Q1 2021 NXP Semiconductors NV Earnings Call
Yeah.
Good day and welcome to the Q1 2021 and next be Semiconductors earnings Conference call.
At this time all participants are in the listen only mode.
Later, we will conduct the question and answer session and instructions will follow at that time.
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The remainder of this conference call is being recorded.
I would now like to turn the conference of which of your host Mr.
Mr. Jeff Palmer from NXP.
Thank you Ron and good morning, everyone welcome to the NXP semiconductors first quarter 2021 earnings call with me on the call today is Kurt Sievers, Nxp's, President and CEO and Peter Kelly, Our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward looking statements include.
The box involve risks and uncertainties that could cause nxp's results to differ materially from management's current expectations.
These risks and uncertainties include but are not limited to statements regarding the continued impact of the COVID-19 pandemic on our business the macroeconomic impact all of the specific end markets of which we operate the sale of new and existing products and our expectations for the financial results for the second quarter of 2021, please be reminded that index.
The undertakes no obligation to revise or update publicly any forward looking statements for a full disclosure of forward looking statements. Please refer to our press release today.
Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events and that management does not consider to be directly related to nxp's underlying core operating performance pursuant.
Pursuant to regulation G. NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2021 earnings press release, which will be furnished to the SEC on form 8-K and is available on Xp's website in the Investor Relations section of NXP Dot Com now I would like to turn the call over to <unk>.
Kurt Kurt sure call.
Yeah, Thanks, very very much Jess and good morning, everyone. We really appreciate you joining our call today.
Today, I will review our quarter, one results and discuss our guidance for Q2.
Furthermore, I look for why the updated perspective on how we view the current supply demand environment, including the recovery of our true Austin based facilities.
We were hit by the severe winter storm in February.
And Additionally, I will discuss our efforts for sustainability.
Now, let me get started with quarter one.
Our results were better than the midpoint of all of our guidance with the contribution from the industrial and the communication infrastructure end markets both stronger than planned.
At the same time trends in the mobile and auto markets.
Generally in line with our expectations.
With automotive being just slightly impacted.
By the severe winter storms in Texas.
Taken together NXP delivered quarter, one revenue of 2.5 dollars 7 billion, an increase of 27% year over year and $17 million above the midpoint of our guidance range.
Non-GAAP operating margin in Q1, both of the strong 39% six on the basis points better than the year ago period.
About 50 basis points above the midpoint of guidance driven both by improved mix and the additional revenue.
Now, let me turn to the specific trends in our focus end markets.
In automotive quarter, one revenue was 123 billion up 24% versus the year ago period.
And about 13 billion below our guidance.
The industrial and Iot all of.
The quarter, one revenue was $571 million.
52% versus the year ago period.
And about 13 million better than all of our guidance.
In mobile for the.
<unk> revenue was $346 million.
Up 40% versus the year ago period.
And in line with our guidance.
Reconciling for the sale of the voice and audio business, which closed during quarter. One 2020, the underlying mobile end market growth.
It was actually up a robust 46% year over year.
And lastly, communication infrastructure and other.
Well the one revenue was $421 million.
4% year on year end of about 17 million better than all the guidance.
Yeah.
Now, let me move to our outlook, we are guiding quarter to revenue and $2 57 billion up about 40% versus the second quarter of 2020.
Within the range of 38, two up 45% year over year.
And from a sequential perspective this is about flat at the midpoint versus the prior quarter.
At the midpoint.
We anticipate the following trends in our business.
Automotive is expected to be up in the upper 80% range versus quarter two 2020.
And up in the low single digits versus quarter, one 'twenty one.
Industrial and Iot is expected to be up in the low 30% range year over year.
And flat versus quarter, one 'twenty one.
Mobile is expected to be up in the mid 30% range.
And flat versus quarter, one 2021.
And finally communication infrastructure and other.
Is expected to be down in the low teens percent range versus the same period, a year ago and down in the mid single digit range on a sequential basis.
No at this point, let me turn to an update on the current supply demand environment.
As I had shared with you and all of last earnings call as many of our customers started to resume full production during Q3 of training of 20 <unk>.
We were faced with the challenge to balance of very accelerated rate of customer orders.
Since the very tight if not sort of adults wafer supply situation.
While all of foundry partners have attempted to address our needs.
It really has not been enough and diverse supply constrained in quarter one.
The supply trends the continue through quarter two.
And our current expectation of SB build phase of tight supply environment.
Or at least the remainder of 2021.
You would also note that in the medium term, we have seen the significant increase in demand for our products.
Which is very consistent with our anticipated content gains.
Our design wins.
And that's very context, it is really insightful to compare to the pre pandemic levels of 2019.
When we look at total current revenue levels compared to the pre pandemic levels in 2019.
