Q2 2024 NXP Semiconductors NV Earnings Call

I'd like to turn the call over to Jeff Palmer Senior Vice President of Investor Relations. Please go ahead.

Jeff Palmer: Thank you Michelle and good morning, everyone welcome to NXP semiconductors second quarter earnings call.

With me on the call today is Kurt Sievers, Nxp's, President and CEO and Bill backs, our CFO. The call today is being recorded and will be available for replay from our corporate website.

Yeah.

Jeff Palmer: Today's call will include forward looking statements that involve risks and uncertainties that could cause nxp's results to differ materially from management's current expectations. These risks and uncertainties include but are not limited to statements regarding the macroeconomic impact on specific end markets in which we operate.

Good day and welcome to the NXP <unk> 24 earnings Conference call. At this time, all participants are in a listen only mode.

The speaker's presentation there'll be a question and answer session and instructions will be given at that time.

As a reminder, this call maybe recorded.

Jeff Palmer: The sale of new and existing products and our expectations for the financial results for the third quarter of 2024.

I'd like to turn the call over to Jeff Palmer Senior Vice President of Investor Relations. Please go ahead.

Jeff Palmer: NXP undertakes no obligation to revise or update publicly any forward looking statements for a full disclosure on forward looking statements. Please refer to our press release. Additionally.

Thank you Michelle and good morning, everyone welcome to NXP semiconductors second quarter earnings call.

Speaker Change: With me on the call today is Kurt Sievers, Nxp's, President and CEO and Bill backs, our CFO. The call today is being recorded and will be available for replay from our corporate website.

Jeff Palmer: Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to nxp's underlying core operating performance.

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

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 second quarter 2024 earnings press release, which will be furnished to the SEC on form 8-K and available on Nxp's website in the Investor Relations section.

Risks and uncertainties include but are not limited to statements regarding the macroeconomic impact on specific end markets in which we operate.

The sale of new and existing products and our expectations for the financial results for the third quarter of 2024.

Jeff Palmer: Before we start the call today I have one housekeeping item related to the 2024 Investor day, which will be held at the four seasons in Boston on November 7th.

S. P undertakes no obligation to revise or update publicly any forward looking statements for a full disclosure on forward looking statements. Please refer to our press release.

Additionally, we will refer to certain non-GAAP right.

Jeff Palmer: Pre registration website will be open on the NXP Investor Relations Web site beginning on August seven.

Natural measures, which are driven primarily by discrete events that management does not consider to be directly related to nxp's underlying core operating performance.

Jeff Palmer: <unk> will be limited we request that you register in advance and we hope to see you all in November in Boston now I'd like to turn the call over to Kirk.

So much of regulation G and H E. B has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter 2024 earnings press release, which will be furnished to the SEC on form 8-K and available on Nxp's website in the Investor Relations section.

Kirk: Thanks, very much Jeff and good morning, everyone. We appreciate you all joining our call today.

Kirk: Let me begin with quarter two revenue trends in all our focus end markets.

Kirk: We're in line with the midpoint of our guidance range.

Before we start the call today I have one housekeeping item related to the 2024 Investor day, which will be held at the four seasons in Boston on November seven.

Speaker Change: NXP delivered quarter to revenue.

Speaker Change: $312 7 billion down 5% year on year and flat sequentially.

Pre registration website will be open on the NXP Investor Relations Web site beginning on August seven.

Speaker Change: The non-GAAP operating margin in quarter, two was 34, 3% 70 basis points below the year ago period, and 30 basis points above the midpoint of our guidance.

Space will be limited we request that you register in advance and we hope to see you all in November in Boston now I'd like to turn the call over to Kirk.

Speaker Change: Year on year performance was a result of lower revenue in the automotive and communications infrastructure markets combined.

Thanks, very much Jeff and good morning, everyone. We appreciate you all joining our call today.

Speaker Change: Combined with consistent gross profit generation.

Let me begin with quarter two revenue trends in all our focus end markets. We are in line with the midpoint of our guidance range.

Speaker Change: From a channel perspective distribution inventory was one seven months consistent with our guidance and just slightly up from the $1 six months in quarter one.

NXP delivered quarter, two revenue of $3 127 billion down 5% year on year and flat sequentially.

Speaker Change: With that as we continue to operate well below our long term targets of two five months of inventory in the channel.

Yeah.

The non-GAAP operating margin in quarter, two was 34, 3% 70 basis points below the year ago period.

Speaker Change: Now, let me turn to the specific trends in our focus end markets.

Speaker Change: In automotive revenue was $1 73 billion down 7% versus the year ago period and in line with our guidance.

And 30 basis points above the midpoint of our guidance.

Year on year performance was a result of lower revenue in the automotive and communications infrastructure markets.

Speaker Change: We have worked with our direct tier one customers to ensure our continued orderly process of inventory digestion.

Combined with consistent gross profit generation.

Speaker Change: In industrial and Iot revenue was $660 million up 7% versus the year ago period and in line with our guidance.

From a channel perspective distribution inventory was $1 seven months consistent with our guidance and just slightly up from the $1 six months in quarter one.

Speaker Change: Our performance compared favorably versus the year ago period.

With that we continue to operate well below our long term targets of two five months of inventory in the channel.

Speaker Change: Driven by demand in China, and Asia Pacific while.

Speaker Change: While the trends in the European and North American markets remained soft.

Yeah.

Now, let me turn to the specific trends in our focus end markets.

Speaker Change: In mobile revenue was $345 million up 21% versus the year ago period and in line with our guidance.

In automotive revenue was $1 73 billion down 7% versus the year ago period and in line with our guidance.

Speaker Change: And finally in communications infrastructure and other revenue was $438 million down 23% year on year and in line with our guidance.

We have worked with our direct tier one customers to ensure our continued orderly process of inventory digestion.

In industrial and Iot revenue was $660 million up 7% versus the year ago period and in line with our guidance.

Speaker Change: Now I will turn to our expectations for the third quarter 2024.

Speaker Change: We are guiding Q3 revenue to $3 25 billion down 5% versus the third quarter of 2023 and up 4% sequentially.

Speaker Change: Our performance compared favorably versus the year ago period, driven by demand in China and Asia Pacific while.

While the trends in the European and North American markets remained soft.

Speaker Change: In the automotive end markets, our revenue trust in the second quarter.

In mobile revenue was $345 million up 21% versus the year ago period and in line with our guidance.

Speaker Change: And we will resume sequential growth in quarter three.

Speaker Change: This will be led by company specific drivers and.

Speaker Change: And by now we are also moving much closer to shipping to end demand at several customers.

And finally in communications infrastructure and other revenue was $438 million down 23% year on year and in line with our guidance.

Speaker Change: At the same time, the inventory digestion process at select direct tier one auto customers bill extends into the second half stretch.

Speaker Change: Stretching beyond our initially expected levels.

Now I will turn to our expectations for the third quarter 2024.

Speaker Change: And with a surprisingly wide variation of debit <unk> steady state inventory levels.

Speaker Change: We are guiding Q3 revenue to $3, two 5 billion down 5% versus the third quarter of 2023 and up 4% sequentially.

Speaker Change: Taken together via resuming sequential growth in the second half of 'twenty 'twenty four we continued to ship below automotive end demand in the somewhat softening automotive micro.

In the automotive end markets, our revenue trust in the second quarter, and we will resume sequential growth in quarter three.

Speaker Change: In the industrial and Iot end markets, we see steady improvement in the consumer Iot demand in China.

Speaker Change: This will be led by company specific drivers.

Speaker Change: This is offset by persistent weakness in the core industrial demand in Europe and the Americas.

Speaker Change: And by now we are also moving much closer to shipping to end demand at several of our customers.

At the same time, the inventory digestion process at select direct tier one auto customers will extend into the second half stretch.

Speaker Change: In the mobile end markets, we anticipate normal seasonality from our lean inventory position.

Stretching beyond our initially expected levels.

Speaker Change: And finally within communications infrastructure and other we expect our company specific growth and secure RFID tagging to be more than offset by the previously discussed weakness in the remaining parts of that reportable end markets.

And with a surprisingly wide variation of their desired steady state inventory levels.

Taken together by resuming sequential growth in the second half of 'twenty 'twenty four we continued to ship below automotive and demand in a somewhat softening automotive macro.

Speaker Change: So at the midpoint, we anticipate the following trends in our business during the third quarter.

In the industrial and Iot end markets, we see steady improvement in the consumer Iot demand in China.

Speaker Change: Automotive.

Speaker Change: <unk> is anticipated to be down in the low single digit percent range versus quarter, $3 23, and up in the mid single digit percent range versus quarter two 2024.

This is offset by persistent weakness in the core industrial demand in Europe and the Americas.

In the mobile end markets, we anticipate normal seasonality from our lean inventory position.

Speaker Change: Industrial and Iot is expected to be up in the low single digit percent range, both year on year and quarter on quarter.

And finally within communications infrastructure and other we expect our company specific growth and secure RFID tagging to be more than offset by the previously discussed weakness in the remaining parts of that reportable end markets.

Speaker Change: Mobile is expected to be up in the mid single digit percent range versus quarter $3 23.

Speaker Change: And up in the mid teens percent range versus quarter $2 24.

Speaker Change: Finally communication infrastructure and other is expected to be down in the mid 20% range year on year.

Speaker Change: So at the midpoint, we anticipate the following trends in our business during the third quarter.

Speaker Change: And down in the mid single digit percent range versus quarter $2 24.

Automotive is anticipated to be down in the low single digit percent range versus quarter, $3 23, and up in the mid single digit percent range versus quarter two 2024.

Speaker Change: In summary, NXP trough in the first half of this year and now we expect to resume sequential growth through the second half.

Industrial and Iot is expected to be up in the low single digit percent range, both year on year and quarter on quarter.

Speaker Change: Therefore during quarter three we will continue to stage inventory just a touch higher.

Speaker Change: In the channel in order to support our competitiveness and in order to prepare for the anticipated second half growth and beyond.

Mobile is expected to be up in the mid single digit percent range versus quarter $3 23.

Speaker Change: With that our quarter three guidance assumes approximately one eight months of distribution channel inventory.

And up in the mid teens percent range versus quarter $2 24.

Finally communication infrastructure and other is expected to be down in the mid 20% range year on year and down in the mid single digit percent range versus quarter $2 24.

Speaker Change: However, we will not grow channel inventory back to anywhere near our long term target of two and a half months within this calendar year.

Speaker Change: As a result, we will continue to stage inventory in a very controlled and targeted manner in the channel.

In summary, NXP trapped in the first half of this year and now we expect to resume sequential growth through the second half.

Speaker Change: Taken together the second half will grow over the first half with the potential outcome for <unk> 24 to be a modest annual revenue decline in the low single digit range.

Therefore during quarter three.

We'll continue to stage inventory just a touch higher.

In the channel in order to support our competitiveness and in order to prepare for the anticipated second half growth and beyond.

Speaker Change: This is towards the low end of our earlier expectations.

Speaker Change: Because of the more persistent and deep inventory digestion at our auto tier one customers and due to due to the continued weakness in our core industrial end markets in Europe and the Americas.

