Q4 2021 NXP Semiconductors NV Earnings Call
Good day, and thank you for standing by and welcome to the NXP fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. Later after the speaker's presentation there'll 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 I would now like to hand, the conference over to your speaker today, Jeff Palmer Senior Vice President of Investor Relations. Please go ahead.
Thank you Catherine and good morning, everyone welcome to the NXP semiconductors fourth quarter 2021 earnings call with me on the call today is Kurt Sievers, Nxp's, President and CEO and Bill <unk> our CFO .
Today has been recorded and will be available for replay from our corporate website. Today's call will include forward looking statements that involve risks and uncertainties.
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 on specific end markets in which we operate the sale of new and existing products and our expectations for financial.
For the first quarter of 2022 please.
Please be reminded that NXP undertakes no obligation to revise or update publicly any forward looking statements for a full disclosure on forward looking statements. Please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly read all he did to NXP.
Underlying core operating performance.
They went to regulation G. NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth quarter 2021 earnings press release, which will be furnished to the SEC on form 8-K and available on Nxp's website in the Investor Relations section at NXP Dot com.
Before we start the call today I'd like to highlight NXP will be attending the Morgan Stanley TMT Conference in San Francisco on March 7th Midnight, now I'd like to turn the call over to Kirk.
Thank you very much chess and and good morning, everyone. We really appreciate you all joining our call today.
I will review, both our quarter four and our full year 2021 performance.
And then I will discuss our guidance for quarter one.
Beginning with quarter four our revenue was 39 million better than the midpoint of our guidance.
With most end markets stronger than planned.
And with the trends in the communication infrastructure buckets more in line with our expectations.
Taken together NXP delivered quarter four revenue of $3 zero 4 billion, an increase of 21% year over year.
non-GAAP operating margin in quarter four both a strong 34, 9%.
440 basis points better than the year ago period.
And about 110 basis points above the midpoint of our guidance.
Year on year outperformance was largely due to the impact of <unk>.
Improved factory utilization and higher revenues.
For the full year revenue, both a record 11 zero 6 billion.
Increase of 28% year over year.
And as <unk> 2021 progress our customers continued to accelerate orders on the NXP.
We consistently found ourselves in a situation where robust demand outstripped available supply.
Even as production levels, both internally and from our supply partners improved across the year.
We do anticipate a continuation of strong demand throughout 2022.
Likely that will then be originally contemplated at our recent Investor day in November .
The full year non-GAAP operating margin was solid at $32, 9%.
700 basis point improvement as a result of improved factory loadings higher.
Higher revenue.
And positive leverage on our operating expenses.
Now, let me turn to the specific trends in our focus end markets.
In automotive full year revenue was 549 billion up 44% year on year.
A reflection of the strong company specific product drivers, we noted at our Investor day.
The step up in content per vehicle is Oems prioritize premium vehicles in the limited supply environment.
And the accelerated transition towards electric vehicles, which have fundamentally higher semiconductor content.
For quarter, four automotive revenue was $1 five 5 billion.
Up 30% versus the year ago period.
And slightly better than our guidance.
Moving to industrial and Iot.
With your revenue was $2 four 1 billion.
Up 31% year on year, driven by our solutions offering with a combination of industrial and crossover processors.
Ireland connectivity and our analog attach products all driving the year on year growth.
For quarter for industrial and Iot revenue was 661 million up 29% versus the year ago period.
And better than our guidance.
In mobile.
Full year revenue was $1 four 1 billion.
Up 13% year on year.
During the year, we experienced continued strong adoption of our secure mobile wallet.
And early ramps of secure ultra wideband solutions.
And a good traction for our mobile embedded power solutions.
These positive trends were modestly offset by a discontinuation of certain custom analog products.
For quarter, four mobile revenue was $374 million down 9% versus the year ago period.
And better than our guidance.
Lastly, I will move to communication infrastructure and other what.
What are your revenue was $1 75 billion up 3% year over year.
The year on year growth was due to a rebound in demand for secure transit tagging and access solutions.
As well as solid demand for RF power products for the cellular base station market.
Somewhat tempered by the anticipated moderation in demand for network processing solutions.
For quarter, four revenue was $457 million.
Up 16% year on year and in line with our guidance.
In review.
2021 was an excellent year for NXP.
We experienced significant design win traction across the entire portfolio.
And especially within the areas of our strategic growth drivers.
Our priority has been to assure the health and safety of.
All our employees.
And it is their engagement and performance, which has been truly outstanding we are extremely proud of their adaptability dedication and hard work in the face of adversity.
