what an excuse growth rate in auto can be relative to SAR conceptually in 2020.

You have inventory versus share gains in a bunch of potentially offsetting vectors.

Hi, Good morning lost business across let me, let me take that question.

Let me maybe start with saying bolt on our mid late of market insights are.

So I address just published their latest sorrow numbers for this year and the forecast for next year.

They are they are saying they see us 6% declined for the Saar for 2019 annually over 18.

And Dave.

Estimate of both about flat for next year. That's the latest insight we have so unfortunately that indeed indicates that it has further deteriorated. This year, though we had earlier in the year minus 4% finals, 5% and all they end up at some at minus 6% decline or 19.

We have always sets that on a quarterly basis, you cannot really benchmark our revenue performance against the SAR given all the supply chain effects in between.

At the same time, we do continue to clearly say that.

We have all reason to believe that our businesses outgrowing the SAR thanks to the.

At a chronic content increase per car.

And I think we are now at the points going into Q4, Vera It appears that the supply chain.

Should become more or less clean.

So our growth, which you see in our business becomes more reflective of the true automotive demand.

From the Oems.

And Thats is indeed, then leading to a any oil and thats. How we look at its annual growth rate in Q4, which is only minus two was much higher decline in the earlier quarters Lifemiles seven and minus 10 in Q3 in Q2.

We don't really guide for next year.

Ross.

And yet I would say that once the supply chain is clear we should expect that our growth.

By content should be reflected the getting our number against the against the power. So there is some optimism here.

But with a more clean supply chain going forwards.

We should be should return to growth based on our platform.

Great. Thanks for that and then for my follow up question just want to hit on margins one for Peter I think overall people understand the gross margin side you guys are doing a good job in a tough revenue comp was a little surprise. The OPEC is opex is going up as much as it is in the fourth quarter given the discretionary tighten as you guys have done so while the.

Control throughout the year can you just talk about a little bit about why that is going up in does the increase in the fourth quarter diminish the size of the increase that we otherwise would have seen in the first quarter sequentially.

Yes, the single biggest item.

Is actually on a positive thing we have a really significant number I think it's such from just a bit over 10 million of tape outs.

An excess of what we saw in the in the third quarter.

Yeah.

That's the that's the single biggest item Ross.

Good thing because thing.

And we're getting the some of our npis out and shipping those to customers and so there's a cost obviously as we take those and but those.

And moved those two words.

Engagement with customers are off.

Thank you. Our next question comes from William Stein with Suntrust. Your line is now open.

Great just following up on that a little bit.

Peter can you help us understand I think we know or were expecting margins to deteriorate a little bit in Q1 as you give.

Price to customers in automotive and and.

You have to incur some incremental accruals on the Opex side any quantification that will help us modeling sequentially as we think our 10-Q, one and then how that might abate as we did that affect might abate as we go through the year.

Hi.

I mean, clearly I don't want to guide.

Q1 of their studies I think I think you're right.

Well in the sense.

From a gross margin perspective, you know you have the single biggest item as the annual price increases.

From Opex you have.

Resets on bonus so.

As an example, if we didn't they fell targets so.

The bonus accrual is relatively small and you're probably talking about maybe an average of $10 million a quarter.

Whereas in 2020 him and we were to assume a full bundle kind of.

Several of our targets for 2020 be talking more like $35 million.

A quarter.

You'd see over an 8 million dollar increase roughly for fringe benefits.

We should I don't think.

<unk> costs will be higher Q1 of them are in Q4, So I'm not sure line.

Our forecast Opex lower in Q1 than Q cool.

I'm not ready yet to give you a benefit lumber.

But it's still really helpful. Peter Thanks for that and one follow up if I can.

The mobile strength in Q3, it sounds like that was more of a units thing than a content thing relative to your expectations at the start of the quarter is that fair and is the demand.

It sounds like it's a bit more dispersed than concentrated.

