Q4 2024 NXP Semiconductors NV Earnings Call
Speaker Change: Thank you Daniel and good morning, everyone welcome to the NXP semiconductors fourth quarter earnings call with me on the call today is Kurt Sievers, Nxp's President and CEO.
<unk> our CFO.
Speaker Change: Paul Today is being recorded and will be available for replay from our corporate website. 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.
Speaker Change: Risks and uncertainties include but are not limited to statements regarding the macro economic impact on specific end markets in which we operate the sale of new and existing products and our expectations for financial results for the first quarter of 2025, NXP undertakes no obligation to revise or update publicly any forward looking.
Speaker Change: For a full disclosure for forward looking statements. Please refer to our pretzels. 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.
Speaker Change: Underlying core operating performance pursuant to regulation G. NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth quarter 2024 earnings press release, which will be furnished to the SEC. Our form 8-K is available on Nxp's website in the Investor Relations section.
Speaker Change: NXP Dot com.
Now I'd like to turn the call over to Kurt.
Kurt Sievers: Thank you, Jeff and good morning, everyone. We really appreciate you joining our call today.
Kurt Sievers: I will review, both our quarter four and our full year 2020 for performance.
Kurt Sievers: And then I will discuss our guidance for quarter one.
Kurt Sievers: Beginning with quarter, four revenue was $11 million better than the midpoint of our guidance.
Kurt Sievers: The revenue trends in our end markets were slightly above in automotive.
Kurt Sievers: In line and mobile.
Kurt Sievers: Slightly below in industrial and Iot platform.
Kurt Sievers: Communications infrastructure and other missed our expectations.
Kurt Sievers: So taken together NXP delivered quarter four revenue of $3 1 billion, a decrease of 9% year on year.
Kurt Sievers: The non-GAAP operating margin in quarter, four was 34, 2%.
Kurt Sievers: <unk> hundred 40 basis points below the year ago periods.
Kurt Sievers: About 10 basis points above the midpoint of our guidance.
Kurt Sievers: Year on year performance was the result of the lower revenue and the related gross profit flow through partially offset by lower operating expenses.
Kurt Sievers: From a channel perspective, we kept distribution inventory flex at eight weeks below our long term target of 11 weeks.
Kurt Sievers: From a direct sales perspective, we supported western tier one automotive customers with their continued attrition of on hand inventory in a cloudy auto demand environments.
Kurt Sievers: For the full calendar year 2024 revenue was $12 six 1 billion.
Kurt Sievers: A decrease of 5% year on year.
Kurt Sievers: Full year non-GAAP operating margin was 34, 6%.
Kurt Sievers: 50 basis points compression versus the year ago period due.
Kurt Sievers: Due to lower revenue and the related gross profit flow through partially offset by lower operating expenses.
Kurt Sievers: While the second half of 'twenty 'twenty four.
Kurt Sievers: Not play out as we had originally expected we are rigorously focused on what is under our own control to minimize the impact on our financial performance.
Speaker Change: And now let me turn to the specific full year 2024 credits in our focus end markets.
Kurt Sievers: In automotive.
Kurt Sievers: Revenue was 715 billion down 4% year on year, primarily a reflection of declining automotive production in Europe, and Japan exacerbated by inventory digestion at western tier one customers in an uncertain automotive demand environments.
Kurt Sievers: Against this backdrop, we experienced company specific growth in our accelerated growth drivers F 32 for the software defined vehicle.
Kurt Sievers: Automotive connectivity radar and electrification.
Kurt Sievers: For quarter, four automotive revenue was $1 79 billion down 6% versus the year ago periods and near the high end of our guidance.
Kurt Sievers: Turning to industrial and Iot revenue was $2 $2 7 billion down 3% year on year, a reflection of ongoing weakness in end demand and tight control of distribution channel inventories.
Kurt Sievers: Fourth quarter core industrial and Iot revenue was $516 million down 22% versus the year ago period and slightly below our guidance.
Kurt Sievers: In mobile full year revenue was $1 49 billion up 13% year on year. Thanks to an easy comparison, the first comp of 23.
Kurt Sievers: Our quarter four mobile revenue was $396 million down about 2% versus the year ago period and in line with our guidance.
Kurt Sievers: And communication infrastructure and other full year revenue was $1 six 9 billion down 20% year on year.
Kurt Sievers: The year on year decline was due to lower sales across the entire portfolio.
Kurt Sievers: Quarter, four revenue was $409 million down 10% year on year.
Kurt Sievers: Below our guidance.
Kurt Sievers: Now I will turn to our expectations for quarter one 2025.
Speaker Change: You're guiding quarter, one revenue to $2 $82 5 billion down 10% versus the first quarter of 2024.
