Q3 2018 Earnings Call

November 1, 2018

Good day, Ladies and gentlemen. I welcome to the Q3 2018 and XP semiconductors earnings conference. callat this time all participants on a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require operator assistance during the conference, you may press start and zero on your touchtone telephoneas. A reminder this conference is being recorded. I would now like to introduce your host for today's conference, Jeff Palmer's, BP of Investor Relations's. You may begin.

Speaker 1: Good day, Ladies and gentlemen. I welcome to the Q3 2018 and XP semiconductors earnings conference. callat this time all participants on a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require operator assistance during the conference, you may press start and zero on your touchtone telephoneas. A reminder this conference is being recorded. I would now like to introduce your host for today's conference, Jeff Palmer's, BP of Investor Relations's. You may begin.

Operator: Good day, ladies and gentlemen, and welcome to the Q3 2018 NXP Semiconductors Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance during the conference, you may press star then zero on your touchtone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Jeff Palmer, VP of Investor Relations. Sir, you may begin.

Thanks Mi, and good morning everyone. Welcome to the NXP semiconductor's third quarter 2018 earnings call. With me on the call today is Rick cummer, our CEO , and Peter kellyrcfoif. You've not obtained a copy of our third quarter 2018 earnings press release. It can be found in our company website under the Investor Relations section at NXP com. Additionally, we have posted on our Investor Relations website a supplemental earnings summary presentation and a document of our historical financials to subsuing your modeing efforts. This call is being recorded and will be available for replay from our corporate website. Our call today will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially by management's current expectations.

Speaker 2: Thanks Mi, and good morning everyone. Welcome to the NXP semiconductor's third quarter 2018 earnings call. With me on the call today is Rick cummer, our CEO , and Peter kellyrcfoif. You've not obtained a copy of our third quarter 2018 earnings press release. It can be found in our company website under the Investor Relations section at NXP com. Additionally, we have posted on our Investor Relations website a supplemental earnings summary presentation and a document of our historical financials to subsuing your modeing efforts. This call is being recorded and will be available for replay from our corporate website. Our call today will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially by management's current expectations.

Jeff Palmer: Thanks, Imani, and good morning, everyone. Welcome to the NXP Semiconductors Q3 2018 earnings call. With me on the call today is Rick Clemmer, our CEO, and Peter Kelly, our CFO. If you've not obtained a copy of our Q3 2018 earnings press release, it can be found at our company website under the Investor Relations section at nxp.com. Additionally, we have posted on our Investor Relations website a supplemental earnings summary presentation and a document of our historical financials to assist you in your modeling efforts. This call is being recorded and will be available for replay from our corporate website. Our call today will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations.

These riskss and uncertainties include, but are not limited to, statements regarding the macro economic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the fourth quarter of 2018. Please be reminded that nxtp undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on our forward-looking statements, Please refer to our press release today. Additionally, during our call today, we will make reference to certain non-GAAP financial measures which exclude the impact of purchase price accounting restructuring, stock-based compensation impairment, merger related costs and other charges that are primarily driven by discrete events that management does not considered to be directly related to nxtp's underlying core operating performancepursuant Regulation G, and xtp has provided reconciliations of the non-GAAP financial measures to most directly comparable GAAP measures in our third quarter 2018 press release, which will be furn to the SEC on Form six -k and be available, and xtp's website in the Investor Relations website section. Like to now turn the call over to Rick.

Speaker 3: These riskss and uncertainties include, but are not limited to, statements regarding the macro economic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the fourth quarter of 2018. Please be reminded that nxtp undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on our forward-looking statements, Please refer to our press release today. Additionally, during our call today, we will make reference to certain non-GAAP financial measures which exclude the impact of purchase price accounting restructuring, stock-based compensation impairment, merger related costs and other charges that are primarily driven by discrete events that management does not considered to be directly related to nxtp's underlying core operating performancepursuant Regulation G, and xtp has provided reconciliations of the non-GAAP financial measures to most directly comparable GAAP measures in our third quarter 2018 press release, which will be furn to the SEC on Form six -k and be available, and xtp's website in the Investor Relations website section. Like to now turn the call over to Rick.

Jeff Palmer: These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products, and our expectations for financial results for the fourth quarter of 2018. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on our forward-looking statements, please refer to our press release today. Additionally, during our call today, we will make reference to certain non-GAAP financial measures, which exclude the impact of purchase price accounting, restructuring, stock-based compensation, impairment, merger-related costs, and other charges that are primarily driven by discrete events that management does not consider to be directly related to NXP's underlying core operating performance.

These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products, and our expectations for financial results for the fourth quarter of 2018. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on our forward-looking statements, please refer to our press release today. Additionally, during our call today, we will make reference to certain non-GAAP financial measures, which exclude the impact of purchase price accounting, restructuring, stock-based compensation, impairment, merger-related costs, and other charges that are primarily driven by discrete events that management does not consider to be directly related to NXP's underlying core operating performance.

Jeff Palmer: Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our Q3 2018 press release, which will be furnished to the SEC on Form 6-K and be available on NXP's website in the Investor Relations section. I'd like to now turn the call over to Rick.

Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our Q3 2018 press release, which will be furnished to the SEC on Form 6-K and be available on NXP's website in the Investor Relations section. I'd like to now turn the call over to Rick.

Thanks cheff, and welcome everyone to our conference call today. Overall, our revenue growth in the third quarter was good and our results were better than our guidance. We resumed our buyback program and, as up yesterday, we have now returned just under $5 billion to our owners and also initiated a 25 cents per share cash dividend.

Speaker 4: Thanks cheff, and welcome everyone to our conference call today. Overall, our revenue growth in the third quarter was good and our results were better than our guidance. We resumed our buyback program and, as up yesterday, we have now returned just under $5 billion to our owners and also initiated a 25 cents per share cash dividend.

Rick Clemmer: Thanks, Jeff, and welcome everyone to our conference call today. Overall, our revenue growth in Q3 was good, and our results were better than our guidance. We resumed our buyback program, and as of yesterday, we have now returned just under $5 billion to our owners and also initiated a $0.25 per share cash dividend. Our outlook for Q4 reflects a wider than normal top-line revenue range due to the cloudy demand environment. Our top-line revenue expectations are driven by content gains, which, combined with improved operating expense control and lower share count, should result in earnings above analyst expectations. Before we discuss the details of Q3, we'd like to make a few comments on the trends we are seeing in our business. We do not have any unique insight into the macroeconomic environment.

Our outlook for fourth quarter reflects a wider-than-normal top line revenue range due to the cloudy demand environment.

Speaker 5: Our outlook for fourth quarter reflects a wider-than-normal top line revenue range due to the cloudy demand environment.

Our top line revenue expectations are driven by content gains.

Speaker 6: Our top line revenue expectations are driven by content gains.

Which combined with improved operating expense control and lower share count, should result in earnings above Analyst expectations.

Speaker 7: Which combined with improved operating expense control and lower share count, should result in earnings above Analyst expectations.

Before we discuss the details of the third quarter, we'd like to make a few comments on the trends we are seeing in our business.

Speaker 8: Before we discuss the details of the third quarter, we'd like to make a few comments on the trends we are seeing in our business.

We do not have any unique insight into the macroeconomic environment. We can only speak to what our customers and supply chain partners are telling us in what, in turn, is reflected in our order books.

Speaker 5: We do not have any unique insight into the macroeconomic environment. We can only speak to what our customers and supply chain partners are telling us in what, in turn, is reflected in our order books.

Rick Clemmer: We can only speak to what our customers and supply chain partners are telling us and what, in turn, is reflected in our order books. We realize there's a significant amount of investor angst about the next couple of quarters in the semiconductor market. What we have seen in the automotive market is a modest slowdown, primarily due to the WLTP testing bottlenecks in Europe and lower car sales in China. As it pertains to the industrial MCU market, we've seen a slight sequential weakening of order rates through distribution in China, which we believe reflects the heightened sense of caution by our customers on placing orders, given the shifting and the uncertain landscape in global trade and tariffs. To be clear, we have not experienced any weakness in the typical leading indicators, including unusual backlog cancellations or any program cancellations.

We can only speak to what our customers and supply chain partners are telling us and what, in turn, is reflected in our order books. We realize there's a significant amount of investor angst about the next couple of quarters in the semiconductor market. What we have seen in the automotive market is a modest slowdown, primarily due to the WLTP testing bottlenecks in Europe and lower car sales in China. As it pertains to the industrial MCU market, we've seen a slight sequential weakening of order rates through distribution in China, which we believe reflects the heightened sense of caution by our customers on placing orders, given the shifting and the uncertain landscape in global trade and tariffs. To be clear, we have not experienced any weakness in the typical leading indicators, including unusual backlog cancellations or any program cancellations.

We realized there's a significant amount of Investor inst about the next couple of quarters in the semiconductor market.

Speaker 5: We realized there's a significant amount of Investor inst about the next couple of quarters in the semiconductor market.

What we have seen an automotive market is a modest slowdown, primarily due to the lltp testing bottlenecks in Europe and lower car sales in China.

Speaker 9: What we have seen an automotive market is a modest slowdown, primarily due to the lltp testing bottlenecks in Europe and lower car sales in China.

As it pertains the industrial MCU market, we've seen a slight sequential weakening of order rates through distribution in China, which we believe reflects a heightened sense of caution by our customers on placing orders, given the shifting and uncertain landscape in global trade and tariffs.

Speaker 5: As it pertains the industrial MCU market, we've seen a slight sequential weakening of order rates through distribution in China, which we believe reflects a heightened sense of caution by our customers on placing orders, given the shifting and uncertain landscape in global trade and tariffs.

To be clear: we have not experienced any weakness in the typical leading indicators, including unusual backlog cancellations or any program cancellations.

Speaker 5: To be clear: we have not experienced any weakness in the typical leading indicators, including unusual backlog cancellations or any program cancellations.

It not. It is also not clear to us that there is any excess and exed inventory in our customer supply chain.

Speaker 10: It not. It is also not clear to us that there is any excess and exed inventory in our customer supply chain.

Rick Clemmer: It is also not clear to us that there is any excess NXP inventory in our customer supply chain. In summary, while the environment is uncertain, we feel customer demand is okay, and we are making the right product development investments, which are aligned with the right customer engagements. Taken together, we are confident that we will successfully achieve our strategic and financial goals as presented at our recent Analyst Day. Now, looking at the specifics of Q3. Total revenue was $2.45 billion, an increase of 2% year-over-year. Our HPMS segment revenue was $2.35 billion, up 3% year-over-year.

It is also not clear to us that there is any excess NXP inventory in our customer supply chain. In summary, while the environment is uncertain, we feel customer demand is okay, and we are making the right product development investments, which are aligned with the right customer engagements. Taken together, we are confident that we will successfully achieve our strategic and financial goals as presented at our recent Analyst Day. Now, looking at the specifics of Q3. Total revenue was $2.45 billion, an increase of 2% year-over-year. Our HPMS segment revenue was $2.35 billion, up 3% year-over-year.

In summary, while the environment is uncertain, we build, customer demand is okayand we are making the right product development investments which are aligned with the right customer engagements.

Speaker 7: In summary, while the environment is uncertain, we build, customer demand is okayand we are making the right product development investments which are aligned with the right customer engagements.

Taken together, we are confident that we will successfully achieve our strategic and financial goals as presented at our recent Analyst Day.

Speaker 5: Taken together, we are confident that we will successfully achieve our strategic and financial goals as presented at our recent Analyst Day.

Now looking at the specifics of the third quarter.

Speaker 5: Now looking at the specifics of the third quarter.

Total revenue was $2.45 billion, an increase of 2% year-over-year. Our hpms segment revenue was two point 3- five billion dollars, up 3% year-on-year.

Speaker 9: Total revenue was $2.45 billion, an increase of 2% year-over-year. Our hpms segment revenue was two point 3- five billion dollars, up 3% year-on-year.

On an operating segment perspective, automotive third quarter revenue was $99 million up 4% year-on-year, with advanced danalog and radar contributing to the year-on-year growth, while reduced polls of automotive impcused from Tier one customers impacted overall year-on-year growth we had been experiencing.

Speaker 9: On an operating segment perspective, automotive third quarter revenue was $99 million up 4% year-on-year, with advanced danalog and radar contributing to the year-on-year growth, while reduced polls of automotive impcused from Tier one customers impacted overall year-on-year growth we had been experiencing.

Rick Clemmer: On an operating segment perspective, Automotive, Q3 revenue was $990 million, up 4% year-on-year, with advanced analog and radar contributing to the year-on-year growth, while reduced pulls of automotive MCUs from Tier 1 customers impacted the overall year-on-year growth we had been experiencing. Looking forward, design win momentum continues to be strong. In strategic areas like our S32 family of next-generation automotive MCUs, radar transceivers, and battery management systems, the design win momentum is just explosive. Within Secure Connected Devices, or SCD, Q3 revenue was $717 million, up 1% year-on-year, driven by the continued demand for general-purpose multi-market MCUs, which were up high single digits, somewhat offset by a significant decline in demand for mobile transaction solutions due to a strong new customer ramp during the previous year, 2017.

On an operating segment perspective, Automotive, Q3 revenue was $990 million, up 4% year-on-year, with advanced analog and radar contributing to the year-on-year growth, while reduced pulls of automotive MCUs from Tier 1 customers impacted the overall year-on-year growth we had been experiencing. Looking forward, design win momentum continues to be strong. In strategic areas like our S32 family of next-generation automotive MCUs, radar transceivers, and battery management systems, the design win momentum is just explosive. Within Secure Connected Devices, or SCD, Q3 revenue was $717 million, up 1% year-on-year, driven by the continued demand for general-purpose multi-market MCUs, which were up high single digits, somewhat offset by a significant decline in demand for mobile transaction solutions due to a strong new customer ramp during the previous year, 2017.

Looking forward. Design win momentum continues to be strong.

Speaker 11: Looking forward. Design win momentum continues to be strong.

In strategic areas, like our's 32 family of next generation automotive to use radar transceivers and battery management systems. The design win momentum is just explosive.

Speaker 7: In strategic areas, like our's 32 family of next generation automotive to use radar transceivers and battery management systems. The design win momentum is just explosive.

Within secure connected devices, or sed. Third quarter revenue was $717 million, up 1% year-on-year, driven by the continued demand for general purpose multi-market mcuse, which were up high single digitssomewhat offset by a significant decline in demand for mobile transaction solutions due to a strong new customer ramp during the previous year. Two thousand and seventeen and.

Speaker 12: Within secure connected devices, or sed. Third quarter revenue was $717 million, up 1% year-on-year, driven by the continued demand for general purpose multi-market mcuse, which were up high single digitssomewhat offset by a significant decline in demand for mobile transaction solutions due to a strong new customer ramp during the previous year. Two thousand and seventeen and.

We continue to see solid design win momentum with our MCU and application processor portfolio.

Speaker 5: We continue to see solid design win momentum with our MCU and application processor portfolio.

Rick Clemmer: We continue to see solid design win momentum with our MCU and application processor portfolio. We recently announced the new i.MX RT600 crossover processor, and the customer interest is very strong. We continue to innovate in the mobile transaction area with our new integrated single chip, secure element, and embedded NFC radio, which is ramping into high volume on new phones this year. We also extended our thought leadership in mobile security into the IoT security space. We see strong customer activity with our new A71 security family, which is aimed at providing end node security for IoT cloud-connected devices like video cameras, smart home gateways, and industrial PLC controllers. In Secure Interface and Infrastructure, or SI&I, Q3 revenue was $511 million, up 5% year-over-year, due to the early 5G network trial deployments at the North American carriers.

We continue to see solid design win momentum with our MCU and application processor portfolio. We recently announced the new i.MX RT600 crossover processor, and the customer interest is very strong. We continue to innovate in the mobile transaction area with our new integrated single chip, secure element, and embedded NFC radio, which is ramping into high volume on new phones this year. We also extended our thought leadership in mobile security into the IoT security space. We see strong customer activity with our new A71 security family, which is aimed at providing end node security for IoT cloud-connected devices like video cameras, smart home gateways, and industrial PLC controllers. In Secure Interface and Infrastructure, or SI&I, Q3 revenue was $511 million, up 5% year-over-year, due to the early 5G network trial deployments at the North American carriers.

We recently announced the new odmx RT 600 crossover processor and the customer interest is very strong.

Speaker 5: We recently announced the new odmx RT 600 crossover processor and the customer interest is very strong.

We continue to innovate in the mobile transaction area with our new integrated single-chip secure element and embedded in FC radio, which is ramping into high-volume on new phones this year.

Speaker 5: We continue to innovate in the mobile transaction area with our new integrated single-chip secure element and embedded in FC radio, which is ramping into high-volume on new phones this year.

We also extended our thought leadership in mobile security into the TA security space.

Speaker 13: We also extended our thought leadership in mobile security into the TA security space.

We see strong customer activity with our new a 71 security family, which is aimed at providing in-no security for OT cloud connected devices.

Speaker 5: We see strong customer activity with our new a 71 security family, which is aimed at providing in-no security for OT cloud connected devices.

Like video cameras, smart home gateways and industrial PLC controllers.

Speaker 9: Like video cameras, smart home gateways and industrial PLC controllers.

In secure interface and infrastructure, or sii. Third quarter revenue was $511 million up 5% year-on-year due to the early five G network trial deployments at the North American carriers.

Speaker 12: In secure interface and infrastructure, or sii. Third quarter revenue was $511 million up 5% year-on-year due to the early five G network trial deployments at the North American carriers.

Our customers view NXP as having the broadest portfolio of RF technologies for infrastructure applications.

Speaker 9: Our customers view NXP as having the broadest portfolio of RF technologies for infrastructure applications.

Rick Clemmer: Our customers view NXP as having the broadest portfolio of RF technologies for infrastructure applications, spanning LDMOS and GaN high power amplifiers for traditional macro base stations, with massive MIMO and millimeter wave products for the last mile applications. We see 5G as both a content and share gain opportunity. Lastly, in Secure Identification Solutions, or SIS, Q3 revenue was $133 million, down 4% year-on-year due to lower demand for bank card products. Turning to our distribution channel performance, we continue to manage closely the total months of inventory in the distribution channel at 2.4 months. We consistently target to maintain 2.5 months support of supply, ±0.5 month in the channel.