Maybe maybe you could just done provided way I guess the units comes from the content. So either directly linked so you can't really separate the two I think the good point was if you recall in Q2, we had our largest Chinese OEM that had a strong uptake is they broaden.

The deployment of the mobile wallet into more of their portfolio and in Q3, clearly we had a broader base.

As well as the our tier one customer.

Increased volumes as well, but but all the other Chinese customers had showed strength in Q3 also so yes, we had really strong quarter in Q3, and and I think it does continue to bode well for the continued deployment.

Associated with the mobile wallet in the uptake associated with it as we projected going into next couple of years, where we thinking can be 50% about the.

Smartphones.

Thank you. Our next question comes from John Pitzer with Credit Suisse. Your line is now open.

Good morning, guys. Thanks for let me ask the question Rick I wanted to ask you a little bit good given you have sort of unique vantage point on the whole China use trade issues I'm kind of curious how you think that that's impacting your business theres been some concern the investment community that perhaps Chinese customers are pulling forward inventory there has been other sort of.

Checks that would suggest im trying to keep inventory lean clearly you're not suffering from any bands, but to be cadby kind of curious to think whether or not there's a second derivative effect on bands on your revenue as well and how you might think business will trend. If there is a trade resolution.

Well I think if theres a trade resolution be very positive. So I don't think theres any down about that.

I think though that.

We don't see a lot of inventory being put in place.

In Q2 is we talked about it the largest Chinese.

Handset they clearly we're ramping their supply chain in say broaden the portfolio associated with it.

But we didnt see a lot of the inventory of was really a associated with their supply chain.

You know there has been comments that I've heard about other technologies like if PPA case, where.

Some of the Chinese guys were concerned about having adequate supply chain pud inventory in place, but we don't see really a lot of that in the areas that we serve it all John in.

We think it continues to bode well clearly I think our relationship with the Chinese customers has been positive and then we'll continue to be positive bars going forward.

That's helpful. And then a number just a follow up on some of your prepared comments about fiveg in the common infrastructure space. You guys is kind of put out a three year CAGR target for revenue in that space of somewhere between zero to up to is it fair to say that once you talked about today on the RF power side and sub six is contemplated in that but as we go.

At a millimeter wave that it's not an if thats the case.

My millimeter wave and your opportunity there impact that kind of CAGR that you have out there its target.

Welcome John when we set those targets.

We were coming out of the period of several years of declines in both the RF power in the digital networking business clearly with the digital networking business going from around 800 million at the time, we did the merger with Freescale down the you know in more like the 500 million range. So.

We did set those conservatively I think what what we're talking about clearly with the fiveg opportunity should increase that growth rate, but we don't think it will change the total because it really just gives us room to cover the downturn that we've been through in automotive and industrial and still have the confidence in achieving our 5% to 7% comp.

On the growth going forward.

I do think that there's a real opportunity as we talked about neenah paper low teens growth rate in RF power business with Fiveg deployment over the next few years in net and with our leadership position puts us in a good position and we're just making some early investments in the last mile with some of the customer engagements they could bode very well as.

Well in the end up with a couple hundred million dollars year revenue and then not too distant future. So all of that's positive, but we're just kind of leaving our growth rates that we set a year and a half are so we'll go intact and not really changing those bye bye piece at this point John .

Thank you. Our next question comes from Blayne Curtis with Barclays. Your line is now open.

Hey, guys. Thanks for taking my question I just wanted to go back in the Auto segment, you mentioned I think the growth areas growing teens I'm just kind of curious what you also mentioned a stabilization with improving Saar next year, the growth that you're seeing or the better than seasonal I.

I guess in December you're seeing or are you seeing any restocking of kind of the core components or is the the outperformance led by the growth area.

I believe this could I get the principal let me just slightly correct. When you just said I think I didn't say that ISS talked about an improvement in stornext here. They see a flat power on the low level, which was achieved at the end of this year.

I think it's a minor but may be important detail.

When you think about us indeed.

I'd say that the improvement you're seeing is probably not restocking, but it's just that the consumption reflect small the and the empty miles bear earlier.