With that our quarter three guidance assumes approximately $1 eight months of distribution channel inventory.

However, we will not grow channel inventory back to anywhere near our long term target of two and a half months within this calendar year.

Before turning the call over to Bill I would like to highlight what I believe is a truly strategic long term investment for our hybrid manufacturing strategy.

As a result, we will continue to stage inventory in a very controlled and targeted manner in the channel.

Speaker Change: On June five 2024.

Taken together the second half the grow over the first half with the potential outcome for <unk> and 'twenty four to be a modest annual revenue decline in the low single digit range.

Speaker Change: We disclosed the formation of a 60 40 manufacturing joint venture between <unk> and the national semiconductor and NXP.

Bill: The strategic rationale for the investment is to enable NXP to execute its long term growth objectives with access to competitive cost supply control and geographic resilience.

This is towards the low end of our earlier expectations.

Because of the more persistent and deep inventory digestion at our auto tier one customers and due to due to the continued weakness in our core industrial end markets in Europe and the Americas.

Bill: This move complements our participation in the TSMC, let joint venture in Europe, which we announced in August 2023.

Before turning the call over to Bill I would like to highlight what I believe is a truly strategic long term investment for our hybrid manufacturing strategy.

Bill: The new joint venture vision power semiconductor manufacturing companies or the SMC will.

Bill: Built a 300 millimeter <unk>, Singapore, which is a global hub for third party foundries with excellent access to a robust and highly skilled workforce for mature north manufacturing.

On June five 2024.

We disclosed the formation of a 60 40 manufacturing joint venture between when got international semiconductor and NXP.

Bill: Singapore is also where NXP and TSMC have successfully operated <unk> at 200 millimeter joint venture for over 25 years.

The strategic rationale for the investment is to enable NXP to execute its long term growth objectives with access to competitive cost supply controller and geographic resilience.

Bill: Phase one of the <unk> joint venture Fab will support 130 nanometer to 40 nanometer mixed signal power management and analog products targeting the automotive industrial consumer and mobile end markets.

This move complements our participation in the TSMC electro inventory in Europe, which we announced in August 2023.

The new joint venture vision power semiconductor manufacturing companies or SMC.

Bill: When fully operational in 2029, the <unk> produced 55000 wafers per month and.

We built a 300 millimeter fab in Singapore, which is a global hub for third party foundries with excellent access to a robust and highly skilled workforce for mature north manufacturing.

Bill: And there was a phase II option to expand the fab, providing an additional 45000 wafers per month, including 28 nanometer process flows.

Bill: A key factor for the long term success of the Trent venture is that TSMC. The license the foundational process flows as well as NXP contributing proprietary mixed signal process flows.

Singapore is also where NXP and TSMC have successfully operated <unk> at 200 millimeter joint venture for over 25 years.

Phase one of the <unk> joint venture Fab will support 130 nanometer to 40 nanometer mixed signal power management and analog products targeting the automotive industrial consumer and mobile end markets.

Speaker Change: We are very confident to partner with when Gov, and independent trailing edge foundry located in Taiwan.

Speaker Change: <unk> largest shareholder is TSMC, which owns approximately 30% of <unk> and Fitch will help to assure the long term success of the joint venture.

When fully operational and trained 29, the federal produced 55000 wafers per month.

Speaker Change: From a financial perspective, and as Steve will make a total investment of $2 8 billion between 2024 and 2028 with the peak investment period being in 2025.

And there was a phase II option to expand the fab, providing an additional 45000 wafers per month.

Including 28 nanometer process flows.

A key factor for the long term success of the joint venture is the TSMC. The license the foundational process flows as well as NXP contributing proprietary mixed signal process flows.

Speaker Change: This investment enables NXP to address about $4 billion of incremental annual revenue for which the capacity has not been available to us before.

Steve: Furthermore, this joint venture opens the door to a strategic roadmap to eventually consolidate our 200 millimeter internal factories, all the time into a very cost competitive footprint.

We are very confident to partner with when Gov, and independent trailing edge foundry located in Taiwan.

<unk> largest shareholder is TSMC, which owns approximately 30% of rank us at which will help to assure the long term success of the joint venture.

Steve: And now I would like to pass the call over to you Bill for a review of our financial performance.

From a financial perspective, and as Steve will make a total investment of $2 8 billion between 2024 and 2028 with the peak investment period being in 2025.

Bill: Thank you Terry and good morning to everyone on today's call.

Bill: As Kurt has already covered the drivers of the revenue during Q2.

Bill: And provided our revenue outlook for Q3, I will move to the financial highlights.

This investment enables NXP to address about $4 billion of incremental annual revenue for which the capacity has not been available to us before.

Bill: Overall, the Q2 financial performance was good.

Bill: Revenue non-GAAP gross margin operating expenses and distribution channel inventory all came in line with our guidance.

Furthermore, this joint venture opens the door to a strategic roadmap to eventually consolidate our 200 millimeter internal factories.

Bill: Turning to Q2 specifics.

All the time into a very cost competitive footprint.

Bill: <unk> revenue was $3 <unk> 7 billion down 5% year on year.

And now I would like to pass the call over to you Bill for a review of our financial performance.

Bill: We generated $1 eight 3 billion and non-GAAP gross profit.

Thank you Terry and good morning to everyone on today's call.

Bill: And reported a non-GAAP gross margin of 58, 6%.

As Kurt has already covered the drivers of the revenue during Q2 and.

Bill: Up 20 basis points year on year.

And provided our revenue outlook for Q3.

Bill: And 10 basis points above the midpoint of our guidance range.

I will move to the financial highlights.

Bill: Total non-GAAP operating expenses.

Overall, the Q2 financial performance was good.

Bill: Were $760 million or 24, 3% of the revenue.

Speaker Change: Revenue non-GAAP gross margin operating expenses and distribution channel inventory all came in line with our guidance.

Bill: Down $11 million year on year.

Bill: This was $5 million below the midpoint of our guidance due to lower than anticipated hiring.

Turning to Q2 specifics.

Revenue was 312 7 billion down 5% year on year.

Bill: From a total operating profit perspective, non-GAAP GAAP operating profit was 1.07 billion and non-GAAP operating margin was 34, 3% down.

We generated $1 83 billion and non-GAAP gross profit and.

And reported a non-GAAP gross margin of 58, 6%.

Bill: Down 70 basis points year on year, and up 30 basis points above the midpoint of our guidance.

Speaker Change: Up 20 basis points year on year.

And 10 basis points above the midpoint of our guidance range.

Bill: non-GAAP interest expense was $67 million.

Total non-GAAP operating expenses.

Bill: With taxes for ongoing operations of $169 million or a 16, 8% non-GAAP effective tax rate.

Were $760 million.

24, 3% of the revenue.

Down $11 million year on year.

Bill: Noncontrolling interest was $6 million.

This was $5 million below the midpoint of our guidance due to lower than anticipated hiring.

Bill: Stock based compensation, which is not included in our non-GAAP earnings was $114 million.

From a total operating profit perspective, non-GAAP GAAP operating profit was 1.07 billion and non-GAAP operating margin was 34, 3% down.

Bill: Taken together, we delivered non-GAAP earnings per share of $3 20.

Bill: Consistent with our guidance.

Down 70 basis points year on year, and up 30 basis points above the midpoint of our guidance.

Bill: Now I would like to turn to the changes in our cash and debt.

Bill: Our total debt at the end of Q2 was $10 one 8 billion.

Speaker Change: non-GAAP interest expense was $67 million.

Bill: With our cash balance of $3, two 6 billion down $49 million sequentially.

With taxes for ongoing operations of $169 million or a 16, 8% non-GAAP effective tax rate.

Bill: Due to the cumulative effect of capital returns Capex investments and cash generation during Q2.

Noncontrolling interest was $6 million.

Bill: The resulting net debt was $6 92 billion.

And stock based compensation, which is not included in our non-GAAP earnings was $114 million.

Bill: And we exited the quarter with a trailing 12 month adjusted EBITDA of $5 3 billion.

Taken together, we delivered non-GAAP earnings per share of $3 20.

Our ratio of net debt to trailing 12 month adjusted EBITDA at the end of Q2 was one three times and our 12 month adjusted EBITDA interest coverage ratio was 23 one times.

Consistent with our guidance.

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

Our total debt at the end of Q2 was $10 one 8 billion.

Bill: During Q2, we paid $260 million in cash dividends.

With our cash balance of $3, two 6 billion down.

Down $49 million sequentially.

And repurchased $310 million of our shares.

Due to the cumulative effect of capital returns Capex investments and cash generation during Q2.

Bill: Together, we returned $570 million to shareholders.

Bill: Representing 99% of non-GAAP free cash flow.

The resulting net debt was $6 92 billion.

Bill: After the end of Q2 and through Friday July 19.

And we exited the quarter with a trailing 12 month adjusted EBITDA of $5 3 billion.

Bill: We repurchased an additional $69 million of our shares under an established <unk> Dash one program.

Our ratio of net debt to trailing 12 month adjusted EBITDA at the end of Q2 was one three times and our 12 month adjusted EBITDA interest coverage ratio was 23 one times.

Bill: Turning to working capital metrics days.

Bill: Days of inventory was 148 days, an increase of four days sequentially, while distribution channel inventory was one seven months or just over seven weeks.

During Q2, we paid $260 million in cash dividends.

Speaker Change: And repurchased $310 million of our shares.

Bill: The combination of balance sheet inventory and channel inventory was about 200 days of inventory.

Together, we returned $570 million to shareholders.

Bill: Days receivable were 27 days up one day sequentially and days payable were 64 days a decrease of one day versus the prior quarter.

Presenting 99% of non-GAAP free cash flow.

After the end of Q2 and through Friday July 19th.

We repurchased an additional $69 million of our shares.

Bill: Taken together, our cash conversion cycle was 111 days.

Under an established <unk> dash one program.

An increase of six days versus the prior quarter.

Turning to working capital metrics days.

Bill: Cash flow from operations was $761 million in.

Days of inventory was 148 days, an increase of four days sequentially, while distribution channel inventory was $1 seven months or just over seven weeks.

Bill: And net Capex was $184 million or 6% of revenue, resulting in non-GAAP free cash flow of $577 million or about 18% of revenue.

The combination of balance sheet inventory and channel inventory was about 200 days of inventory.

Bill: Turning to our expectations for the third quarter.

As Kurt mentioned, we anticipate Q3 revenue to be $3 billion to $5 billion, plus or minus about $100 million.

Days receivable were 27 days up one day sequentially and days payable were 64 days a decrease of one day versus the prior quarter.

Kurt: At the midpoint this is down 5% year on year and up 4% sequentially.

Taken together, our cash conversion cycle was 111 days.

Kurt: We expect non-GAAP gross margin to be about 58, 5% plus or minus 50 basis points.

An increase of six days versus the prior quarter.

Cash flow from operations was $761 million.

Kurt: As Kirk noted in his prepared remarks, we will continue to stage inventory in the channel to support growth in future periods.

Net capex was $184 million or 6% of revenue, resulting in non-GAAP free cash flow of $577 million or about 18% of revenue.

Speaker Change: Our guidance assumes approximately $1 eight months in distribution channel inventory exiting Q3.