We actually planned to ship nearly 20% more in the first half of 2020 one versus the first half of 2019.
And more specifically in automotive.
We plan to ship at least 20% more in the first half of 2021.
Versus the first half of <unk> 19.
And business, while IHS suggests the drop of 10% in car production over the very same periods.
And now going forward, we see our overall revenue in the second half of 2021.
Being stronger than the first half of this year.
And against these trends, we continue to have low channel and low on hand inventory, which we do not anticipate rebuilding this year.
Our customers are responding by placing long dated non consumable and non returnable order requests.
And we are making long term strategic supply commitments to our partners in order to assure future supply.
Against this challenging supply environment. We also had the very unfortunate and unexpected winter storms in Austin.
And I am today pleased to share that our two vapor facilities in Austin are now fully back online.
And I would like to commend our manufacturing operations and the our facilities teams for their superb effort and dedication to getting these two facilities back online in record time truly.
Truly of trop very buildup.
Notwithstanding the challenging supply environment all of the natural disasters, we faced.
Our results and guidance clearly validates the underlying long term growth and profitability of our business.
We acknowledge it has been the long process to deliver on our committed gross margin targets.
The next objective will be to demonstrate full year performance at the 55% gross margin target.
And Furthermore, on a positive note of recognition.
NXP was added to the S&P 500 index.
Richard is the strong validation of a lot of hard work the entire of NXP team has undertaken to drive growth in.
The improved profitability.
And the enhanced free cash flow.
Now before I pass the call over to Peter.
I would like to take a minute and discuss our sustainability efforts.
In area, two which NXP has a long demonstrated history of commitment.
At a more personal level I do believe sustainability is a very important journey.
We all need to embrace of undertake.
And it's not just the finite destination.
And the NXP view of dedicated to our long term sustainability goals, which our employees our customers of our suppliers in the best of all belief are of the utmost importance.
All of our stakeholders are paying attention to.
So the products we develop.
Two how our company complements the communities we operate within.
And to hold the attempt to lessen the impact of our company has on the other environments.
And hence we just recently published our annual corporate sustainability report in our annual proxy statement, both of which set forth. The progress we have achieved towards previously stated goals.
Lay out our vision for the future.
In support of our continuous commitment to improve our environmental and social responsibility and our corporate governance metrics.
There are a few areas I would like to highlight.
Starting with social responsibility.
We have made clear our commitment to workplace diversity equality and inclusion.
In order to ensure our working environments provides equal access and opportunity.
We appointed the head of diversity equality and inclusion reporting directly to me and two of our executive Vice President of human resources.
We are dedicated to creating an inclusive and diverse work environment there.
NXP appropriately mirrors to society and communities can be free operate.
We have an ongoing commitment to improve and refine our corporate governance.
In 2020, the has enhanced our human capital management disclosures, which expanded and detailed workforce demographics.
We are committed to improving gender diversity throughout the organization, but especially within the company's leadership teams.
Now turning to environmental impact.
In 2020, we met our 10 year goal of reducing our carbon footprint by 30%.
We have achieved a 47% water recycling rates.
And we purchased 27% of all of our electricity from renewable sources.
Led by our factory in Nijmegen, which is running 100% on renewable energy.
Finally uncertainty in the least.
All of our employees.
We definitely believe our employees are the lifeblood of innovation in the spirit at NXP.
We are dedicated to building a highly engaged workforce will continuously push the boundaries of innovation.
We view of highly engaged workforce is the very best early indicator of the.
Potential success for our company in the future.
The measure of this annually.
Global employee survey called the winning culture survey.
Some of it looks at multiple early indicators of long term employee engagement.
It includes sectors.
Employee views on the company's strategy innovation execution and leadership as well as culture collaborations and the supportive work environment.
And I'm proud to say that in 2020, we had the 90 plus percent global participation rate.
Now in summary, the are very very encouraged by the rapid rebound in demand across our end markets.
Based on our customer conversations and order rates. It appears the NXP is in the early stages of of longer term company specific growth cycle.
Our employees are highly engaged to drive our success.
We have a robust pipeline of new and innovative products.
And customer response engagement design win momentum all underpin our optimism about the future potential of NXP.
I'm extremely proud of all our employees, but today I would like to especially comment all of our manufacturing operations and customer facing teams.
For the relentless focus and energy.
On the assuring our customers success.
Their dedication and hard work in the face of a very challenging supply environment true.
Really make a big difference.
And now I would like to pass the call to Peter for a review of our financial performance Theater.
Thank you.
Good morning to everyone on today's call.
As Kurt has already covered the drivers of the revenue during the first quarter.
And provided our revenue outlook for the second quarter.
Move on to the financial highlights.
Overall, our first quarter financial performance was very good.