Our customers view NXP as having the broadest portfolio of RF technologies for infrastructure applications, spanning LDMOS and GaN high power amplifiers for traditional macro base stations, with massive MIMO and millimeter wave products for the last mile applications. We see 5G as both a content and share gain opportunity. Lastly, in Secure Identification Solutions, or SIS, Q3 revenue was $133 million, down 4% year-on-year due to lower demand for bank card products. Turning to our distribution channel performance, we continue to manage closely the total months of inventory in the distribution channel at 2.4 months. We consistently target to maintain 2.5 months support of supply, ±0.5 month in the channel.

spainning LD moss and GaN high power amplifiers for traditional macro bed stations.

Speaker 5: spainning LD moss and GaN high power amplifiers for traditional macro bed stations.

With massive MIMO and millimeter wave products for the lastat mile applications.

Speaker 7: With massive MIMO and millimeter wave products for the lastat mile applications.

We see fiveg as both the content and share gain opportunity.

Speaker 5: We see fiveg as both the content and share gain opportunity.

Lastly, secured identification solutions are, as third quarter revenue was $133 million, down 4% year-on-year, due to lower demand for bank card products.

Speaker 9: Lastly, secured identification solutions are, as third quarter revenue was $133 million, down 4% year-on-year, due to lower demand for bank card products.

Any.

Speaker 12: Any.

Turning to our distribution channel performance, we continue to manage closely the total month of inventory in the distribution channel at two point four months.

Speaker 9: Turning to our distribution channel performance, we continue to manage closely the total month of inventory in the distribution channel at two point four months.

We consistently target from maintain two and half months of up supply, plus minus a half month in the channel distribution as a percent of total revenue continues to average about 55%, which is split between our match market channel customers and our fulfillment channel for strategic customers.

Speaker 5: We consistently target from maintain two and half months of up supply, plus minus a half month in the channel distribution as a percent of total revenue continues to average about 55%, which is split between our match market channel customers and our fulfillment channel for strategic customers.

Rick Clemmer: Distribution as a percent of total revenue continues to average about 55%, which is split between our mass market channel customers and our fulfillment channel for strategic customers. Given the uncertain environment, we are paying very close attention to the trends in the channel, staying close to our distribution partners. Before I pass the call to Peter, I'd like to announce our decision to shift how we report our revenue. Beginning 1 January 2019, we will report our revenue in terms of four specific end markets: automotive, industrial and IoT, mobile, and communications infrastructure, and other. After multiple discussions with investors and sell-side analysts, we believe there are greater insights to be gained by making the shift to end markets.

Distribution as a percent of total revenue continues to average about 55%, which is split between our mass market channel customers and our fulfillment channel for strategic customers. Given the uncertain environment, we are paying very close attention to the trends in the channel, staying close to our distribution partners. Before I pass the call to Peter, I'd like to announce our decision to shift how we report our revenue. Beginning 1 January 2019, we will report our revenue in terms of four specific end markets: automotive, industrial and IoT, mobile, and communications infrastructure, and other. After multiple discussions with investors and sell-side analysts, we believe there are greater insights to be gained by making the shift to end markets.

Given the uncertain environment, we are paying very close attention to the trends in the channel, staying close to our distribution partners.

Speaker 7: Given the uncertain environment, we are paying very close attention to the trends in the channel, staying close to our distribution partners.

Before I pass the call to Peter, I'd like to announce our distdecision to shift how we report our revenue.

Speaker 12: Before I pass the call to Peter, I'd like to announce our distdecision to shift how we report our revenue.

Beginning January first 2019, we will report our revenue in terms of four specific end markets.

Speaker 7: Beginning January first 2019, we will report our revenue in terms of four specific end markets.

Automotive.

Speaker 14: Automotive.

Industrial and IO.

Speaker 5: Industrial and IO.

Mobile.

Speaker 11: Mobile.

And communications infrastructure and other.

Speaker 5: And communications infrastructure and other.

After multiple discussions with investors in sell-side analysts, we believe there are greater insights to be gained by making the shift to end markets.

Speaker 9: After multiple discussions with investors in sell-side analysts, we believe there are greater insights to be gained by making the shift to end markets.

We recommend that all investors review the Analyst Day deck on our website, as it provides the market size and growth potential of the addressable end markets- what we see as our unique opportunities to drive revenue in each end market.

Speaker 13: We recommend that all investors review the Analyst Day deck on our website, as it provides the market size and growth potential of the addressable end markets- what we see as our unique opportunities to drive revenue in each end market.

Rick Clemmer: We recommend that all investors review the Analyst Day deck on our website, as it provides the market size and growth potential of the addressable end markets. What we see is our unique opportunities to drive revenue in each end market. We will post a historical reconciliation of the new end market focus to the existing operating segment structure. Now I'd like to pass the call over to Peter for a review of our financial performance.

We recommend that all investors review the Analyst Day deck on our website, as it provides the market size and growth potential of the addressable end markets. What we see is our unique opportunities to drive revenue in each end market. We will post a historical reconciliation of the new end market focus to the existing operating segment structure. Now I'd like to pass the call over to Peter for a review of our financial performance.

We will post a historical reconciliation of the new end market focus to the existing operating segment structure.

Speaker 9: We will post a historical reconciliation of the new end market focus to the existing operating segment structure.

Now I'd like to pass the call over with Peter bur. A review of our financial performancethank you Rick, and good morning to everyone on today's call.

Speaker 5: Now I'd like to pass the call over with Peter bur. A review of our financial performancethank you Rick, and good morning to everyone on today's call.

Peter Kelly: Thank you, Rick, and good morning to everyone on today's call. As Rick has already covered the drivers of the revenue during the quarter, I'll move to the financial highlights. In summary, overall revenue performance was better than our midpoint guidance, although we did experience some softness in demand, primarily from our partners in Greater China, and to a lesser extent, our Tier 1 automotive customers, who didn't pull material at the rate originally anticipated. Our non-GAAP operating profit was 30%, and cash flow continues to be strong. Our balance sheet continues to be in excellent condition, with a leverage ratio of 1.4 times, which is below our long-term target. Focusing on the details of Q3, total revenue was $2.45 billion, up 2% year-over-year.

As Rick has already covered the drivers of the revenue during the quarter, and'll move to the financial highlights.

Speaker 15: As Rick has already covered the drivers of the revenue during the quarter, and'll move to the financial highlights.

In summary, overall revenue performance was better than our midpoint guidance, though we did experience some softness in demand, primarily from our partners in greater China and, to lesser extent, our TI one automotive customers, who didn't pull material at the rate originally anticipated it.

Speaker 16: In summary, overall revenue performance was better than our midpoint guidance, though we did experience some softness in demand, primarily from our partners in greater China and, to lesser extent, our TI one automotive customers, who didn't pull material at the rate originally anticipated it.

Our non-GAAP operating profit was 30% and cash flow continues to be strong.

Speaker 17: Our non-GAAP operating profit was 30% and cash flow continues to be strong.

Our balance sheet continues to be an excellent condition, with a leverage ratio of one point fourre X, which is below our long-term target.

Speaker 16: Our balance sheet continues to be an excellent condition, with a leverage ratio of one point fourre X, which is below our long-term target.

Focusing on the details of Q3. Total revenue was $2.45 billion of 2% year-on-yearwe generated one point two nine billion dollars in non-GAAP gross profit and reported a non-GAAP gross margin of 53 basis points, down 70 basis points year-on-year due to a slightly weaker product mix.

Speaker 16: Focusing on the details of Q3. Total revenue was $2.45 billion of 2% year-on-yearwe generated one point two nine billion dollars in non-GAAP gross profit and reported a non-GAAP gross margin of 53 basis points, down 70 basis points year-on-year due to a slightly weaker product mix.

Peter Kelly: We generated $1.29 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 53 basis points, down 70 basis points year-on-year, due to a slightly weaker product mix. Total non-GAAP operating expenses were $563 million, up $14 million year-on-year, slightly above the growth in our revenue. But this was a reduction of $28 million from Q2, and about 2/3 of this reduction was from lower bonus accruals, and 1/3 was from general OpEx management. The lower bonus accrual rate will continue to benefit us in Q4 before returning to a more normal rate in 2019.

We generated $1.29 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 53 basis points, down 70 basis points year-on-year, due to a slightly weaker product mix. Total non-GAAP operating expenses were $563 million, up $14 million year-on-year, slightly above the growth in our revenue. But this was a reduction of $28 million from Q2, and about 2/3 of this reduction was from lower bonus accruals, and 1/3 was from general OpEx management. The lower bonus accrual rate will continue to benefit us in Q4 before returning to a more normal rate in 2019.

Total non-GAAP operating expenses were $563 million, helped $14 million year-on-year, slightly above the growth in our revenue. But this was a reduction of $28 million from the second quarter and about two third of this reduction was from lower bonus accruals and a third was from general OpEx management.

Speaker 18: Total non-GAAP operating expenses were $563 million, helped $14 million year-on-year, slightly above the growth in our revenue. But this was a reduction of $28 million from the second quarter and about two third of this reduction was from lower bonus accruals and a third was from general OpEx management.

The lower bonus accrual rate will continue to benefit us in the fourth quarter, before returning to a more normal rate in two thousand and nineteen and.

Speaker 16: The lower bonus accrual rate will continue to benefit us in the fourth quarter, before returning to a more normal rate in two thousand and nineteen and.

From a total operating profit perspective, non-GAAP operating profit was $733 million. A non-GAAP operating margin was 30% down 80 basis points year-on-year, reflecting the previously mentioned items.

Speaker 16: From a total operating profit perspective, non-GAAP operating profit was $733 million. A non-GAAP operating margin was 30% down 80 basis points year-on-year, reflecting the previously mentioned items.

Peter Kelly: From a total operating profit perspective, non-GAAP operating profit was $733 million, and non-GAAP operating margin was 30%, down 80 basis points year-on-year, reflecting the previously mentioned items. Interest expense was $34 million, non-controlling interest was $13 million, and cash taxes for ongoing operations were $33 million. Stock-based compensation, which is not included in our non-GAAP earnings, was $83 million. Now I'd like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $6.36 billion, an increase of $1 billion due to the bridge loan facility we entered into during the quarter. Cash was $1.94 billion, and net debt was $4.41 billion.

From a total operating profit perspective, non-GAAP operating profit was $733 million, and non-GAAP operating margin was 30%, down 80 basis points year-on-year, reflecting the previously mentioned items. Interest expense was $34 million, non-controlling interest was $13 million, and cash taxes for ongoing operations were $33 million. Stock-based compensation, which is not included in our non-GAAP earnings, was $83 million. Now I'd like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $6.36 billion, an increase of $1 billion due to the bridge loan facility we entered into during the quarter. Cash was $1.94 billion, and net debt was $4.41 billion.

Interest expense was $34 million, noncontrolling interest was 13 the million dollars and cash taxes for ongoing operations with $33 million. stop-based compensation, which is not included in our non-GAAP earnings, was $83 million.

Speaker 19: Interest expense was $34 million, noncontrolling interest was 13 the million dollars and cash taxes for ongoing operations with $33 million. stop-based compensation, which is not included in our non-GAAP earnings, was $83 million.

Now I'd like to turn to the changes in our cash and debt. Our toptal debt at the end of Q3 was six point 3, six billion dollars, an increase of a billion due to the bridge loan facility we entered into during the quarter.

Speaker 16: Now I'd like to turn to the changes in our cash and debt. Our toptal debt at the end of Q3 was six point 3, six billion dollars, an increase of a billion due to the bridge loan facility we entered into during the quarter.

ourcash was $1.94 billion and net debt was $4.41 billion.

Speaker 16: ourcash was $1.94 billion and net debt was $4.41 billion.

We exited the quarter with a trailing 12 month adjusted EBITDA of approximately three point one eight billion.

Speaker 16: We exited the quarter with a trailing 12 month adjusted EBITDA of approximately three point one eight billion.

Peter Kelly: We exited the quarter with a trailing twelve-month adjusted EBITDA of approximately $3.18 billion. Our ratio of net debt to trailing twelve months adjusted EBITDA at the end of Q3 was 1.4, and our non-GAAP interest coverage was nearly 22 times. During the quarter, we returned $4.6 billion to our shareholders and bought 49 million shares as part of our share repurchase program. We also announced the cash dividend, and the initial cash payment of $0.25 per share was paid on 5 October. Our balance sheet includes an accrual of $346 million for the payment of a deemed dividend tax on the buybacks we made. As a reminder, this payment does not go through the P&L and is likely to be paid in cash to the Dutch tax authorities in the fourth quarter.

We exited the quarter with a trailing twelve-month adjusted EBITDA of approximately $3.18 billion. Our ratio of net debt to trailing twelve months adjusted EBITDA at the end of Q3 was 1.4, and our non-GAAP interest coverage was nearly 22 times. During the quarter, we returned $4.6 billion to our shareholders and bought 49 million shares as part of our share repurchase program. We also announced the cash dividend, and the initial cash payment of $0.25 per share was paid on 5 October. Our balance sheet includes an accrual of $346 million for the payment of a deemed dividend tax on the buybacks we made. As a reminder, this payment does not go through the P&L and is likely to be paid in cash to the Dutch tax authorities in the fourth quarter.

Our ratio of net debt to trl and 12 months just EBITDA at the end of Q3 was one point four and our non-GAAP interest coverage was nearly 22 times.

Speaker 16: Our ratio of net debt to trl and 12 months just EBITDA at the end of Q3 was one point four and our non-GAAP interest coverage was nearly 22 times.

During the quarter, we returned four point to $6 billion to our shareholders and bought 49 million shares as part of our share repurchase program.

Speaker 16: During the quarter, we returned four point to $6 billion to our shareholders and bought 49 million shares as part of our share repurchase program.

We also announced the cash dividend, and initial cash payment of 25 cents per sure was paid on October. Fifth.

Speaker 16: We also announced the cash dividend, and initial cash payment of 25 cents per sure was paid on October . Fifth.

Our balance sheet includes an accrual of $346 million for the payments of a deemed dividend tax on the buybacks we made.

Speaker 16: Our balance sheet includes an accrual of $346 million for the payments of a deemed dividend tax on the buybacks we made.

As a reminder, this payment does not go through the PL and is likely to be paid in cash to the Dutch tax authorities in the fourth quarter.

Speaker 17: As a reminder, this payment does not go through the PL and is likely to be paid in cash to the Dutch tax authorities in the fourth quarter.

Turning to our working capital metrics.

Speaker 19: Turning to our working capital metrics.

Peter Kelly: Turning to our working capital metrics, days of inventory was 100 days, a reduction of 11 days sequentially. Days receivable was 32 days, an increase of 1 day sequentially, and days payable was 74, a decline of 16 days versus the prior quarter. Taken together, our cash conversion cycle was 58 days, an increase of 6 days versus the prior quarter. Cash flow from operations was $2.62 billion as we received a $2 billion termination fee in the quarter, and net CapEx was $155 million, resulting in a free cash flow of $2.46 billion. Turning now to our expectations for Q4, we currently anticipate total revenue will be in a range of about down 5% to up 1% sequentially.

Turning to our working capital metrics, days of inventory was 100 days, a reduction of 11 days sequentially. Days receivable was 32 days, an increase of 1 day sequentially, and days payable was 74, a decline of 16 days versus the prior quarter. Taken together, our cash conversion cycle was 58 days, an increase of 6 days versus the prior quarter. Cash flow from operations was $2.62 billion as we received a $2 billion termination fee in the quarter, and net CapEx was $155 million, resulting in a free cash flow of $2.46 billion. Turning now to our expectations for Q4, we currently anticipate total revenue will be in a range of about down 5% to up 1% sequentially.

Days of inventory was 100 days, a reduction of 11 days sequentially. Days receivable was 32 days, an increase of one days sequentially, and days payable was 70 fourre, a decline of 16 days versus the prior quarter.

Speaker 19: Days of inventory was 100 days, a reduction of 11 days sequentially. Days receivable was 32 days, an increase of one days sequentially, and days payable was 70 fourre, a decline of 16 days versus the prior quarter.

takenthem together, our cash conversion cycle was 58 days, an increase of six days versus the prior quarter.

Speaker 16: takenthem together, our cash conversion cycle was 58 days, an increase of six days versus the prior quarter.

Cash flow from operations was $2.62 billion, as we received the $2 billion termination fee in the quarter, and net CapEx was $155 million, resulting in a free cash flow of two point four six billion.

Speaker 16: Cash flow from operations was $2.62 billion, as we received the $2 billion termination fee in the quarter, and net CapEx was $155 million, resulting in a free cash flow of two point four six billion.

Turning now to our expectations for the fourth quarter we currently anticipate. Total revenue will be in a range of about down 5% to up 1% sequentiallyat the midpoint of our range about down 2% or two point three -nine billion dollars. We anticipate the following trends in the business.

Speaker 17: Turning now to our expectations for the fourth quarter we currently anticipate. Total revenue will be in a range of about down 5% to up 1% sequentiallyat the midpoint of our range about down 2% or two point three -nine billion dollars. We anticipate the following trends in the business.

Peter Kelly: At the midpoint of our range, about down 2% or $2.39 billion, we anticipate the following trends in the business. Auto is expected to be down mid-single digits sequentially. Secure Connected Devices is expected to be up low single digits sequentially. Secure Interface and Infrastructure is expected to be down mid-single digits sequentially. Secure Identification Solutions is expected to be down low single digits, and we anticipate revenue from corporate and other to be approximately $90 million. We expect non-GAAP gross margin to be about 53%, ±70 basis points. Operating expenses are expected to be about $551 million, plus or minus about $10 million. And taken together, we see non-GAAP operating margin to be about 30%, ±100 basis points.