Kurt Sievers: 9% sequentially.
Kurt Sievers: From a sequential perspective this is consistent with our original outlook for quarter, one to be seasonally down in the high single digit range.
Kurt Sievers: At the midpoint it expects the following trends in our business during quarter one.
Kurt Sievers: Automotive is expected to be down in the mid single digit percent range versus both quarter, one 'twenty 'twenty four and quarter for carriage maybe four.
Kurt Sievers: Industrial and Iot is expected to be down in the low double digit percent range year on year and about flex versus quarter four 2024.
Kurt Sievers: Mobile is expected to be down in the high single digit range year on year and down in the high teens percent range, whereas this quarter for 2024.
Kurt Sievers: And finally communication infrastructure and other is expected to be down in the mid 20% range versus quarter, one 2024 and.
Kurt Sievers: And down in the upper 20% range versus quarter four 2024.
Kurt Sievers: Yes.
Kurt Sievers: Assuming out as we enter 2025, we continue to see weakness in Europe.
Kurt Sievers: The Americas appear to be bouncing off the bottom and China has implemented several incentive programs.
Kurt Sievers: All of this correlates with the reported manufacturing PMI being around 50.
Kurt Sievers: With China, and the U S slightly above.
Kurt Sievers: In Europe, and Japan below.
Kurt Sievers: Against this backdrop, we continue to have poor forward visibility and we are experiencing relatively high turns business reflective of our short order lead times.
Kurt Sievers: On the customer promise, we have completed the majority of our annual price negotiations for calendar year 'twenty five.
Kurt Sievers: And we continue to be confident in low single digit price erosion year over year consistent with our prior commentary.
Kurt Sievers: When it comes to inventory in the markets our quarter, one guidance contemplates decreasing inventory dollars in both the direct and the distribution channels.
Kurt Sievers: Reflecting under shipment against true end demand.
Kurt Sievers: We expect distribution channel inventory to be eight to nine weeks below our long term targets of 11 weeks.
Kurt Sievers: Now before turning to your questions I would like to review two strategic acquisitions, which we announced over the last 90 days.
Kurt Sievers: Both are vital building blocks to accelerate an ex comp Nxp's core right Richard for next generation software defined radio platforms.
Kurt Sievers: Our core REIT platform comprises a complete suite of secure hardware and software solutions, including processors connectivity functional safety and power management as we had laid out in our Investor day in November.
Kurt Sievers: So first in mid December we announced our intention to acquire <unk> for $243 million.
Kurt Sievers: Our revised five year or Silicon valley startup with sound dose have a proven track record in the multi gigabit Ethernet markets.
Kurt Sievers: The company is focused on multi gigabit automotive connectivity technology based on the <unk>, which is ideally suited for asymmetric point to point connectivity of Ada centers and ibi display applications.
Kurt Sievers: Asymmetric <unk> links our cost and performance optimized for one way data traffic typical for Adas and <unk> applications.
Kurt Sievers: Various Ethernet is optimized for two way data traffic going in both directions at the same speed.
Kurt Sievers: This addition is fully complementary with nxp's market, leading positions in automotive networking processors gateways and brought in vehicle networking solutions.
Kurt Sievers: Eli as an innovation leader in open standards based asymmetric <unk> service with a first to market best in class 60 nanometer Quad Port 16 gigabit per second uplink product.
Kurt Sievers: The company's pre revenue and has received design awards from Oems and tier one customers aiming to replace proprietary solutions.
Kurt Sievers: We expect aviva to enhance and complement our broad automotive networking business beginning in 2027.
Kurt Sievers: With this we are capturing a growing reputation area, we had not taken part in by a standards based solution.
Kurt Sievers: This acquisition reinforces our company's specific automotive productivity accelerated growth driver.
Kurt Sievers: And secondly in early January we announced our intention to acquire TC Tech auto was $625 million.
Kurt Sievers: The addition of <unk>, a privately held software company based in Austria.
Kurt Sievers: So you can take auto has extensive knowledge and expertise in the automotive markets.
Kurt Sievers: Especially in the domain of vehicle safety and real time integration.
Kurt Sievers: It's software product called motion Wise is focused on safety and deterministic real time performance key attributes of the software defined vehicle.
Kurt Sievers: Motion wise breakfast, the silicon hardware layer to the operating system layer, enabling deterministic and safe management of the application software layer.
Kurt Sievers: Motion devices already deployed in over 4 million vehicles.
Kurt Sievers: With a pipeline of awarded projects, which will enable another 7 million vehicles.
Kurt Sievers: The combination of Nxp's alright, and.
Kurt Sievers: And tissue Tech autos, most of the glass that reduce our customers' integration efforts, enabling software reuse and delivering optimal system performance.