Now before I turn to our expectations for quarter, one I'd like to offer you some perspective on the coming year.
For those who were able to join us at our recent Investor day in November .
Remember, we offered the positive view of trade drained too.
Expecting revenue growth near the high end of our 8% to 12% long term growth targets.
Now as we enter into early train train two we are more optimistic about the opportunities in front of us.
Both in the short term as well as over the intermediate horizon.
The demand signals from our customers continues to be very strong.
Inventories across all end markets appear very lean.
And our ability to supply continues to improve.
Hence we anticipate train train two will be another year of demand supply imbalance with lead times extending out across almost the entire portfolio.
And the level and intensity of supply related escalation conversations with our customers remains elevated.
Against this backdrop, we are guiding quarter, one revenue of $3 1 billion.
About 21% versus the first quarter of 2021.
Within a range of 18% to 24% year on year.
And from a sequential perspective this represents growth of about 2% 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 mid 20% range versus quarter, $1, 21, and flat versus quarter for 'twenty one.
Industrial and Iot is expected to be up mid teens year on year and flat versus quarter for 'twenty one.
Mobile is expected to be up about 10% year on year.
And up in the low single digit range versus quarter for 'twenty one.
And finally communication infrastructure and other.
<unk> is expected to be up in the low 20% range versus the same period a year ago.
And up in the low double digit range on a sequential basis.
In summary.
We do continue to see growing customer demand outstripping, our improving supply.
As the inventory across all end markets remains very lead.
Customer engagement levels and design win momentum in our strategic focus areas.
Seems to be very positive.
This underpins our continued confidence of robust growth throughout 2022.
And we do continue to be very optimistic about the long term potential of NXP.
Now at this point I would like to pass the call over to you Bill for a review of our financial performance.
Thank you chair and good morning to everyone on today's call.
Kurt has already covered the drivers of the revenue during Q4 and provided our revenue outlook for Q1.
We'll move to the financial highlights.
Overall, our Q4 financial performance was very good.
Revenue was above the midpoint of our guidance range in both non-GAAP gross profit non-GAAP operating profit were above the high end of our guidance.
I will first provide full year highlights and then move to the Q4 results.
Full year revenue for 2021 was $11.06 billion.
Up 28% year on year.
We generated $6 1 billion and non-GAAP gross profit and reported a non-GAAP gross margin up 56, 1% up 500 basis points year on year as a result of increased internal factory utilization higher revenue levels and product mix.
<unk>.
Total non-GAAP operating expenses were $2 6 billion or 23, 2% of the revenue in line with our long term model.
Total non-GAAP operating profit was 364 billion.
63% year on year.
This reflects a non-GAAP operating margin of 13, 9% up 700 basis points year on year and consistent with our long term financial model.
non-GAAP interest expense was $365 million cash.
Cash taxes for ongoing operations were $276 million.
Non controlling interest of $35 million.
Mark based compensation, which is not included in our non-GAAP earnings was $353 million.
Full year cash flow highlights include 308 billion in cash flow from operations.
$766 million and net Capex investments, resulting in $2 three 1 billion of non-GAAP free cash flow or a solid 21% of revenue.
During 2021, we repurchased 26 million shares for a total of 402 billion and paid cash dividends of $562 million.
In total we returned $458 billion to our owners, which was nearly 200% of the total non-GAAP free cash flow generate during the year.
Now moving to the details of Q4 total revenue was $3 4 billion.
Up 21% year on year and above the midpoint of our guidance range.
We generate $1 74 billion and non-GAAP gross profit and reported a non-GAAP gross margin of 57, 3%.
440 basis points year on year and above the upper end of our guidance range driven by improved utilization higher revenue and product mix.
Total non-GAAP operating expenses were $681 million or 22, 4% up 118 million year on year and up $24 million from Q3 in line with the midpoint of our guidance and again consistent with our long term model.
From a total operating profit perspective, non-GAAP operating profit was 1.06 billion and non-GAAP operating margin was 34, 9%.
440 basis points year on year, which is above the high end of our guidance, reflecting solid fall through and operating leverage on the increased revenue level.
non-GAAP interest expense was $93 million with cash taxes for ongoing operations of a 100 million and Noncontrolling interest was $8 million stock.
Stock based compensation, which is not included in our non-GAAP earnings with $88 million.
Now I would like to turn to the changes in our cash and debt.
Our total debt at the end of Q4 was $10 $5 7 billion up $979 million sequentially.
We issued $2 billion of new notes at very attractive rates with longer durations.