At the midpoint of our range, about down 2% or $2.39 billion, we anticipate the following trends in the business. Auto is expected to be down mid-single digits sequentially. Secure Connected Devices is expected to be up low single digits sequentially. Secure Interface and Infrastructure is expected to be down mid-single digits sequentially. Secure Identification Solutions is expected to be down low single digits, and we anticipate revenue from corporate and other to be approximately $90 million. We expect non-GAAP gross margin to be about 53%, ±70 basis points. Operating expenses are expected to be about $551 million, plus or minus about $10 million. And taken together, we see non-GAAP operating margin to be about 30%, ±100 basis points.

Auto auto is expected to be down mid-single digits sequentially.

Speaker 20: Auto auto is expected to be down mid-single digits sequentially.

Secure connected devices is expected to be up low single digit sequentially.

Speaker 19: Secure connected devices is expected to be up low single digit sequentially.

Secure interface and infrastructure is expected to be down mid-single, mid-single sequentially.

Speaker 16: Secure interface and infrastructure is expected to be down mid-single, mid-single sequentially.

Secure identification solutions is expected to be down low single digits and we anticipate revenue from corporate and another to be approximately $9 million.

Speaker 20: Secure identification solutions is expected to be down low single digits and we anticipate revenue from corporate and another to be approximately $9 million.

We expect non-GAAP growth margin to be about 53% plus or minus 70 basis points.

Speaker 21: We expect non-GAAP growth margin to be about 53% plus or minus 70 basis points.

Operating expenses are expected to be about $551 million, plus or minus about $1 million, and taken together, we see non-GAAP operating margin to be about 30%, plus or minus 100 basis points.

Speaker 16: Operating expenses are expected to be about $551 million, plus or minus about $1 million, and taken together, we see non-GAAP operating margin to be about 30%, plus or minus 100 basis points.

We anticipate cash tax leave about $3 million plus a minus a million and estimate interest expense to be of about $57 million, as if we are considering refinancing our bridge loan and extending our debt maturities. These conditions allow it.

Speaker 16: We anticipate cash tax leave about $3 million plus a minus a million and estimate interest expense to be of about $57 million, as if we are considering refinancing our bridge loan and extending our debt maturities. These conditions allow it.

Peter Kelly: We anticipate cash tax to be about $30 million, plus or minus $1 million, and estimate interest expense to be about $57 million, as we are considering refinancing our bridge loan and extending our debt maturities if conditions allow it. Non-controlling interest will be about $13 million, plus or minus $1 million. I'd like to provide an update on our share repurchase program. As previously mentioned, by the end of Q3, we'd bought back 49 million shares at a cost of $4.6 billion. Since September 30, we've repurchased an additional 5 million shares and have completed the previously announced $5 billion buyback. Additionally, the NXP Board of Directors has approved the company to utilize the remainder of the buyback authorized by shareholders at our general meeting in June.

We anticipate cash tax to be about $30 million, plus or minus $1 million, and estimate interest expense to be about $57 million, as we are considering refinancing our bridge loan and extending our debt maturities if conditions allow it. Non-controlling interest will be about $13 million, plus or minus $1 million. I'd like to provide an update on our share repurchase program. As previously mentioned, by the end of Q3, we'd bought back 49 million shares at a cost of $4.6 billion. Since September 30, we've repurchased an additional 5 million shares and have completed the previously announced $5 billion buyback. Additionally, the NXP Board of Directors has approved the company to utilize the remainder of the buyback authorized by shareholders at our general meeting in June.

Noncontrolling interest will be about $13 million plus a minus a million.

Speaker 16: Noncontrolling interest will be about $13 million plus a minus a million.

I'd like to provide an update on our share repurchase program. As previously mentioned, by the end of Q3 we bought back 49 million shares at a cost of $4.6 billion.

Speaker 20: I'd like to provide an update on our share repurchase program. As previously mentioned, by the end of Q3 we bought back 49 million shares at a cost of $4.6 billion.

Since September thirtieth, we repurchased an additional five million shares and have completed the previously announced $5 billion buyback.

Speaker 16: Since September thirtieth, we repurchased an additional five million shares and have completed the previously announced $5 billion buyback.

Additionally, the NXP Board up Board of Directors as approved the company to utilize the remainder of the buyback authorized by shareholders at our general meeting in June .

Speaker 16: Additionally, the NXP Board up Board of Directors as approved the company to utilize the remainder of the buyback authorized by shareholders at our general meeting in June .

So we now have the authorized authorization to buy back an additional 15 million shares.

Speaker 19: So we now have the authorized authorization to buy back an additional 15 million shares.

Peter Kelly: So we now have the authorization to buy back an additional 15 million shares. As of September 30, our share count was 296 million, and we would suggest that for modeling purposes, you use an average share count for Q4 of 295 million shares. Finally, I have several housekeeping issues I'd like to address in follow-up to the Analyst Day. Although markets continue to be difficult to predict, and as Rick described, are somewhat murky, we firmly believe we can outgrow the market by 1.5 times in the coming three years and remain comfortable with our three-year compound annual growth rate of 5% to 7% revenue growth. Secondly, we'll return all excess cash to shareholders through buybacks and dividends and expect to run at a leverage level of 2 times.

So we now have the authorization to buy back an additional 15 million shares. As of September 30, our share count was 296 million, and we would suggest that for modeling purposes, you use an average share count for Q4 of 295 million shares. Finally, I have several housekeeping issues I'd like to address in follow-up to the Analyst Day. Although markets continue to be difficult to predict, and as Rick described, are somewhat murky, we firmly believe we can outgrow the market by 1.5 times in the coming three years and remain comfortable with our three-year compound annual growth rate of 5% to 7% revenue growth. Secondly, we'll return all excess cash to shareholders through buybacks and dividends and expect to run at a leverage level of 2 times.

As of September thirtieth, our share count was 296 million and we would suggest that, for modeling purposes, you use an average share count for the fourth quarter of 295 million shares.

Speaker 21: As of September thirtieth, our share count was 296 million and we would suggest that, for modeling purposes, you use an average share count for the fourth quarter of 295 million shares.

Finally I have several housekeeping issues I'd like to address and follow up to the Analyst Day.

Speaker 20: Finally I have several housekeeping issues I'd like to address and follow up to the Analyst Day.

Al our markets continue to be difficult to predict and, as Rick described our somewhat merkeking. We firmly believe we can outgrow the market by one point five X in the coming three years and remain comfortable with our three -year compound annual growth rate of 5% to 7% revenue growth.

Speaker 22: Al our markets continue to be difficult to predict and, as Rick described our somewhat merkeking. We firmly believe we can outgrow the market by one point five X in the coming three years and remain comfortable with our three -year compound annual growth rate of 5% to 7% revenue growth.

Secondly, we'll return all excess cash to shareholders through buybacks and dividends and expect to run at a leverage level of two X.

Speaker 23: Secondly, we'll return all excess cash to shareholders through buybacks and dividends and expect to run at a leverage level of two X.

disappointingly, it now looks like that theut government will not repeal the deem dividend tax on buybacks, So we will continue to consider alternatives to minimize these payments.

Speaker 24: disappointingly, it now looks like that theut government will not repeal the deem dividend tax on buybacks, So we will continue to consider alternatives to minimize these payments.

Peter Kelly: Disappointingly, it now looks like the Dutch government will not repeal the deemed dividend tax on buybacks, so we will continue to consider alternatives to minimize these payments. Thirdly, clearly, our gross margins are not where we want them to be, but we plan to be at 55% exiting Q4 2019, as I described in the Analyst Day. Four, I'd like to update you with an improved view of the cash taxes we gave you at the Analyst Day. We currently believe the effective rate on a cash basis will be 5%, 7%, and 11%, respectively, for 2019, 2020, and 2021. Fifth and finally, as we've mentioned previously, we also have to pay incidental cash taxes related to the sale of standard products and the Qualcomm breakup fee.

Disappointingly, it now looks like the Dutch government will not repeal the deemed dividend tax on buybacks, so we will continue to consider alternatives to minimize these payments. Thirdly, clearly, our gross margins are not where we want them to be, but we plan to be at 55% exiting Q4 2019, as I described in the Analyst Day. Four, I'd like to update you with an improved view of the cash taxes we gave you at the Analyst Day. We currently believe the effective rate on a cash basis will be 5%, 7%, and 11%, respectively, for 2019, 2020, and 2021. Fifth and finally, as we've mentioned previously, we also have to pay incidental cash taxes related to the sale of standard products and the Qualcomm breakup fee.

Thirdly.

Speaker 25: Thirdly.

Clearly our gross margins are not where we want them to be, but we plan to be 55% exiting the fourth quarter of 2019, as I described in the Analyst Day.

Speaker 17: Clearly our gross margins are not where we want them to be, but we plan to be 55% exiting the fourth quarter of 2019, as I described in the Analyst Day.

four I'd like to update you with an improved view of the cash taxes we gave you at the Analyst Day. We currently believe the effective rate on a cash basis will be 5%, 7% and 11% respect of respectively for two point zero one nine thousand% 20 per and' twenty-one.

Speaker 21: four I'd like to update you with an improved view of the cash taxes we gave you at the Analyst Day. We currently believe the effective rate on a cash basis will be 5%, 7% and 11% respect of respectively for two point zero one nine thousand% 20 per and' twenty-one.

Fifth and finally, as we've mentioned previously, we also have to pay incidental cash taxes related to the sale of standard products and the COR com break-up fee, both of which occurred in prior periods and have been recorded in the provisions for income tax in the preve in the period they occurredat this point in time, our revised estimate for these incidental cash payments will be 80.000008 million- zero million in 2019 than 44 zero million in 2020.

Speaker 26: Fifth and finally, as we've mentioned previously, we also have to pay incidental cash taxes related to the sale of standard products and the COR com break-up fee, both of which occurred in prior periods and have been recorded in the provisions for income tax in the preve in the period they occurredat this point in time, our revised estimate for these incidental cash payments will be 80.000008 million- zero million in 2019 than 44 zero million in 2020.

Peter Kelly: both of which occurred in prior periods and have been recorded in the provisions for income tax in the period they occurred. At this point in time, our revised estimate for these incidental cash payments will be $80 million in 2019, and $40 million in 2020. So with that, I'd like to turn it back to the operator for your questions.

both of which occurred in prior periods and have been recorded in the provisions for income tax in the period they occurred. At this point in time, our revised estimate for these incidental cash payments will be $80 million in 2019, and $40 million in 2020. So with that, I'd like to turn it back to the operator for your questions.

So with that, I'd like to turn it back to the operator for your questions.

Speaker 19: So with that, I'd like to turn it back to the operator for your questions.

Thank you, Ladies and gentlemen, if you a question at this time, please press the STAR in the one key on your Touchstone telephone. If your question has been answered or you wish to move yourself on the que, please press the pound tey. Please limit yourself to one question and one follow-up. Again, that is Star wine to ask a question. Our first question comes from John Pitzer with credit suees. Your line is not open.

Speaker 27: Thank you, Ladies and gentlemen, if you a question at this time, please press the STAR in the one key on your Touchstone telephone. If your question has been answered or you wish to move yourself on the que, please press the pound tey. Please limit yourself to one question and one follow-up. Again, that is Star wine to ask a question. Our first question comes from John Pitzer with credit suees. Your line is not open.

Operator: Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Please limit yourself to one question and one follow-up. Again, that is star one to ask a question. Our first question comes from John Pitzer with Credit Suisse. Your line is now open.

Yes good morning guys. Thank you. Let me ask some questions. gradulate themselves results given the macro backdrop. Rick, my first question is just on I and I. it was nice to see the pickup in the quarter and, as you mentioned in your prepared comments, you kind of attriributed to a single U's carrier early deployment of five Gi. Wondering if you just give us a little bit more detail on what you think the five G opportunity is on. Is I and I? You talked about it being both in contents and a share story, and can you try to put some numbers around that for us?

Speaker 28: Yes good morning guys. Thank you. Let me ask some questions. gradulate themselves results given the macro backdrop. Rick, my first question is just on I and I. it was nice to see the pickup in the quarter and, as you mentioned in your prepared comments, you kind of attriributed to a single U's carrier early deployment of five Gi. Wondering if you just give us a little bit more detail on what you think the five G opportunity is on. Is I and I? You talked about it being both in contents and a share story, and can you try to put some numbers around that for us?

John Pitzer: Yeah, good morning, guys. Thanks for letting me ask some questions. Congratulations on the solid results, given the macro backdrop. Rick, my first question is just on SI and I. It was nice to see the pickup in the quarter, and as you mentioned in your prepared comments, you kind of attributed it to a single US carrier early deployment of 5G. I'm wondering if you could just give us a little bit more detail on what you think the 5G opportunity is on SIS—I'm sorry, S-I&I. You talked about it being both a content and a share story. Can you try to put some numbers around that for us?

Yes it's a little premature to talk about the actual size of it since it's early on in the deployment stage. But I think we talked a little bit of the Analyst stage John , about the massive MIMO opportunity for kind of the last mile and clearly what we saw in Q3 with some of the trial deployments taking place in that area and on opportunity for us really to be able to take what we believe to be a pretty unique technology to that. And we think there's clearly some opportunities. You know, as you know, our expectations for us and I over the next three years or are pretty shallow, and that's because it's combination of things. Actually, in the current quarter our D? N product area actually showed some upside as well. But you know clearly, with the legacy rolloff of the network processors in the power P C site, you know we don't plan on that on a sustainable basis. I think we could see some upside and's I through a combination of our interface products that will se for tach along with our portfolio. But on the five G itself, I think it's an opportunity that we see but we'll be fairly and we we'll not get ahead of ourselves relative to the opportunity associated with that. I think we're trying to be sure that we get the technology engagements and we win the design wins and then when five G is actually deployed significantly, we'll be able to take advantage of it.

Speaker 29: Yes it's a little premature to talk about the actual size of it since it's early on in the deployment stage. But I think we talked a little bit of the Analyst stage John , about the massive MIMO opportunity for kind of the last mile and clearly what we saw in Q3 with some of the trial deployments taking place in that area and on opportunity for us really to be able to take what we believe to be a pretty unique technology to that. And we think there's clearly some opportunities. You know, as you know, our expectations for us and I over the next three years or are pretty shallow, and that's because it's combination of things. Actually, in the current quarter our D? N product area actually showed some upside as well. But you know clearly, with the legacy rolloff of the network processors in the power P C site, you know we don't plan on that on a sustainable basis. I think we could see some upside and's I through a combination of our interface products that will se for tach along with our portfolio. But on the five G itself, I think it's an opportunity that we see but we'll be fairly and we we'll not get ahead of ourselves relative to the opportunity associated with that. I think we're trying to be sure that we get the technology engagements and we win the design wins and then when five G is actually deployed significantly, we'll be able to take advantage of it.

Rick Clemmer: Yeah. It's a little premature to talk about the actual size of it since it's early on in the deployment stage. But I think we talked a little bit at the Analyst Day, John, about, you know, the massive MIMO opportunity for kind of the last mile. And clearly, of what we saw in Q3 was some of the trial deployments taking place in that area and an opportunity for us really to be able to take what we believe to be a pretty unique technology to that. And we think there's clearly some opportunities. You know, as you know, our expectations for SI&I over the next three years are pretty shallow, and that's because it's a combination of things. Actually, in the current quarter, our DN product area actually showed some upside as well.

Rick Clemmer: But, you know, clearly, with the legacy roll-off of the network processors and the PowerPC side, you know, we don't plan on that on a sustainable basis. I think we could see some upside in SI&I through a combination of our interface products that will sell for attach, along with our NCU portfolio. But on the 5G itself, I think it's an opportunity that we see, but we'll be fairly... We'll, we'll not get ahead of ourselves relative to the opportunity associated with that. I think we're trying to be sure that we get the technology engagements and we win the design wins, and then when 5G is actually deployed significantly, we'll be able to take advantage of it.

But, you know, clearly, with the legacy roll-off of the network processors and the PowerPC side, you know, we don't plan on that on a sustainable basis. I think we could see some upside in SI&I through a combination of our interface products that will sell for attach, along with our NCU portfolio. But on the 5G itself, I think it's an opportunity that we see, but we'll be fairly... We'll, we'll not get ahead of ourselves relative to the opportunity associated with that. I think we're trying to be sure that we get the technology engagements and we win the design wins, and then when 5G is actually deployed significantly, we'll be able to take advantage of it.

That's helpful then, from my follow- of guys. You gave us good color by your product segments and expectations in the December quarter. I might have miss this, but could you talk about what your expectations is for your distribution channel in Q4 is? Do you expect sell in to be below sell-through? How do we've seen, or how do you guys see, inventories progressing through the December quarter?

Speaker 30: That's helpful then, from my follow- of guys. You gave us good color by your product segments and expectations in the December quarter. I might have miss this, but could you talk about what your expectations is for your distribution channel in Q4 is? Do you expect sell in to be below sell-through? How do we've seen, or how do you guys see, inventories progressing through the December quarter?

John Pitzer: That's helpful. Then for my follow-up, guys, you gave us good color by your product segments and expectations in the December quarter. I might have missed this, but did you talk about what your expectation is for your distribution channel in Q4 is? Do you expect, you know, sell-in to be below sell-through? How do we see or how do you guys see inventories progressing through the December quarter?

Which we think our distribution inventoryries in pretty good shape at two point four months. We actively managed that specifically in this last quarter as the environment changed as we went through the quarter. We we're actively engaged being sure that we had the right level of distribution inventory and we think we'll do the same thing in Q4. I think it's still a very cloudy picture. The economy continues to be good, production rates continues to be OK in most areas, but the concern over tariffs and the trade war clearly have our customers where being cautious in their inventory purchase, in their backlog commitments to be sure that they don't get over extended. And I think we're going to go through that for some period of time and it'will require us to be very well aligned with our distribution partners to be sure we have the right level of inventory in place to take advantage of the market opportunities, but be sure we don't have too much inventory in place.

Speaker 7: Which we think our distribution inventoryries in pretty good shape at two point four months. We actively managed that specifically in this last quarter as the environment changed as we went through the quarter. We we're actively engaged being sure that we had the right level of distribution inventory and we think we'll do the same thing in Q4. I think it's still a very cloudy picture. The economy continues to be good, production rates continues to be OK in most areas, but the concern over tariffs and the trade war clearly have our customers where being cautious in their inventory purchase, in their backlog commitments to be sure that they don't get over extended. And I think we're going to go through that for some period of time and it'will require us to be very well aligned with our distribution partners to be sure we have the right level of inventory in place to take advantage of the market opportunities, but be sure we don't have too much inventory in place.