Revenue was above the midpoint of all the guidance range and we drove an improvement of both non-GAAP profit of non-GAAP operating profit.
Moving to the details of the first quarter total revenue was $2 $5 $7 billion of 27% year on year.
On above the mid point of our guidance range.
We generated $1 $39 billion and non-GAAP gross profit.
And reported a non-GAAP gross margin of 54, 2%.
140 basis points year on year and above the high end of our guidance.
Total non-GAAP operating expenses were $600 million.
$55 million year on year.
$57 million from the fourth quarter.
This was $10 million above the midpoint of our guidance due to increased variable compensation driven by an improved first half performance.
From a total operating profit perspective, non-GAAP operating profit was $792 million of non-GAAP operating margin was 39% of 600 basis points year on year.
The high end of our guidance.
Non-GAAP interest expense was $87 million cash taxes for ongoing operations were $40 million of Noncontrolling interest was $11 million.
Taken together $13 million plus of no guidance.
Stock based comp, which is not included in non non-GAAP earnings was $91 million.
Now I'd like to now I'd like to turn to the changes in our cash and debt.
Total debt at the end of the fourth quarter was $761 billion.
Essentially flat versus the fourth quarter.
The cash position was $1 $84 billion.
$433 million sequentially, mainly due to share repurchases offset by cash generation during the first quarter.
The resulting net debt was $5 $77 billion.
For the quarter was the trailing 12 month adjusted EBITDA of 3.09 billion.
Our ratio of net debt to trailing 12 month adjusted EBITDA was at the end.
At the end of course towards the one was one nine times.
The 12 month 12 months of adjusted EBITDA interest coverage was eight six times all of it.
Quiddity was excellent.
She continues to be very strong.
During the first quarter, we paid $105 million in cash dividends and repurchase $905 million of our shares for.
For the total of billions of dollars of capital returned to our owners during the quarter.
Turning to working capital metrics days of inventory was 81 days, an increase of three day sequentially.
It continues to be significantly below our long term targets of 95 days.
We continue to closely manage all of distribution channel with inventory in the channel of $1 six months flat sequentially and below our long term total.
Both metrics reflect the continuation of strong customer order rates and we continue to be in the supply constrained position.
It will take several quarters before we are able to rebuild on hand and channel inventories to our long term target levels.
Thanks receivable of 30 days of two day sequentially.
The payable was 79 days, an increase of four days versus the prior quarter as we continue to increase materially of orders to our suppliers.
Taken together, our cash conversion cycle was the two days of one day versus the prior quarter.
Reflecting strong customer demand solid receivables collections and positioning for the customer deliveries in future periods.
Cash flow from operations was $702 million and.
The net capex was $150 million, resulting in non-GAAP free cash flow of $582 million.
Turning to our expectations for the second quarter as Kurt mentioned, we anticipate Q2 revenue to be about $2, five 7 billion plus or minus about 17 minutes.
At the midpoint this is of 41% year on year and flat sequentially.
We expect non-GAAP gross profit to be about 55, 5% plus or minus 30 basis points.
Operating expenses.
It should be about $623 million.
Plus I'm honest about $10 million.
Taken together, we see non-GAAP operating margin to be about 31, 3% of the midpoint.
We estimate non-GAAP financial expense to be about $57 million and anticipate cash tax related to ongoing operations to be about $55 million.
Non controlling interest will be about $9 million.
For the second quarter, we suggest the for modeling purposes.
As an average share count of 293 million shares.
Finally, I have a few closing comments I'd like to make.
Firstly.
Demand trends continue to be strong across our target for the markets.
Interest in our newest products continues to be robust.
We are diligently working with our system isn't all suppliers to address sort of requests at the timely manner.
Our second quarter guidance reflects the clear potential of our business model both in terms of revenue growth as well as the significant pull through.
Which will enable us to triangle of non-GAAP gross margin.
As to the 55% level.
With the new United States of administration in place the potential increase the cultural sort of thirdly for the new U S administration of in place the potential increased the corporate income taxes, there's a large topic of interest of.
Fortunately at this point in time, the too many variables in play.
Makes it impossible for any company to forecast.
Therefore, the seems pointless to speculate until we can get more clarity.
On a more positive note, we do expect the cash taxes to be slightly lower than the originally envisaged for 'twenty 2021.
So 2021 will likely be 9% versus the previously indicated 10%.
Hopefully as we've said in the past the capital return policy is to return all excess free cash flow to our owners.
During the first quarter of the board approved the $2 billion buyback authorization as well as of 50% increase of our quarterly cash dividend.
During the quarter, we returned $1 billion to shareholders and we will continue to execute our state of capital return policy.
Physically is too many.