Turning to our expectations for the third quarter.

As Kurt mentioned, we anticipate Q3 revenue to be three to 5 billion plus or minus about $100 million.

Kurt: Operating expenses are expected to be $760 million.

Kirk: Plus or minus $10 million.

Kirk: Taken together, we see non-GAAP operating margin to be 35, 1% at the midpoint.

At the midpoint this is down 5% year on year and up 4% sequentially.

Kirk: We estimate non-GAAP financial expense to be $67 million.

We expect non-GAAP gross margin to be about 58, 5% plus or minus 50 basis points.

Kirk: With the non-GAAP tax rate to be 16, 8% of profit before tax.

As Kirk noted in his prepared remarks, we will continue to stage inventory in the channel to support growth in future periods.

Noncontrolling interest and other will be about $9 million.

Kirk: For Q3, we suggest for modeling purposes.

Our guidance assumes approximately $1 eight months in distribution channel inventory exiting Q3.

Kirk: We use an average share count of 258 5 million shares.

Kirk: We expect stock based compensation, which is not included in our non-GAAP guidance to be $116 million.

Operating expenses are expected to be $760 million.

Plus or minus $10 million.

Kirk: For capital expenditures, we expect to be around 6%.

Kirk: Together, we see non-GAAP operating margin to be 35, 1% at the midpoint.

Kirk: Taken together at the midpoint this implies a non-GAAP earnings per share of $3 42.

We estimate non-GAAP financial expense to be $67 million.

Before going to my closing remarks.

With the non-GAAP tax rate to be 16, 8% of profit before tax.

Speaker Change: I'll provide additional details of the SMC joint venture as discussed by <unk> earlier.

Noncontrolling interest and other will be about $9 million.

Speaker Change: The total cost of the joint venture will be $7 8 billion.

For Q3, we suggest for modeling purposes.

Use an average share count of 258 5 million shares.

Speaker Change: The NXP investment into debenture is $2 8 billion made up of.

We expect stock based compensation.

Speaker Change: One 6 billion commitment for a 40% equity stake in the joint venture.

Which is not included in our non-GAAP guidance to be $116 million.

Speaker Change: And an additional $1 2 billion investment for long term capacity access.

For capital expenditures, we expect to be around 6%.

vanguard: Vanguard will invest $3 1 billion made up of $2 4 billion for a 60% equity stake.

Taken together at the midpoint this implies a non-GAAP earnings per share of $3 42.

vanguard: And an additional $700 million per long term capacity access.

Before going to my closing remarks.

I will provide additional details of the SMC joint venture as discussed earlier.

vanguard: The remainder of the funding will be provided by other sources in the form of subsidies and loan guarantees in Singapore.

Kirk: Earlier.

The total cost of the joint venture will be seven 8 billion.

vanguard: This joint venture will not consolidate into Nxp's financial statements.

The NXP investment into debenture is $2 8 billion made up of <unk>.

Speaker Change: But the profits and losses will be reflected under the equity accounted investees in our non-GAAP income statement.

One 6 billion commitment for a 40% equity stake in the joint venture.

Kirk: And then an additional $1 2 billion investment for long term capacity access.

Speaker Change: The investment will be funded from cash flow from ongoing operations with no need to raise additional debt.

Vanguard will invest $3 1 billion made up of $2 4 billion for a 60% equity stake.

Speaker Change: Additionally, the joint venture will provide approximately 200 basis points of gross margin expansion to our total corporate gross margin when fully operational in 2029.

An additional $700 million per long term capacity access.

The remainder of the funding will be provided by other sources in the form of subsidies and loan guarantees in Singapore.

Speaker Change: The gross profit benefit is derived from the incremental revenue.

This joint venture will not consolidate into Nxp's financial statements.

Speaker Change: The benefits of the increased to 300 millimeter wafer size.

Speaker Change: And the avoidance of typical margin stacking when buying material in the commercial foundry market.

But the profits and losses will be reflected under the equity accounted investees in our non-GAAP income statement.

Speaker Change: So in closing looking through the remainder of 2024.

The investment will be funded from cash flow from ongoing operations with no need to raise additional debt.

I would like to highlight three areas of focus.

Speaker Change: With the SMC and EMC investments there is no change to our capital allocation policy.

Additionally, the joint venture will provide approximately 200 basis points of gross margin expansion to our total corporate gross margin when fully operational in 2029.

Speaker Change: We have returned $2 4 billion or 81% of the free cash flow generated over the last 12 months.

Speaker Change: Furthermore, we will continue to be active in the market repurchasing NXP shares.

The gross profit benefit is derived from the incremental revenue.

The benefits of the increased to 300 millimeter wafer size.

Speaker Change: Second we.

Speaker Change: We will continue to be disciplined to manage what is in our control and stay within our long term financial model specifically, we expect our gross margin will continue to perform at or above the high end of the long term model.

Kirk: And the avoidance of typical margin stacking when buying material in the commercial foundry market.

So in closing looking through the remainder of 2024.

I'd like to highlight three areas of focus.

Speaker Change: And then lastly, we feel confident to resume sequential growth through the second half.

First with the SMC and SMC investments there is no change to our capital allocation policy.

Speaker Change: While we continue to stage inventory in the channel and a targeted and controlled manner.

We have returned $2 4 billion or 81% of the free cash flow generated over the last 12 months.

I would like to now turn it back to the operator for your questions.

Speaker Change: Thank you if you'd like to ask a question. Please press star one one.

Furthermore, we will continue to be active in the market repurchasing NXP shares.

Speaker Change: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Second.

We will continue to be disciplined to manage what is in our control and stay within our long term financial model specifically, we expect our gross margin will continue to perform at or above the high end of the long term model.

Our first question comes from Vivek Arya with Bank of America Securities. Your line is open.

Vivek Arya: Alright, Thanks for taking my question for this calendar year, Curt Youre, suggesting total sales down low single digits.

Speaker Change: As I mentioned I think that's the best Q4 up mid to high single digit sequentially normally your Q4s are kind of flat to down.

Kirk: And then lastly, we feel confident to resume sequential growth through the second half.

While we continue to stage inventory in the channel and a targeted and controlled manner.

Vivek Arya: <unk>.

Speaker Change: Curious what is giving NXP the confidence that you can have sequential growth in Q4 are there certain end markets. You think will do better than seasonality or is this all kind of channel inventory and just trying.

I'd like to now turn it back to the operator for your questions.

Thank you if you'd like to ask a question. Please press star one one.

If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Speaker Change: I understand.

Speaker Change: The dynamics as you see it for Q4 right now.

Speaker Change: Yes, thanks, and good morning Vivek.

Our first question comes from Vivek Arya with Bank of America Securities. Your line is open.

Speaker Change: Certainly it's multichannel refill.

Speaker Change: Tried to be very specific in my prepared remarks that we continue to be very thoughtful and cautious with trying to refill view, we've worked very hard over a long period of time to keep the channel lean. So we want to really tune this to the growth in the coming quarters in a careful manner. So no that channel is.

Alright, Thanks for taking my question for this calendar year, Curt Youre, suggesting total savings down low single digit parts. As Bill also mentioned I think that suggests Q4 up mid to high single digit sequentially.

Normally your Q4 is that kind of flat to down so im curious.

Curious what is giving NXP the confidence that you can have sequential growth in Q4 are there certain end markets. You think will do better than seasonality or is this all kind of channel inventory at retail I'm just trying to understand.

Speaker Change: Gonna go nowhere near our longer term target of two and a half months. So thats stays for next year.

Speaker Change: We will go to one eight months in the third quarter, and then may be a little bit further up in the in the fourth quarter. So no that's not it.

The dynamics as you see it for Q4 right now.

Yes, thanks, and good morning Vivek.

Speaker Change: What is much more behind that continued resumption of growth more in the second half, which then includes quarter four.

Certainly it's multichannel refill.

I tried to be very specific in my prepared remarks that we continue to be very thoughtful.

<unk> is a reacceleration of automotive.

Speaker Change: You'll see that actually in the third quarter I mean, we turned the corner from.

Cautious with China Refill V. We've worked very hard over a long period of time.

Speaker Change: From a quarter two performance in automotive, which was a mid single digit decline to lower middle mid single digit growth sequentially in automotive.

To keep the channel leave so we want to really tune this to the growth in the coming quarters in a careful manner. So no. The channel is going to go nowhere near our longer term target of two and a half months so that stays for next year.

And we definitely want to continue.

Speaker Change: Which has two legs. One is company specific drivers, which is led by radar, but also a couple of other new platforms, which are ramping but also less and less need for digestion of over inventory at our tier one automotive customers will be getting less while at the same time.

We will go to one eight months in the third quarter, and then maybe a little bit further up.

In the fourth quarter, so no that's not it.

What is much more behind that continued resumption of growth more in the second half, which then includes quarter four.

Speaker Change: Also have to say in this call it takes longer than before so it reaches now into the third quarter.

Is a reacceleration of Automotives.

You will see that actually in the third quarter I mean, we turned the corner from from.

Speaker Change: We were hopeful it would and a little a little earlier, so that is a protracted lower bridges, which is one of the reasons why actually the second half growth is a little less than that we had assumed earlier still at dusk growth. So automotive is a source of debt.

From a quarter two performance in automotive, which was a mid single digit decline to now mid single digit growth sequentially in automotive and we definitely want to continue.

Speaker Change: The RFID secure <unk>, which I mentioned earlier is a company specific growth, which is going to be with us both in the third as well as in the in the fourth quarter.

Which has two legs. One is company specific drivers, which is led by radar, but also a couple of other new platforms, which are ramping but also less and less needs for digestion of over inventory at our tier one automotive customers that we'll be getting less while at the same time.

Speaker Change: And we are also optimistic that industrial Iot Bill keep growing from our lean inventory position in the channel.

Also have to say in this call it takes longer than before so it reaches now into the third quarter.

Speaker Change: Alright, Thank you, Greg and just one more on automotive.

We were hopeful it would and a little a little earlier, so that is a protracted lower beaches, which is one of the reasons why actually the second half growth is a little less than that we had assumed earlier still at dusk grower. So automotive is the source of that.

Laura: Post Covid Laura.

Speaker Change: Oems and tier ones.

Speaker Change: Built up a lot of inventory to avoid problems they ran into.

Speaker Change: Recovering.

Speaker Change: Do you think that process is now behind US do you think they will hold to those levels do you think does it start to go back to the prior.

Kurt Sievers: It's really across segments, Stacy. It is about high-run products. The way we think about this is there are certain products which are really hot in the channel. And we have to make sure that we have sufficient of those products on the shelves of our distributors such that they push them instead of competitive products from our peers. So, and there we are a little behind, and our busy to push those products in. And they are, I would say, near the geography, more segment specific. They really go across the board. It's more product specific. Yeah, that's helpful.

The RFID secured <unk>, which I mentioned earlier is a company specific growth, which is going to be with us both in the third as well as in the in the fourth quarter.

Speaker Change: Trends.

Speaker Change: The reason I asked the question is that just as you're kind of signaling somewhat of a thorn in automotive auto production is not that great and there's just a lot of concern.

And we are also optimistic that industrial Iot Bill keep growing from our lean inventory position in the channel.