Rick Clemmer: Well, John, we think our distribution inventory is in pretty good shape at 2.4 months. We actively manage that, specifically in this last quarter as the environment changed, as we went through the quarter. We were actively engaged, being sure that we had the right level of distribution inventory, and we think we'll do the same thing in Q4. You know, I think it's still a very cloudy picture. You know, the economy continues to be good. Production rates continue to be okay in most areas, but the concern over tariffs and the trade war clearly have our customers, where they're being cautious in their inventory purchase and their backlog commitments to be sure that they don't get overextended.

Rick Clemmer: I think we're gonna go through that for some period of time, and it'll require us to be very well aligned with our distribution partners to be sure we have the right level of inventory in place to take advantage of the market opportunities, but be sure we don't have too much inventory in place.

I think we're gonna go through that for some period of time, and it'll require us to be very well aligned with our distribution partners to be sure we have the right level of inventory in place to take advantage of the market opportunities, but be sure we don't have too much inventory in place.

Helpful Thank you.

Speaker 12: Helpful Thank you.

John Pitzer: Helpful. Thank you.

Thank Gill. And our next question comes from Stacy rason with brensunon research. jo an is not open.

Speaker 1: Thank Gill. And our next question comes from Stacy rason with brensunon research. jo an is not open.

Operator: Thank you. And our next question comes from Stacy Rasgon with Bernstein Research. Your line is now open.

Thank for taking my questions and first thir question on gross margin, came in just maybe a hair light in the quarter. The guide looks a little light. I know you said a weaker product I.

Speaker 31: Thank for taking my questions and first thir question on gross margin, came in just maybe a hair light in the quarter. The guide looks a little light. I know you said a weaker product I.

Stacy Rasgon: Hi, guys. Thanks for taking my questions. I had a first question on gross margin. Came in, you know, just maybe a hair light in the quarter. The guide looks a little light. I know you said a weaker product mix, but in the quarter, secure interfaces was very strong. I would have thought that would have had higher, higher margins, which might have helped. So can you give us any maybe further view on other drivers of gross margins beyond product mix, utilization, pricing, anything else that may be impacting that? And then, around the, you know, as you kind of work toward the 55% exit in 2019, what should that trajectory look like, given where we're starting from today?

But in the quarter secure interfaces was very strong. I would have thought that would have had higher or higher margins, which might have helped. So did you give us any- maybe further view on other drivers of gross margins beyond product mix utilization pricing, anything else that may be impacting that, and then around the, as you kind of work toward the 55% exititing in 2019? What should that trajectory look like, given where we're starting from today?

Speaker 32: But in the quarter secure interfaces was very strong. I would have thought that would have had higher or higher margins, which might have helped. So did you give us any- maybe further view on other drivers of gross margins beyond product mix utilization pricing, anything else that may be impacting that, and then around the, as you kind of work toward the 55% exititing in 2019? What should that trajectory look like, given where we're starting from today?

A nically good to a goodconswicion.

Speaker 33: A nically good to a goodconswicion.

Peter Kelly: Hey, Stacy, good speaking to you. Yeah, we were thirty basis points light, which is $7 million on, I don't know, $1.3 billion-

Yes we were 30 basis points like which is $7 million on $1.3 billion. Just just to he. Yes yes, something to be honest time. I don't have that much control over it. There's lots of, lots of moving things that go on. Certainly, volume your deals that, your placuses and minuses you have all sorts of crazy mixed kind of things go on. But it was no one big specific thing that we just have lots of placuses and minuses, that I guess I you, more you about Q4, about the guide.

Speaker 16: Yes we were 30 basis points like which is $7 million on $1.3 billion. Just just to he. Yes yes, something to be honest time. I don't have that much control over it. There's lots of, lots of moving things that go on. Certainly, volume your deals that, your placuses and minuses you have all sorts of crazy mixed kind of things go on. But it was no one big specific thing that we just have lots of placuses and minuses, that I guess I you, more you about Q4, about the guide.

Stacy Rasgon: Yeah, just, just a hair. Yeah.

Peter Kelly: Yeah. I mean, to be honest, I don't have that much control over it. There's lots of moving things that go on. You know, certainly your volume, you know, your yields of, you know, your pluses and minuses, you have all sorts of crazy mix kind of things going on. But there was, you know, no one big specific thing. We just have lots of pluses and minuses there.

Stacy Rasgon: I guess I'm asking more about Q4, about the guide.

I you know again if.

Speaker 34: I you know again if.

Peter Kelly: Uh-

Stacy Rasgon: About Q4.

Peter Kelly: You know, again, it's we said we'd be at 55, ending next year. As I go from Q3 into Q4, yeah, the mix looks like it, it could be a bit better, but, you know, volume's down a bit. There's all sorts of things that go on, Stacy. So I can't really give you a simple bridge from Q3 to Q4. And in terms of kind of how we progress to 55 next year, it won't, you know, it won't be a kind of a linear track. And at this point, we're not guiding 2019 by quarter.

We said we'd be a 55 ending next year. As a go from Q3 to Q4 year, the mix looks like it could be a bit better, but volumes down a be and there's all sorts of things that go on Stacey. So I CAn't really give you a simple bridge from Q3 to Q4 and in terms of kind of how we progress to 55 next year, won't it won't be a kind of a linear track and at this point we're not guiding 2, two thousand and nineteen by quarter.

Speaker 16: We said we'd be a 55 ending next year. As a go from Q3 to Q4 year, the mix looks like it could be a bit better, but volumes down a be and there's all sorts of things that go on Stacey. So I CAn't really give you a simple bridge from Q3 to Q4 and in terms of kind of how we progress to 55 next year, won't it won't be a kind of a linear track and at this point we're not guiding 2, two thousand and nineteen by quarter.

Got it. Thank you, that's helpful for my follow-up around OpEx and I. you said you'd reduce bonus payments in three and the carries in the Q4. Then I guess let' come back with the new year. I think you usually typically have raises and everything that happened in. So how should we think about iigas OP, ex seasonality in the Q4 be coming off a lot of appe to P Q4 base the way I think about it. Another kind of simple level iswe will roughly $3 million low up from Q2 to Q3 and two thir. That $2 million was bonus. Near $1 million was real cuts we made which we D expect to maintain. So as we go out to Q4.

Speaker 35: Got it. Thank you, that's helpful for my follow-up around OpEx and I. you said you'd reduce bonus payments in three and the carries in the Q4. Then I guess let' come back with the new year. I think you usually typically have raises and everything that happened in. So how should we think about iigas OP, ex seasonality in the Q4 be coming off a lot of appe to P Q4 base the way I think about it. Another kind of simple level iswe will roughly $3 million low up from Q2 to Q3 and two thir. That $2 million was bonus. Near $1 million was real cuts we made which we D expect to maintain. So as we go out to Q4.

Stacy Rasgon: Got it. Thank you. That, that's helpful. For my follow-up around the OpEx, I know you said you'd reduce bonus payments in Q3-

Peter Kelly: Yeah

Stacy Rasgon: - and that carries into Q4, and then that, I guess, those come back with the new year. I think you usually typically have raises and everything that happened in there. So how should we think about, I guess, OpEx seasonality into Q4 maybe coming off of what would be a suppressed Q4 base?

Peter Kelly: I, the way I think about it at a kind of simple level is, we were roughly $30 million lower from Q2 to Q3, and two thirds of that $20 million was bonus, and the other $10 million was real cuts we made, which we'd expect to maintain. So as we go out of Q4, it's gonna increase by at least the $20 million for the bonus, as well, assuming we perform next year, and we get paid the bonus. But, and then, you know, as our revenue grows, then you would see our, our OpEx increase in line with revenue. But the big nut, so to speak, is that $20 million.

It's going to increase by at least the two million for the bonus atsum. We perform next year and we got paid the bonus but.

Speaker 19: It's going to increase by at least the two million for the bonus atsum. We perform next year and we got paid the bonus but.

And then as our revenue grows, then you would see our OpEx increase in line with revenue. But the big enough, So to speak, is that twenty million.

Speaker 19: And then as our revenue grows, then you would see our OpEx increase in line with revenue. But the big enough, So to speak, is that twenty million.

Got it. You think you kind of like drifft into the model like next year as you grow into it.

Speaker 36: Got it. You think you kind of like drifft into the model like next year as you grow into it.

Stacy Rasgon: Got it. But you think you kind of, like, drift into the model, like, next year as you grow into it?

So I said again: I'm sorry you have an OpEx model that you're running heavy onoring. Now you think you kind of directed to the buible experiyear. You grow yes, staying in the will. Will you say 16% on R and D and 8%, 8%. That Ho be the ultimately the worst case.

Speaker 16: So I said again: I'm sorry you have an OpEx model that you're running heavy onoring. Now you think you kind of directed to the buible experiyear. You grow yes, staying in the will. Will you say 16% on R and D and 8%, 8%. That Ho be the ultimately the worst case.

Peter Kelly: Sorry, say that again?

Stacy Rasgon: I'm sorry. You have an OpEx model that you're running, you know, heavy on right now. You think you kind of drift into the model next year as you grow?

Peter Kelly: Oh, yeah, I'll stay in the, we'll, what do we say? 16% on R&D and,

Rick Clemmer: 8% SG&A.

Peter Kelly: 8% in SG&A. That will be, ultimately, the worst case, yeah.

Yes I think that's the right way to think about as Stacy is. We see the revenue strengthening, get through this cloudy period. We'll get back to the levels that we've talked about associated with OpEx.

Speaker 29: Yes I think that's the right way to think about as Stacy is. We see the revenue strengthening, get through this cloudy period. We'll get back to the levels that we've talked about associated with OpEx.

Stacy Rasgon: Mm-hmm.

Rick Clemmer: Yeah, I think that's the right way to think about it, Stacy, is we see the revenue strengthen and get through this cloudy period, we'll get back to the levels that we've talked about associated with OpEx.

Got it. Thank you guys Thank, Thank you.

Speaker 37: Got it. Thank you guys Thank, Thank you.

Stacy Rasgon: Got it. Thank you, guys.

Peter Kelly: Thanks, Stacy.

Thank you. Our next question comes from withc area: what to think of America? merill Lynch, iran is not open.

Speaker 1: Thank you. Our next question comes from withc area: what to think of America? merill Lynch, iran is not open.

Operator: Thank you. Our next question comes from Vivek Arya with Bank of America Merrill Lynch. Your line is now open.

Thanks for takeking my question. I think that you mentioned that you might have a new reporting structure. I agree. I think that'll be a very useful thing to get a sense of the trends. Is it possible to perhaps get a preview and see how your Q3 sales and then importantly, Q4 outlook kind of roughly alignance with the new structure? We'll come back to the start of the year and give you the details. We CAn't change kind of in midstream. We want to do it in an orderly fashion and would to provide a bridge to bridge back at the term that we do that implement.

Speaker 38: Thanks for takeking my question. I think that you mentioned that you might have a new reporting structure. I agree. I think that'll be a very useful thing to get a sense of the trends. Is it possible to perhaps get a preview and see how your Q3 sales and then importantly, Q4 outlook kind of roughly alignance with the new structure? We'll come back to the start of the year and give you the details. We CAn't change kind of in midstream. We want to do it in an orderly fashion and would to provide a bridge to bridge back at the term that we do that implement.

Vivek Arya: Thanks for taking my question. I think, Rick, you mentioned that you might have a new reporting structure. I agree. I think that'll be a very useful thing to get a sense of the trends. Is it possible to perhaps get a preview and see how your Q3 sales and then importantly, Q4 outlook kind of roughly aligns with the new structure?

Rick Clemmer: You know, we'll come back to that at the start of the year and give you the details. You know, we can't change kind of in midstream. We wanna do it in an orderly fashion, and we'll provide a bridge to bridge back at the time that we do that implementation.

Okay then for my follow-up. When I look at the automotive business, I understand that Q4. You were seeing the deceleration, a lot of your ING the celeration, So that's not unexpected. But when I look at Q3, growth rates have come down to kind of ID single digit and I think you mentioned the slower pull of some of your MCU business, this deceleration. Is this more units? Is this more content? Because when I look at some of your peers in Q3, this still had a pretty decent growth. And automotiveso how are feeling about the automotive business overallyes, I think the automotive business is performing quite well. Actually, if you look at it, we had- we had strong growth rate in the outside as well as' rate our solutions. What happened was was we had rooem customers that reduce their pools based on what they were seeing, again created by kind of this spir uncertainty in doub about the economic environment. We think that that's relatively short Li. There was no issue content whatsoever. It was just on actual volume in pools from our major customers as they reduce their build plans as they went through the towards the end of the quarter.

Speaker 12: Okay then for my follow-up. When I look at the automotive business, I understand that Q4. You were seeing the deceleration, a lot of your ING the celeration, So that's not unexpected. But when I look at Q3, growth rates have come down to kind of ID single digit and I think you mentioned the slower pull of some of your MCU business, this deceleration. Is this more units? Is this more content? Because when I look at some of your peers in Q3, this still had a pretty decent growth. And automotiveso how are feeling about the automotive business overallyes, I think the automotive business is performing quite well. Actually, if you look at it, we had- we had strong growth rate in the outside as well as' rate our solutions. What happened was was we had rooem customers that reduce their pools based on what they were seeing, again created by kind of this spir uncertainty in doub about the economic environment. We think that that's relatively short Li. There was no issue content whatsoever. It was just on actual volume in pools from our major customers as they reduce their build plans as they went through the towards the end of the quarter.

Vivek Arya: I see. Then for my follow-up, when I look, Rick, at the automotive business, I understand that Q4, you know, you are seeing the deceleration. A lot of your peers are seeing the deceleration, so that's not unexpected. But when I look at Q3, you know, growth rates have come down to kind of the mid-single digit, and I think you mentioned the slower pull of some of your MCU business. This deceleration, is this more units? Is this more content? Because when I look at some of your peers in Q3, they still had a pretty decent growth in automotive. So how are you feeling about the automotive business overall?

Rick Clemmer: Yeah, I think the automotive business is performing quite well. Actually, if you look at it, we had strong growth rate in the analog side as well as in radar solutions. What happened was we had our OEM customers that reduced their pools based on what they were seeing, again, created by kind of this fear, uncertainty, and doubt about the economic environment. We think that that's relatively short-lived. There was no issue on content whatsoever. It was just on actual volume and pools from our major customers as they reduced their build plans, as they went through the, towards the end of the quarter.

Ok and remember that pender managed inventory So we only get it as they actually goes into production. So that kind of getting the confirmation of that kind of came in at the end of the quarter.

Speaker 5: Ok and remember that pender managed inventory So we only get it as they actually goes into production. So that kind of getting the confirmation of that kind of came in at the end of the quarter.

Vivek Arya: Okay.

Rick Clemmer: And remember that inventory is vendor-managed inventory, so we only get it, you know, as they actually go in, goes into production. So that kind of getting the confirmation of that, you know, kind of came in at the end of the quarter.

Jeff, I would just add we noted at the Analyst Day content is definitely the tailwind to the automotive business over the next several years. So what? We don't see any issues to the content growth story whatsoever. Clearly we have to EV and flow with global Star, but that was never the key driver to our overall automotive business. And when you talked about it, versus our peers, our mix is quite unique. In aumove being the largest semiconductor supplier into the aumotive market, the micro space clearly gets a little more linked in the near term to actual car production. But the ramp-up associated with new applications that we see in the opportunity to really provide safer driving is going to give us a real had, real tailwind to help drive the growth that we see over the next few years.

Speaker 39: Jeff, I would just add we noted at the Analyst Day content is definitely the tailwind to the automotive business over the next several years. So what? We don't see any issues to the content growth story whatsoever. Clearly we have to EV and flow with global Star, but that was never the key driver to our overall automotive business. And when you talked about it, versus our peers, our mix is quite unique. In aumove being the largest semiconductor supplier into the aumotive market, the micro space clearly gets a little more linked in the near term to actual car production. But the ramp-up associated with new applications that we see in the opportunity to really provide safer driving is going to give us a real had, real tailwind to help drive the growth that we see over the next few years.

Peter Kelly: Vivek, this is Jeff. I would just add, as we noted at the Analyst Day, content is definitely the tailwind to the automotive business over the next several years. So we don't see any issues to the content growth story whatsoever. Clearly, we have to ebb and flow with global SAR, but that was never the key driver to our overall automotive business.

Jeff Palmer: Vivek, this is Jeff. I would just add, as we noted at the Analyst Day, content is definitely the tailwind to the automotive business over the next several years. So we don't see any issues to the content growth story whatsoever. Clearly, we have to ebb and flow with global SAR, but that was never the key driver to our overall automotive business.

Rick Clemmer: And when you talked about it versus our peers, you know, our mix is quite unique in automotive. Being the largest semiconductor supplier into the automotive market, the micro space clearly gets a little more linked in the near term to actual car production. But, you know, the ramp-up associated with new applications that we see and the opportunity to really provide safer driving is going to give us a real tailwind to help drive the growth that we see over the next few years.

Thank it.

Speaker 40: Thank it.

Vivek Arya: Okay. Thank you.

Thank you. Our next question comes from williamstein of sunrust. Your line is not open.

Speaker 1: Thank you. Our next question comes from williamstein of sunrust. Your line is not open.

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

Great thanks for taking my question first. A couple more on automotive. Ricky talked about explosive growth in design wins in the quarter. I'm wondering if you can comment as to the mix of technologies. I think at the Analyst Day and in the past you've talked about a new opportunity in BMS. Obviously radar has been something.

Speaker 41: Great thanks for taking my question first. A couple more on automotive. Ricky talked about explosive growth in design wins in the quarter. I'm wondering if you can comment as to the mix of technologies. I think at the Analyst Day and in the past you've talked about a new opportunity in BMS. Obviously radar has been something.