We believe the demand environment is strong and notwithstanding the supply constraints. We believe the second half of 2021 will be greater than the first half of the year.
Six of them finally.
I'd like to thank all of my colleagues of NXP. So the dedication on the incredible job of executing in a truly unbelievable environment.
So with that I'd like to turn effects of the operator for any questions you might have.
Thank you we will poll for questions.
Thank you Sir.
Ladies and gentlemen, if you have a question at the sign please press. The Star then the number one key on your thoughts the telephone.
If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Our first question is from the line of C. J Muse your line is now open.
Yes. Good morning, good afternoon, and thank you for taking the question I guess Kurt.
<unk> by your commentary around being in the early stages of long term growth cycle for NXP and I think we all of us on the call I understand the <unk>.
The drivers behind the story, but would love to hear.
Whats changed in your view say in the last three months.
If you could walk through that that would be great.
Yes, many thanks C J, yes.
Yes, absolutely. So we do see us just being at the beginning of the longer term growth cycle and I think of that respect.
I also tried to clarify that we do see the <unk>.
Second half of the year growing again over the first half of this year.
What has changed over the last three months is that the.
The demand environment.
Not only continued to be strong, but I would say, we started to understand better and better.
Some of the sustainable drivers of the demand environment now with us being 50% exposed to the to the automotive end markets.
This is clearly one place there we do understand now how content increases.
Are contributing significantly.
To this very very robust demand environment there'll be absolutely no reason why the but that should ease off of or should should go away.
So what I tried to say here is that our understanding of the demand environment has become better and deeper and with that we the better believe in it.
Also totally ruling out double ordering and any of these of these possible spheres of of piling inventories at any place. So in our key segments and I can say that very explicitly for automotive for industrial but also for mobile we do know NV do we see that what we saw.
<unk> is immediately being built into product.
So inventory is being built at any place.
It's very helpful. If I could follow up Peter.
Obviously, reaching 55 plus percentage is.
Great.
The great thing.
The next question is always what have you done for me lately. So curious does the model of hold true going forward every 5% increase in revenue as you get 100 bps uptick in gross margins or how should we be thinking about the trajectory from here.
No.
Think of it I wouldn't think of it that way.
Yeah.
In 2019, and 2020, we were continually struggling on utilization and we were trying to use that.
Sure.
The kind of rule of thumb to explain what happens as we go to full of utilization.
The good news now as you know, we always said the roundabout three four we could run 50% to 55%.
So a little bit above that tune of half of 55, 5%.
We're pretty much now internally.
Kind of at the high end of all of utilization.
So I feel pretty good about the gross margin numbers, where we are but.
You'll see in our Capex number and for the full year, we will probably do about 7% Capex this year.
We need to start.
We need we are adding capacity, particularly in the back ends.
To cope with the the.
The additional revenue.
And also over the last year or two we've seen the the amount of product we buy externally move up from the <unk>.
Kind of low 50, so that sort of the only 50% of.
So I think from a gross margin perspective.
Say.
Clearly the challenge of the moment just the demonstrates that we can consistently run of 55%, which we feel very very comfortable about.
On and over the next few years, the things that will move us up to 57.
So much.
Not so much revenue the more about the new product introductions.
And improving the cost performance of our of.
Of our products.
Very helpful. Thank you.
Thank you. Our next question is from the line of Ross Seymore.
Your line is now open.
Good morning, guys. Thanks for letting me ask the question and congrats on the strong results Peter I wanted to dive into the gross margin a little bit more tactically in the near term can you just discuss what drove the upside in the first quarter and the second quarter in the.
Second quarter is especially impressive considering it it appears that the mix between segments isn't really contributing significantly so just a little bit of color on how you beat and raised in the quarter and guide.
Yes, so in the first quarter the biggest move Ross was mix, we shipped proportionately less.
Total up more.
Coming from Iot.
Hum.
So the almost $10 million gives you 40 or 50 basis points of volume. So we're not talking about the huge numbers.
And is it going from Q1 to Q2, it's really all about utilization.
So.
We're not only able to run.
Obviously, the Austin, but.
Out of the Fabs full out but also of getting really current utilization now and all backend.
So theres always a few small things moving in different directions.
Q1, it was about utilization that helped us being sort of Q1 was about mix, which helped us beat the guidance for Q1 to Q2, it's really about utilization.
And that's.
Now that we've been able to optimize this might be the wrong word, but certainly utilize things a lot better. That's what gives me confidence on all of our gross margin going forward.
Great. Thanks for those details I guess as my follow up one for Kurt you talked about the confidence in the demand the lack of double ordering second half over first half.
Yes, if I narrowed it down to your automotive business. Historically, we've had a typical delta of content above Saar and it sounds like you're confident that that delta is actually expanding so I guess really whats changed there you have pretty long design cycles in that sort of business and so it's a little surprising to me that <unk>.