At least in our business with smaller accounts through distribution.

It was it was marked by building down inventories.

And that appeals to possibly be over NOL, which means we just see the real demand coming back again.

I am I would be careful to say that's already restocking rolling off.

Yes, the packages to add something I think one other things if you look at it Blaine and look at Hs projections.

At SEC first half a 20 will be slightly yep.

From second half of 19, so that says we kind of gotten to a minimum run rate based on their projections now and then they will see a resumption of growth in the second half of 20, so but I do think that when you look at some of our our customers in China and other places that we served through distribution.

We are beginning to see a little more of an uptick which I think means that they kind of work their way through their inventory basis, and we're beginning see a little more to but positive perspective associated with it.

Thanks, and I just wanted to ask on the wife I transition.

As action you had targeted Q1 close but thought might you could do a little earlier it sounds like you're waiting for Taiwan. Just curious if you expect to close that in December and if anything in the guidance for that.

In the guidance Gcgs nothing's in the guidance and we would anticipate closing it no sooner than the first quarter, but.

Given the fact that.

There's a process in Taiwan that we really don't.

Have clear insight into how long it will take it would be inappropriate for us to really second guess the actual timing.

Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is now open.

Hi, guys. Thanks for taking my questions on.

First just region.

[noise] safety safety, Stacey safety, you're kind of setting now we can't really hear you.

I'm sorry can you hear me now yep perfect.

Let's try that again, so the language in the release is obviously a little bit improve this time I Havent heard you talk about short term demand environment stabilizing well while.

At the same time, we're hearing a fair amount about sort of the density challenges bottoming is this statement just purely a channels statement things have sort of bottomed in terms of the inventory wash.

And we're just more representative now were abandoned you actually see to the extent that you have any visibility actual improvement.

Customer into them.

So so I think Stacy what we're seeing is we'd seen things stabilize we seen some pockets of improvement our increased orders, but but really what we're trying to point to is the fact that if you look at it you know when our industrial and Aiotv segment, we were mid teens year over year decline through the first three quarters of this year.

And if you look at the midpoint of our projection will be kind of mid single digit so thats definitely a significant improvement and if you look at automotive it's been kind of high single digit decline year over year through the first three quarters and what we're at the midpoint, we're kind of at a 2% decline. So I think thats really what we're trying to talk about.

That's the basic indicator that we have that things are improving is based on the run rates that we have from our customers and their demands we see that improving now you also have to look at our mobile in communications infrastructure to get to the total and you know in total we'd been.

If you adjust for the MSR.

And that we changed in the county, we we'd been kind of mid single digit with the exception of Q2 were little less than that and we'll be will be kind of.

And we'll have a couple points improvement in the total even with a little bit a downtick in the communications in mobile.

In Q4, but so I think we clearly have seen a stabilization in some pockets of improved demand the increased demand, but not anything that would lead us to really talk about every boasts robust recovery underway at this point.

Got it thank you and maybe to follow up on that on the longer term.

[noise] lawsuit against Stacy.

Okay can you hear me now it's very soon.

Okay very strange.

To follow up on that your long term growth target is still being articulated by December holding to it and that would you originally put forth as a CAGR or it was 2080.

Yes, it's we've got a decline in 2019, so what is the right way to think about this growth model given.

[noise] or do you still think we can get something closer to that three year Cagar. After 2018, with which would imply you know more growth in 2020, 2021, and I guess it that's the case what would be the drivers of that like how do we think of it.

Well in the context, what we're starting from.

So Stacy I think what we're committed to is the 5% to 7% growth rate. We said the categories maybe different than what we talked about a year and a half ago. As we look at that we may not be able to quite achieved what we laid out at the high end of automotive or the high end of industrial based on the fact that we've gone through this downturn the the positive.

Good thing is is a mobile is the is growing quite nicely.