William Stein: Great, thanks for taking my question. First, a couple more on automotive. Rick, you talked about explosive growth in design wins in the quarter. I'm wondering if you can comment as to the mix of technologies. I think at the Analyst Day, and in the past, you've talked about a new opportunity in BMS. Obviously, radar has been something that you've been talking about for a while. There's also V2X. Any not necessarily specific design wins, but technologies that you could highlight for us, and then I have a follow-up. Thank you.

You've been talking about for a while. There's also V a X any.

Speaker 42: You've been talking about for a while. There's also V a X any.

Not necessarily specific dying design wins, but technologies that you could highlight for us. And then I have a followupthank you.

Speaker 43: Not necessarily specific dying design wins, but technologies that you could highlight for us. And then I have a followupthank you.

Yes I think you said it well: it's radar, it's battery management systems and it's also our new as 32 platform. Now, the's 32 platform it's one that we're behind on getting out to our customers, So So it didn't contribute as many of the design wins in the most recent quarter, But in radar and battery management systems we continue to see explosive growth with really a unique opportunity to leave where we're designed in at all of the major TI: your one zown radar and being able to drive that at a very rapid growth rate as we see the implementation to actually make driving safer here over the next couple of years.

Speaker 44: Yes I think you said it well: it's radar, it's battery management systems and it's also our new as 32 platform. Now, the's 32 platform it's one that we're behind on getting out to our customers, So So it didn't contribute as many of the design wins in the most recent quarter, But in radar and battery management systems we continue to see explosive growth with really a unique opportunity to leave where we're designed in at all of the major TI: your one zown radar and being able to drive that at a very rapid growth rate as we see the implementation to actually make driving safer here over the next couple of years.

Rick Clemmer: ... Yeah, I think you said it well. It's radar, it's battery management systems, and it's also our new S32 platform. Now, the S32 platform is one that we're behind on getting out to our customers, so, so it didn't contribute as many of the design wins in the most recent quarter. But, in radar and battery management systems, we continue to see explosive growth with really a unique opportunity to lead, where we're designed in at all of the major, Tier 1s on, radar, and being able to drive that, you know, at a very rapid growth rate as we see the implementation to actually make driving safer here over the next couple of years.

greatay, Thank you. And the follow-up relates to margins. Again, I'm wondering if the company has done any sort of sensitivity analysis as to, let's say, you don't meet the revenue growth goals in this year- understanding that's a three -year view- But if, if 2019 wines up being flat or, let's say, even down 5, would you still be able to get into the range of your targets and sort of any comment as to what the biggest drivers would be besides just the leverage that you'd see operating leverage from revenue growth and question wellabout.

Speaker 41: greatay, Thank you. And the follow-up relates to margins. Again, I'm wondering if the company has done any sort of sensitivity analysis as to, let's say, you don't meet the revenue growth goals in this year- understanding that's a three -year view- But if, if 2019 wines up being flat or, let's say, even down 5, would you still be able to get into the range of your targets and sort of any comment as to what the biggest drivers would be besides just the leverage that you'd see operating leverage from revenue growth and question wellabout.

William Stein: Great, thank you. And the follow-up relates to margins again. I'm wondering if the company has done any sort of sensitivity analysis as to, let's say, you don't meet the revenue growth goals in this year, understanding that's a three-year view, but if 2019 winds up being flat or, let's say, even down 5, would you still be able to get into the range of your targets? And, you know, sort of any comment as to what the biggest drivers would be besides just the leverage that you'd see, you know, operating leverage from revenue growth, and-

Peter Kelly: Yeah, good question, Will. About 35% of our COGS is fixed, so, you know, you can do the math on volume. I mean, it's not a science, but it gives you a good idea. I think if the revenue was flat, yeah, we'd be able to get into our gross margin range. We went through some of the bridges at the Analyst Day, and I think directionally, they're right. You know, it's not so much about volume as making sure the manufacturing teams are doing all the things they need to do on cost reduction with our suppliers and yield improvement, making sure the marketing teams are doing the right things on pricing.

About 35% of our COGS is fixed, So you can do the math on.

Speaker 19: About 35% of our COGS is fixed, So you can do the math on.

Non volume I mean it's not. It's not a science but it gives you a good idea. I think if the revenue was flat here we'd be able to get into our.

Speaker 17: Non volume I mean it's not. It's not a science but it gives you a good idea. I think if the revenue was flat here we'd be able to get into our.

Gross margin range. We went through some of the bridges at the Analyst Day and I think directionally the rightiting other's. It's not so much about volume, is.

Speaker 45: Gross margin range. We went through some of the bridges at the Analyst Day and I think directionally the rightiting other's. It's not so much about volume, is.

Making sure the manufacturing teams are doing all the things they need to do on cost reduction with our suppliers and yield improvement. Making sure the marketing and teams are doing the right things on pricing.

Speaker 17: Making sure the manufacturing teams are doing all the things they need to do on cost reduction with our suppliers and yield improvement. Making sure the marketing and teams are doing the right things on pricing.

Peter Kelly: But, you know, for us to see a real issue on gross margin, it'd have to be, you know, just an unbelievable downturn next year with absolute significant drops in revenue. 'Cause, you know, 35% fixed costs, we have a lot more flexibility now than we ever did in the past.

But for us to see a real issue on gross margin, it have to bea.

Speaker 19: But for us to see a real issue on gross margin, it have to bea.

But, you know, for us to see a real issue on gross margin, it'd have to be, you know, just an unbelievable downturn next year with absolute significant drops in revenue. 'Cause, you know, 35% fixed costs, we have a lot more flexibility now than we ever did in the past.

Just a number believable downturn next year, with absolute significant drops in revenue because of 35% fixed costs. We have a lot more flexibility now than we have it in the past.

Speaker 17: Just a number believable downturn next year, with absolute significant drops in revenue because of 35% fixed costs. We have a lot more flexibility now than we have it in the past.

one thing I should just go back and add on auto. When the question was asked about the nceu volume, part of that was related to the TP and the testing that was going on in Europe. That slowed the implementation. So that clearly was a factor in our results in Q3. That I should have just been more specific about a few minutes ago.

Speaker 46: one thing I should just go back and add on auto. When the question was asked about the nceu volume, part of that was related to the TP and the testing that was going on in Europe . That slowed the implementation. So that clearly was a factor in our results in Q3. That I should have just been more specific about a few minutes ago.

Rick Clemmer: You know, one thing I should just go back and add on auto, when the question was asked about the MCU volume, you know, part of that was related to the WLTP and the testing that was going on in Europe that slowed the implementation. So that clearly was a factor in our results in Q3 that I should have just been more specific about a few minutes ago.

Helps thanks and congrat again.

Speaker 47: Helps thanks and congrat again.

William Stein: Helps. Thanks, and congrats again.

Thank you.

Speaker 23: Thank you.

Peter Kelly: Thank you.

Thank gille. Our next question comes from Matt Ramsey with coen, and I is not open.

Speaker 1: Thank gille. Our next question comes from Matt Ramsey with coen, and I is not open.

William Stein: Thank you.

Rick Clemmer: Thank you.

Operator: Thank you. Our next question comes from Matt Ramsey with Cowen. Your line is now open.

Thank you very much, guys. I just want to step back in a bigger picture and I think ST you might have asked some questions earlier around OpEx, specifically around getting into the model next year.

Speaker 48: Thank you very much, guys. I just want to step back in a bigger picture and I think ST you might have asked some questions earlier around OpEx, specifically around getting into the model next year.

Matt Ramsey: Thank you very much, guys. I just wanna step back in a bigger picture, and I think Stacy might have asked some questions earlier around OpEx, specifically around getting into the model next year. But one of the questions I get most often from investors on a go-forward basis is maybe we can talk about the investments you made in the core franchises of the business during that 20-month, 21-month period under the Qualcomm umbrella of the deal. And it occurs to me that your OpEx has actually been managed quite well, but R&D spending is actually up, as on an absolute basis and as a percentage of revenue. And I guess maybe you guys could talk a little bit about where you focused investments during that period of time, particularly in the auto business.

Matt Ramsay: Thank you very much, guys. I just wanna step back in a bigger picture, and I think Stacy might have asked some questions earlier around OpEx, specifically around getting into the model next year. But one of the questions I get most often from investors on a go-forward basis is maybe we can talk about the investments you made in the core franchises of the business during that 20-month, 21-month period under the Qualcomm umbrella of the deal. And it occurs to me that your OpEx has actually been managed quite well, but R&D spending is actually up, as on an absolute basis and as a percentage of revenue. And I guess maybe you guys could talk a little bit about where you focused investments during that period of time, particularly in the auto business.

But one of the questions I get most often from investors on a go-forward basis is.

Speaker 49: But one of the questions I get most often from investors on a go-forward basis is.

Maybe we can talk about the investments you made in the core franchises of the business.

Speaker 48: Maybe we can talk about the investments you made in the core franchises of the business.

Is during that 20 month, 20 one month period under the Qualcomm umbrella of the deal.

Speaker 48: Is during that 20 month, 20 one month period under the Qualcomm umbrella of the deal.

And it occurs to me that your OpEx has actually been managed quite well, but R M D spending is actually upas on an absolute basis and as a percentage of revenue.

Speaker 48: And it occurs to me that your OpEx has actually been managed quite well, but R M D spending is actually upas on an absolute basis and as a percentage of revenue.

And I guess maybe you guys could talk a little bit about where you focused investments during that period of time, particularly in the auto business.

Speaker 48: And I guess maybe you guys could talk a little bit about where you focused investments during that period of time, particularly in the auto business.

And I guess the push back is: did you under invest and our is not going to come back on a go forward basis in revenue and it courses to me that I think you didn'ti me. You can talk about that at a high level. Thank you, I think, if anything, you know, we were kind of we we, we didn't take our, we didn't take complete control wealth of the investments we're making our D, but I think we were a little more general and cutting back to within a budget as we went through that 21 month period of time and now we get the benefit of it. You know the investment we made to continue to solidify our position in rate our, the ability to take what was some early opportunities- battery management- and really invest to see that through to an opportunity. Our key areas that we think our key for us in ition, you know our's 32 micro platform sets us up very well in a unique position and no other competitor has the ability to drive. You know the ability to drive 16 naniometer in that solutions well you, our competitors, our now at the same time beginning to introduce 28 animeter positionions us in a very unique position quite well and will help drive. You know our growth. You know in our, in the investments specifically in automotive, we've been increasing that and kind of a 15% come ound to growth rate based on where we were in the inindustrial and I T space. You know, investing in the crossssooverver I would and and the ability to continue to solidify our position in that process or makes family drive some unique platforms that will be able to actually addressest machine learning and the implementation of artificial intelligence is key areas that we've invested in as well. And addition to that we implement in the single chip securure element in that C radio. So I think there's no lack of investments that we've done. We have made the right kind of investments. Addition to what I talk about automotive, we also have been investing in either internet- that will position is quite well to continue to strengthen in our in vehicle networking platforms in a leadership position that we've had in the car space and the domain controller opportunity that we see in auto. So you know the opportunities have been there. We've been investing. There is no lack of invest that's been done during that 21 month period of time. Fact, if anything, we've probably invested more than we would have if we were on a go alone basis. To to try to be sure that everything was set up to move forward. So I don't think you you can invest assured to tell invtors there wasn't a lackof investment. That cuts anything in question going forward, but providing that cap ability bring security to the edge and what we see the opportunity to really create.

Speaker 48: And I guess the push back is: did you under invest and our is not going to come back on a go forward basis in revenue and it courses to me that I think you didn'ti me. You can talk about that at a high level. Thank you, I think, if anything, you know, we were kind of we we, we didn't take our, we didn't take complete control wealth of the investments we're making our D, but I think we were a little more general and cutting back to within a budget as we went through that 21 month period of time and now we get the benefit of it. You know the investment we made to continue to solidify our position in rate our, the ability to take what was some early opportunities- battery management- and really invest to see that through to an opportunity. Our key areas that we think our key for us in ition, you know our's 32 micro platform sets us up very well in a unique position and no other competitor has the ability to drive. You know the ability to drive 16 naniometer in that solutions well you, our competitors, our now at the same time beginning to introduce 28 animeter positionions us in a very unique position quite well and will help drive. You know our growth. You know in our, in the investments specifically in automotive, we've been increasing that and kind of a 15% come ound to growth rate based on where we were in the inindustrial and I T space. You know, investing in the crossssooverver I would and and the ability to continue to solidify our position in that process or makes family drive some unique platforms that will be able to actually addressest machine learning and the implementation of artificial intelligence is key areas that we've invested in as well. And addition to that we implement in the single chip securure element in that C radio. So I think there's no lack of investments that we've done. We have made the right kind of investments. Addition to what I talk about automotive, we also have been investing in either internet- that will position is quite well to continue to strengthen in our in vehicle networking platforms in a leadership position that we've had in the car space and the domain controller opportunity that we see in auto. So you know the opportunities have been there. We've been investing. There is no lack of invest that's been done during that 21 month period of time. Fact, if anything, we've probably invested more than we would have if we were on a go alone basis. To to try to be sure that everything was set up to move forward. So I don't think you you can invest assured to tell invtors there wasn't a lackof investment. That cuts anything in question going forward, but providing that cap ability bring security to the edge and what we see the opportunity to really create.

Matt Ramsey: I guess the pushback is, did you underinvest, and is that gonna come back on a go-forward basis in revenue? And it occurs to me that I think you didn't. So maybe you could just talk about that at a high level. Thank you.

I guess the pushback is, did you underinvest, and is that gonna come back on a go-forward basis in revenue? And it occurs to me that I think you didn't. So maybe you could just talk about that at a high level. Thank you.

Rick Clemmer: Yeah, I think if anything, we, you know, we were kind of, we didn't take our--we didn't take complete control off of the investments we were making in R&D, but I think we were a little more gentle in cutting back to fit within a budget as we went through that 21-month period of time, and now we get the benefit of it. You know, the investment we made to continue to solidify our position in radar, the ability to take what was some early opportunities in battery management and really invest to see that through to an opportunity, are key areas that we think are key for us. And in addition, you know, our S32 micro platform sets us up very well in a unique position that no other competitor has the ability to drive.

Rick Clemmer: You know, the ability to drive 16 nanometer FinFET solutions, while, you know, our competitors are now, at the same time, beginning to introduce 28 nanometer, positions us in a very unique position, quite well and will help drive, you know, our growth. You know, in R&D investments, specifically in automotive, we've been increasing that at kind of a 15 percent compounded growth rate based on where we were. In the industrial and IoT space, you know, investing in the crossover IoT and the ability to continue to solidify our position in the apps processor in the i.MX family and drive some unique platforms that will be able to actually address machine learning and the implementation of artificial intelligence is key areas that we've invested in as well.

You know, the ability to drive 16 nanometer FinFET solutions, while, you know, our competitors are now, at the same time, beginning to introduce 28 nanometer, positions us in a very unique position, quite well and will help drive, you know, our growth. You know, in R&D investments, specifically in automotive, we've been increasing that at kind of a 15 percent compounded growth rate based on where we were. In the industrial and IoT space, you know, investing in the crossover IoT and the ability to continue to solidify our position in the apps processor in the i.MX family and drive some unique platforms that will be able to actually address machine learning and the implementation of artificial intelligence is key areas that we've invested in as well.

Rick Clemmer: In addition to that, we implemented the single chip secure element in NFC radio. So I think there's no lack of investments that we've done. We have made the right kind of investments. In addition to what I talked about in automotive, we also have been investing in Ethernet that will position us quite well to continue to strengthen our in-vehicle networking platforms and the leadership position that we've had in the car space, and the Domain Controller opportunity that we see in auto. So, you know, the opportunities have been there. We've been investing. There is no lack of investment that's been done during that 21-month period of time. In fact, if anything, we probably invested more than we would've if we were on a go-it-alone basis to try to be sure that everything was set up to move forward.

In addition to that, we implemented the single chip secure element in NFC radio. So I think there's no lack of investments that we've done. We have made the right kind of investments. In addition to what I talked about in automotive, we also have been investing in Ethernet that will position us quite well to continue to strengthen our in-vehicle networking platforms and the leadership position that we've had in the car space, and the Domain Controller opportunity that we see in auto. So, you know, the opportunities have been there. We've been investing. There is no lack of investment that's been done during that 21-month period of time. In fact, if anything, we probably invested more than we would've if we were on a go-it-alone basis to try to be sure that everything was set up to move forward.

Rick Clemmer: So I don't think you can rest assured to tell investors there wasn't a lack of investment that puts anything in question going forward. But providing that capability of bringing security to the edge and what we see, the opportunity to really create and support the disruption of the cloud from IoT and Ultra-wideband, are the areas that really position us uniquely going forward, and the reason why we feel very comfortable outgrowing the market by at least 50% and still feel comfortable with the, you know, kind of, 6 to 8% compounded growth rate going forward.

So I don't think you can rest assured to tell investors there wasn't a lack of investment that puts anything in question going forward. But providing that capability of bringing security to the edge and what we see, the opportunity to really create and support the disruption of the cloud from IoT and Ultra-wideband, are the areas that really position us uniquely going forward, and the reason why we feel very comfortable outgrowing the market by at least 50% and still feel comfortable with the, you know, kind of, 6 to 8% compounded growth rate going forward.

And support the disruption of the cloud from IoT and ultraag band are the areas that really position us uniquely going forward and the reason why we feel very comfortable outgrowing the market by at least 50% and still feel comfortable with the kind of 6% to 8% compounded growth rate going forward.

Speaker 50: And support the disruption of the cloud from IoT and ultraag band are the areas that really position us uniquely going forward and the reason why we feel very comfortable outgrowing the market by at least 50% and still feel comfortable with the kind of 6% to 8% compounded growth rate going forward.

No Rick thanks for that and and that's consistent with my view on just sort relaying So.

Speaker 51: No Rick thanks for that and and that's consistent with my view on just sort relaying So.

Matt Ramsey: No, Rick, thanks for that, and that's consistent with my view on just some relaying, some pushback that I've gotten. Just as a follow-up really quick.

Matt Ramsay: No, Rick, thanks for that, and that's consistent with my view on just some relaying, some pushback that I've gotten. Just as a follow-up really quick.