Retire early the 2022 1 billion notes with a rate of 387, 5%.
Our ending cash position was $2 eight 3 billion up 527 million sequentially due to the cumulative effect of the previous note debt repayment capital returns increased capex investments and cash generation during Q4.
The resulting net debt was $7 74 billion and we exited the quarter with a trailing month adjusted EBITDA.
For two 3 billion.
Our ratio of net debt to trailing 12 month adjusted EBITDA at the end of Q4 was one eight times and our 12 month adjusted EBITDA interest coverage was 11 six times.
Cash flow generation of the business continues to be excellent and our balance sheet continues to be very strong.
During Q4, we paid $150 million in cash dividends and repurchased $750 million of our shares.
Subsequent to the end of Q4 between January one and January 31, 2022, we repurchased an additional $400 million of our shares via <unk> Dash one program.
Additionally, the NXP board of directors has authorized an incremental $2 billion in the company's repurchase capacity, bringing the total new authorization and remaining authorization to three <unk> three 5 billion.
Further the board has approved a 50% increase in the quarterly cash dividend.
Bringing the quarterly cash dividend to <unk> $84.05 per share.
These actions are all aligned with our capital allocation strategy that we continue to execute to.
Turning to working capital metrics days of inventory was 83 days a decrease of two days sequentially.
Which is below our long term target.
We continue to closely manage our distribution channel with inventory in the channel at one five months also below our long term targets.
Both metrics reflect the continuation of customer shipments at a robust pace combined with supply challenges we continued to experience.
We anticipate the coming year will be very similar to 2021, where customer demand is an excess of available supply.
Days receivable were 28 days down three sequentially and days payable were 87, an increase of four days versus the prior quarter as we continue to increase orders with our suppliers.
Taken together, our cash conversion cycle was 24 days, an improvement of nine days versus the prior quarter, reflecting strong customer demand solid receivable collections and positioning for customer deliveries in future periods.
Cash flow from operations was $785 million and net Capex was $266 million, resulting in a non-GAAP free cash flow of $519 million.
Turning now to our expectations in the first quarter as Kurt mentioned, we anticipate Q1 revenue to be about $3 1 billion plus or minus about $75 million.
At the midpoint this is up 21% year on year and 2% sequentially.
We expect non-GAAP gross margin to be about 57, 3% plus or minus 50 basis points.
Operating expenses are expected to be about $693 million, plus or minus about $10 million.
Taken together, we see non-GAAP operating margin to be about 35% at the midpoint.
We estimate non-GAAP financial expense to be about $105 million.
And anticipate cash tax related to ongoing operations to be about $125 million.
Noncontrolling interest will be about $9 million.
For Q1, we suggest for modeling purposes, you use an average share count of 266 million shares.
Finally, I have a few closing comments I'd like to make.
First is a housekeeping reminder.
We anticipate our cash tax payments will trend towards 15% in 2022 based on the current U S tax legislation and law.
As can be seen in our Q1 guidance, we are expecting a slightly lower tax rate in the short term and anticipate it will increase as we progress through the year.
Secondly.
We are investing to support our profitable long term growth. We currently have about $4 billion of long term material supply obligations as discussed at the Investor day.
Our capex investments for 2022 will be above the high end of our long term Capex model.
These investments are focused on the combination of assured external foundry wafer supply.
Spansion of our internal backend capacity and a modest expansion of our internal front end capabilities, while significant the investments we are committed to our more than balance by the robust level of noncancelable non returnable orders from our customers.
In closing we are very confident in our profitable growth over the intermediate to long term, especially in the key areas of the accelerated growth drivers as we highlighted during investor day.
Our gross profit will continue to expand and we have demonstrated solid control over our operating expenses, while consistently investing in those areas, which will enable our long term growth.
Together this resulted in solid operating profit leverage and robust cash flow generation.
And lastly, we have a proven track record of returning all excess free cash flow to our owners via our clear capital return policy with that I'd like to turn it back to the operator for questions.
Thank you 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.
Our first question comes from Ross Seymore with Deutsche Bank. Your line is open.
Hi, guys. Thanks for letting me ask the question and congrats on the strong results I guess the first question I have is on the full year commentary at the analyst meeting you talked about I guess at the high end of your range before about 12% now you're saying better than that what changed and do you have the supply necessary to grow sequentially through the year.
What seems to be something that in the mid teens roughly that youre guiding to now.
Yeah, Hey, good morning, Ross Thanks for your question.
Indeed, the commentary I made is that we have growing optimism.
That we can grow above the high end of our long term growth.