Kurt Sievers: The combined expertise of NXP and seek to take auto will allow to drive faster time to market and lower cost solution in direct collaboration with automotive Oems.
Kurt Sievers: Taken together these acquisitions enhance our long term competitive position in the automotive end market.
Kurt Sievers: We expect the regulatory approvals should be complete by the end of quarter $3 25.
Kurt Sievers: These transactions are consistent with our long term strategic efforts.
Kurt Sievers: We will begin to contribute revenue within the brief period obstacles. However, they will not have a material impact on the financial model. We recently shared at our Investor Day in November.
Kurt Sievers: By 2028 and beyond these assets will be accretive to our current financial model and will help bootstrap and accelerate our capabilities in specific functional areas.
Kurt Sievers: I am very excited about how they will help NXP to offer complete system level solutions for Tomorrow's automotive markets. We do look forward to that coming the <unk> teams to NXP.
Bill: And with that I would like to pass the call over to you Bill for a review of our financial performance.
Bill: Thank you Karen.
Bill: And good morning to everyone on today's call.
Speaker Change: As Kurt has already covered the drivers of the revenue during Q4.
Speaker Change: And provided our revenue outlook for Q1, our move to the financial highlights.
Speaker Change: Overall, our Q4 financial performance was good.
Speaker Change: Revenue and non-GAAP gross profit were both modestly above the midpoint of our guidance range, while operating expenses were.
Speaker Change: In line with the midpoint of our guidance.
Speaker Change: Taken together, we delivered non-GAAP earnings per share of $3 18.
Speaker Change: Or <unk> better than the midpoint of our guidance.
Speaker Change: Furthermore, we continue to tightly manage sales into the distribution channel with weeks of inventory in the channel flat sequentially at eight weeks.
Speaker Change: I will first provide full year highlights and then move to the Q4 results.
Speaker Change: Full year revenue for 2024 was $12 six 1 billion down 5% year on year due to a weak macro in the western markets.
Speaker Change: China continued to be resilient.
Speaker Change: We generated $7 $33 billion and non-GAAP gross profit every.
Speaker Change: And reported a non-GAAP gross margin of 58, 1%.
Speaker Change: Down 40 basis points year on year.
Speaker Change: Now total non-GAAP operating expenses were $2 96 billion or 23, 5% of revenue.
Speaker Change: Slightly above our long term operating expense model as we continue to invest in our strategy supporting long term profitable growth.
Speaker Change: Total non-GAAP operating profit was $4 $3 7 billion down 6% year on year.
This reflects a non-GAAP operating margin of 34, 6% down 50 basis points year on year and in line with our long term financial model.
Speaker Change: non-GAAP interest expense was $275 million.
Speaker Change: Taxes related to ongoing operations were $686 million or 16.
Speaker Change: 16, 8% non-GAAP effective tax rate.
Speaker Change: Noncontrolling interest was $32 million.
Speaker Change: And the results from equity accounted investees associated with our joint venture manufacturing partnerships was zero.
Speaker Change: Stock based compensation, which is not included in our non-GAAP earnings was $461 million.
Speaker Change: Turning to full year cash flow performance.
Speaker Change: We generated $2 78 billion in cash flow from operations and invested $693 million in net capex or about five 5% of revenue.
Speaker Change: Taken together this resulted in 2.09 billion non-GAAP free cash flow or about 17% of revenue.
Speaker Change: During 2024, we repurchased $5 73 million shares for $1 three 7 billion.
Speaker Change: And paid cash dividends of 1.04 billion or 37% of cash flow from operations.
Speaker Change: In total we returned $2 four $1 billion to our owners, which was 115% of the total non-GAAP free cash flow generated during the year.
Speaker Change: Now moving to the details of Q4.
Speaker Change: Total revenue was $3 1 billion down 9% year on year.
Speaker Change: Modestly above the midpoint of our guidance range.
Speaker Change: We generated $1 79 billion and non-GAAP gross profit and reported a non-GAAP gross margin of 57, 5% down 120 basis points year on year and in line with the midpoint of our guidance range.
Total non-GAAP operating expenses were $725 million or 23, 3% of revenue down $66 million year on year and in line with the midpoint of our guidance range.
Speaker Change: From a total operating profit perspective, non-GAAP operating profit was 1.06 billion and non-GAAP operating margin was 34, 2% down 140 basis points year on year and above the midpoint of our guidance range.
Speaker Change: non-GAAP interest expense was $74 million, while taxes for ongoing operations were $164 million or fixed.
Speaker Change: 16, 5% non-GAAP effective tax rate.
Speaker Change: Noncontrolling interest was $10 million and results from equity accounted investees associated with our joint venture manufacturing partnerships was zero, although 2 million better than our expectations stock.