Speaker Change: That maybe inventory levels are still too high which is why it's kind of pleasantly surprising to hear you'll be somewhat more positive on the automotive company. So maybe just give us a sense of where we are in the supply demand dynamics for automotive in the second half of this year versus what you thought it would be.

Alright, Thank you, Greg and just one more on automotive.

Post Covid Laura.

Oems and tier ones.

Based up a lot of inventory to avoid problems around into.

Unknown Executive: Thank you so much.

Speaker Change: Three months ago.

We are recovering.

Yes, so yes first of all indeed, the latest S&P forecast for Saar for the calendar year 'twenty four dropped a little to a 2% decline. So we grow more in the flattish kind of area and now the forecast of 2% decline. So yes, the the auto macro.

Unknown Executive: Thank you.

Do you think that process is now behind US do you think they will hold to those levels do you think does it start to go back to the prior.

Unknown Executive: And our next question comes from Thomas O'Malley with Barclays. Your line is open.

Thomas O'malley: Hey, Kurt and Bill, thanks for letting me ask a question. My first one's on the comm side. So I think on the last earnings call you talked about the RFID business representing roughly about 50% of the mix. In your comments, it kind of sounds like RFID is still doing well, but pretty much all other areas of the business are more than offsetting. If you look at the growth profile that business going forward, I mean, is RFID kind of 60 plus percent of that business now? And how should we think about that business into the back after you're obviously September you're saying calm down kind of mid single digits.

Trends.

Speaker Change: The reason I asked the question is that just as you're kind of signaling somewhat of a turn in automotive auto production is not that great and there's just a lot of concern.

Speaker Change: <unk> deteriorated a little from the from the fuels, which we had 90 days ago I do believe the bigger factor is.

Speaker Change: That maybe inventory levels are still too high which is why it's kind of pleasantly surprising to hear you'll be somewhat more positive on the automotive company. So maybe just give us a sense of where we are in the supply demand dynamic for automotive in the second half of this year versus what you thought it would be.

Speaker Change: Is actually that indeed see inventory digestion as the tier one automotive customers switches to direct customers of NXP. So that is the.

Speaker Change: The 60% of our automotive business, which goes through direct.

Kurt Sievers: But is there continued RFID growth with other stuff falling off faster? Just could you give us the profile how that business to trend going forward? Yeah.

That takes longer which indeed is a function of two things.

Three months ago.

Speaker Change: Yes, so yes first of all indeed, the latest S&P forecast for Saar for the calendar year 'twenty four dropped a little to a 2% decline. So we were more in the flattish kind of area and all day forecast of 2% declines so yes, the auto macro.

Speaker Change: One is they are further down adjusting in some cases their inventory targets.

Kurt Sievers: Hey, Tom. I'm sorry. And you might have been confusing here to be very specific. RFID is not 50% of that segment. What is 50% of the segments by the end of last year, what was then 50% is what we call secure cards, which includes payment cards, transport cards, and RFID and security. So the RFID is a part of the 50% Tom. And for the rest, everything you said is right; the RFID keeps growing. It keeps growing into Q3; it will keep growing sequentially into Q4, but it is less than 50% of the total, which is why it is easily offset by the rest.

Speaker Change: And it is all over the place so for our customers inventory target range between two and 12 weeks. So we have automotive tier one customers will go for a 12 week targets and others, who are as far down as the two week targets.

<unk> deteriorated a little from the from the fuels, which we had 90 days ago I do believe the bigger factor is.

Speaker Change: We have our views on this and I guess, we will discuss a bit more than that.

Actually that indeed see inventory digestion at the tier one automotive customers switches to direct customers of NXP. So that is.

Speaker Change: That call here because going solo.

Speaker Change: Clearly the leads to a pretty sharp needs to refill later.

The 60% of our automotive business, which goes through direct.

Speaker Change: That led to the whole supply crisis in the first place a couple of years ago.

That takes longer which indeed is a function of two things.

Speaker Change: But they are adjusting these targets on the go and that is also what keeps us.

One is they are further down adjusting in some cases their inventory targets.

Speaker Change: To be very transparent keeps us growing a little bit less into quarter. Three then we would have thought 90 days ago, because that keeps going up with lora.

Kurt Sievers: And the rest is then and again, here the numbers from the end of last year, the legacy digital networking business is about 30% or was about 30% by the end of last year. And this is where we said we selectively start to end of life products after kind of eight years collecting good cash from that from that path. And it is the pretty lumpy radio power business or power business for the mobile base station, which at the end of last year was 20%. And that is hanging in there. I would say it's kind of up and down every other quarter, but in the end, more on the downward slope.

And it is all over the place so for our customers inventory targets range between two and 12 weeks. So we have automotive tier one customers will go for a 12 week targets and others, who are as far down as the two week targets.

Speaker Change: Where exactly it's going to it's going to land.

Vivek Arya: <unk> is hard to say vivek.

Vivek Arya: So it's hard to say what the what the target average of those of those inventory.

We have our views on this and I guess, we will discuss a bit more than that.

Inventory and numbers is from the tier ones because it's also going to change probably how they think about their future if they get a higher call offs from the Oems They will start to want to increase their inventories again pretty quickly.

That call here because going solo.

Clearly the leads to a pretty sharp needs to refill later.

That led to the whole supply crisis in the first place a couple of years ago.

Vivek Arya: But again I can tell you today that targets are between two and 12 weeks.

But they are adjusting these targets on the go and that is also what keeps us.

Speaker Change: And we still have a little bit of work to do in the third quarter to get there, but youll see it is already much less than before which is indeed, why our automotive growth has not snapped back into positive sequential and into what is only a low single digits <unk> decline, which was a high single digit annual decline in the past quarter. So youll see the tie.

Kurt Sievers: So basically think about this whole comes in for a segment end of last year, 50% secure cards, including RFID, 30% legacy digital networking, 20% RF power, and the only structurally growing part in there is actually the RFID.

To be very transparent keeps us growing a little bit less into quarter. Three then we would have thought 90 days ago, because that keeps going a bit lower.

Where exactly it's going to it's going to land.

It's hard to say Vivek.

So it's hard to say what the what the target average of those of those inventory.

Speaker Change: This is already changing but we're not through.

Thomas O'malley: Super helpful. And then if I think about that trajectory, what you normally see with mobile in the fourth quarter and kind of your commentary about being kind of at the low end of your initial targets are kind of low single digits total revenue down year over year. I guess the last two pieces are just the industrial and IoT and auto into the fourth quarter. You kind of mentioned, hey, auto was down high single digits year over year, now with low single digits year over year. Is your expectation for December to kind of get to that year-over-year growth?

Mike: Thank you Mike.

Inventory numbers is from the tier ones because it's also going to change probably how they think about their future if they get a higher call offs from the Oems David start to want to increase their inventories again pretty quickly.

Mike: Thank you.

Speaker Change: Next question comes from CJ Muse with Cantor Fitzgerald Your line is open.

CJ Muse: Yes. Good morning, good afternoon, and thank you for taking the question I guess first question just to follow up on the auto side.

But again I can tell you today that our targets are between two and 12 weeks.

CJ Muse: Can you kind of drill down by end market.

And we still have a little bit of work to do in the third quarter to get there, but you will see it is already much less than before which is indeed, why our automotive growth has not snapped back into positive sequential and into what is only a low single digits annual decline, which was a high single digit annual decline in the past quarter. So youll see the tie.

Speaker Change: Between radar BMS.

Speaker Change: Advanced analog and really kind of I guess help us understand where you think inventories clear and maybe where they're still remain excesses and then as we look into 2025, how are you thinking about acceleration.

Bill Bats: Or are you expecting most of that sequential growth into the fourth quarter to get you to that low single digits year over year to come from industrial and IoT? Thank you.

Speaker Change: By these different segments.

This is already changing but we all know through.

Speaker Change: Yes, so realm.

Thank you Pat.

Speaker Change: Relative to how is the inventory at the tier ones between those different product segments.

Thank you. Our next question comes from CJ Muse with Cantor Fitzgerald. Your line is open.

Speaker Change: It is completely customer specific secret there is no. There is no overriding pattern because it really dependent on what day, what they thought they had to order through all of this entity and our time during the last the last two years.

Yes. Good morning, good afternoon, and thank you for taking the question I guess first question just to follow up on the auto side.

Can you kind of drill down by end market.

Between radar BMS.

Speaker Change: So we don't have a pet on bare ctrip.

Advanced analog and really kind of I guess help us understand where you think inventory square and maybe where there is still remained excesses and then as we look into 2025, how are you thinking about acceleration.

Speaker Change: There is no answer to that question because it is absolutely different customer by customer. We also have tier one customers, where we are done with inventory digestion, which which is actually driving the growth into the third quarter, where none of the product categories has any more surplus inventory. So it's a completely uneven picture.

By these different segments.

Yes, so rather.

Relative to how is the inventory at the tier ones between those different product segments.

Speaker Change: And secondly mind you that they are targets are not the same.

Speaker Change: I think I said to Vivek earlier targets range between two and 12 weeks. So the one was declared 12 weeks as being on target of no no over inventory the other with <unk> I still have a weak too much because my target is too. So therefore I can't answer that question.

It is completely customer specific ctrip. There is no there is no overriding pattern.

Cause it really dependent on what day, what they thought they had to order through all of this and CNR time during the last the last two years.

So we don't have a pet on bare ctrip.

Speaker Change: It's just all over the place.

There is no answer to that question because it is absolutely different customer by customer. We also have tier one customers, where we are done with the inventory digestion, which is actually driving the growth into the third quarter, where none of the product categories has any more surplus inventory. So it's a completely.

Speaker Change: However in general our accelerated growth drivers think about the electrification BMS chips think about <unk> 32.

Speaker Change: Core rides processing think about radar data tend to grow now anyway, because they all have ramping platforms in the second half, which are overpowering I would say the inventory digestion, which is why we called it out as company specific drivers, which is above our heads of the inventory digestion in any case in the <unk>.

Even picture and secondly, mind, you that step targets are not the same.

I think I said to Vivek earlier targets range between two and 12 weeks. So the one was declared 12 weeks as being on target of no no over inventory the other with <unk> I still have a weak too much because my target is too. So therefore I can't answer that question.

Yossi Jay: First half and of course Thats going to continue next Yossi Jay.

Speaker Change: But then the base is also going to be fine because by then.

Speaker Change: So all the rest of the business, which might still see some inventory digestion will be will be cleared through.

It's just all over the place.

However in general our accelerated growth drivers think about the electrification BMS chips think about F 32.

Speaker Change: Very helpful and I guess, just a quick follow up.

Speaker Change: Given kind of the change in your revenue outlook for the year.

Core rides processing think about radar they tend to grow now anyway, because they all have ramping platforms in the second half.

Speaker Change: Still looking for strong growth into Q4 and 2025, how are you thinking about managing utilization rates.

Speaker Change: Yeah, Hey, Sanjay this is bill so right now on Utilizations on our internal factories, we plan to run them for the rest of the year in the low seventies, we don't expect to bring them up we're fully utilize them until 2025 as you can see we had a bit higher inventory on our.