The range, which was 8% to 12% so above 12% so indeed.
Yes, we do have to supply capability, we are gradually building more supply capability through the year. It's a it's a it's a huge amount of different actions both in our in our own back end test and assembly.
<unk> sites.
In our intermodal front ends and mind you that this year, we will be running full out with all of our internal front end factories why last year, we had to winter storm, taking capacity away and we had only started to ramp the factory is full up during the first and second quarter. So from a year on year perspective alone.
That does give us more supply, but also with third party foundry suppliers.
Bill just mentioned our supply commitments and obligations here.
B or purchase from our perspective obligations here.
We are growing our supply capabilities. So yes, the supply capability is here.
<unk>.
But I'd be Billboard guide to full year Ross.
Still important I felt to make that comment.
The demand situation.
<unk> has continued to be very very strong. It I'd say continue to be very strong since our investor day in November .
The N V C. The inventories both our own once and I think we've talked about.
83 days, we talked about so the channel inventory, even coming a little bit down but also at our customers. We think inventories continue to be super lean such that we see the potential of outgrowing the 12% high end of our long term growth trajectory.
Thanks for those details Kurt I guess as my follow up just sticking on the revenue line and going a little shorter term for the first quarter.
Are there any specific dynamics that are keeping automotive and industrial flat sequentially is it simply a supply issue I think that's the first time in I don't know six quarters that those will have been flat sequentially. So the dichotomy between auto and industrial flat and the relatively smaller segments growing was a little surprising to me so any color on those.
It would be helpful.
Yes.
It is actually totally supply.
Regulated I mean do you have more than enough two months. It is all of our functional supply and maybe here at this growth while to note.
You all might have seen that.
And the city of Tianjin in China.
They will say controlled movement order rejects.
Lee men's factory shutdowns.
One of our test and assembly back inside his intention.
We had the factory shutdown there for between one and two weeks.
Think about maybe 50 million dollar impact for the first quarter and that is all sitting on on industrial and auto which is another factor, which is actually hampering our supply a little bit further than we would have wished into the into the first quarter.
Mobile on the other hand side Ross you you know that the last two quarters, we've been really struggling with supply in mobile.
I think we've talked about this consistently in the call.
This starts to get better.
Actually helps us to start to do much better in mobile so all of the see the movements quarter on quarter are much more a function of supply capability rather than demand.
Thanks Kurt.
Thank you. Our next question comes from C. J Muse with Evercore. Your line is open.
Good morning, good afternoon, and thank you for taking the question I guess first question on gross margins.
Youre 70 bps away from the high end of your target.
In your prepared remarks, Bill you talked about.
Patients for gross margins to continue to expand so curious how you're thinking about.
Upward bias here in 'twenty, two and then Moreover, I guess 'twenty three 'twenty four.
As new products that carry higher margins come through the model.
Hi, C J, yes.
For the rest of the year.
Guiding but our goal is to maintain I'd say gross margin in the 57% range with the pluses and minuses, we continue to talk about in any given quarter.
Purchased mentioned about the slight impact with Tianjin, which is impacting our margin a little bit in Q1, but that is offset by the higher revenue and volume that we're experiencing quarter over quarter by $60 million, so that kind of keeps it flat there for Q1.
As we go forward again mix will play an important role as we are supply constrained and then over the long long term as we talked about is really driven by our new product introductions.
Are there.
Very helpful. As my follow up I guess, Kurt you talked in your prepared remarks about making.
Real traction with some of the newer products.
No in particular on the F 32 domain processor side.
There is significant architectural decisions being made today bye bye.
By your potential customers. So curious any update in terms of the traction there and I guess.
How do you think about maybe some of these new products in which we should be focused on in terms of driving real incremental growth into 'twenty three 'twenty four.
Yes, absolutely.
I think at Investor Day, we tried to give a bit more of a deep dive on AWN via we are in this area and it's indeed, especially about what we call the <unk> 32 platform.
Did you say.
Software compatible growing family of products.
Mainly pulled the networking infrastructure part of the car.
And.
There is a very rapid.
And I would also say very forceful re architecture action.
In place with all of the OEM customers.
And one of the Big features here is going to be over the air updates, including the required securities. So to make sure that the performance of the car over its lifetime can be upgraded by software updates without changing the hospira.
And the way to do this is over the air updates and then a very say, both elegant and efficient network architecture inside the car.
And the chip, which just is this over the air updates is a gateway trip and Thats one of the flagship products, which we are which we are ramping it's.
It's called as 32, chief or Gateway.
And that is ramping with major OEM names.