Speaker Change: Stock based compensation, which is not included in our non-GAAP earnings was $117 million.
Speaker Change: Now I would like to turn to the changes in our cash and debt.
Speaker Change: Our total debt at the end of Q4 was $10 85 billion up $672 million sequentially due to the attractively priced loan from the European investment Bank.
Speaker Change: Our ending cash balance was 329 billion up 144 million sequentially due to the cumulative effect of additional liquidity capital returns Capex investments and cash generation during Q4.
Speaker Change: The resulting net debt was seven $5 6 billion and we exited the quarter with a trailing 12 month adjusted EBITDA of 506 billion.
Speaker Change: Our ratio of net debt to trailing 12 month adjusted EBITDA at the end of Q4 was one five times and our 12 month adjusted EBITDA interest coverage was 21 three times.
Speaker Change: During Q4, we paid $258 million in cash dividends and repurchased $455 million of our shares.
Speaker Change: After the ended the quarter and through January 31.
Speaker Change: We bought an additional $101 million of our shares under an established <unk> Dash 51 program.
Speaker Change: Turning to working capital metrics.
Speaker Change: Days of inventory was 151 days, an increase of two days sequentially.
Speaker Change: While we maintained distribution channel inventory at eight weeks.
Speaker Change: As we have highlighted throughout the previous year, given the uncertain demand environment, we continue to make the intentional choice to control the increase in channel inventory.
Speaker Change: Days receivables were 30 days flat sequentially and days payable were six.
Speaker Change: 65 days, an increase of five days versus the prior quarter due to improving our payment terms with suppliers.
Speaker Change: Taken together, our cash conversion cycle was 116 days, an improvement of three days versus the prior quarter.
Speaker Change: Cash flow from operations was 391 million and net capex was $99 million or 3% of revenue, resulting in non-GAAP free cash flow of $292 million or 9% of revenue.
Speaker Change: During Q4, we paid a $275 million capacity access fee related to BSA fee, which is included in our cash flow from operations.
Speaker Change: Additionally, we paid $50 million into our the ESN fee equity accounted foundry joint venture under construction in Germany, which is included in our cash flow from investing.
Speaker Change: Turning now to our expectations for the first quarter.
Kurt Sievers: As Kurt mentioned, we anticipate Q1 revenue to be $2 85 billion, plus or minus about $100 million.
Kurt Sievers: At the midpoint this is down about 10% year on year and down about 9% sequentially.
Kurt Sievers: We expect non-GAAP gross margin to be about 56, 3% plus or minus 50 basis points driven by the return of our annual price concessions.
Kurt Sievers: And lower revenue fall through over our fixed costs.
Operating expenses are.
Kurt Sievers: <unk> to be about $700 million, plus or minus about $10 million.
Kurt Sievers: The sequential decline is driven by restructuring the business and lower variable compensation taken together, we see non-GAAP operating margin to be 31, 5% at the midpoint.
Kurt Sievers: We estimate non-GAAP financial expense to be about $80 million.
Kurt Sievers: We expect the non-GAAP tax rate to be 17, 5% of profit before tax.
Kurt Sievers: Non controlling interest will be about $5 million.
Kurt Sievers: Results from equity accounted investees to be about $1 million.
Kurt Sievers: For Q1, we suggest for modeling purposes, you use an average share count of 256 million shares.
Kurt Sievers: We expect stock based compensation, which is not included in our non-GAAP guidance to be $128 million.
Kurt Sievers: Taken together at the midpoint this implies a non-GAAP earnings per share of $2 59.
Kurt Sievers: Turning to uses of cash we expect capital expenditures to be around 5% of revenue.
Kurt Sievers: We also made a 125 million capacity access fee into the SMC, which was originally planned for Q4.
Kurt Sievers: Additionally, we will make a $32 million equity investment into EMC, and a $76 million equity investment into V. FMC, our key equity accounted foundry joint ventures under constructions.
Kurt Sievers: Our full year 2025 modeling purposes.
Speaker Change: Assistant with comments from our recent Investor Day, we expect operating expenses to stay with our long term model of 23% for the year.
Speaker Change: We will see a step up of the operating expenses due to the annualized merits the $15 million annual license fee, along with variable compensation movements pending actual performance.
Speaker Change: Okay.
Speaker Change: We suggest using a non-GAAP tax rate of 17, 5% plus or minus 50 basis points.
Speaker Change: For stock based compensation, we suggest using $475 million.
Speaker Change: For Noncontrolling interests, we suggest modeling 30 million plus or minus a few million dollars.
Speaker Change: For equity accounted Investees, we suggest modeling 10 million loss plus or minus a few million dollars depending.
Speaker Change: On the build progress for both EMC and the SMC joint venture from our front end facilities.