You would have something that would arise that in the short term debt would increase your ability to outgrow SAR as rapidly as you appear to do right now so I guess, it's just a little more color on what gives you that confidence would be helpful.
Yes, Thanks Ross.
It is actually not not that much all of the sudden.
As you as you would portray it.
Of course, we have seen this already building through the last year.
But obviously, it's been all snowed under by the by the shutdowns, especially in the first half in the <unk>.
In the factories.
If you think about content increases and that's why I made the comparison to 2019, which was more of a normal year. If you will.
Then actually over the period of time.
It doesn't look that crazy at all so that's one statements, but there is two more so it's not it's not all of the sudden but it's really been gradually building already over the over the period of the last four to six quarters, but very much disrupted by the COVID-19 now there is two more things which are really important here.
The one is yes, I do believe.
Debt, especially the electric vehicle.
<unk> rates.
Are increasing faster than anticipated, which I believe makes it a content Richard story than probably the the initial forecast would have would have suggested so the penetration of electric drivetrains is going faster, especially in all of this year than it was forecasted.
And thirdly, and I think actually most importantly.
We are now bearing fruit from all of the design wins in the focus areas. We've been working on so hard over the past years. So what I'm, saying is rus debt. Some of this is clearly company specific.
Look at our growth rates in our focused businesses like like radar Adas battery management of the digital clusters.
Then it becomes very obvious that those are really pulling ahead of the growth. So there is the underlying stronger momentum on content gains, but I think of good part of this is also the company's specific meaning share gains for NXP.
Thank you.
Thank you. Our next question is from the line of the bank.
Yes.
Please go ahead.
Thanks for taking my question I had to ask just one more on gross margin I'm curious Peter.
What role is pricing playing if any in the gross margin and if let's say your Q3 and Q4 sands are above your Q2 sales than all else being equal can gross margins also exceed 55% of each of those two quarters.
In terms of pricing, it's having no impact whatsoever the vivek.
We said on our last call.
Some suppliers.
We're being very tactical and trying to take advantage of the situation.
Now our strategy, we said, we would definitely pass all of them.
Any any cost increases that we have in.
To do that.
But we have no intention of.
Trying to improve our profitability through.
The accounts you know counting all the customers and there's certainly no impact of it.
Even remotely like that in Q1 of our Q2.
And.
In terms of the second half.
As I said before the Ross it's.
Gross margin from here is not really driven by additional revenue, yes could there be some small impacts yes sure.
I think I'd say two things one of these I have a strong confidence that the.
The level of profitability the level of gross margin we are at the moment.
So I think that's a good thing.
And I think as we go forward all of <unk>.
<unk> has to be on how we how.
How we bring down until the new products and the new versions of our existing products to improve all to improve our profitability but.
But I think that's the role of the debate over the over the past few years of whether we can really run out of 55, I think that's most definitely behind us.
Got it and for my follow up Kurt I'm curious how much of the unfulfilled demand that youre seeing this year can help to extend the cycle into 2022.
So for example, when I look at your automotive customers and I think you had mentioned that.
Given what the auto industry went through in the cycle I they might do things differently. So I was hoping you could talk about what they can do differently that tends to extend your demand cycle and visibility and then outside of auto is when I look at your deficit on the distribution side that's tenant.
Close to.
I think eight months likes of usually two to four months and that's the $1 six months right now so when can that be addressed and is it possible that it doesn't get addressed in the next day or so overall, just how do you conceptually think about the cycle extending into next year. Thank you.
Yeah. That's that's great question, let me answer to both elements Vivek, Let me take the the little ones of this tier one first so yes, we indeed state at the at the record low of $1 six months in the in the.
First quarter just like we.
We did in Q4.
And yeah I mean, if you if you would just do some chain so of March.
Just bringing debt back to a more normal level of $2 four months, which we have achieved historically.
Probably like $400 million.
But no I don't anticipate this.
That'd be reached that level anytime this year I just think the sell through of so strong there.
We are we don't get it up from the supply perspective, two of them back to that level.
And that also gives you an indication for the for the very strong.
Pull here, which is really a richard central I mean, if we ship more into distributional inventory wouldn't go up but it would be actually selling through right away.
On the automotive side.
Yeah I think this is indeed, a significant discussion, but also exploration, which we're having across the industry.
First of all I'd say most of all of our product is more of the all in automotive or non commodity product.
So it is indeed, a matter of effects of the debt that demand. It just doesn't go away I mean, if anything then.
Its shifted because of possibly a car here or there cannot be built.
And with that it moves it moves then into the next quarter or eventually into them into next year as you say.
At the same time, we are working very very diligently both with our customers, which is the tier ones, but also directly with the car companies.