Pushback that I've gotten just as a follow up really quick. Fair enough, just a quick follow up on on an's. I and I given some fairly good upside in Q3 and you've talked about it into Q4. How should we think about calibrating that expectation into what's probably a seasonally down Q1?

Speaker 49: Pushback that I've gotten just as a follow up really quick. Fair enough, just a quick follow up on on an's. I and I given some fairly good upside in Q3 and you've talked about it into Q4. How should we think about calibrating that expectation into what's probably a seasonally down Q1?

Rick Clemmer: Keep going!

Matt Ramsey: Fair enough. Just a quick follow-up on SI&I, given some fairly good upside in Q3, and you've talked about it into Q4. How should we think about calibrating that expectation into what's probably a seasonally down Q1, just so we have the right sort of trajectory into Q1? If there's anything you could add there, that'd be helpful. Thanks, guys.

Matt Ramsay: Fair enough. Just a quick follow-up on SI&I, given some fairly good upside in Q3, and you've talked about it into Q4. How should we think about calibrating that expectation into what's probably a seasonally down Q1, just so we have the right sort of trajectory into Q1? If there's anything you could add there, that'd be helpful. Thanks, guys.

So we have the right sort of trajectory and if you want if there's anything.

Speaker 49: So we have the right sort of trajectory and if you want if there's anything.

There be helpful. Thank guys. Yes, we don't give guidance for Q1, but I do think that we may see some, some things that will be a little bit abnormal associated with five G implementation. But it's really too early to say and we'll come back and talk about that more when we give your our Q1 guidance.

Speaker 49: There be helpful. Thank guys. Yes, we don't give guidance for Q1, but I do think that we may see some, some things that will be a little bit abnormal associated with five G implementation. But it's really too early to say and we'll come back and talk about that more when we give your our Q1 guidance.

Rick Clemmer: Yeah, we don't give guidance for Q1, but I do think that we may see some things that will be a little bit abnormal associated with 5G implementation, but it's really too early to say. And we'll come back and talk about that more when we give you our Q1 guidance. Operator?

Operator Thank you. Our next question comes from lo seymour. With the doorut to bank, your line is not open.

Speaker 12: Operator Thank you. Our next question comes from Lo seymour. With the doorut to bank, your line is not open.

Operator: Thank you. Our next question comes from Ross Seymour with Deutsche Bank. Your line is now open.

Thank sure, let ask some question and congratts, especially in the costs in the cash return. Wanted to focus on the sed part of the business. Some of the concern people have in broad-based markets aren't just limited to auto but also kind of general purpose microcontrollers, inventory and broad-based analog those sorts of things. So I wondered what you're seeing in that business, especially given that you're guiding it up sequentially in the fourth quarter.

Speaker 52: Thank sure, let ask some question and congratts, especially in the costs in the cash return. Wanted to focus on the sed part of the business. Some of the concern people have in broad-based markets aren't just limited to auto but also kind of general purpose microcontrollers, inventory and broad-based analog those sorts of things. So I wondered what you're seeing in that business, especially given that you're guiding it up sequentially in the fourth quarter.

Ross Seymour: Hi, guys. Thanks for letting me ask a question, and congrats, especially on the cost and the cash return. I wanna focus on the SCD part of the business. Some of the concerns people have in broad-based markets aren't just limited to auto, but also kind of general purpose microcontrollers, inventory, and broad-based analog, those sorts of things. So I wondered what you're seeing in that business, especially given that you're guiding it up sequentially in the fourth quarter.

Ross Seymore: Hi, guys. Thanks for letting me ask a question, and congrats, especially on the cost and the cash return. I wanna focus on the SCD part of the business. Some of the concerns people have in broad-based markets aren't just limited to auto, but also kind of general purpose microcontrollers, inventory, and broad-based analog, those sorts of things. So I wondered what you're seeing in that business, especially given that you're guiding it up sequentially in the fourth quarter.

Interesting thing about that C D is it's a mix of products and and so the mobile wallet combined with the implementation of the mass market, a general purpose micros as well as our Max family. Clearly, in China we're seeing the thought factor that we talked about: where our customers are are actually being somewhat slow placing orders and being very diligent relative to their inventory levels and that has an impact on on the mass market micros in, And while we see a slowing on a sequential basis in the growth rate- not a declineed but a slowing growth rate- still see the opportunity for growth here over year because of the position that we've had in the strong performance we had early on in the year. So I think for us the opportunity still there- we still continue to be working with our distribution partners- is the majority of that business- clear majority of that business, probably around three 4, 7- it goes through the distribution channel. So it's really important that we work closely with their distribution partners to be sure that we get the technology out to customers where it can be implemented. But as we see the opportunities and IoT and the ability to really drive the utilization the cloud supports in making IoT real you, that business is really critical to be able to fulfill that opportunity and so I think that's really one of the tempering factors is still those designs in the opportunities that will have, even with people being a little more reluctant in placing orders in the near term as they're tryingtofigure out what's going on with the tariffs and trade war and really creating a significant amount of fear, uncertainty and down our relative to the overall marketplace.

Speaker 53: Interesting thing about that C D is it's a mix of products and and so the mobile wallet combined with the implementation of the mass market, a general purpose micros as well as our Max family. Clearly, in China we're seeing the thought factor that we talked about: where our customers are are actually being somewhat slow placing orders and being very diligent relative to their inventory levels and that has an impact on on the mass market micros in, And while we see a slowing on a sequential basis in the growth rate- not a declineed but a slowing growth rate- still see the opportunity for growth here over year because of the position that we've had in the strong performance we had early on in the year. So I think for us the opportunity still there- we still continue to be working with our distribution partners- is the majority of that business- clear majority of that business, probably around three 4, 7- it goes through the distribution channel. So it's really important that we work closely with their distribution partners to be sure that we get the technology out to customers where it can be implemented. But as we see the opportunities and IoT and the ability to really drive the utilization the cloud supports in making IoT real you, that business is really critical to be able to fulfill that opportunity and so I think that's really one of the tempering factors is still those designs in the opportunities that will have, even with people being a little more reluctant in placing orders in the near term as they're tryingtofigure out what's going on with the tariffs and trade war and really creating a significant amount of fear, uncertainty and down our relative to the overall marketplace.

Rick Clemmer: Well, you know, the interesting thing about SCD is, you know, it's a mix of products, and, and so it, the mobile wallet, combined with the implementation of the mass market, general purpose micros, as well as our IDN and MAX family. Clearly, in China, we're seeing the FUD factor that we talked about, where our customers are actually being somewhat slow in placing orders and being very diligent relative to their inventory levels. And that has an impact on the mass market micros. And while we see a slowing on a sequential basis in the growth rate, not a decline, but a slowing growth rate, still see the opportunity for growth year-over-year because of the position that we've had and the strong performance we had early on in the year.

Rick Clemmer: So I think, you know, for us, the opportunity is still there. We still continue to be working with our distribution partners as the majority of that business, clear majority of that business, you know, probably around 3/4 of it, goes through the distribution channel. So it's really important that we work closely with our distribution partners to be sure that we get the technology out to customers where it can be implemented. But as we see the opportunities in IoT and the ability to really drive the utilization that the cloud supports in making IoT real, you know, that business is really critical to be able to fulfill that opportunity.

So I think, you know, for us, the opportunity is still there. We still continue to be working with our distribution partners as the majority of that business, clear majority of that business, you know, probably around 3/4 of it, goes through the distribution channel. So it's really important that we work closely with our distribution partners to be sure that we get the technology out to customers where it can be implemented. But as we see the opportunities in IoT and the ability to really drive the utilization that the cloud supports in making IoT real, you know, that business is really critical to be able to fulfill that opportunity.

Rick Clemmer: And so I think that's really one of the tempering factors is still those designs and the opportunities that we'll have, even with people being a little more reluctant in placing orders in the near term, as they're trying to figure out what's going on with the tariffs and trade war, and, you know, really creating a significant amount of fear, uncertainty, and doubt, or FUD, relative to the overall marketplace.

And so I think that's really one of the tempering factors is still those designs and the opportunities that we'll have, even with people being a little more reluctant in placing orders in the near term, as they're trying to figure out what's going on with the tariffs and trade war, and, you know, really creating a significant amount of fear, uncertainty, and doubt, or FUD, relative to the overall marketplace.

And from my follow-up. I just wanted to go back to the auto side of things. Rick, you mentioned a couple things: the fud side, for sure, and then the LP side. For that latter side of the equation, I realize that the former, with the macro impact, is difficult for you guys to project, But for the latter side it seems like it's a transitional issue in Europe. Might be a big 1, but a transitional one than the last, with that change in testing standards. How do you view that? That kind of low working its way through the system? When do you think that headwind might abate for xfee?

Speaker 12: And from my follow-up. I just wanted to go back to the auto side of things. Rick, you mentioned a couple things: the fud side, for sure, and then the LP side. For that latter side of the equation, I realize that the former, with the macro impact, is difficult for you guys to project, But for the latter side it seems like it's a transitional issue in Europe . Might be a big 1, but a transitional one than the last, with that change in testing standards. How do you view that? That kind of low working its way through the system? When do you think that headwind might abate for xfee?

Ross Seymour: Great. And for my follow-up, I just wanted to go back to the auto side of things. Rick, you mentioned a couple things, the FUD side for sure, and then the WLTP side. For that latter side of the equation, I realize that, the former, with the macro impact, is difficult for you guys to, project. But for the latter side, it seems like it's a transitional issue in Europe. It might be a big one, but a transitional one nonetheless, with that change in testing standards. How do you view that, that kind of lull working its way through the system? And when do you think that headwind might abate for NXP?

Ross Seymore: Great. And for my follow-up, I just wanted to go back to the auto side of things. Rick, you mentioned a couple things, the FUD side for sure, and then the WLTP side. For that latter side of the equation, I realize that, the former, with the macro impact, is difficult for you guys to, project. But for the latter side, it seems like it's a transitional issue in Europe. It might be a big one, but a transitional one nonetheless, with that change in testing standards. How do you view that, that kind of lull working its way through the system? And when do you think that headwind might abate for NXP?

Well I think our customers are working closely to try to address that so they'll get through that over a relatively short period of time. I don't think that's going to be a prolong period. I think it'll work through the supply chain here fairly quickly and I think that it will continue to to be a near term factor as they go through their polls. But we have the impression that is get back to kind of a normal ongoing basis here relatively soon and then is going to be more dependent on actual car ceales. Know, the interesting thing is when people talk about the reduced sales in cars in China, the interesting thing is if you go back and look at over the last four or five years, July is always the lowest car ceales month in China and if you actually look at actual sales in August , in September , while they were down from the previous year, they were actually increasing sequentially and so I think part of it's going to depend on what happens with the Chinese government. When this happened a few years ago with the first time where there was declining car sales, they actually change the tax structure and car sales in China go back on track very quickly in and we'll see that take place. But but the WLP P specifically, we think it's only one or two quarter issue.

Speaker 53: Well I think our customers are working closely to try to address that so they'll get through that over a relatively short period of time. I don't think that's going to be a prolong period. I think it'll work through the supply chain here fairly quickly and I think that it will continue to to be a near term factor as they go through their polls. But we have the impression that is get back to kind of a normal ongoing basis here relatively soon and then is going to be more dependent on actual car ceales. Know, the interesting thing is when people talk about the reduced sales in cars in China, the interesting thing is if you go back and look at over the last four or five years, July is always the lowest car ceales month in China and if you actually look at actual sales in August , in September , while they were down from the previous year, they were actually increasing sequentially and so I think part of it's going to depend on what happens with the Chinese government. When this happened a few years ago with the first time where there was declining car sales, they actually change the tax structure and car sales in China go back on track very quickly in and we'll see that take place. But but the WLP P specifically, we think it's only one or two quarter issue.

Rick Clemmer: Well, I think our customers are working closely to try to address that so that they'll get through that over a relatively short period of time. I don't think that's gonna be a prolonged period. I think it'll work through the supply chain here fairly quickly. I think that it will continue to be a near-term factor as they go through their pools. But we have the impression that it'll get back to kind of a normal ongoing basis here relatively soon, and then it's gonna be more dependent on actual car sales. You know, the interesting thing is, when people talk about the reduced,...

Rick Clemmer: Sales in cars in China, the interesting thing is, if you go back and look at over the last four or five years, July is always the lowest car sales month in China. And if you actually look at actual sales in August and September, while they were down from the previous year, they were actually increasing sequentially. And so, you know, I think part of it's going to depend on what happens with the Chinese government. You know, when this happened a few years ago, with the first time where there was declining car sales, they actually changed the tax structure. And, you know, car sales in China got back on track very quickly, and, and we'll see that take place. But on, you know, the WLTP, specifically, we think it's only, you know, a one or two quarter issue.

Sales in cars in China, the interesting thing is, if you go back and look at over the last four or five years, July is always the lowest car sales month in China. And if you actually look at actual sales in August and September, while they were down from the previous year, they were actually increasing sequentially. And so, you know, I think part of it's going to depend on what happens with the Chinese government. You know, when this happened a few years ago, with the first time where there was declining car sales, they actually changed the tax structure. And, you know, car sales in China got back on track very quickly, and, and we'll see that take place. But on, you know, the WLTP, specifically, we think it's only, you know, a one or two quarter issue.

Great Thank you.

Speaker 54: Great Thank you.

Tor Svanberg: Great. Thank you.

Ross Seymore: Great. Thank you.

Thank youe. Our next question comes from Craig. Head him back with Morgan family. Your line is not open.

Speaker 1: Thank youe. Our next question comes from Craig. Head him back with Morgan family. Your line is not open.

Operator: Thank you. Our next question comes from Craig Hettenbach with Morgan Stanley. Your line is now open.

Yes Thank you, Rick. five G looks like a positive development. You noted some of the North America initial activity. As you look into 2019, can you just discuss kind of the visibility you have and additional five G ramps and how you're thinking about the business?

Speaker 55: Yes Thank you, Rick. five G looks like a positive development. You noted some of the North America initial activity. As you look into 2019, can you just discuss kind of the visibility you have and additional five G ramps and how you're thinking about the business?

Craig Hettenbach: Yes, thank you. Rick, 5G looks like a positive development. You noted some of the North America initial activity. As you look into 2019, can you just discuss kind of the visibility you have into, you know, additional 5G ramps and how you're thinking about the business?

Well I think it's really going to depend on how that gets deployed. I know early on some of these last mile implementations they're doing those with at pgaas which are extremely expensive. So I don't see those going to mass market associated with it. So I think they have to be able to get to a commercial solution that they can drive in a cost effective manner. The deployment associated with five g- and it's not clear to me that that's taking place quite yet. So I think it's an opportunity that clearly was a positive partis in Q3. We're being a little more cautious on the implementation in 2019 because we think they have to get to a cost effective commercial implementation before we'll see the volumes actually begin to ramp on a significant basis.

Speaker 56: Well I think it's really going to depend on how that gets deployed. I know early on some of these last mile implementations they're doing those with at pgaas which are extremely expensive. So I don't see those going to mass market associated with it. So I think they have to be able to get to a commercial solution that they can drive in a cost effective manner. The deployment associated with five g- and it's not clear to me that that's taking place quite yet. So I think it's an opportunity that clearly was a positive partis in Q3. We're being a little more cautious on the implementation in 2019 because we think they have to get to a cost effective commercial implementation before we'll see the volumes actually begin to ramp on a significant basis.

Rick Clemmer: Well, I think, you know, it's really going to depend on how that gets deployed. You know, I know early on, some of these last mile implementations, they're doing those with FPGAs, which are extremely expensive, so I don't see those going to mass market associated with it. So I think they have to be able to get to a commercial solution that they can drive in a cost-effective manner, the deployment associated with 5G, and it's not clear to me that that's taking place quite yet. So I think, you know, it's an opportunity that clearly was a positive for us in Q3. We're being a little more cautious on the implementation in 2019 because we think they have to get to a cost-effective commercial implementation before we'll see the volumes actually begin to ramp on a significant basis.

Got it and then just as a follow-up, you ARD in the overall environment. A couple of companies have talked about kind of a downtake in the month of September. Can you just talk about kind of linearity in the quarter and how things progress and how kind of orders were up up in October ?

Speaker 57: Got it and then just as a follow-up, you ARD in the overall environment. A couple of companies have talked about kind of a downtake in the month of September . Can you just talk about kind of linearity in the quarter and how things progress and how kind of orders were up up in October ?

Craig Hettenbach: Got it. And then just as a follow-up regarding the overall environment, a couple of companies have talked about kind of a downtick in the month of September. Can you just talk about kind of linearity in the quarter and how things progressed and how kind of orders were up until October?

So the it depends on the business. Each one of the businesses is separate. Clearly, the line's share of our automotive business is on vendor managed inventory, So those pools kind of began to slow. But August was kind of a vacation month as well, So So it was down a little bit as well. As we went through the vacation months in Europe associated with August. In September I don't think we saw anything that continue to go down at all again, I think it's really important to point out that while we see the growth slowing on a sequential basis, we still see positive growth year-over-year and we don't see anything continuing to weaken are weaken more significantly from where we were in September. The environment continues to be kind of status quo, although quite cloudy and still not really able to confirm getting back on the steady growth rate at the first half of the year.

Speaker 58: So the it depends on the business. Each one of the businesses is separate. Clearly, the line's share of our automotive business is on vendor managed inventory, So those pools kind of began to slow. But August was kind of a vacation month as well, So So it was down a little bit as well. As we went through the vacation months in Europe associated with August . In September I don't think we saw anything that continue to go down at all again, I think it's really important to point out that while we see the growth slowing on a sequential basis, we still see positive growth year-over-year and we don't see anything continuing to weaken are weaken more significantly from where we were in September . The environment continues to be kind of status quo, although quite cloudy and still not really able to confirm getting back on the steady growth rate at the first half of the year.

Rick Clemmer: So, you know, it depends on the business. Each one of the businesses is separate. You know, clearly, the lion's share of our automotive business is on vendor-managed inventory, so those pools kind of began to slow. But, you know, August was kind of a vacation month as well, so it was down a little bit as well as we went through the vacation months in Europe, associated with August. In September, I don't think we saw anything that continued to go down at all. Again, I think it's really important to point out that while we see the growth slowing on a sequential basis, we still see positive growth year over year. And we don't see anything continuing to weaken, or weaken more significantly from where we were in September.