Speaker Change: For capital expenditures, we expect to stay within the long term model of 5% or less.
Speaker Change: In closing.
Speaker Change: I would like to highlight a few focus areas for NXP.
Speaker Change: First.
Speaker Change: As you can see we have taken some restructuring charges in Q4, as we are creating space for our recent acquisitions to prevent dilution and to ensure we stay within our long term operating expense model.
Speaker Change: Second.
Speaker Change: Our internal front end utilization will remain in the low 70% range consistent with our hybrid manufacturing strategy. We are now also concretely planning the consolidation of our internal 200 millimeter factories and.
Speaker Change: And lastly, as visibility remains very cloud cloudy.
Speaker Change: We will rigorously focused on managing what is in our control to navigate a soft landing while executing our growth strategy.
Speaker Change: Of course, there is no change to our capital allocation strategy.
Speaker Change: With that I would like to turn it back to the operator for your questions.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced soon.
Speaker Change: Withdraw your question. Please press star one again.
Speaker Change: In the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from C. J Muse with Cantor Fitzgerald. Your line is open.
Speaker Change: Yes. Good morning, good afternoon, and thank you for taking the question.
Speaker Change: Just high level.
Speaker Change: On the rate of recovery off of a likely Q1 bottomed for you guys as well as the industry. So would be curious if you think we're set up for normal seasonal trends into Q2 and beyond and if you could kind of parse through that where you are seeing relative strength, and perhaps where you see relative weakness or where you see <unk>.
Speaker Change: Turns were perhaps trends won't be as strong as seasonal.
Speaker Change: Thanks, Steve and good morning.
Speaker Change: Let me start with reiterating what I said in my prepared remarks. The visibility we have is really really poor given given the low order lead times.
Speaker Change: Sure.
Speaker Change: There's a lot of turns business.
Speaker Change: Customers place their orders very late so we have in total liquidity pretty limited visibility.
Speaker Change: Now coming more specifically back to your question, yes, So Q1 with the 9% sequential decline.
Speaker Change: I'd say, it's on the on the lower bound of seasonal as we had some as we had anticipated anticipated kind of soft guidance.
Speaker Change: In the in the previous quarter.
Speaker Change: I would qualify this actually is kind of okay in automotive and industrial.
Okay, meaning that the year on year decline in automotive, it's the same as we headed in quarter four so thats like a mid single digit year on year decline.
Speaker Change: And in industrial Iot vision actually our flex from Q4 into Q1.
Speaker Change: Very really comes down.
Speaker Change: In the Comms Infra segment, where we have an accelerated pace of the earlier discussed end of life situations with some of the former digital networking or former Freescale digital networking.
Speaker Change: That's the one which really fall short.
Speaker Change: In line with what we said over the last year that this part of that segment.
Speaker Change: Really becoming weak.
Speaker Change: No I heard your question you were asking for quarter two with the level of visibility do you have you really can't call quarter to now I understand you need something for the modal CJ.
Speaker Change: If anything.
Speaker Change: Probably a flat to slightly up is what I, what I would use for modeling purposes, but that isn't really based on a hell lot of.
Speaker Change: Forward visibility, which we have at this stage, but I guess flat to slightly up as the best is the best proxy at this stage.
Bill: Very helpful. And then maybe a question for you Bill on gross margins.
Bill: Given where we are in the cycle 56, three is spectacular would love to hear.
Bill: Kind of how you see a recovery playing out.
Bill: From utilization rates from mix from bringing in.
Bill: Higher margin distribution would love to kind of how you see how you see things evolve.
Speaker Change: C J absolutely.
Speaker Change: As you can see the gross margin decline as we anticipate it by about 120 basis points and the attributes again.
Speaker Change: We are now returning to our normal annual price negotiations.
Speaker Change: As Terry alluded to down to low to mid single digit range. So when you do the quick math you can understand that effect and then as we entered toward.
Speaker Change: In Q4 guidance, we would lose some of the fall through of our fixed costs, which actually happened, but on the bright side, which is more of a tailwind we're able actually to partially offset some of those headwinds through the improved mix in Q1.
Speaker Change: And also we are getting lower supplier in operating costs, which are timing throughout the year to offset that total pricing effect that occurred in the first quarter. So the cost adjustments come throughout the year.
Speaker Change: Overall, I would say at these revenue levels and as I mentioned, we're running front end internal utilizations in the low seventies I feel pretty confident that we will remain at these gross margin levels plus or minus the normal 50 basis points.
Speaker Change: Driven by mix.
Speaker Change: I would say once we return to revenue growth. We will then move back into our long term gross margin range of 57 to 63.
Speaker Change: Thank you. Our next question comes from Thomas O'malley with Barclays. Your line is open.