With the increased mobile wallet deployment as well as now ultra wide band begin beginning to be shipping next year in in 2021, and clearly the fiveg deployment gives us some upside I mean, you know that could drive that zero to two two you know kind of high single digit growth potentially but in total we still are committed to the five.

To 7% growth rate and I think the key is is that we have different knobs to turned to be sure that we can achieve that and accomplish that.

Thank you. Our next question comes from Craig Hettenbach with Morgan Stanley . Your line is no.

Yes. Thank you just a question for current any update on BMS and in particular, the things that you would highlight versus some of the incumbents that you think you're doing just from a feature set perspective.

Yes, Thanks, Craig.

Well the update is that we are on track, which is which is definitely good news.

And I think we've all seen in Q3, a very locks European OEM, making a major announcements about their commitments relative to new electric vehicles coming off.

And as we have kind of sign posted earlier VR, we are quite a bit involved in this more than one model, but actually across the board.

So if you will this is a very clear evidence on our success over incumbents.

With one of the most I.

I would say bullish commitments from a car company into into building electric vehicles.

And Thats stopped shipping as we speak so I mean this is not just some going in the future, but actually the first models, although that whole fleet across a couple of France of that OEM.

Our shipping as we speak.

So what that means below the line has to be are on track.

Two hour.

Yes roll off as we as we have discussed earlier with pretty high growth rates.

Into into the next few years.

Let me just highlight freight that we why we speak a lot about this one OEM and since since the public announcements that it's very convenient for us to speak of volume, we have significantly broader base off of design wins too.

Differentiate us against incumbents remain to be able to the functional safety performance on the system level.

As well as this capability given our approach with Microcontrollers and analog high precision front ends.

And you know I guess, the only thing I would add 10, Craig is weak I follow personally the announcement by some of the incumbents and always track that and every time, we go back and look at it we still think do we have a superior performance in a better product.

In some of the announcements that they're making.

Got it thanks to that and then just a follow up with heater understanding is still some headwinds from a revenue on on the gross margin line can you talk about just some of the levers you've been pulling to improve gross margin and also maybe some benefits of mix over the next 12 to 18 months.

Yes, I mean, I think the the same same things I think in the long term.

So over the next few years on mix definitely helps us.

As we looked at kind of the MTR coming out.

You're not going to suddenly see as Jim.

Where you'll you'll see gradual gradual improvements in gross margin in the long term.

The short term, it's all about blocking and tackling making sure all.

Partners give us around pricing, making sure we're managing yields.

Test times or lack of so 50 tibial almost issue I have at the moment.

Is.

We have long term model of 55 to 57.

I'd really like to get to 55 for full year 2020.

But with the current market environment.

I'd say the lack of visibility rather than visibility we have it's hard to see how we do not really.

When you sold in Q4.

So I do need.

I hate to admit to put onto need a pickup in.

In volume.

To be able to get to the to the 55%.

A level.

So I am surprised when asked the question one of the questions. We were anticipating from you guys is given revenue was towards the higher under the guidance in Q3, why why Didnt gross margin.

Improve a little bit above the guidance of 53 seven on the of the answer to that is our.

Assembly and test in General Assembly and test utilization was was weaker than we still think in Q3 now to be honest 30 basis points of $6 million. So it's no big a number anyway.

But you know the coatings environment when the levels of revenue we have it makes it really really so.

To get the revenue, but I believe aftermarket does come back, we'll we'll be able together Craig just to be specific I think our long term target is 53% to 57, we talked about 55 in the near term, but otherwise say 50, Fox said 50 does your dividend declared by 55 the midpoint yet.

But utilization will be key to.

That is well and I think thats, an important element of our continued gross margin improvement.

And in fact of is just revenue and managing our inventory in Illinois.

Thank you. Our next question comes from CJ Muse with Evercore. Your line is now open.

Yeah. Good morning, Thank you for taking the question.

I guess first question you know what are the more encouraging I guess data points coming out of your 10-Q is that your OEM sales were flat year on year well just these sales down 10%. So I guess two part question there one.

Are you comfortable with where we are from a disti.