Our overpowering I would say the inventory digestion, which is why we called it out as company specific drivers, which is above our heads of the inventory digestion in any case in the second half and of course, that's going to continue next CFC Jay.

But then the base is also going to be fine because by then.

Speaker Change: <unk> and <unk>.

So all the rest of the business, which might still see some inventory digestion.

Speaker Change: Again, we probably have all been about 25 days in theory that belongs into the channel. So we'll navigate through that another 10 days, a strategic inventory and the remainder 10 days of.

<unk> will be cleared through.

Speaker Change: Very helpful and I guess, just a quick follow up given kind of the change in your revenue outlook for the year.

Speaker Change: And orders that come in within a quarter that we want to serve the upside.

Still looking for strong growth into Q4 and 2025, how are you thinking about managing utilization rates.

Speaker Change: So we think inventory.

Speaker Change: <unk> gets back in balance sometime in 2025 at this current picture.

Yeah, Hey, Sanjay this is bill so right now on Utilizations on our internal factories, we plan to run them for the rest of the year in the low seventies, we don't expect to bring them up we're fully utilize them until 2025 as you can see we had a bit higher inventory on our.

Speaker Change: Thanks, so much.

Speaker Change: Thank you and our next question comes from Ross Seymore with banks with Deutsche Bank. Your line is open.

Ross Seymore: Hi, guys. Thanks for me to ask a question I wanted to pivot over to the industrial and Iot segment. Kirk do you think that is a demand issue on the core industrial side or is it similar to the inventory burn dynamic.

<unk> sheath.

Again, we'd probably have all been about 25 days in theory that belongs into the channel. So we'll navigate through that another 10 days a strategic inventory in the remainder of 10 days.

Speaker Change: So much about on the automotive side and really what I'm getting at is is that going to start growing more meaningfully on a sequential basis due to the core industrial just when you start shipping closer to demand or is this especially in the U S and Europe are truly a demand issue.

And orders that come in within a quarter that we want to serve the upside.

So we think inventory.

Speaker Change: It gets back in balance sometime in 2025 at this current picture.

Speaker Change: Yeah. Thanks, Good morning Ross.

Speaker Change: It is indeed in our view a demand issue in the in the U S and Europe. So the U S and Europe is fair.

Speaker Change: Thanks, so much.

Thank you and our next question comes from Ross Seymore with Bank with Deutsche Bank. Your line is open.

Speaker Change: We have more of the core industrial business.

Speaker Change: We clearly see it as a it is a macro driven demand issue and at least in our case not not really that much of a function of over inventory.

Hi, guys. Thanks, I'm going to ask a question I wanted to pivot over to the industrial and Iot segment. Kirk do you think that is.

Land issue on the core industrial side or is it similar to the inventory burn dynamic.

Speaker Change: And yes, there, we do see growth into into the third and fourth quarter is actually more from China.

So much about on the automotive side and really what I'm getting at is is that going to start growing more meaningfully on a sequential basis due to the core industrial just when you start shipping closer to demand or is this especially in the U S and Europe are truly a demand issue.

And that is more or less from the consumer Iot part of the business, So that 40%, which is more Iot what we call Iot that is actually doing pretty well.

Speaker Change: Which by the way is a matter of fact for China overall.

Yeah. Thanks, Good morning Ross.

Speaker Change: So when I think about the geographies and holiday all they've done in the past quarter in the second quarter, then actually China is the one which is growing both year on year as well as serve or which has grown both year on year as well as well as sequentially and that also plays into industrial rather than the consumer Iot as.

In the U S and Europe.

So the U S and Europe is fair.

Speaker Change: We have more of the core industrial business and Debbie clearly see it as a it is a macro driven demand issue and at least in our case not not really that much of a function of over inventory.

Speaker Change: It's the piece, which is putting it so answer is in short.

And yes, there, we do see growth into into the third and fourth quarter is actually more from China.

Speaker Change: It is a demand issue very much from from the Americas.

Speaker Change: And Europe in core industrial.

Speaker Change: And that is more or less from the consumer Iot part of the business, So that 40%, which is more Iot what we call Iot that is actually doing pretty well.

Speaker Change: Thanks for that I guess as my follow up then switching gears over to one for Bill I know you guys arent changing your capital allocation, but you talked about the <unk>.

Which by the way as a matter of fact for China overall.

Bill: Capex, peaking next year and I believe you have a slug of debt due again next year any sort of change to the Capex, we should think about and or just the thoughts on kind of how free cash flow might develop given those two dynamics as we try to judge what you may or may not do on dividends and share repurchase et cetera.

Speaker Change: So when I think about the geographies and holiday all they've done in the past quarter in the second quarter, then actually China is the one which is growing both year on year as well as Orbitz has grown both year on year as well as well as sequentially and that also plays into industrial rather than the consumer Iot as the as the.

Speaker Change: Yeah, Hey, Ross relate to our capital allocation again as I stated there is no change we're going to be continually active buying back the stock continue making sure our dividend is at 25% of our cash flow from operations is right now I think we are.

It's the piece, which is putting it so answer is in short.

It is a demand issue very much from from the Americas.

And Europe in core industrial.

Thanks for that I guess as my follow up then switching gears over to one for Bill I know you guys are changing your capital allocation, but you've talked about the SMC.

Speaker Change: Around 28 on a trailing standpoint.

Speaker Change: We're going to continue to do some small M&A tuck ins that we been doing over the last several quarters.

Speaker Change: Capex, peaking next year I believe you have a slug of debt due again next year any sort of change to the Capex, we should think about and or just the thoughts on kind of how free cash flow might develop given those two dynamics as we try to judge what you may or may not do on dividends and share repurchase et cetera.

Speaker Change: Related to the timing of the cash for both EMC and the SMC. They are at different times and they will show up in our cash flow statement in different areas.

Speaker Change: So think about the equity investments for both those debentures will show up in our equity investment accounting on our cash flow statement and again those are spread out for <unk>.

Yeah, Hey, Ross relates to our capital allocation again as I stated there is no change we're going to be continually active buying back the stock continue making sure our dividend is at 25% of our cash flow from operations is right now I think we are.

Speaker Change: <unk>, specifically think about five years, where the first three years represent about 75% of the $2 8 billion that we talked about and the remainder over the.

Around 28 on a trailing standpoint.

We're going to continue to do some small M&A tuck ins that we been doing over the last several quarters.

Speaker Change: So two years.

Speaker Change: As you know we also have an investment of a 10% equity position in <unk> again, similar or different timing in equity.

Related to the timing of the cash for both EMC and the SMC. They are at different times and they will show up in our cash flow statement in different areas.

Speaker Change: And then there's a portion of we break that out of that $2 8 billion that I talked about.

Speaker Change: The one six is equity the $1 two will come out of working capital operations, it's more of a.

Think about the equity investments for both of those debentures will show up in our equity investment accounting on our cash flow statement and again those are spread out for BSM.

Speaker Change: Our guarantee of supply, where we have to actually get more supply upfront. So that we can service our customers and be able to deliver incremental revenue because at this point in time, we just don't have that capacity available based on all the design wins, we have that are going to ramp at that timeframe. So that's the strategic nature of this debt.

<unk>, specifically think about five years, whereas the first three years represent about 75% of the $2 8 billion that we talked about and the remainder over the third.

For two years.

As you know we also have an investment of 10% equity position in an EMC against similar but different timing in equity.

Speaker Change: Sure.

Speaker Change: Related to Capex, specifically, we're going to stay at the low end of our model at 6% I don't see us going above that anytime soon and again, we will probably update the capex as a percentage of revenue during our November Investor day.

Speaker Change: And then there's a portion of we break that out of that $2 8 billion that I talked about.

The one six is equity the $1 two will come out of working capital operations, it's more of a.

Speaker Change: Thank you.

Unknown Executive: Great, thanks Bill. Thank you.

Francois <unk>: Thank you and our next question comes from Francois <unk> with UBS. Your line is open.

Our guarantee of supply, where we have to actually get more supply upfront. So that we can service our customers and be able to deliver incremental revenue because at this point in time, we just don't have that capacity available based on all the design wins, we have that are going to ramp at that timeframe. So that's the strategic nature of this debt.

Unknown Executive: That concludes our question in the intercession.

Kurt Sievers: I'd like to turn the call back over to Kurt Sievers for closing remarks. Yeah, thanks Operator. Yeah, look, we really see that we have now probably the trap clearly behind us, navigated the cycle successfully with what we call the consistent growth margin performance through all of this down cycle period. The company is resuming growth, most importantly both in automotive as well as in industrial IoT. In automotive, turning from a mid-single-digit decline to a mid-single-digit growth now sequentially; in industrial IoT, we stay in the positive growth regime both year-on-year as well sequentially.

Francois: Hi, Thank you very much.

Francois <unk>: Two quick questions. The first one.

Speaker Change: Maybe for Kurt I mean.

Francois <unk>: You mentioned the company specific cumulatively in the second half of the year I was wondering if the driver for it.

Speaker Change: Improvement.

Speaker Change: Could you.

Speaker Change: More specific cannot give more details on what platform and what products pressure than you are.

Sure.

Related to it now on Capex, specifically, we're going to stay at the low end of our model at 6% I don't see us going above that anytime soon and again, we will probably update the capex as a percentage of revenue during our November Investor day.

Speaker Change: Launching any drivers.

You know.

Speaker Change: Driving that.

Speaker Change: You mentioned rate, but I was wondering if you could be a bit more specific.

Thank you.

In the context that.

Speaker Change: We see that the Oems are talking about launches launches.

Thank you and our next question comes from Francois <unk> with UBS. Your line is open.

Speaker Change: The second half, but the demand is.

Speaker Change: Clear for this so I just want to tough.

Hi, Thank you very much.

Kurt Sievers: However, we also have detractors. So the digestion of direct automotive customer inventory takes longer than we had anticipated, and given that we also stay a little bit more muted in terms of how much channel refill, how fast we will do. Those factors play them into our guide for the year being more of a low single-digit decline annually over last year, which is toward the lower end of what our earlier expectations were, but the growth hasn't gone away. It just shifts out, if you will, into next year, which makes us actually quite optimistic, and we will continue to be super vigilant in operating the company in a very responsible way.

Speaker Change: On this.

Two quick questions. The first one.

Speaker Change: Company specific drivers on the platforms and then I have a follow up this year hi, Kevin.

Speaker Change: Maybe for Kurt I mean, you mentioned the company specific cumulatively in the second half of the year I was wondering if the driver for improvement.

Kevin: Yeah sure sure profile.

Kevin: So the growth in automotive in the second half is really is really having to <unk>. The company specific which I will reply to but I have to highlight it is also just moving closer to shipping to end demand not all the way there, but moving closer because of inventory digest from being more behind us than in front of US now on the company specific.

Could you be.

Speaker Change: More specific cannot give more details on what platform and what products specifically you are.

Launching any drivers that is.

No.

Driving that you mentioned right.

I was wondering if you could be a bit more specific.

Kevin: Sites.

So in the context.

Speaker Change: Let me call out indeed radar there.

We see that the Oems are talking about launches launches in the second half, but the demand is.

Speaker Change: We have reps with.

Speaker Change: At least two.