Through the next through the next few years.
It's just one nice example, there is obviously more I'm actually proud to mention because you know its always difficult with OEM names in there in that particular industry, but I'm proud to mention or reflect on the announcements, which we did I think in November with Ford Motor Company together.
We spoke about the fact that their new F 150.
Bronco the EMACS Dave.
They will all be using amongst others.
32, <unk> platform for the for the Gateway functionality.
Very helpful. Thank you.
Thank you. Our next question comes from Vivek Arya with Bank of <unk>. Your line is open.
Thanks for taking my question I just wanted to clarification first you identified the material weakness in internal controls and in your earnings press release I was just hoping you could maybe just discuss that issue how much is any potential impact.
How soon can those issues, we would have declined.
Hey, Vivek I'll take that question as shared in our ETR as part of our annual year end audit process, we did identify a potential material weakness associated with our general internal controls in the areas of user access change management and documentation.
At this moment, we are very comfortable there had been no impact on our current or past financial statements.
We are actually very pleased with the fixes the teams are implementing which.
Just take time.
And we feel confident that we'll be able to remediate. These internal controls in 2022 and ensure the proper monitoring throughout the year.
Want to disclose this now for full transparency and we plan to disclose more about the details in our annual 10-K per our normal scheduling.
In the late February .
Great very helpful. Thanks.
And for my follow up.
If I look at last year, we saw nearly a 40 point delta between auto unit production and yourselves.
I'm curious what is the way you think about a more sustainable kind of content that.
We should think about.
Between units and sales over time, and what are you doing to ensure the quality of orders and the utilization of your products. So we're not surprised by any excess inventory that might be there at your Oems or tier ones.
Yeah. Thanks, Vivek. So first let me just highlight again that indeed, we are not at all concerned about that the delta between the 44% of our revenue growth in the.
So two and a half to send I think solid growth last year.
And that is given the content increases relative to premium vehicle mix changes and electric vehicle acceleration.
But also the fact that didn't trade in 'twenty and already earlier in 19.
A lot of inventory in the very very complex extended supply chain has been a hit or had been depleted.
And then of course I definitely see that we also have grown market share so in.
For the history be almost most concerned about this on the contrary I am I continue to be chased on the really on a daily level.
To ship more product into automotive, it's still old enough as we are as we speak now.
All the measures to cope with this.
One.
Very very much higher level of transparency, which we not only do with our tier one customers, but also especially with the OEM customers. So we have a lot of direct relationships buildup mode with the Oems.
And get multiyear forecast, which are very specific by model.
<unk> equipment.
Which gives us a much better view into the future in what is a realistic content growth in both north.
And then the more short term of course, the work with the N C. In our order concept, which I think bill had his head in his prepared remarks.
<unk>, which we actually especially in automotive not only in automotive, but especially in automotive.
<unk>, which give us a confirmed.
Noncancelable or reschedule logo.
All the pendulum will the flu calendar year train train two.
As a which is a hell of a lot of more stability than than we've ever had in the past.
I.
Just a directional perspective I do believe.
The content increase continues to accelerate.
And probably on the midst to them.
Two main sectors are actually the exploration of the of.
The share of Suvs, So electric and hybrid electric vehicles.
We just simply have so much more semiconductor content.
But also the.
The level two plus level we.
Turning me airports are getting more and more traction again, which is a big deal for us when you think about our position in radar.
So we do.
Do beliefs that we will continue to outgrow this market didn't share.
And half at the same time, a fast to market development given the given these changes but with the.
N C in our orders and our relationships to the Oems I think we have a good handle.
To keep this good check.
Thank you Sir.
Thank you. Our next question comes from William Steel with Trust. Your line is open.
Alright, Thanks, good morning, everyone.
There has been a clear imbalance between supply and demand for the last few quarters, it's triggering very extended lead times in the last year I don't think I've heard an update on that condition during during the call or in the press release or presentation I'm, hoping you can update us as to how that's trended in the most recent <unk>.
<unk> I would imagine given the inventory decline that lead times are still quite stretched.
Any normalization you anticipate for that through this year.
Yes, so bill clearly it has not improved.
If I think about it from a supply perspective, or if I put my my more positive perspective on this that the demand continues to be very very strong.
So if I if I look forward.
Into Q1 and into the rest of the year or Q1, very clearly and I just want to be very explicit here relative to the guidance.
This is completely kept by available supply so much more demand than what we have in terms of supply.
You mentioned some of the metrics, which we can actually you would see in order to get a better feeling bad this is going.