On very prudently understanding the future demand patterns I think one of the biggest learnings out of this current situation is to build much more transparency about the content increases which are often the application and module specific.
And how they net out over not just the next two quarters, which is far too short for us knowing that we have of manufacturing cycle time of one to two quarters, but actually more over the next eight to 16 quarters in order to understand how that's how that is going to remember all of it so that debt.
Work is underway and I can certainly say, we do this with all of the top 10 car Oems in the world.
At the same time, you also Greg of course, very hard with our suppliers.
With all of our mainly vapor suppliers, but also the backend extensions of some as Peter has mentioned in order to quickly ramp up our supply capability at the same time.
And I mean part of business. The reason why I said earlier that already in the second half of this year. The both ship at higher revenue levels than the than we are doing in the first half. So some of the demand obviously it doesn't have to move into the next year, but we are satisfying its already in the second half of this year.
But yeah. It's a it's a long term, it's really of long term story, a lot of moving out of the situation.
But at the bottom of it and I think thats most important.
More and more diligent understanding of the very robust demand environment.
Thank you.
Yeah.
Thank you.
Our next question is from the line of Stacy Raskin. Please go ahead.
Hi, guys. Thanks for taking my questions.
So my first question I wanted to ask you about.
The channel inventory situation and I wanted to drill in on now you said debt.
We are confident that nothing of shipping across your core markets auto, but also of industrial and mobile you think nothing going on the shelf everything's going into the end product, especially in the industrial and mobile how do you know.
It's not going on the shelf and going into an end product instead of what gives you that debt level of confidence I think in all of the right kind of get it but in the industrial and mobile.
How would you know debt.
That your customers are not sticking the stuff on the shelf.
It's really the debt.
Direct customer exposure, which we which we have there you would probably say, yes, but how can you have to true distributions I mean mobile you know that the the number of of mobile and customers isn't isn't that big So I mean, there was the very direct and very specific.
Context, so we the exactly know how much they need all of product.
Because they they would love to have more I can tell you I mean does this this is a is the direct direct chain.
In the industrial space It is arguably the.
A much larger customer base, which is which is behind the distribution.
But also there.
There are some big customers.
Who are in very direct and very frequent contact also with me personally.
And I know about their demand and build situation.
So it's really it's really based on the very personal exposure I would almost say.
What gives me the teammates sort of just about me, but the all of our leaders here in the in NXP debt.
The direct exposure to know that the product is Dr. Richard flashing true.
Got it thank you.
For my follow up I wanted to drill into a little bit your comment on.
Yes, the order trajectory you said, it's up like 20% in the first half of 'twenty, one versus the first half of 19, even with units down with end units can you give us some view for how much of that 20% increases actually content versus just an increase like like for like in terms of the units.
That's actually have to say so what.
I was saying is indeed that we will have at least 20%. If you look at the guidance into Q1 results you will find at least 20% growth over the first half of some of 19.
But if you think about the content.
Be sure to include debt. This is two years of content increase I mean last year clearly the car production was very much down but that doesn't mean that the content was the most coming to a stop because the content was driven by models, which were to be introduced anyway, maybe at lower build rates. So if you compare the 19% to <unk>.
'twenty one it is two years stack of up from a content increase perspective.
And I'd say.
At 10% content increase per year is maybe realistic before price adjustments and that gives you already of 20% of 20% difference over those two years.
Got it so I guess, it's fair to say like like for like like you don't think Thats a good day it sounds like it's mostly coming from content.
That the right way to characterize it.
I would certainly say that because of the car production itself.
Is down by 10% if I believe IHS and if you look at the Q1 numbers than the build rates in the first half of this year.
<unk>, probably almost 10% lower than they were in the first half of 2019, so it must be content and share gains.
Got it thank you.
Yeah.
Thank you. Our next question is from the line of John that Sir.
Go ahead.
Good morning, guys. Thanks for let me ask the questions. Congratulations on the strong result, curb my first set of questions just around kind of get a little bit more detail around the Austin shutdown and reopening you talked last quarter about it being about $100 million impact to Q2 is that exactly what you saw and it'd be more curious at the time. It happened it was hard to figure out.
There were incremental costs that bled into the model because of Boston, where there any and do you expect to recoup them vis vis the business insurance of the year unfolds.
Yes, So let me let me speak about.
Let me take the revenue of such risks.
So sort.
First of all I really have to say clearly that wasn't the extremely unfortunate and unexpected event both for NXP of close in the first place, but in consequence of also for our customers because the of the supply interruption as a consequence of this in the current environment is clearly not something anybody would have wished to have.
Now to frame it all of this did happen on the February 15th So mid of February.
I think we released our press release on March 11th debt, we had resumed the initial operations.