Clear for this so I just wanted to tough to dig on this.

Speaker Change: Tier one automotive companies, which are operating absolutely globally. So they are serving.

Unknown Executive: Thank you very much for the call this morning. Thank you. This does include the program.

No company specific drivers on the platforms and then I have a fuller picture Hi, Kevin.

OEM platforms across the globe, So we're pretty well hedged here relative to end demand from a demand perspective.

Unknown Executive: You may now disconnect.

Yeah sure sure profile.

Unknown Executive: Everyone, have a great day.

So the growth in automotive in the second half is really is really having to <unk>. The company specific which I will reply to but I have to highlight it is also just moving closer to shipping to end demand not all the way there, but moving closer because of inventory digestion being more behind us than in front of US now on the company specific.

Speaker Change: And those are design wins for which we made probably three years ago, or so which are now finally coming into production.

Speaker Change: Everything is being prepared and yes of course, I mean with a Saar of minus 2%. There is always something which is a little less than something which is a little more.

<unk> sites.

Speaker Change: Since it is widespread both geographically and across different Oems.

Let me call out indeed radar there.

We have reps with it.

Speaker Change: We are actually absolutely optimistic that those numbers will come in the way we want them to come in so there hasnt been also any changed over the past couple of quarters in the view of preparing this and.

At least two.

Tier one automotive companies, which are operating absolutely globally. So they are serving.

OEM platforms across the globe. So we are pretty well hedged here relative to end demand from a demand perspective.

Speaker Change: And again it is about radar front.

Speaker Change: <unk> phasing and sized radar platforms for four global Oems.

Speaker Change: Alright.

And those are design wins for solar, which we made probably three years ago, or so which are now finally coming into production.

Speaker Change: Maybe maybe francois.

Speaker Change: You'll need to issue a bit more color.

Francois <unk>: You know that when we talk about radar. It is typically a complete chipset. So we talk about the front end transceiver the microprocessor and in several cases not always it even includes Ethernet connectivity and power management.

Everything is being prepared and yes of course, I mean with a Saar of minus 2%. There is always something which is a little less than something which is a little more.

Since it is widespread both geographically and across different Oems.

Francois <unk>: I appreciate the color. Thank you Kent and maybe the follow up is on the.

Speaker Change: We are actually absolutely optimistic that those numbers will come in the way we want them to come in so there hasnt been also any changed over the past couple of quarters in the view of preparing this.

Maybe more for bill on the on the pricing dynamic.

Speaker Change: Probably a bit too picky here, but your guidance is.

Speaker Change: Is it 10 bps lower on the gross margin side versus the versus Q2.

And again it is about radar.

Speaker Change: <unk> phasing and sized radar platforms for global Oems.

Speaker Change: Shame to ask but.

Speaker Change: Despite higher revenues. So just wanted to check the dynamic on the gross margin and maybe if you could.

Right.

Maybe maybe francois.

She made a bit more color you know that when we talk about radar. It is typically a complete chipset. So we talked about the front end transceiver the microprocessor and in several cases not always even includes Ethernet connectivity and power management.

Speaker Change: Talk about the pricing dynamic in the market would be helpful. Thank you sure. Let me first say about pricing pricing. This year is flattish.

Speaker Change: Again, no increases no decreases that's not caused in the movement in the gross margin again in Q2, we kind of did slightly better by 10 basis points and that was driven by favorable product mix.

I appreciate the color. Thank you Kent.

And then maybe the follow up is on the maybe.

Maybe more for bill on the on the pricing dynamic in them.

Speaker Change: As we transition into Q3, we do see the favorability like you pointed out on the higher revenues over our fixed cost, but this is being offset by slightly unfavorable product mix that we plan to ship.

Probably a bit too picky here, but your guidance is.

Is it 10 bps lower on the gross margin side versus the versus Q2.

You guys seem to ask but.

Speaker Change: So therefore at the moment those two are kind of offsetting each other.

Despite higher revenues.

Just wanted to check the dynamic on the gross margin and maybe if you could.

And just to remind everyone. We shipped over 10000 different part numbers a quarter on average and to be honest with you to manage the mix exactly right is quite difficult and that's why we put the plus or minus 50 basis points on our gross margin now on the positive side, we have multiple tailwind to help improve.

Speaker Change: Talk about the pricing dynamic in the market would be helpful. Thank you sure. Let me first say about pricing pricing. This year is flattish.

Again, no increases no decreases that's not caused in the movement in the gross margin again in Q2, we kind of did slightly better by 10 basis points and that was driven by favorable product mix.

Speaker Change: Our gross margins further both I would say more in the medium and long term.

Speaker Change: We talked about earlier about the internal Utilizations again, we're going to keep them at in the low 70% for the rest of the year because of the balancing our inventory.

As we transition into Q3, we do see the favorability like you pointed out on the higher revenues over our fixed costs, but this is being offset by slightly unfavorable product mix that we plan to ship.

Speaker Change: Expect in 2025 that becomes a tailwind for us as we bring that up.

So therefore at the moment those two are kind of offsetting each other.

Speaker Change: As clearly as revenue improves we get that fall through with fixed costs as we demonstrated in Q3, but unfortunately the mixes.

And just to remind everyone. We ship over 10000 different part numbers a quarter on average and to be honest with you to manage the mix exactly right is quite difficult and that's why we put the plus or minus 50 basis points on our gross margin now on the positive side, we have multiple tailwind to help improve.

Speaker Change: Slightly going the other way.

Speaker Change: The timing of the replenishing our distribution channel it carries higher average.

Speaker Change: Higher margins and so you heard us talk about we're not going back to $2. Five this year. So expect that more in 2025 internally ongoing productivity cost reductions of course, we're doing well.

Speaker Change: Our gross margins further both I would say more in the medium and long term.

We talked about earlier about the internal utilization again, we're going to keep them at in the low 70% for the rest of the year because of the balancing our inventory.

Speaker Change: We continue Abbott is a big drive on really focusing on additional long tail customers with their distribution partners, which over time should benefit.

Speaker Change: As we always talk to continue ramping of our new products, which carry a higher margin and then more longer longer term as I had in my prepared remarks, we expect to improve our 2029 margins by over 200 basis points of whatever the actual 2028 gross margins are driven by our strategic investments in this.

Expect in 2025 that becomes a tailwind for us as we bring that up.

As clearly as revenue improves we get that fall through with fixed costs as we demonstrated in Q3, but unfortunately the mixes.

Slightly going the other way.

Speaker Change: The timing of the replenishing our distribution channel it carries higher average.

Speaker Change: <unk> joint venture again.

Speaker Change: Higher margins and so you heard talk about we're not going back to $2. Five this year, so expect that more in 2025.

Speaker Change: Going to talk more about this on our financial model on November seven and you all know I've hinted many times that 58% is not a final destination.

Internally ongoing productivity cost reductions of course, we're doing well.

We continue to have a big drive on really focusing on additional long tail customers with their distribution partners, which over time should benefit.

Speaker Change: Alright, Thank you very much.

Thank you. Our next question comes from Stacy <unk> with Bernstein Research. Your line is open.

As we always talk to continue ramping of our new products, which carry a higher margin and then more longer longer term as I had in my prepared remarks, we expect to improve our 2029 margins by over 200 basis points of whatever the actual 2028 gross margins are driven by our strategic investments in this.

Stacy: Hi, guys. Thanks for taking my questions.

My first one on your auto comments here I got it.

Speaker Change: A little confused.

Stacy <unk>: So the auto market seems to be worsening versus your prior expectations, but the inventory draining is mostly done you've got some company specific drivers.

Newly the SMC joint venture again.

Speaker Change: Although our expectations better for yourself or worse than they were three months ago is it like you thought you were going to grow high single digits for the year and now it's going to grow mid single digits.

Going to talk more about this on our financial model on November seven and you all know I've hinted many times that 58% is not a final destination.

Speaker Change: Can you frame for us how your overall auto expectations for yourselves have changed over the next over the last 90 days that would be super helpful for me.

Great. Thank you very much.

Thank you. Our next question comes from Stacy <unk> with Bernstein Research. Your line is open.

Stacy <unk>: Yes Stacy.

Hi, guys. Thanks for taking my questions.

Stacy <unk>: I would say our auto with expectations for the second half.

Stacy Aaron Rasgon: My first one on your auto comments here I got them all.

Stacy <unk>: In sum.

Speaker Change: A little confused.

Stacy <unk>: In line with what we had before so I would say, it's similar to what we would have set 90 days ago, but with two moving components underneath the inventory digestion to be done is actually versus so we have more headwinds than we had anticipated some time ago at the same time some of our company specific stuff is actually.

Auto market seems to be worsening versus your prior expectations, but the inventory draining is mostly done you've got some company specific drivers.

To your expectations better.

For yourself or worse than they were three months ago is it like you thought you were going to grow high single digits for the year and now it is going to grow mid single digits.

Stacy <unk>: <unk> better.

Stacy <unk>: Those two things are completely unrelated Stacy it's just it just happens to play out for us that Thats part of the company is actually more in line with what we what we had seen before but again.

The frame for us how your overall auto expectations for yourselves have changed over the next over the last 90 days that would be super helpful for me.

Yes, Hi, Stacy <unk>.

I want to be very transparent the inventory digestion and automotive is a longer drag on us than than I would have thought and I would have talked about 90 days ago, given all the changes on the inventory targets, they have which I explained in an earlier question.

I would say our auto with expectations for the second half.

Our.

In some in line with what we had before so I would say similar to what we would have set 90 days ago, but with two moving components underneath the inventory digestion to be done is actually versus so we have lower headwinds than we had anticipated some time ago at the same time some of our.

Speaker Change: Thank you. Thank you that's helpful for my follow up I was just curious I know the channel inventories not ripping higher but it is ticking higher.

Speaker Change: Where is that inventory and getting it all industrial is in industrial and auto.

The company specific stuff is actually going better.

Those two things are completely unrelated Stacy it's just it just happens to play out for us that that's part of the company is actually more in line with what we what we had seen before but again.

Speaker Change: And it did sound like I think I heard maybe it was bill say two and a half target would be for 2025. So are you still planning to go back to two five months.

Yes.

I want to be very transparent the inventory digestion and automotive is a lower drag on us than I would have thought and I would have talked about 90 days ago, given all the changes on the inventory targets, they have which I explained in an earlier question.

Speaker Change: Yes, Stacy saw several points here, yes, our long term target remains to be two five absolutely I mean, we and.

Speaker Change: And thats not just because it used to be our target, but we went through the whole analysis. What makes sense. What is what is strategically meaningful and it happens to be that indeed, the outcome given our product.

Thank you. Thank you that's helpful for my follow up I was just curious I know the channel inventories not ripping higher but it is ticking higher.

Speaker Change: Segment mix is the two five remains the long term targets.

Speaker Change: What I did say in my prepared remarks is also indeed, we.

Speaker Change: Where is that inventory getting built is it all industrial is in industrial and auto.

Speaker Change: We don't see a case, where we go back to the $2 five at the end of this calendar year I would almost say by far not.

And it does sound like I think I heard maybe it was bill say two and a half target would be for 2025. So are you still planning to go back to two five months.