Indeed, our internal inventory has further reduced.
And I'm I'm, most happy to say that also the channel inventory.
<unk> dropped a little bit to a one five months I mean, we've been spending though at 1.64 for quite a long time all through last year.
And mind you. This this compares to a target of two 4% to five months.
And that's also the level, we have come from and the loan that Delphi is about $500 million.
So I do not think that we get out of this imbalance.
Through this calendar year.
It might get better in certain spots.
But overall in the markets, which we are serving and again I don't make a comment here about the whole semiconductor industry, but I'd make a comment about the key markets, we are being exposed to.
They are I do not see that be totally come out of this imbalance until the end of the year.
It really helps thank you one other if I can I'm going to ask the content.
Automotive content question, a little differently.
Clear and you've made a pretty good case that some of this content is a more permanent shift like the new networking architectures and the like.
But I think it's I think it's fair to say that some of the growth that we've seen in the last year has resulted from favorable mix shift to higher end models and hiring trends within those models that probably drive a little bit better semi content, that's more profitable for the OEM customers.
What would you encourage investors to think about for this trend over the coming year does it continue or would it reverse as availability becomes more plentiful. Thank you.
Yes, so bill I I completely confirm what you said.
Definitely last year has seen a spike in content increase are due to the mix change to more premium vehicles absolutely agreed.
I think this is going to find that natural balance.
As long as overall supply of the semi industry into the auto industry.
We will continue to be constrained.
They build continue to build the more profitable at the premium vehicles I mean, that's very natural.
As soon as this this maybe gets over time into a better balance.
They will also start to build more of the volume cars again.
But again that is not a.
I cannot see this as a negative will because.
They want to build and could sell more cars anyway. I mean, if you look at dealer inventories in the meantime, mobile only in the U S. But also in China.
They are soft it rocking all time lows and it's getting worse and worse.
So yes, it will change a little.
But it is not going to go against a negative against our demand.
Because they simply built more cars because of the size.
Great. Thank you.
Yeah.
Our next question comes from John Pitzer with Credit Suisse. Your line is open.
Yeah. Good morning, guys. Thanks for let me ask the question Kurt I Wonder if you could spend a couple of minutes just talking about the impact of inflationary pressures on the business right now both on revenue and on Opex and I know you've said historically.
That youre not raising pricing above your increased in cost, but I'm trying to get a sense of how much of a tailwind prices to your view that you'll be above the high end of that eight to 12 this year and Conversely, whats the impact it's having on opex relative to higher prices.
Well in general Shawn I, absolutely want to reconfirm loud and clear.
That we will not use this current or abuse I would almost say this current situation.
Two pet our margins so.
We do absolutely stick to the policy I've talked about before.
Which is that of course, we are pausing on the increased input cost and raise prices to our customers along with it that is something we we had to start doing last year and we have to continue to do through this year.
This is a function of the kinds of the type of business. We are in which is which is the opposite of a commodity business. It's very application specific.
It has I think very specific and long term customer relations.
This is the only way to do it and Trust me, it's not it's not an easy one for us to do this but yes, that's what we do.
I mean any way you can guide for the year are going out.
Into Q2, three and four but I can tell you trimmed it for last year.
The impact of pricing was absolutely minimal.
Two the revenue growth so.
Don't think about this being a key factor here.
And maybe bill you want to speak a little bit about the impact on Opex.
Yes, Karen Hi, John I'd say, we continue to do well here and near our 23% long term model. As you know Q4 finished at 22, 4% of sales, which was better than our guidance of the $22 seven which.
Just guided Q1 to be about 22, 4% and this is up mainly because of the U S benefits for FICA and 401K trend to be higher in the U S. In Q1, but as you think ahead and this is where you're going we mentioned during investor day, we like to run around 23% with quarters flush.
You're waiting a bit but we do see that we can get additional leverage on the model, especially in the SG&A side.
That's helpful. And then guys as my follow up Bill you talked about in your prepared comments Capex. This year being above target I'm wondering if you could give us a little bit more granularity as to kind of what number youre thinking about for the full year and incurred as he answers that I am curious as to what your internal versus external sort of capacity strategy is.
Especially in the auto business, where historically you've done more of the front end internally and especially against some of your peers that are looking to really expand their internal capacity.
How confident are you that given the strong growth you expect especially in orders over the next several years that you can get everything you need from from your outsourcing partners.
Yeah, Let me, let me maybe get started Shaun on the on.
On the on the strategy here.
We absolutely stick to our hybrid manufacturing strategy and.