And I can tell you that about eight to nine weeks after the after the effects of after fab 15.
We have been fully up and running in both facilities again, so by now both the.
Factories are of 100% running again at the pre storm prevent the storm level of switches, which is great moves into great great achievements in a very in the very very challenging and difficult situations.
Yes, we had talked about 100 million dollar impact on the revenues in Q2.
I would still say Sean.
We did this the impact which we have on Q2.
Now you'll see that we guide it sequentially flat.
So obviously the found other ways and means in other areas with other products.
To make up for debt.
For the loss from the from the factory shutdown.
Furthermore, we had the tiny little bit of the impact already at the very end of the first quarter in automotive.
This earlier that the little bit, it's really more like maybe in the $10 million range most.
Most of already impacting the very end of Q1 from a shipment perspective in the in automotive.
I would further say that we are absolutely confidence that's the 100 million bogie made up in the second half of the year.
So again, why we made it up in the second.
We will make it up in the second quarter with other products the.
We will make up those hundreds of millions of which we lost in the first place in the second half of the year because the factories are running again and it will be it will be shedding shipping the shipping full out.
All of Peter maybe you pick up the of the part of the question, which was related to the to the cost impact.
So.
So the good news John is of.
Our ops team that I've started closing down the factories before the.
The Texas Authority.
Almost none of the notice.
All of the power.
So we didn't have any fundamental of damage to the of the <unk>.
The truth, so obviously burst water pipes and in that kind of thing with the KOL.
We have insurance to essentially cover everything.
So the only real impact of all costs was the deductible.
Which is which is millions of dollars rather than the tens of millions of dollars. So from a cost perspective really has any of it.
Measurable impact.
That's really helpful. And then kind of as my follow up I really liked the way that you've kind of compared first half of this year. The first half of net.
19, because it helps to kind of take out some of the variability around sort of the quote unquote cycle and especially for us that are trying to figure out.
How much of your growth is coming from cycle of versus product specific it's a good comp, but I guess to that point when I look at sort of your long term growth rate target that you have out there of 5% to 7% that 19% to 21 compare with the.
Sort of argue of 12% growth rate trend line of at least over that two year period, and I don't want to steal Thunder from your next analyst day, but when you look at the breadth of company specific drivers out there how do you think about that 5% to 7% growth rate historically or in the target model versus the 12% <unk> seen since <unk>.
<unk>.
Well John as you as you rightfully said I mean, the you're going to update that model with our next capital markets day.
So at this point of view, we cannot and will not give you a new long term guidance and the only one which we have all of this the 5% to 7%.
However, I clearly said earlier.
That's some of the content drivers are in good shape.
Certainly in the automotive with the stronger rate of electric vehicles.
With some of the of the trends, which we have the mobile we spoke a lot about ultra wideband kicking in.
Earlier.
Things things seem to look robust, but let's also not forget Sean that if you think about 18 1920, all three years, we're reading of great, yes from a market perspective.
So it's always it's always a bit tempting to take just two years, which looked very good. So we will have to look at this from the more longer term perspective again.
But clearly I do agree with you what the metals for NXP should be increasingly the company specific drivers from those focus areas here are really strong portfolio of which we've been building over years with the organically and Inorganically, which is now playing out very nicely.
Thank you.
Thank you. Our next question is from the line of.
William Stein. Please go ahead.
Great. Thanks for taking my questions.
First.
Current or Peter I Wonder, if there's a product area or end market in which your ability to deliver lags the greatest versus demand. It sounds like it's in the channel I assume that's Iot and industrial and certainly the automotive as well is it is it concentrated in those two is it specific.
<unk> or sub end markets within those or is it more broad any color there would be helpful. And then I do have follow up.
Yeah, Bill I would actually say, it's quite broad so.
Because it is in technology or capacity buckets, which also in some cases touch several markets. So no. We couldnt say its specific to automotive or specific to.
Two of distribution and pockets.
I would just say that certainly automotive is four four may be good reasons catching a lot of headlines given the big impact. It has on all of them from a value of leverage two of them to complete car switch which might be impacted.
But I.
I said earlier, that's in large industrial applications. There is also short interest across the industry. So no. It is not something which is which is sharply only in automotive for the all in distribution of buckets.
Thanks for that and maybe I'd like to hit on the capacity additions. So second half revenue greater than first half part of that is going to be I suppose from the recovery of the 100 million shortfall in Q2 from the the Austin Fabs, but I assume there are other plans I wonder if that's sort of incremental.
The yields across the board or if there's anything more sort of step function from a capacity perspective that we should.
Sensitize ourselves to coming online later this year.
Yes, well, it's really it's really three elements. The first one you mentioned of course, we have the $100 million catch up from the from the factory closures, which we had earlier in Q1.