Speaker Change: And we'd just say that because we don't want to put small smoke and mirrors on this modest as annual outlook is it all driven by by channel refill No no no. It is not.

Yes.

Speaker Change: Yes, Stacy saw several points here, yes, our long term target remains to be two five absolutely.

Speaker Change: And here Stacey I would also say that is a change probably versus 90 days ago 90 days ago, I thought we might want to be a bit more aggressive in refilling the channel.

And that's not just because it used to be our target, but we went through the whole analysis. What makes sense. What is what is strategically meaningful and it happens to be that indeed, the outcome given our product.

Which given the poor macro environment in the Americas, and Europe, we feel it's probably not appropriate.

And segment mix is the two five remains the long term targets.

Speaker Change: That is not lost revenue. So when we have now a little lower outlook than we had before it is just that we do a little less into the channel than what we would have planned earlier.

Speaker Change: I did say in my prepared remarks is also indeed.

We don't see a case, where we go back to the two 5%.

At the end of this calendar year, I would almost say by far north.

Speaker Change: For reasons, which has to do with the macro and we just want to continue to operate the company in a very in a very responsible way. While finally, you asked where does it go into the channel where we pick it up.

And we just say that because we don't want to put small smoke and mirrors on this board.

<unk> annual outlook is it all driven by by channel refill No no no. It has not and here Stacey I would also say that is a change.

Speaker Change: It's really across segments stay as it is about high runner products. The way we think about this.

Property versus 90 days ago, 90 days ago, I thought we might want to be a bit more aggressive in refilling the channel.

Speaker Change: There are certain products, which are really hot in the channel.

Speaker Change: And we have to make sure that we have sufficient of those products on the shelves of our of our distributors such that they push them instead of competitive products from our peers.

Which given the poor macro environment in the Americas, and Europe, we feel it's probably not appropriate.

So that is not lost revenue. So when we have now a little lower outlook than we had before it is just that we do a little less into the channel than what we would have planned earlier for four reasons, which has to do with the macro and we just want to continue to operate the company in a very in a very responsible way now finally youll.

Speaker Change: And there we are a little behind and are busy to push those products and they are.

I would say neither geography more segment specific they really go across the board it's more product specific.

Speaker Change: Got it that's helpful. Thank you so much.

Speaker Change: Yeah.

Speaker Change: Thank you and our next question comes from Thomas O'malley with Barclays. Your line is open.

Where does it go into the channel, where we pick it up.

It's really across segments stay as it is about high runner products. The way we think about this.

Thomas O'malley: Hey, Curt and Bill Thanks for letting me ask a question. My first one is on the comp side. So I think on the last earnings call you talked about the RFID business, representing roughly about 50% of the mix in your comments it kind of sounds like RFID is still doing well, but pretty much all other areas of the business are more than offsetting.

There are certain products, which are really hot in the channel.

And we have to make sure that we have sufficient of those products on the shelves of our of our distributors such that they pushed them instead of competitive products from our peers.

And there we are a little behind and are busy to push those products and they are.

Speaker Change: You look at the growth profile of that business going forward. I mean is RFID kind of 60 plus percent of our business now and how should we think about that business into the back half of the year, Obviously September you're saying calm down kind of mid single digits, but is there a continued RFID growth with other stuff falling off faster just could you give us the profile of how that business to trend going forward.

I'd say, neither geography more segment specific they really go across the board, it's more product specific.

Got it that's helpful. Thank you so much.

Okay.

Thank you and our next question comes from Thomas O'malley with Barclays. Your line is open.

Speaker Change: Yeah, Hey.

Speaker Change: Tom.

Speaker Change: I am sorry, and we might have been confusing year.

Hey, Curt and Bill Thanks for letting me ask a question. My first one is on the comm side. So I think on the last earnings call you talked about the RFID business, representing roughly about 50% of the mix in your comments it kind of sounds like RFID is still doing well, but pretty much all other areas of the business are more than offsetting.

Speaker Change: To be very specific RFID is not 50% of that segment, what is 50% of the segments by by the end of last year about Boston, 50% is what we call secure cards, which includes.

Speaker Change: Payment cards transport comps.

Speaker Change: And RFID and security so the RFID is a part of that 50% and for the rest everything you said is right. The RFID keeps growing it keeps growing into Q3, it will keep growing sequentially into Q4, but it is less than 50% of the total which is why it is.

If you look at the growth profile of that business going forward.

<unk> kind of 60 plus percent of that business now and how should we think about that business into the back half of the year, Obviously September you're saying calm down kind of mid single digits, but is there a continued RFID growth with other stuff falling off faster just could you give us the profile of how that business should trend going forward.

Yes.

Speaker Change: Italy offset by the rest and the rest is then.

Speaker Change: Hey, Tom.

We might have been confusing here.

Speaker Change: And here the numbers from the end of last year. The legacy digital networking business is about 30 or was about 30% by the end of last year and this is where we said we selectively start to end of life products. After kind of eight years collecting good cash from that from that path.

To be very specific RFID is not 50% of that segment, what is 50% of the segments by by the end of last year, what was that 50% is what we call secure cards, which.

<unk>, which includes payment cards transport costs.

And RFID and securities. So the RFID is a part of that 50% and for the rest everything you said is right. The RFID keeps growing it keeps growing into Q3, it will keep growing sequentially into Q4, but it is less than 50% of the total which is.

Speaker Change: And then just a pretty lumpy.

Speaker Change: Radio power business RF power business for the mobile base stations, which at the end of last year was 20%.

Speaker Change: And that.

Speaker Change: Is hanging in there I would say, it's kind of up and down every every other quarter, but <unk> more on the downward slope. So basically think about this whole comms infra segment end of last year, a 50% secure comps, including RFID, 30% legacy digital networking 20%.

Why it is easily offset by the rest and the rest is then and again here the numbers from the end of last year. The legacy digital networking business is about 30 or was about 30% by the end of last year and this is where we said we selectively start to end of life products after kind of eight years collecting good cash.

Speaker Change: RF power and the only structurally growing part and there is actually the RFID.

Speaker Change #100: Super Helpful. And then if I think about that trajectory what you normally see with mobile in the fourth quarter and kind of your commentary about being kind of at the low end of your initial targets or kind of low single digits total revenue down year over year I guess, the last two pieces or just the industrial and Iot and auto into the fourth quarter.

From that from that path.

And then just a pretty lumpy.

Radio power business RF power business for the mobile base stations, which at the end of last year was 20%.

And that debt.

Is hanging in there I would say, it's kind of up and down every every other quarter, but in the end more on the downward slope. So basically think about this whole comms infra segment. The end of last year, a 50% secure comps, including RFID, 30% legacy digital networking 20%.

Speaker Change #101: Kind of mentioned, Hey, auto was down high single digits year over year now downloaded low single digits year over year is your expectation for December to kind of get to that year over year growth or are you expecting most of that sequential growth into the fourth quarter to get you to that low single digit year over year to come from industrial and Iot. Thank you.

RF power and the only structurally growing part and there is actually the RFID.

Speaker Change #101: Hey, Tom look Europe, you are really pushing it a step too far navi, we tried to give a lot of.

Super Helpful. And then if I think about that trajectory what you normally see with mobile in the fourth quarter and kind of your commentary about being kind of at the low end of your initial targets or kind of low single digits total revenue down year over year I guess, the last two pieces or just the industrial and Iot and auto into the fourth quarter.

Speaker Change #102: <unk> for the second half with the guidance of the third quarter I really can't give you all the breakouts on how each segment is going to do in the fourth quarter and honestly speaking Tom. We also don't know that I mean, there are things, which are constantly moving around especially relative to this two to two things one is the <unk>.

Speaker Change: Kind of mentioned, Hey, auto was down high single digits year over year now it's downloaded low single digits year over year is your expectation for December to kind of get to that year over year growth or are you expecting most of that sequential growth into the fourth quarter to get you to that low single digit year over year to come from industrial and Iot. Thank you.

Speaker Change #102: Inventory targets of our tier one automotive customers. The other one is the macro for industrial in Europe, and the U S, which could or could not get better a little earlier or a little later, so honestly speaking I don't know, we just say here the outcome of all of this as you put it all together is going to be this low single digit decline for the for the whole company.

Hey, Tom look Europe, you are really pushing it to step too far and Avi we tried to give a lot of.

Speaker Change #102: Over the over the complete year bucked, the trend and that piece I will tell you the trend in the automotive is a positive one.

Speaker Change: <unk> for the second half with the guidance of the third quarter I really can't give you all the breakouts on how each segment is going to do in the fourth quarter and honestly speaking Tom. We also don't know that I mean, there are things, which are constantly moving around especially relative to this to two things one is the <unk>.

Speaker Change #102: We left the trough in automotive behind us I won't repeat that clear quarter, two was the trough and automotive, which I think was a 9% peak to trough for for automotive.

Speaker Change #102: And it is now coming up how fast is is something we have to see because it's really a function of the inventory digestion.

<unk> targets of our tier one automotive customers. The other one is the macro for industrial in Europe, and the U S, which could or could not get better a little earlier or a little later, so honestly speaking I don't know, we just say here the outcome of all of this as you put it all together is going to be this low single digit decline for the for the whole company.

Thank you Kurt.

Thank you.

Speaker Change #103: Our next question comes from Blayne Curtis with Jefferies. Your line is open.

Blayne Curtis: Thanks, guys. Thanks for squeezing me in actually two questions on auto process occurred I wanted to ask you one of your European competitors have been talking about share gains I know, it's kind of a fair while youre correct me to talk about share, but I'm wondering if you could just talk about particularly in China your share position with auto process and I know you've talked about qualifying Chinese.

Over the over the complete year bucked, the trend and that piece I will tell you the trend in the automotive is a positive one I mean, it's we left the trough in automotive behind us I will not be that clear quarter. Two was the trough and automotive, which I think was a 9% peak to trough for for automotive.

Blayne Curtis: Chinese fab as well he's going to talk about the timing there and the decision to do that.

Speaker Change #105: Yes, hi, Blaine so first of all.

And it is now coming up how fast is it is something we have to see because it's really a function of the inventory digestion.

Speaker Change #106: I just want to be sure everybody knows we are the number one in all the processes worldwide.

Thank you Kurt.

Whatever you hear from peers is typically related to parts of that which is the microcontroller part or the the application process of pop et cetera. If you put it all together you will file.

Thank you.

Our next question comes from Blayne Curtis with Jefferies. Your line is open.

Thanks, guys. Thanks for squeezing me in actually two questions on auto process occurred I wanted to ask you one of your European competitors I'm talking about share gains I know, it's kind of fair while Youre correct me to talk about share, but I'm wondering if you could just talk about particularly in China your share position with audit process and I know you've talked about qualifying Chinese fab as well you can even talk about.

Speaker Change #107: In the third.

Third party evidence that NXP is the number one and keeps being the number one.

Speaker Change #108: And Thats, what we saw for China. So I think in China, we have a fairly strong position in processes, we actually push push the performance very much up so our attempt in our strategy in China is two to two lead customers to higher performance.

The timing there and the decision to do that.

Yes, hi, Blaine so first of all.