Thomas O'malley: Hey, guys. Thanks for taking my question I wanted to focus in on the regional trends. It sounds very similar to what you are kind of talking about at least on the auto side with some inventory at the North American guys.
Thomas O'malley: But potentially some some better environments elsewhere could you just maybe talk about the inventory situation at the North American customers versus three months ago do you feel like Thats coming to a bottom here with some inflection from from this point forward or are you still kind of working that down I think any additional color there would be helpful.
Tom: Yes, Thanks, Tom.
Speaker Change: I hear two parts in your question one is the regional one and the other one the inventory.
Speaker Change: On the regional side in quarter, four clearly Asia led by China was was on the brighter side of things.
Speaker Change: With Europe, and the U S being very weak very.
Speaker Change: Very weakness was certainly driven both by inventory digestion, as you're orienting too and a weekend demands.
Speaker Change: Level is pretty much as we had anticipated so I'd say quarter four there was nothing really changing through the quarter versus are our anticipation.
Speaker Change: And going into quarter, one overall I'd say, we do see.
Speaker Change: Sure.
Speaker Change: Some early strength in in.
Speaker Change: In Asia, our core industrial Iot and you saw that we sequentially flat guided that flat.
Speaker Change: Also for auto Asia is robust.
Speaker Change: So it's kind of the same situation like 90 days ago on from a regional from a regional split perspective with a strong in Asia, and the relatively weak or especially Europe, and maybe the U S getting a little better.
Speaker Change: Now on the inventory side. So the answer first of all Tom is yes, we continue to die of chest on hand inventory at our direct tier one customers.
Speaker Change: That process continues and it is both for the U S as well as for the European Tier one customers.
Speaker Change: Much of it is and how long that still loss.
Speaker Change: Can't really tell you and I would also put Q1 into comparison to Q4 in terms of its level more no. We have been due to a planned stare with each which each with each single customer and we got to see how all that how that plays out but that is clearly still weighing on our revenue performance, especially.
Speaker Change: In automotive.
Speaker Change: Keeping it at a sub and demand level.
Speaker Change: At the same time.
Speaker Change: For completeness I have to say that also the.
Speaker Change: The discipline on the channel inventory.
Speaker Change: You saw that we kept it flat at eight weeks in the fourth quarter.
Speaker Change: For Q1 I had in my prepared remarks, something like eight to nine weeks, it's it's a bit hard to pin it down exactly but say eight to nine weeks. So.
Speaker Change: And in total by the way a reduction in the inventory. So the important piece is we continue to do this time.
Speaker Change: Inventories both at distributors as well as direct customers go down from a dollar perspective.
Speaker Change: So at some point that must come to an end because the the rate of under shipment against end demand in the <unk>.
Speaker Change: Saar environment.
Speaker Change: Come to an end.
Speaker Change: I gave up to try and call when exactly but if you do the math it kind.
Speaker Change: I'll take that long anymore.
Speaker Change: Super Helpful. And then just as a follow up I think you gave a lot of really good pieces. There so the <unk> inventory.
Speaker Change: Is low you talked about low seventy's range in terms of in terms of internal utilization like clearly visibility going into this year is really difficult for you guys right now, but can you just maybe walk through for us in on when do you start to make decisions about internal internal utilization like is it like two.
Speaker Change: Two or three quarter out scenario, where hey, things are getting better we're going to reduce a bit. It seems like things are at a healthy level right now from the utilization perspective, but when do you make that call. It maybe what levers do you look at when you think about potentially reducing that if demand isn't coming back.
Speaker Change: Yes, let me take this one obviously we're focused on what we control at the same time, you know our internal inventory from a dollar perspective is up quarter over quarter, we expect those dollars going into Q2.
Speaker Change: Kurt alluded to on flat to slightly up from a dollar perspective is to stay flattish. So that's what we're balancing the dollars and the utilization from an internal standpoint.
Speaker Change: As well as we have to adjust our foundry in sub kind of orders with current revenue levels. So again, we're balancing all of that I would say.
Speaker Change: If the second half comes up.
Speaker Change: And were planned and ready for that that's probably one that will take effect when we would increase our utilization, but again, we're going to be very cautious.
Speaker Change: As Karen alluded to we we kind of got this wrong last year. So we're just going to take it one quarter at a time.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ross Seymore with Deutsche Bank. Your line is open.
Okay. Thanks, finally ask a question.
Speaker Change: The auto or excuse me the industrial Iot segment being flat sequentially, you alluded a little bit to Asia, acting a bit better, but I think that flatness is a welcome surprise to people can you dive a little bit deeper into what's going on there and keeping that business flat.
Ross Seymore: Yes Ross.
Speaker Change: That's the.