Rick Clemmer: The environment continues to be kind of status quo, although quite cloudy and still not really able to confirm, you know, getting back on the steady growth rate of the first half of the year.

The environment continues to be kind of status quo, although quite cloudy and still not really able to confirm, you know, getting back on the steady growth rate of the first half of the year.

Thank you. Our next question comes from Harland's. What the JP Morgan? Your line is now open.

Speaker 12: Thank you. Our next question comes from Harland's. What the JP Morgan? Your line is now open.

Operator: Thank you. Our next question comes from Harlan Sur with JP Morgan. Your line is now open.

Morning Thank you for taking my question and great job on the quarterly execution. Just back on the multi-market MC, which is up high single digits. So this is really good performance mean bucked the trend of the overall general purpose MC segment which was, I think was only up about 1% to 2% in Q3. Kind of looking at the SSI data, this is even with some of the weaker demand trends in China. So Rick, if you just help us understand what are the geographies or applications that are helping to drive the above market demand for your general purpose MC business and within the SSI data looks like thirty two bit also kind of outperform year-overyear. Obviously that's a strong leadership position for you guys, but love to get your thoughts.

Speaker 59: Morning Thank you for taking my question and great job on the quarterly execution. Just back on the multi-market MC, which is up high single digits. So this is really good performance mean bucked the trend of the overall general purpose MC segment which was, I think was only up about 1% to 2% in Q3. Kind of looking at the SSI data, this is even with some of the weaker demand trends in China. So Rick, if you just help us understand what are the geographies or applications that are helping to drive the above market demand for your general purpose MC business and within the SSI data looks like thirty two bit also kind of outperform year-overyear. Obviously that's a strong leadership position for you guys, but love to get your thoughts.

Harlan Sur: Morning. Thank you for taking my question, and great job on the quarterly execution. Just back on the multi-market MCU, which is up high single digits. This is really good performance. I mean, it bucked the trend of the overall general purpose MCU segment, which was, I think, only up about 1% to 2% in Q3, kind of looking at the SIA data. This is even with some of the weaker demand trends in China. So, Rick, if you could just help us understand, what are the geographies or applications that are helping to drive the above-market demand for your general purpose MCU business? And within the SIA data, it looks like 32-bit also kind of outperformed year-over-year. Obviously, that's a strong leadership position for you guys, but I'd love to get your thoughts.

Yes So Harland, I think one of the key things that was benefit for us in Q3 we brought our lead times back in check on kinetics. You know early in the year we were talking about that we were out at 39 week lead times which was just on unacceptable for our customers and we're down kind of in the 14- 15 week late time as a current basis. So you know that transition, obviously as you go through that transition it creates a little comfusion with your distribution customers as well. So you know we kind of going through that in Q3 but but clearly, based on the results that you talked about, we would have gained share in Q3 based on the strong portfolio we have. You know, as you point out, we're really focused on 32 bit ARM, we're not focused on a that kind of general marketplace and I think that played out well for us. We continue to have the broadest platform in place with the- you know the high performance kinetics and the L P C on the low end as well as in the processor, on the mix, in the product that we just announced recently, on the first implementation of the crosssooverver from my MX technology, But at a micro cost associated with it. So I think we continue to feel like we've got the broadest portfolio, the best portfolio for our customers really trying to see how they can use the cloud to implement the disruption opportunity that you know people Tal about is for the last few years' been Tal about out but it was really hard to get your hands around what was real and I think what we see is the clarity, being able to take advantage of cloud now through computing at the edge and bring that secure and a- emphasize the word secure- computing to the edge to be able to give that. But clear, I think, based on the results you talked about, we did came share in the in Q3 and and hope to be in a position with our portfolio to continue to maintain that going forward and grow it. You, the performance manufactction utilization trends- it is some presenting in Q3 all of the team positioning utilizations in Q4.

Speaker 60: Yes So Harland, I think one of the key things that was benefit for us in Q3 we brought our lead times back in check on kinetics. You know early in the year we were talking about that we were out at 39 week lead times which was just on unacceptable for our customers and we're down kind of in the 14- 15 week late time as a current basis. So you know that transition, obviously as you go through that transition it creates a little comfusion with your distribution customers as well. So you know we kind of going through that in Q3 but but clearly, based on the results that you talked about, we would have gained share in Q3 based on the strong portfolio we have. You know, as you point out, we're really focused on 32 bit ARM, we're not focused on a that kind of general marketplace and I think that played out well for us. We continue to have the broadest platform in place with the- you know the high performance kinetics and the L P C on the low end as well as in the processor, on the mix, in the product that we just announced recently, on the first implementation of the crosssooverver from my MX technology, But at a micro cost associated with it. So I think we continue to feel like we've got the broadest portfolio, the best portfolio for our customers really trying to see how they can use the cloud to implement the disruption opportunity that you know people Tal about is for the last few years' been Tal about out but it was really hard to get your hands around what was real and I think what we see is the clarity, being able to take advantage of cloud now through computing at the edge and bring that secure and a- emphasize the word secure- computing to the edge to be able to give that. But clear, I think, based on the results you talked about, we did came share in the in Q3 and and hope to be in a position with our portfolio to continue to maintain that going forward and grow it. You, the performance manufactction utilization trends- it is some presenting in Q3 all of the team positioning utilizations in Q4.

Rick Clemmer: Yeah. So, Harlan, I think one of the key things that was a benefit for us in Q3, we brought our lead times back in check on Kinetis. You know, early in the year, we were talking about that we were out at 39-week lead times, which was just unacceptable for our customers, and we're down kind of in the 14- to 15-week lead time at the current basis. So, you know, that transition, obviously, as you go through that transition, it creates a little confusion with your distribution customers as well. So, you know, we've kind of gone through that in Q3, but, but clearly, based on the results that you talked about, we would have gained share in Q3 based on the strong portfolio we have. You know, as you point out, we're really focused on 32-bit ARM.

Rick Clemmer: We're not focused on 8-bit, kind of general marketplace, and I think that played out well for us. We continue to have the broadest platform in place with the, you know, the high-performance Kinetis and the LPC on the low end, as well as in the apps processor on the i.MX, and the product that we just announced recently on the first implementation of the crossover from i.MX technology, but at an MCU cost associated with it. So I think we continue to feel like we've got the broadest portfolio, the best portfolio for our customers, really trying to see how they can use the cloud to implement the disruption opportunity that, you know, people talk about as IoT. You know, for the last few years, everybody's been talking about IoT, but it was really hard to get your hands around what was real.

We're not focused on 8-bit, kind of general marketplace, and I think that played out well for us. We continue to have the broadest platform in place with the, you know, the high-performance Kinetis and the LPC on the low end, as well as in the apps processor on the i.MX, and the product that we just announced recently on the first implementation of the crossover from i.MX technology, but at an MCU cost associated with it. So I think we continue to feel like we've got the broadest portfolio, the best portfolio for our customers, really trying to see how they can use the cloud to implement the disruption opportunity that, you know, people talk about as IoT. You know, for the last few years, everybody's been talking about IoT, but it was really hard to get your hands around what was real.

Rick Clemmer: And I think what we see is the clarity of being able to take advantage of the cloud now through the computing at the edge and bringing that secure, and I emphasize the word secure, computing to the edge to be able to, to give that. But clearly, I think based on the results you talked about, we did gain share in Q3 and hope to be in a position with our portfolio to continue to maintain that going forward and grow it.

And I think what we see is the clarity of being able to take advantage of the cloud now through the computing at the edge and bringing that secure, and I emphasize the word secure, computing to the edge to be able to, to give that. But clearly, I think based on the results you talked about, we did gain share in Q3 and hope to be in a position with our portfolio to continue to maintain that going forward and grow it.

Harlan Sur: ... Yep, good performance there. Manufacturing utilization trends, 87% in Q3. How, how is the team positioning utilizations in Q4?

I think the interesting thing about that you CAn't take as much out of that as you used to a couple of years ago. On the utilization, one of the things that we're going through is is is our individual factories have some unique requirements to be able to meet the ramp up associated with our radar requirements internally as well as some of our others. So as we and we have our capacity limited in some of our of our analog side of our automotive business, So as we implement expanded capacity on that, I think that that creates a little bit of a factory. That's not as significant. On the utilization itself, we continue to grow our external support as well. So I think today we're kind of a little over percent, a little over 50%. That's external. But but the utilization I don't think you can take as much about that. On a quarterly basis and specifically right now as we go through the transition in trying to to expand our capacity and radar as well as some of our unique analog capacity, auto analog capacity, we'll go through a little bit of tempering of utilization to be able to ringup ING effect overall bit about assignment, for it wasn't REE.

Speaker 46: I think the interesting thing about that you CAn't take as much out of that as you used to a couple of years ago. On the utilization, one of the things that we're going through is is is our individual factories have some unique requirements to be able to meet the ramp up associated with our radar requirements internally as well as some of our others. So as we and we have our capacity limited in some of our of our analog side of our automotive business, So as we implement expanded capacity on that, I think that that creates a little bit of a factory. That's not as significant. On the utilization itself, we continue to grow our external support as well. So I think today we're kind of a little over percent, a little over 50%. That's external. But but the utilization I don't think you can take as much about that. On a quarterly basis and specifically right now as we go through the transition in trying to to expand our capacity and radar as well as some of our unique analog capacity, auto analog capacity, we'll go through a little bit of tempering of utilization to be able to ringup ING effect overall bit about assignment, for it wasn't REE.

Rick Clemmer: You know, I think the interesting thing about that is, you can't take as much out of that as you used to a couple years ago on the utilization. One of the things that we're going through is our individual factories have some unique requirements to be able to meet the ramp-up associated with our radar requirements internally, as well as some of our others. So as we and we have, you know, our capacity limited in some of our analog side of our automotive business. So as we implement the expanded capacity on that, I think that that creates a little bit of a factor that's not as significant on the utilization itself. You know, we continue to grow our external support as well. So I think today we're kind of fit a little over-

Peter Kelly: A little over 50%.

Rick Clemmer: Yeah, a little over 50% that's external. But the utilization, I don't think you can think as much about that on a quarterly basis, and specifically right now, as we go through the transition in trying to expand our capacity in radar, as well as some of our unique analog capacity, auto analog capacity, we'll go through a little bit of tempering of utilization to be able to ring up that capacity.

Peter Kelly: Overall, it'll be about the same in Q4 as it was in Q3.

But a rrig said.ir it's kind of kind of a useful indicate of these things.

Speaker 61: But a rrig said.ir it's kind of kind of a useful indicate of these things.

Harlan Sur: Right.

Peter Kelly: But, you know, as Rick said, it's kind of a useless indicator these days. Only, what is it? 12.5% of our COGS goes through the internal numbers if you do some chainsaw math. And then you have to look at it by factory and, so, you know, it's kind of interesting as an indicator, but it's kind of not very useful in terms of helping you understand what's going on with cost.

Only.

Speaker 17: Only.

What is it? twelvepercent point, a half percent of our.

Speaker 17: What is it? twelvepercent point, a half percent of our.

Cox goes through the internal numbers. If you do some change on that and then you have to look at it by factory soit's kind of interestre, that's an indicator but but it's kind of not very useful in terms of helping you understand what's going on, the cost.

Speaker 19: Cox goes through the internal numbers. If you do some change on that and then you have to look at it by factory soit's kind of interestre, that's an indicator but but it's kind of not very useful in terms of helping you understand what's going on, the cost.

Yeah thanks for the insights.

Speaker 59: Yeah thanks for the insights.

Harlan Sur: Yeah. Thanks for the insights.

What Thank hard.

Speaker 62: What Thank hard.

Peter Kelly: Yeah. Thanks, Harlan.

Thank kille. My next question comes from tosha Harry with Goldman Sachs and line is not open.

Speaker 1: Thank kille. My next question comes from tosha Harry with Goldman Sachs and line is not open.

Operator: Thank you. Our next question comes from Toshiya Hari with Goldman Sachs. Your line is now open.

Yes Thank you so much. I had a question on automotive going into 2019. Rick, you talked about the design win momentum in mcmcs with your's 32 family. You talked about radar. You talked about BMS as well. I know it's kind of early, But from a content growth perspective, how do you see momentum going into two thousand andnine?

Speaker 40: Yes Thank you so much. I had a question on automotive going into 2019. Rick, you talked about the design win momentum in mcmcs with your's 32 family. You talked about radar. You talked about BMS as well. I know it's kind of early, But from a content growth perspective, how do you see momentum going into two thousand andnine?

Toshiya Hari: Yeah, thank you so much. I had a question on automotive, going into 2019. Rick, you talked about the design win momentum in MCUs with your S32 family. You talked about radar, you talked about BMS as well. I know it's kind of early, but from a content growth perspective, how do you see momentum going into 2019?

What we, what we talked about is were the three year prod of time and I think 19 we'll be a clear indication in implementation as associated with that, as we went through talk about Analyst Day, that even with a one or 2% growth in actual car production, which we think still with the growth of the middle class in the developing world, specifically in China but Southeast Asia as well, we'll see some production increasing cars. But even without that we'll see the content driving, a significant opportunity for us to continue to grow kind of mid to high single digit through the implementation of radar and level to and three capability of the car, which which is we think we're in a very solid position to be able to continue to maintain our leadership position in the overall radar solution, the implementation of ether net to be able to to process data around the car at a much higher speed that's required for the implementation of aus and the changed architecture of the car with the domain controllers in the ability for the car companies really look at a different implementation, which are as thirty two family of product. That's very nicely into. So we feel very comfortable with our position in automotive and and look forward to continueing to tand and I think that will take place in' 19 as the first year of the three year basis that we talked about at analystday.

Speaker 63: What we, what we talked about is were the three year prod of time and I think 19 we'll be a clear indication in implementation as associated with that, as we went through talk about Analyst Day, that even with a one or 2% growth in actual car production, which we think still with the growth of the middle class in the developing world, specifically in China but Southeast Asia as well, we'll see some production increasing cars. But even without that we'll see the content driving, a significant opportunity for us to continue to grow kind of mid to high single digit through the implementation of radar and level to and three capability of the car, which which is we think we're in a very solid position to be able to continue to maintain our leadership position in the overall radar solution, the implementation of ether net to be able to to process data around the car at a much higher speed that's required for the implementation of aus and the changed architecture of the car with the domain controllers in the ability for the car companies really look at a different implementation, which are as thirty two family of product. That's very nicely into. So we feel very comfortable with our position in automotive and and look forward to continueing to tand and I think that will take place in' 19 as the first year of the three year basis that we talked about at analystday.

Rick Clemmer: You know, what we talk about is over the three-year period of time, and I think 2019 will be a clear indication and an implementation associated with that. You know, as we went through it, Kirk talked about it at the Analyst Day, that you know, even with 1% or 2% growth in actual car production, which we think, you know, still with the growth of the middle class in the developing world, specifically in China, but Southeast Asia as well, we'll see some production increase in cars.

Rick Clemmer: But even without that, we'll see the content driving a significant opportunity for us to continue to grow, you know, kind of mid to high single digits through the implementation of radar and level 2 and 3 capability of the car, which, you know, is, we think we're in a very solid position to be able to continue to maintain our leadership position in the overall radar solution. The implementation of Ethernet to be able to process data around the car at a much higher speed that's required for the implementation of ADAS, and the changed architecture of the car with the domain controllers and the ability for the car companies to really look at a different implementation, which our S32 family of product fits very nicely into.

But even without that, we'll see the content driving a significant opportunity for us to continue to grow, you know, kind of mid to high single digits through the implementation of radar and level 2 and 3 capability of the car, which, you know, is, we think we're in a very solid position to be able to continue to maintain our leadership position in the overall radar solution. The implementation of Ethernet to be able to process data around the car at a much higher speed that's required for the implementation of ADAS, and the changed architecture of the car with the domain controllers and the ability for the car companies to really look at a different implementation, which our S32 family of product fits very nicely into.

Rick Clemmer: So, you know, we feel very comfortable with our position in automotive and look forward to continuing to expand it, and I think that'll take place in 2019 as the first year of the three-year basis that we talked about at the Analyst Day.

So, you know, we feel very comfortable with our position in automotive and look forward to continuing to expand it, and I think that'll take place in 2019 as the first year of the three-year basis that we talked about at the Analyst Day.

So fair to assume that you come in within the range of seven cent to 10% growth rate in 2019 aswell? You think we're going to IDE 2019? I think we laidthat. A three year target for ourve business is seven percentto 10% for the automotive business, all driven by the different irons we have in the fires laid out, but we're not going to guide 19 specifically. Ok, fair enough. And as a quick follow up for Peter on gross margins again, I just wanted to confirm: in a flattish revenue environment in 2019, are you still confident, if that were that we were to be the case, can you still hit that 55% gross margin target exiting the year? And so what would be some of the drivers? Thank you yes, exactly the same. Drive strong the, the Analyst, because the we allity even it flat, you'll see Mi. But so about kind of how we drive all what it's prorossing but, but I think that you you have be realistic with the economic environment. We see we think it would be hard for the year to be flat based on the economic environment and less something more to weaken significantly in the general economic environment. So while we're going through this cloudy period, I think you got to be careful about not looking too far in the future associated with that so long as the robust economic environment is still in place. Clearly, the semiconenector industry is going to drive content gain after we get through this quarter or two of uncertainved be associated with what's going on in the marketplace.

Speaker 19: So fair to assume that you come in within the range of seven cent to 10% growth rate in 2019 aswell? You think we're going to IDE 2019? I think we laidthat. A three year target for ourve business is seven percentto 10% for the automotive business, all driven by the different irons we have in the fires laid out, but we're not going to guide 19 specifically. Ok, fair enough. And as a quick follow up for Peter on gross margins again, I just wanted to confirm: in a flattish revenue environment in 2019, are you still confident, if that were that we were to be the case, can you still hit that 55% gross margin target exiting the year? And so what would be some of the drivers? Thank you yes, exactly the same. Drive strong the, the Analyst, because the we allity even it flat, you'll see Mi. But so about kind of how we drive all what it's prorossing but, but I think that you you have be realistic with the economic environment. We see we think it would be hard for the year to be flat based on the economic environment and less something more to weaken significantly in the general economic environment. So while we're going through this cloudy period, I think you got to be careful about not looking too far in the future associated with that so long as the robust economic environment is still in place. Clearly, the semiconenector industry is going to drive content gain after we get through this quarter or two of uncertainved be associated with what's going on in the marketplace.