I also want to highlight it has never been a function of doing business in auto and doing the other industrial and something else in mobile.
It's much more a function of the kind of processing technology.
We're simply anything which is below 90 nanometers, we will not do in house and we see no reason to change this.
Honestly speaking if you if you look at our results for last year, I think we've grown 20, 28.5% year over year.
We've probably grown faster than most of the comparable peers, which might possibly have Moreover in house manufacturing strategy I think last year, the flexibility, which we could serve which we could supply. It is actually a fantastic proof points that this manufacturing strategy is not wrong.
Now going forward.
We clearly are intensifying and working on long term.
Partnerships also with foundry partners.
As much as I talked earlier about the longer term nature of our relationship with customers.
The bedroom transparency the gain here from a demand perspective, obviously, we are doing exactly the same thing on the foundry side in order to make sure. This business in good balance so no change here.
Of course, we are.
In Westin and increasing our output capability is in the on the backend because there I think currently it's like 85% or so which we are doing in house.
B, we don't see a reason to change that.
So here, we are continuing to expand.
And really this year.
Yes, let me jump excuse me Capex.
Yes.
Let me do that yes, they'll go ahead.
Yes. Thank you.
Again, if you look at Capex, just a quick recap in 2020, we spent $4 6% 2021, we spent six 9% and you just saw in Q4, we spent eight 8%.
So we think that's going to go up a little bit more for 2021 without giving you any absolute guide but.
I think maybe another point or so on it.
Related to it.
Perfect guys. Thank you very much.
Thank you. Our next question comes from Stacy <unk> with Bernstein Research. Your line is open.
Hi, guys. Thanks for taking my question.
I wanted to first ask about the on mobile strength into Q1, and I get what you said on some of the supply constraints in that business that had been there easing a little bit but is there anything else there around customer pull forward or anything like that what is actually driving that strength and how do we think about the sustainability of that profile in Q2 and beyond.
Just given the above seasonal nature of it into Q1.
Yes, Stacy it's it's indeed, two things it is demand and I speak about this in the second thing is obviously supply is really being held back by supply. The last two quarters. So Q3 and Q4 of last year, we clearly had a significant issue here from a supply perspective by the way not everything resolved, but it.
Leads to improving in two or into Q1. So that's one element. The other element is the moms.
And I mean I.
I think I can understand why you are asking.
But.
You you know that would be a multi overly dependent on only one customer one mobile customer in that in that particular segment.
So if you think about the mix of our customers.
You will appreciate that there is a strong case to be made for demand going into them into the first quarter and also don't think about it doesn't spike Stacy. This is this is not just a a spike or something its.
I think it continues with our strategy of the attach rates optimal well, it's I mean, that's the main factor in there.
And the more and more growing really growing part of the of our secure ultra wideband solutions.
Alright, thank you.
My follow up I wanted to ask you about industrial it, particularly in China. What are you seeing there I mean, they have COVID-19 zero they.
There were shutdowns as you mentioned and some thing some of the data points are not great are you seeing any issues.
Particularly around China, especially for the industrial business.
Okay.
No we don't see it at this stage Stacy I mean, I'm I'm reading the same the same news.
Our main concern is indeed in China, much more about our own production.
And I've said this before is going to become a fully up and running again, but that has actually been we see the issue from.
From a demand perspective, which indeed is largely the industrial markets largely served through distribution.
We do not see any slowing at all.
On the contrary.
When you think about the fact that our channel inventory has further dropped unfortunately.
You you know that are good.
Solid portion of that is actually in China.
So no we are.
Most concerned here about the demand slowing in industrial China.
Got it thank you guys.
Yeah.
Yes.
Thank you. Our next question comes from Chris Caso with Raymond James.
Your line is open.
Yes. Thank you good morning, I Wonder if you could go through a bit about some of the commitments that you've had to make to secure that additional capacity.
What is the commitment now to the foundry partners and how has that changed.
<unk> prior cycles and I.
Im guessing by your comments that Youre feeling is that that's backed up by the commitments from your customers to you and how resilient do you think that that will be over time.
As conditions change and obviously this seems like this is something different for the industry.
Yeah. Thanks, Thanks, Chris maybe bill you want to speak a little bit first about the.
Four plus billion purchasing obligations, which we entered into.
Yes that was in my prepared remarks at the moment, we have $4 billion and those are strongly supported by actually greater than our supply commitments.
By the noncancelable non returnable orders that we see so the demand continues to be strong our customers are actually coming to us and unfortunately, we can't serve them all.
Yeah, and then adding adding to this Chris on the on the N CNR on the auto sites.