Inventory perspective, and then too.

As you see a recovery at least standing here today do you think it'll be just to your OEM led.

Well I think I.

I think your point is a it's a great observation that most of the weakness that we have comes out of distribution.

If you look at what we've done on the distribution inventory, which significantly reduced inventory over the last few quarters.

To be able to maintain that.

2.4 months and actually down a 2.3 months.

In the Q3 timeframe, which we would anticipate would go back to the 2.4 months in Q4, we actually add some late shipments out on Pos.

Late in the quarter that actually allowed our inventory to go down to the 2.3 months I think it was the we will see a an uptick in distribution I think it.

Has tended as you pointed out to be more volatile than that OEM side.

And I think it will be more relevant to mourn the.

Uptick associated with it.

But as far as inventories I think we're in good shape in.

And I don't think.

Theres any issue associated with that but I would anticipate that that will be one the early points, where we'll see a real improvement in the total revenue.

Very helpful. As my follow up and I know.

Don't want to guide to Q1, so no not asking near term, but as you think about just.

Generally for 2020.

And you look at your mobile business and the increased attach rate of secure mobile wallet. How are you thinking about in what is your visibility look like today.

Into the growth factor into 2020.

Correct.

I would be I would say we are confident that the attach rate increase which is actually what is driving our whole by growth attach rate increase also mobile wallets and associated applications. Thus continue I mean, there could always be quarterly fluctuations mobile has a lot of seasonality but.

From a year over year perspective, we are very well on track with what we said in our analyst day last year.

But we see this attach rate growing from I think we set 30% to 50% over the next three years.

And we actually did a check earlier.

How how our view on that journey and it looks like we can be confident that we are very well on track on the journey and that would indicate that the growth should should reasonably continue.

I think CJ one of the things that will be a really interesting. The second half next year is as we begin to ship ultra wide band. It just solidifies that position in mobile and solidifies our position with the mobile wallet. So I think that will be a significant contributing factor for us and continue to demonstrate our leadership as well as solidifying our.

Our overall position.

And we'll take one last question here today.

Thank you. Our final question comes from Chris Caso with Raymond James Your line is now open.

Yes. Thank you good morning, just a follow up question on the gross margins and Peter last quarter.

You talked about.

Getting to the the potential of getting to 55% quarterly run rate on about flat year on year revenue.

I would suggest around the 2.4 billion level is that still the right way to think about a going forward kind of once we kind of get to that revenue level that we get to that in a quarterly basis, and obviously the full year well yes.

Okay.

Okay sorry.

That's right quick quick answer [laughter].

Yes.

On a rhetorical question really [laughter].

Right Okay. The.

The follow on from that is.

There's been some talk with with some of the trade tensions that.

Some of the that the Chinese customers, perhaps are attending defense too.

Favour some of the non U.S. solutions, giving some of the trade situations and security of supply and such.

Is that something youd pending to senior business now and going forward do you think that provide you with somewhat of an advantage being domiciled outside the U.S., yes.

No seriously I think you know in with discussions with our customers I think they.

They appreciate.

The complex these.

Dealing with different source technology, and I think they have a lot of discussions about trying to.

Moved some of their production and too.

US as well as other non U.S. sourced IP providers. So.

We think that could be positive, obviously that doesn't happen overnight or immediately but it takes period of time associated with it.

Thank you ladies and gentlemen, this concludes our question and answer session.

Now, let's turn the call.

Back over to Rick Clemmer for any closing remarks. Thank.

Thank you very much operator.

Thanks for joining us today, obviously, a worry we feel better than we did in previous quarters with this stability, we see and are encouraged about the fact that the year over year decline is significantly reduced with our guidance in Q4 and puts us in a solid position to get ready to move into Htwo.

During 20.

With the ramp up of new products that will continue to differentiate NXP and show our leadership in deploying technology to be able to drive solutions for our customers. So thank you very much for your support and have good day, great. Thank you everyone. Thank you data.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.