Toshiya Hari: Is it fair to assume that you come in within the range of the 7 to 10% growth rate in 2019 as well?

Peter Kelly: Look, Toshiya, I don't think we're gonna guide 2019. I think we laid out a three-year target for our businesses, 7 to 10% for the automotive business, all driven by the different irons we have in the fire, as Rick laid out, but we're not gonna guide 2019 specifically.

Toshiya Hari: Okay, fair enough. And then, as a quick follow-up, for Peter, on gross margins, again, I just wanted to confirm, in a flattish revenue environment in 2019, are you still confident, if that were to be the case, can you still hit that 55% gross margin target exiting the year? And if so, what would be some of the drivers? Thank you.

Peter Kelly: Yes, and exactly the same drivers I described in the Analyst Day, because the reality is, even if it's flat, you'll see changes in mix. And it's all about kind of how we drive our cost reduction and manage our pricing.

Rick Clemmer: But I think that, you know, you got to be realistic. With the economic environment we see, we think it would be hard for the year to be flat based on the economic environment, unless something were to weaken significantly in the general economic environment. So while we're going through this cloudy period, I think you got to be careful about not looking too far in the future associated with that, so long as the robust economic environment is still in place. Clearly, the semiconductor industry is going to drive content gain after we get through, you know, this quarter or two of uncertainty associated with what's going on in the marketplace.

Thank you so much.

Speaker 64: Thank you so much.

Toshiya Hari: Thank you so much.

Thank you.

Speaker 8: Thank you.

Rick Clemmer: Thanks.

Operator: Thank you. Our next question comes from C.J. Muse with Evercore. Your line is now open.

Thank you. Our next question comes from cjmus with evercor, your line is not open.

Speaker 1: Thank you. Our next question comes from cjmus with evercor, your line is not open.

Operator: Thank you. Our next question comes from C.J. Muse with Evercore. Your line is now open.

Yes good morning, good afternoon. Thank you for taking the question. I guess Peter, your first question trying to better understand kind of debt financing, interest expense going forward and your means for additional buybacks. So could you tell us what kind of cashing you to run the business, what you're planning in terms of the debt refinancing, both the bridge and the cash convertible notes, and how we should think about potential incremental debt on top of that in the coming months?

Speaker 65: Yes good morning, good afternoon. Thank you for taking the question. I guess Peter, your first question trying to better understand kind of debt financing, interest expense going forward and your means for additional buybacks. So could you tell us what kind of cashing you to run the business, what you're planning in terms of the debt refinancing, both the bridge and the cash convertible notes, and how we should think about potential incremental debt on top of that in the coming months?

C.J. Muse: Yeah, good morning, good afternoon. Thank you for taking the question. I guess, Peter, first question, trying to better understand kind of debt financing, interest expense going forward and your means for additional buyback. So could you, could you tell us, you know, what kind of cash you need to run the business? What you're planning in terms of the debt refinancing, both the bridge and, and the cash convertible notes, and how we should think about potential incremental debt on top of that, you know, in the coming months?

Okay So we want to run two times net Deb, 12 and 12 monteen BDA. So to the extent that the marke cooperates, we would add additional debt we ve mentioned on my core were kind of: we're looking at that. So this quarter we definitely look to replace the bridge with with a bond, the convert that comes to the end of next year. Same thing we look to to replace that with a with a convert and I guess very, very roughly, a two times net debt, ttril and welve monteen BDA. That would say between now and the end of next year to buy back in additional $3 billion- the very roughly- and then in subsequent years two plus billion dollars P.

Speaker 16: Okay So we want to run two times net Deb, 12 and 12 monteen BDA. So to the extent that the marke cooperates, we would add additional debt we ve mentioned on my core were kind of: we're looking at that. So this quarter we definitely look to replace the bridge with with a bond, the convert that comes to the end of next year. Same thing we look to to replace that with a with a convert and I guess very, very roughly, a two times net debt, ttril and welve monteen BDA. That would say between now and the end of next year to buy back in additional $3 billion- the very roughly- and then in subsequent years two plus billion dollars P.

Peter Kelly: Okay, so we wanna run 2x net debt to trailing twelve-month EBITDA. So to the extent that the markets cooperate, we would add additional debt. We've, I've mentioned on my call, we're kind of looking at that. So this quarter, we definitely look to replace the bridge with a bond. The convert that comes due the end of next year. Same thing, we'd look to replace that with a convert. And again, I guess very, very roughly, at 2x net debt to trailing twelve-month EBITDA, that would say between now and the end of next year, you could buy back an additional $3 billion, very roughly, and then, in subsequent years, you know, $2+ billion per year.

But as Peter talked about replacing the convert, we probably would not be replacing the convert with the convert at the current equity product. tell- yeah, I mean it's curren t- equity prices be absolutely beable, but that's a year away.

Speaker 13: But as Peter talked about replacing the convert, we probably would not be replacing the convert with the convert at the current equity product. tell- yeah, I mean it's curren t- equity prices be absolutely beable, but that's a year away.

Rick Clemmer: But as Peter talked about replacing the convertible, we probably would not be replacing the convertible with a convertible at the current equity price.

Peter Kelly: Oh, yeah, yeah. I mean, it's current equity prices, it'd absolutely be a bond. Yeah, but that's a year away.

gotatch you great and I guess as a follow-up from a free cash flow margin perspective- I think you running around 20% for the last two years, excluding the qual comp payment securities- can you kind of walk through how you plan to drive that higher? You've talked about gross margin. I imagine that flows right through other other drivers that you're working on. Yes, So the extent that evenbitthat margin inase, this tash flow margin will increase. So a real, simple level: EBIT margin will increase because gross margin will improve and OpEx percent will decline.

Speaker 66: gotatch you great and I guess as a follow-up from a free cash flow margin perspective- I think you running around 20% for the last two years, excluding the qual comp payment securities- can you kind of walk through how you plan to drive that higher? You've talked about gross margin. I imagine that flows right through other other drivers that you're working on. Yes, So the extent that evenbitthat margin inase, this tash flow margin will increase. So a real, simple level: EBIT margin will increase because gross margin will improve and OpEx percent will decline.

C.J. Muse: Gotcha. Great. And I guess, as a follow-up, from a free cash flow margin perspective, I think you're running around 20% the last two years, excluding the Qualcomm payment. So curious, can you kind of walk through, how you plan to drive that higher? You know, you've talked about gross margin. I imagine that flows right through. Are there other drivers that you're working on?

Peter Kelly: Yeah, yeah. To the extent that EBIT margin increases, cash flow margin would increase. So, you know, a real simple level, EBIT margin will increase because gross margin will improve and OpEx percent will decline. But, you know, your, our working capital will be, kind of about where it is. So yeah, I mean, it's directly connected with EBIT margin.

But you're in our working capital will be kind of about where it is.

Speaker 45: But you're in our working capital will be kind of about where it is.

So yes, I mean it's con antly connected with the MO. Yes, I think that one thing that we talked about it down day is is we might invest, are we plan to invest a little warrant CapEx in the near term, really to take advantage of some of the opportunities that we have with some of our unique processes. That will be a little bit of a factor above the 5% for a short period of time, but our cash flow position, we think, is in a very strong position and the growth of the business that we feel very good about over the next three years we'll continue to generate a huge amount of cash.

Speaker 17: So yes, I mean it's con antly connected with the MO. Yes, I think that one thing that we talked about it down day is is we might invest, are we plan to invest a little warrant CapEx in the near term, really to take advantage of some of the opportunities that we have with some of our unique processes. That will be a little bit of a factor above the 5% for a short period of time, but our cash flow position, we think, is in a very strong position and the growth of the business that we feel very good about over the next three years we'll continue to generate a huge amount of cash.

Rick Clemmer: Yeah, I think that one thing that we talked about at the Analyst Day is we might invest, or we plan to invest a little more in CapEx in the near term, really to take advantage of some of the opportunities that we have with some of our unique processes that will be a little bit of a factor above the 5% for a short period of time. But, you know, our cash flow position, we think, is in a very strong position, and the growth of the business that we feel very good about over the next three years will continue to generate a huge amount of cash.

C.J. Muse: Thanks, Rick.

Thank you. Our next question comes from Chris daley with the City Group. Your line is not open.

Speaker 27: Thank you. Our next question comes from Chris daley with the City Group. Your line is not open.

Operator: Thank you. Our next question comes from Chris Danley with Citigroup. Your line is now open.

He YS just a quick question on, I guess, next year. So Ricky talks about the murk environment right now. If the environment stays, quote unquote, murky. Conceptually, what should we be thinking about for Q1 revenue on a sequential basis, like down 5% to 10% would be something reasonable. rangedon' won.

Speaker 67: He YS just a quick question on, I guess, next year. So Ricky talks about the murk environment right now. If the environment stays, quote unquote, murky. Conceptually, what should we be thinking about for Q1 revenue on a sequential basis, like down 5% to 10% would be something reasonable. rangedon' won.

Chris Danley: Hey, thanks, guys. Just a quick question on, I guess, next year. So Rick, you talked about the murky environment right now. If the environment stays, quote, unquote, "murky," conceptually, what should we be thinking about for Q1 revenue on a sequential basis? Like, down 5% to 10% would be something reasonable range?

Chris Danely: Hey, thanks, guys. Just a quick question on, I guess, next year. So Rick, you talked about the murky environment right now. If the environment stays, quote, unquote, "murky," conceptually, what should we be thinking about for Q1 revenue on a sequential basis? Like, down 5% to 10% would be something reasonable range?

Peter Kelly: We don't guide Q1. I mean, clearly, you can go and look at historic seasonality, but we're not guiding Q1.

I mean, clearly you can go and look at historic seasonality, but we're not guiding Q1.

Speaker 20: I mean, clearly you can go and look at historic seasonality, but we're not guiding Q1.

Yes I think one you talked about, though the cloudy environment. If the economic environment stays is robust as it is, this cloudy environment cannot continue for a prolonged period of time. So long as production rates continue in the economic growth continues, you have to get back to a steady increase in production, So So we don't anticipate that that's something that's prolonged for an extended period of time. In less the economic environment were to worssen because of the Bud factor associated with tariffs, sand and trade war. So if those don't materialize, we don't think this is this cloudy environment will continue for a prolong period of time throughout next yearokay thanks, all right.

Speaker 44: Yes I think one you talked about, though the cloudy environment. If the economic environment stays is robust as it is, this cloudy environment cannot continue for a prolonged period of time. So long as production rates continue in the economic growth continues, you have to get back to a steady increase in production, So So we don't anticipate that that's something that's prolonged for an extended period of time. In less the economic environment were to worssen because of the Bud factor associated with tariffs, sand and trade war. So if those don't materialize, we don't think this is this cloudy environment will continue for a prolong period of time throughout next yearokay thanks, all right.

Rick Clemmer: Yeah, I think that one thing that you talked about, though, on the cloudy environment, you know, if the economic environment stays as robust as it is, this cloudy environment cannot continue for a prolonged period of time. You know, so long as production rates continue and the economic growth continues, you know, you have to get back to a steady increase in production. So, we don't anticipate that, you know, that's something that's prolonged for an extended period of time, unless the economic environment were to worsen because of the FUD factor associated with the tariffs and trade war. So if those don't materialize, we don't think this is this cloudy environment will continue for a prolonged period of time throughout next year.

Chris Danley: Okay. Thanks a lot, Rick.

Chris Danely: Okay. Thanks a lot, Rick.

Thank operty all and then plan to wrap it up here today.

Speaker 68: Thank operty all and then plan to wrap it up here today.

Rick Clemmer: Thanks.

Peter Kelly: Great.

Rick Clemmer: We'll take one more call and then we'll probably have to wrap it up here today.

You say you'll take more question.

Speaker 1: You say you'll take more question.

Operator: You say you'll take one more question?

Rick Clemmer: Yes, ma'am.

All right. My last question comes from towards sandbird, with steeple in H is not okay.

Speaker 69: All right. My last question comes from towards sandbird, with steeple in H is not okay.

Operator: All right. Our last question comes from Tor Svanberg with Stifel. Your line is now open.

Yes Thank you for speaking in first question. Ricky talk about lead times for my control business, but can you talk about trends of your lead times for sort the low business in the last few quarters?

Speaker 70: Yes Thank you for speaking in first question. Ricky talk about lead times for my control business, but can you talk about trends of your lead times for sort the low business in the last few quarters?

Tor Svanberg: Yes, thank you for taking me in. First question, Rick, you talked about lead times for the microcontroller business, but can you talk about trends of your lead times for sort of the overall business the last few quarters?

Tore Svanberg: Yes, thank you for taking me in. First question, Rick, you talked about lead times for the microcontroller business, but can you talk about trends of your lead times for sort of the overall business the last few quarters?

For the plpc business.

Speaker 4: For the plpc business.

Rick Clemmer: For the LPC business?

nofor. So the times in general for your business? You talk specifically about micro control earlier. No, I think in general that's kind of the typical lead time that we have is in that 12 to sixteen-week period of time across the Board. So I don't think there's anything that's different than that. It depends on the actual manufacturing cycle time of some of our unique products. But we're pretty much in that typical lead time and we see it in a very healthy situation right now in tory- remember, most of the auto business, which is almost 50% of the revenue, runs out of vendor managed inventory model right, which is kind of theoretically zero lead time business since we can sign inventory to different build locations.

Speaker 71: nofor. So the times in general for your business? You talk specifically about micro control earlier. No, I think in general that's kind of the typical lead time that we have is in that 12 to sixteen-week period of time across the Board. So I don't think there's anything that's different than that. It depends on the actual manufacturing cycle time of some of our unique products. But we're pretty much in that typical lead time and we see it in a very healthy situation right now in tory- remember, most of the auto business, which is almost 50% of the revenue, runs out of vendor managed inventory model right, which is kind of theoretically zero lead time business since we can sign inventory to different build locations.

Tor Svanberg: No, for ... So lead times in general for your business.

Tore Svanberg: No, for ... So lead times in general for your business.

Rick Clemmer: Oh.

Tor Svanberg: You talked specifically about microcontrollers earlier.

Tore Svanberg: You talked specifically about microcontrollers earlier.

Rick Clemmer: Yeah, no, I think in general, that's kind of the typical lead time that we have is, you know, in that 12- to 16-week period of time across the board. So I don't think there's anything that's different than that. You know, it depends on the actual manufacturing cycle time of some of our unique products, but we're pretty much in that typical lead time, and we see it in a very healthy situation right now. And, Tor, you have to remember, most of the auto business, which is almost 50% of the revenue, runs on a vendor-managed inventory model, right? Which is kind of theoretically 0 lead time business, since we consign inventory to different build locations.

That that's helpful and as my follow-up Peter, do you have a CapEx number for next year forecast? At this point at the Analyst study we said on normal run rate is 5, But over the next three years we could spend up to seven percember year.

Speaker 72: That that's helpful and as my follow-up Peter, do you have a CapEx number for next year forecast? At this point at the Analyst study we said on normal run rate is 5, But over the next three years we could spend up to seven percember year.

Tor Svanberg: That, that's helpful. And as my follow-up, Peter, do you have a CapEx number for next year, a forecast at this point?

Tore Svanberg: That, that's helpful. And as my follow-up, Peter, do you have a CapEx number for next year, a forecast at this point?

Peter Kelly: At the Analyst Day, we said, our normal run rate is 5%, but over the next 3 years, we could spend up to 7% per year.

Great Thank you.

Speaker 11: Great Thank you.

Tor Svanberg: Great. Thank you.

Tore Svanberg: Great. Thank you.

Peter Kelly: You're welcome, Tor.

thanklot. So once again, thanks for joining us today after our second quarter here, following our 21 month quite period with the Qualcomm transaction clearly is we talked about. We think the the near term period, in the cloudiness associated with it, we'll be able to work our way through. The key factors is with the overall growth in the economy. We think that this will not be a prolonged period of cloudiness. That will work our way through to back to see a steady growth rate over the next few quarters. But clearly the product position that we have, design wins that we continue to win and in the cash flow capability of our business is what excites us about the opportunity to create real shareholder value and look forward to your continued support. Thank you very much.

Speaker 50: thanklot. So once again, thanks for joining us today after our second quarter here, following our 21 month quite period with the Qualcomm transaction clearly is we talked about. We think the the near term period, in the cloudiness associated with it, we'll be able to work our way through. The key factors is with the overall growth in the economy. We think that this will not be a prolonged period of cloudiness. That will work our way through to back to see a steady growth rate over the next few quarters. But clearly the product position that we have, design wins that we continue to win and in the cash flow capability of our business is what excites us about the opportunity to create real shareholder value and look forward to your continued support. Thank you very much.

Rick Clemmer: Thanks a lot. So, once again, thanks for joining us today after our Q2 here, following our 21-month quiet period with the Qualcomm transaction. Clearly, as we talked about, we think the near-term period and the cloudiness associated with it, we'll be able to work our way through. The key factors is, with the overall growth in the economy, we think that this will not be a prolonged period of cloudiness, that we'll work our way through to back to see a steady growth rate over the next few quarters.

Rick Clemmer: But, clearly, the product position that we have, the design wins that we continue to win, and the cash flow capability of our business is what excites us about the opportunity to create real shareholder value, and look forward to your continued support. Thank you very much. Thank you very much, everyone.

But, clearly, the product position that we have, the design wins that we continue to win, and the cash flow capability of our business is what excites us about the opportunity to create real shareholder value, and look forward to your continued support. Thank you very much. Thank you very much, everyone.

Thank you very much every.

Speaker 73: Thank you very much every.

Ladies and gentlemen, Thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.

Speaker 1: Ladies and gentlemen, Thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.

Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.

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