Speaker Change: The relative strength I don't want to use the word strength PFS, but the relative strengths from a sequential perspective, indeed comes from from Asia and within Asia, clearly from China, and do you know that we have a relatively high exposure in that segment.
Speaker Change: To China.
Speaker Change: I think we are helped by our low channel inventory in that case, because we don't have to reduce that further so any any possible light at the end of the tunnel in terms of end demand.
Speaker Change: Directly comes to us because we don't have to work down inventory in the channel that's how I would characterize it but.
Speaker Change: Ross I also don't want to go that far to talk about green shoots or anything I mean, it's kind of it looks a little better indeed in Asia.
Speaker Change: But too early to deploy the trends.
Speaker Change: Thanks for that and then I guess as my follow up switching over to the comms business. In other you had mentioned about kind of an accelerated end of life process is that now behind us and so the business and a little under 300 million I guess from the first quarter for your guide is.
Speaker Change: Now going to act along with whatever demand does or is there still more room that that has to be taken down.
Speaker Change: Yes, let me try to process so.
Speaker Change: When exiting last year calendar 'twenty four.
Speaker Change: Think about the comms infra segment with the with roughly the following split so 50% was in the secure core area, which includes also RFID.
Speaker Change: 20% in the radio power for the mobile base station networks and 30% in digital networking business. So that's about the size we talk about here.
Speaker Change: And that end of Liping still continuous loss it goes into Q1, but I would expect it further continuous beyond Q1.
Speaker Change: Thank you.
Vivek Arya: Our next question comes from Vivek Arya with Bank of America Securities. Your line is open.
Vivek Arya: Thanks for taking my question correct on the first one maybe a little deeper into the automotive segment. There's a lot of talk of tariffs et cetera. This year have you seen any change yet in customer behavior colon pushout mix of EV et cetera, just how are you reflecting this.
Vivek Arya: Kind of evolving landscape in your thinking for 2025.
Vivek Arya: Yes, so so first of all to be clear given all the uncertainty and the many moving parts. It is not reflected in anything we told you today I just want to be very clear there is so many unknowns.
Vivek Arya: We could only get it wrong. So it's just not reflected.
Vivek Arya: Most of it from what we are hearing about today, there will be indirect impact on NXP.
Vivek Arya: Let me give you the example of Canada and Mexico.
Vivek Arya: That's not something where we would be impacted because we don't ship from Canada or Mexico into the U S. So for us that is.
Vivek Arya: About relevance.
Vivek Arya: One three.
Vivek Arya: Really touches us essentially because we have some production in China as you know we have the second facility in Tianjin.
Vivek Arya: There is also some shipments from there to the U S. We look through this we were.
Vivek Arya: And it would be completely immaterial to us. So that's the only one where I can get my hands firmly around because we know what it is.
Vivek Arya: And that has absolutely immaterial impact on us.
Vivek Arya: This weekend, we can discuss it another time.
Vivek Arya: Plex considerations behind that.
Vivek Arya: So therefore, the straight answer is moving beyond that nothing is contemplated.
Vivek Arya: In.
Vivek Arya: In our <unk>.
Vivek Arya: What we said today.
Vivek Arya: And maybe one for bill just kind of a hypothetical.
Vivek Arya: Sort of take.
Vivek Arya: What was said about Q2 and I completely understand visibility is limited, but if I assume some semblance of normal seasonality in the back half I kind of get it conceptually sales down.
Vivek Arya: High single digit or so this year, so I'm not asking you to endorse that but let's say if that was the situation what would be the right way to mathematically think about gross margins and Opex. This year similar to last quarter. The best metric I think for me.
Vivek Arya: Modeling purposes without knowing all the different movements in visibility I would just go back to whenever you put in your model for those type of revenues look at from a historical standpoint, that's all I can provide to be honest with you because as you know there's many moving parts, but I would say a payment referenced tentation for modeling purposes.
Speaker Change: Thank you. Our next question comes from Stacy <unk> with Bernstein Research. Your line is open.
Speaker Change: Hi, guys. Thanks for taking my questions I wanted to go back to gross margins. So you said gross margins would probably stay here.
Speaker Change: Give or take until revenue started to grow you suggested Q2, being maybe flattish or up a bit. So I assume Q2 gross margins in that environment don't want me go up very much.
Speaker Change: Hopefully they revenue grows in the second half before you had suggested that margins for the full year would land still within your range of 57 to 63, given you're going to be in the 56 days in the first half.
Speaker Change: You can still get into the range for the full year and if you do is it like like very close to the low end because I'm, having a hard time getting up much more than that without a lot of growth in the second half.
Stacy: Yes, Stacy first off.
Speaker Change: Related to the gross margins.