Speaker Change #108: Because we know that is where we have the most differentiation.

I just wanted to be sure everybody knows we are the number one in all the processes worldwide.

Speaker Change #108: We all know that Chinese local competition is coming in in the non auto builds on the low end microcontrollers.

Whatever you hear from peers is typically related to pops of debt, which is the microcontroller part or the the application process pop et cetera, If you put it all together.

Speaker Change #108: I think it's just a function of time that they will they'll try to do this also in automotive so all of our.

Speaker Change #108: Our strategy here is to push for the higher performance processes, not microcontrollers, but microprocessors, which for US is to 16, 60 nanometer devises and going forward, even lower and here.

Find enough third party evidence that NXP is the number one and keeps being the number one.

And Thats all social for China, So I think in China, we have a fairly strong position in processes, we actually push push the performance very much up so our attempt in our strategy in China is two to two lead customers to higher performance.

Speaker Change #108: We have a unique and strong position plane. So I feel actually we are in a good place now when it comes to manufacturing absolutely right in.

Speaker Change #108: In our China for China strategy, which is a big requirements in the meantime from our Chinese customers.

Because we know that is where we have the most differentiation.

Speaker Change #108: Our first technical step is provide local manufacturing capability.

We all know that Chinese local competition is coming in in the non auto builds on the low end microcontrollers.

Speaker Change #108: And that includes the Microcontrollers and microprocessors for microprocessors it is quite straightforward.

I think it's just a function of time that they will they'll try to do this also in automotive so all of our.

Speaker Change #109: Of course.

Speaker Change #109: We manufacture them in 16 Finfet.

Strategy here is to push for the higher performance processes, not microcontrollers, but microprocessors, which for US is to 16 60 nanometer devises and going forward, even lower and here I think we have a unique and strong position planes.

Speaker Change #110: From a big Taiwanese.

Speaker Change #110: [laughter] foundry I think we published as earlier does TSMC and TSMC has a fully operational factory in Nanjing in China, which is doing 16 nanometers. So it is a copy exact factory of what they have in Taiwan. So we are just transferring it from Taiwan into into China. So, it's a fairly straightforward process to allow.

I feel actually we are in a good place now when it comes to manufacturing absolutely right.

In our China for China strategy, which is a big requirements in the meantime from our Chinese customers. Our first technical step is provide local manufacturing capability.

Speaker Change #111: Our local manufacturing for microprocessors of NXP in China.

Speaker Change #112: Thanks, and then if I just follow up on what you just said there the 16 nanometer the domain zonal was something you outlined and I think 2021 analyst day could you just maybe talk about I know you can talk about it more in Europe coming analyst day, but in terms of and these are very long dated design cycles, but when should we think about revenue from these products I mean, I don't know if you.

And that includes the Microcontrollers and microprocessors for microprocessors it is quite straightforward.

Of course.

We manufacture them in 16 Finfet.

From a big Taiwanese.

Foundry I think we published as earlier does TSMC and TSMC has a fully operational factory in Nanjing in China, which is doing 16 nanometers. So it is a copy exact factory of what they have in Taiwan. So we are just transferring it from Taiwan into into China. So, it's a fairly straightforward process to allow.

Speaker Change #113: You can size. It today are and kind of give us a sense of how material that could be as you look into next year.

Speaker Change #113: Well the 60 nanometer ones are in full production blayne. So they absolutely contributes to one of the three accelerated growth drivers, which we highlighted in our 'twenty one to 'twenty for growth. So I think we guided 9% to 14% for automotive.

Our local manufacturing for microprocessors of NXP in China.

Thanks, Curt and then if I just follow up on what you just said there the 16 nanometer. The domains Arnaud was something you outlined I think 2021 analyst day could you just maybe talk about I know you've been talking about it more in your upcoming analyst day, but in terms of these are very long dated design cycles, but when should we think about revenue from these products I mean, I don't know if <unk>.

Blayne Curtis: There were three.

Blayne Curtis: High growth drivers one of them is the F 32 platform, which is which is the the performance processing for automotive.

Blayne Curtis: And a big part of that is indeed 60 nanometer processes.

Speaker Change #117: And what I can say now ahead of the loan.

Blayne Curtis: Number seven analyst day is that in for best piece, we will be ahead of targets, we laid out growth targets.

You can size. It today are and kind of give us a sense of how material that could be as you look into next year.

Blayne Curtis: And the automotive processing will be actually above the target, which we had laid out in November 'twenty one.

Well the 60 nanometer ones are in full production plane. So they absolutely contributes to one of the three accelerated growth drivers, which we highlighted in our 'twenty one to 'twenty for growth. So I think we guided 9% to 14% for automotive.

Kurt: Thanks Kurt.

Speaker Change #120: Thank you we have time for one last question and that question comes from Chris Danley with Citi. Your line is open.

Chris Danley: Hey, Thanks for squeezing me in a lot of helpful color on the.

Three.

Chris Danley: Automotive end market are you seeing any trends by geography in the automotive end market or any geographies.

High growth drivers one of them is the F 32 platform, which is which is the the performance processing for automotive.

And a big part of that is indeed 60 nanometer processes.

Speaker Change #115: Better or worse than the others, any particular strengths or weaknesses.

And what I can say now ahead of November.

Speaker Change #116: Hi, Chris Yes.

On November seven analyst day is that in for that piece.

Speaker Change #118: Clearly say that China.

Speaker Change #119: Is in a better position than the other geographies in automotive these days.

Speaker Change: We'll be ahead of targets, we laid out growth targets and.

Speaker Change: The automotive processing will be actually above the target, which we had laid out in November 'twenty one thanks.

Speaker Change #122: Which which I think is also a function of the continued success of electric vehicles in China. If you look at all the numbers in electric vehicles, both hybrid and battery electric continued to grow significantly I think S&P, just publish something like 21% unit growth in <unk> in China in <unk>.

Thanks Kurt.

Thank you we have time for one last question and that question comes from Chris Danley with Citi. Your line is open.

Hey, Thanks for squeezing me in a lot of helpful color on the.

Automotive end market are you seeing any trends by geography in the automotive end market or any geographies.

Speaker Change #119: For over 23, which is just staggering growth.

Speaker Change #119: And that reflects also back into into our business. So, yes, I would call out China.

Better or worse than the others, any particular strengths or weaknesses.

Speaker Change #121: And then just a quick follow up on your own.

Hi, Chris Yes, it's.

Speaker Change #123: Inventory days it continues to creep higher at 150 days given there is some sales growth coming in the second half do you think your inventory days will go down and now we're looking at some sort of new range are you comfortable with 150, whereas the end goal, where do you expect that to trend.

Clearly say that China.

Is in a better position than the other geographies in automotive these days.

Which which I think is also a function of the continued success of electric vehicles in China. If you look at all the numbers then electric vehicles, both hybrid and battery electric continued to grow significantly I think S&P, just published something like 21% unit growth in ex Evs in China in <unk>.

Speaker Change #123: Sure, Chris let me take that.

Speaker Change #124: Based on the latest second half guidance for the revenues that Kurt talked about we do expect internal inventory days to start coming down in Q4, as Q3 will probably be similar levels of Q2 and the reason for this it takes a bit longer is where the inventory staged.

For over 23, which is just staggering growth.

And that reflects also back into into our business. So I would call out China.

And then just a quick follow up on your own.

Speaker Change #125: When you look at our Q filings, we reduced for with the new products into finished goods as we service about 85% internally so we add more.

Speaker Change: Inventory days it continues to creep higher at 150 days given there is some sales growth coming in the second half do you think your inventory days will go down and now we're looking at some sort of new range are you comfortable with 150, whereas the end goal, where do you expect that to trend.

Speaker Change #125: Value to that product through our backend.

Speaker Change #125: Then this finished goods will help support the Q3 sequential growth and we expect a similar profile entering into Q4 to ensure we service our customers around that so again I think this is probably near our peak levels and hopefully we expect Q4 to start coming down and then get this back in order in 2025.

Sure, Chris let me take that.

Based on the latest second half guidance for the revenues that Kurt talked about we do expect internal inventory days to start coming down in Q4, as Q3 will probably be similar levels of Q2 and the reason for this is.

Bill: Thanks Bill.

Bill: Thank you.

Bill: Thank you that concludes our question and answer session I would like to turn the call back over to Kurt Sievers for closing remarks.

It takes a bit longer is where the inventory is staged.

Kurt Sievers: Thanks, operator.

When you look at our Q filings, we reduced for with the new products into finished goods as we service about 85% internally so we add more.

Kurt Sievers: Look.

Speaker Change #127: We really see that we have now probably the trough clearly behind us.

Value to that product through our backend.

Speaker Change #128: Navigated the cycle successfully with what we call a consistent gross margin performance through all of this down cycle periods.

Speaker Change: And then this finished goods will help support the Q3 sequential growth and we expect a similar profile entering into Q4 to ensure we service our customers around that so again I think this is probably near our peak levels and hopefully we expect Q4 to start coming down and then get this back in order in 2025.

Speaker Change #128: The company is resuming growth most.

Speaker Change #128: Most importantly, both in automotive as well as an industrial Iot and automotive turning from a from a mid single digit decline to a mid single digit growth now sequentially.

Thanks Bill.

Speaker Change #128: In industrial our TV stay in the positive growth regime, both year on year as well as sequentially.

Thank you.

Thank you that concludes our question and answer session I would like to turn the call back over to Kurt Sievers for closing remarks.

Speaker Change #129: However, we also have two tractors so the.

Yes, thanks operator.

Look we really see that we have now probably the trough clearly behind us.

Speaker Change #129: Digestion of direct automotive customer inventory it takes longer than we anticipated.

Speaker Change #129: And given that we also stay a little bit more muted in terms of how much channel refill how fast we will do those factors play them into our guide for the year being more of a low single digit decline annually over last year, which is towards the lower end of what our earlier expectations were but.

Navigated the cycle successfully with what we call a consistent gross margin performance through all of this down cycle periods.

The company is resuming growth.

Most importantly, both in automotive as well as industrial Iot and automotive turning from a from a mid single digit decline to a mid single digit growth now sequentially.

Speaker Change #129: The growth Hasnt gone away.

Speaker Change #129: Just shifts out if you will into into next year, which makes us actually quite optimistic and we will continue to be supervision lengths in operating the company in a very responsible way. Thank you very much for the call. This morning.

In industrial our TV stay in the positive growth regime, both year on year as well as sequentially.

However, we also have detract us so the.

Digestion of direct automotive customer inventory it takes longer than we had anticipated.

Speaker Change #130: Thank you. This does conclude the program you may now disconnect everyone have a great day.

And given that we also stay a little bit more muted in terms of how much channel refill how fast we will do those factors play them into our guide for the year being more of a low single digit decline annually over last year, which is towards the lower end of what our earlier expectations were but.

Speaker Change #129: Yeah.

The growth hasn't gone away.

Just shifts out if you will into into next year, which makes us actually quite optimistic and we will continue to be supervision lengths.

Operating the company in a very responsible way. Thank you very much for the call. This morning.

Thank you. This does conclude the program you may now disconnect everyone have a great day.

Thank you.

Welcome.

Okay.

[music].

Okay.