I mean it is it is as strong as the contract can be Chris we all know.
The girls can can flip around.
But I.
There is solid contracts behind that so we really really feel good about it.
And I would tell you we have actually.
Customers.
Who want more so just no confusion here. It is not that we were hungry for these N CNR autos, it's actually the opposite we cannot cover the more so.
So we are over oversubscribed here, we can also if he cannot fulfill them all.
And customers would love to place them.
Actually over even longer periods of time, so reaching out into 'twenty, three and 'twenty four.
There we are still seeing how we can best students. So that dynamic is still going one way only.
We don't see any softening and I ask.
Actually I didn't say it before but maybe maybe I should just highlight this year.
We see absolutely no other cancellation, we see no push outs or no rescheduling of any backlog.
That's very helpful.
For a follow on question and we will return to pricing and.
Really kind of two questions on pricing one is.
We've seen foundry price increases announced last year do you think that is now behind us or with the continuing tight supply situation.
Is there potential for additional input cost increases as we go through the year and then with that.
I think there is an investor concern that some of these price increases are transitory because of the strong conditions.
And obviously the input costs on new you're passing along to the customers. So whats your view of the stickiness of these price increases.
This is kind of a permanent ratchet up as opposed to something that's transitory just because of the supply conditions.
Yeah.
I actually think Chris.
Unfortunately, there was always a chance for more cost increases.
So this this can never be totally rule adult so on your on the first part of your question.
I Trust, we have a good visibility and also good agreements for this year, but is it is it truly the end forever I don't know I mean, there could always be something.
On the durability of steps.
I have a very firm view that this is a really a reset of the industry.
So no I do not think that things will go backwards. Unfortunately, neither the input cost nor our.
Our pricing to our customers I think the the four or five quarters and all of this are really really tough supply situation.
<unk> learnt the world a lot more about the the value of semiconductors in many critical infrastructure and other applications.
So I think the appreciation for this industry and for the kind of product, which we which we do to enable applications and applications has significantly grown it with that.
A hand, and hence has gone a a reset of the off the pricing structure. So.
I don't think this is going to it's going to go backwards.
Thank you.
Thank you.
And our last question comes from Joe Moore with Morgan Stanley . Your line is open.
Great. Thank you.
You talked about noncancelable backlog throughout the year I think that was an automotive comment can you talk about your backlog coverage for the other businesses and how far out does that extend and do you see it.
In the areas like auto as you see it extending out our full year do you think we continue to get that one year visibility as we move forward people still looking out that far.
So true yeah.
First I.
I talked about automotive, but this is not just a phenomenon in the automotive I would say with all of our direct customers.
This is N CNR peplum.
Desire because all of our customers consider this as a way to secure.
Supply over a short to medium term periods.
So it ranges will be on to be on the automotive.
I should maybe also highlights that the shortages in the industry are at least as that in industrial and other applications.
As in automotive, it's just that automotive continues to catch better headlines in the news, but it's not that the situation is any easier in any of the other segments. We are serving.
If you think about the.
Uh huh.
The order visibility.
Customers want to have with Llama I said I said I think earlier I might have mentioned this already that they would love to have empty and ours for two years old.
So, yes, I'm definitely sure on your question.
I want to continue to go with a one year horizon. They definitely want to I think actually if we are prepared for it.
Might be also more cases, coming where people want to have with even lower so more than a year.
And again think about this commentary really being commentary, mainly about automotive and industrial markets with very sticky products very long life cycles.
So it fits the nature of those industries. So I think it's a learning from our overall industry in order to better deal with the requirements of those markets.
I don't know if this is ever going to be the case in markets like mobile and computing it might be different there where also the end product cycles are much shorter.
So that's why in my commentary its wont be biased to the automotive and industrial side of the house Bill I think it is a big learning of last year for the for the entire industry.
Great. Thank you very much joined us.
Yeah sure.
Joe.
I guess, we run them all to the to the end of the call. So I just want to summarize and highlight again.
We feel we come off a very strong 2021 with.
With more than 28% revenue growth.
Maybe it's also worthwhile to say that if we look at the revenue growth Overtrain 19, which was the pre pandemic year.
It is still a 25% growth. So 'twenty one over 2019 is 25% growth. So we feel we are very well on track to our projected 8% to 12%.
<unk> long term growth targets.
And if you look into more into the near term into this year.
We feel increasingly optimistic as I said that he can be above the high end of that 8% to 12%.
Calendar year 2022 .
And with that I would like to thank you all for your attention today and speak to next thank you very much.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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