But it is also of front end and backend capacity on the front end side or foundry partners and they've been they've been quite quite low the bulk of this publicly that they are.
Increasing.
Either allocations or fundamental capacity and yields of which also benefits NXP. So we are seeing increases here from a foundry supplier perspective to NXP.
And at the same time also within the NXP and.
And Peter talked about the the seven 7% Capex. This year on increased revenue levels, the or expanding our back end capacity.
As hard as we can I mean, whatever we can do in the in the fourth time is being done and some of these moves so the $100 million from the growth factories, the bedroom wafer supply from external foundries and the higher throughput through our own backend of the assembly is.
All of helping to increase the cash.
Q3, and Q4 revenue levels.
Great. Thank you.
Thank you. Our next question is from the line of Blayne Curtis.
Your line is now open.
Hey, Thanks for taking my question two questions the $100 million just the John's question. The initial impact of March was an audio with that are you.
Primarily saw that 100 million the Miss was in the auto channel and then just.
In terms of that supply chain, you talked about catching up on your supply would take throughout the year and it sounds like your own inventories probably wallet of next year, just some comments on the auto Oems when do you think that market will catch up.
Yeah, So first on the Hum.
On the 100 million Blaine the they'll know decompose it here.
The auto impactful as early as two because the supply chain was just totally dry already before why that's happened I mean, that's more of timing of timing reasoning why that's hit the auto first.
There was one other area, which is also being hit by the switches the comms infra business.
And that's also the reason why our.
Soldiers in the guidance our Q2 in the comes in probably all of it is sequentially down.
That is just the direct impact from their dependence on the <unk> on these Austin factories. So that's a temporary thing which of which will be tree of leaf behind us after Q2.
Talking about the auto Oems.
I really can't answer that question Blayne, because we still don't have debt long term transparency I talked about earlier.
On the on the demand side.
I I can absolutely tell you that the supply is increasing it does increase already in the second quarter, but it also increases further in the third and fourth quarter, but it's always the functional what day.
The the demand too at the same time, so I would carefully say I don't think it is it is completely easing of this year and it's a it will still continue somewhat into next year, how long I don't know, but I don't see this being totally eased off by the end of this year.
Yeah.
Thanks, guys.
Thank you.
Our next question is from the line of Chris Caso. Please go ahead.
Yes. Thank you good morning, I guess the first question is.
Getting a little more clarity on the capacity additions I mean, it sounds like certainly.
There is some capacity coming on both internally at the foundries in the second half of this year does more come on in the beginning of next year as well as the follow on to that.
You talked about the fact that you didn't think that you would be able to your customers would be able to replenish inventory until the end of the year or is that meant to say that by the end of the year. You think you will be fully meeting your customer demand with the capacity additions in place and perhaps a little more capacity comes next year, which allows you to catch up on inventories and is that the right way to think about it.
Yeah, Chris. So this is I mean this is constantly on the works on the very hard work. So since this whole situation started say towards the end of last year, we are working super hard on.
All the levers to increase capacity and I just mentioned a few of them earlier. So yes. It is going to continue into next year from a capacity increase perspective absolutely.
<unk> talked about the 7% Capex.
Just give you one other number we by now we have already more than the $1 billion of firm commitments.
With long term supply from our suppliers so.
As I said, we are we are collecting and getting request for non comps a little and non return of the autos long term orders from all of our customers.
And we enter into the same commitments in order to secure supply of flow next year with all of our suppliers.
And there is already more than $1 billion out there some.
Firmly committed and debt is going to help in this increased supplies into in the over next year.
But it doesn't stop there Chris I mean, this is not it's not like a one time thing.
The constant work and be of we keep we keep moving it up.
With that I think from a timing perspective, we probably have to get to the end of the session right.
Correct correct.
Last question.
Okay.
Would you like to.
I'll provide some closing remarks Kurt.
Yeah. Thanks, Thanks, so much shifts so thank.
Thank you all for being on the call today, So I trust, we could paint a clear perspective on how we see this very continued and very rapid rebound in demand across all of our end markets.
We are glad that we brought our Austin factories back online and are now with fluid capacity again sure.
Shipping.
We wanted to make sure you hear us loud and clear Thats half two revenue is going to be above half one and this is not just a factor of the $100 million catch up from the close factories actually that's the smaller smallest part in this.
And we have every confidence that we can continue to drive consistent growth with.
With improved profitability levels.
And with that enhance all of our free cash flow going forward.
Thank you very much for your attention and.
Speak to you next time thank you.
Thank you everybody for your interest and that'll be the end of the call today.
Yeah.
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Thank you.
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Dawn.
Yeah.
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Yes.
Okay.
Some of them.
Good day.
Yeah.