Speaker Change: You are right for Q2, I said at similar levels, plus or minus 50 basis points, we never guided the full year and say we would stay within the financial model I was wondering at the Analyst Day, you again, you said that.
Speaker Change: Correct, we have said that and a lot will depend on the second half related to return to growth.
Speaker Change: As I mentioned earlier to another question I said.
Speaker Change: The second half grows above the first half we will then get back into the model of the 57% to 63%, but a lot determined.
Speaker Change: And on the recovery of the second half.
So you don't know if youll be there for the full year now.
Speaker Change: I'm not guiding that at this point in time.
Speaker Change: The low visibility we have.
Speaker Change: Okay.
Speaker Change: On that point of visibility you said you have a lot of turns on what is your percentage of orders.
Speaker Change: That are coming from turns right now and like how does that differ across the different segments.
Speaker Change: We don't disclose that all I can tell you is the trend has picked up over the last three quarters and getting larger and larger.
Speaker Change: Thank you. Our next question comes from Toshi Hari with Goldman Sachs. Your line is open.
Toshi Hari: Hi, good morning. Thanks, so much for taking the question. My first one is on the automotive business just from a business planning perspective, and again I realize you've got little visibility and a lot of moving parts here, but.
Toshi Hari: From a planning perspective, what kind of global.
Toshi Hari: Saar or global unit production are you expecting for the year and more importantly.
Speaker Change: Curt you talked about the secular drivers that you guys have been.
Toshi Hari: Speaking to the 32.
Speaker Change: Connectivity radar et cetera, what rate of outperformance or content growth should we or can we expect in calendar 'twenty five versus 24.
Speaker Change: Yes, Hi, <unk>. So yes, the first party data is pretty simple.
Speaker Change: Quota S&P here, we think about round about $89 million.
Speaker Change: Units in car production this year, which would be a very slight slipped minus so just just a little bit a little bit down.
Speaker Change: There, it's probably important to understand in that China is more flat plus versus Europe, and the U S led minus so that's the two directions within that.
Vivek Arya: And as Vivek, you alluded to I mean, let's see what the tariffs will do all of this we can say, but we model with a with a flat to slightly down copper production for the year.
Speaker Change: B.
Speaker Change: Outperformance of the company specific growth drivers, what I suggest to do <unk> you <unk>.
Speaker Change: Use the percentage growth rates, which we guided in our analyst and Investor day back in November.
Speaker Change: Offset by what Youll see the overall business underperforming current beverages, which is beyond the shipment, which we have to do on inventory digestion, but the delta between what the core business to us and what the accelerated growth drivers to that.
Speaker Change: Thus there is no difference because they all have for both the same inventory level. So there was statistically it looking at the total it doesn't make sense to model any difference in inventory, which means they all suffer from the same offsets. So it's the same delta that's probably the best you can assume and they run well.
Speaker Change: Let me say that they also all three of them did grow last year from an absolute perspective year on year, while the total auto business last year. It was down those pieces, which are quite sizable as you know were up and we clearly see this continuing this year.
Speaker Change: That's helpful. Thank you and then as my follow up you mentioned for the year Youre expecting blended pricing to be down in the low single digits. I'm curious what your expectations are in terms of foundry costs or wafer costs and 25 versus 24, and then somewhat related to that.
Speaker Change: Bill you talked about potentially consolidating eight inch facilities. If you can expand expand on that and kind of speak to timing and magnitude.
Speaker Change: In terms of potential gross margin.
Speaker Change: And in future years that would be helpful. Thank you.
Speaker Change: Yes, let me let me take the first half of your question. So, yes, I reconfirm the low single digit.
Speaker Change: Price erosion between which we see this year this calendar year by the way coming from a flatline last year.
Speaker Change: Not sure we said this before but I cannot confirm that last year as we had anticipated we were neutral on pricing this year low single digit down.
Speaker Change: With high confidence that we can say that.
Speaker Change: And the input costs you were asking for has also started to develop more favorably.
Speaker Change: Which means it helps us offsets from a gross profit perspective.
Speaker Change: The headwinds, which we are seeing from that low single digit price erosion. The only thing is it's a bit of a timing element and build spoke about this earlier because a large part of surprising hits us already in Q1, while the cost erosion. The input cost erosion is through the full year. So.
Speaker Change: Through the year too to offset that.
Speaker Change: That has become a more favorable environment, which helps us offset the <unk>.
Speaker Change: ASP erosion and Bill maybe you will speak about the consolidation effects, yes, absolutely. Obviously this is something we shared during investor day.
Speaker Change: Hinted that we're basically planning an almost complete.
Speaker Change: When this occurs it will occur sometime in 2025.
Speaker Change: And there will be a natural tailwind associated with the utilization as we start bridging some of the build plan for the transfers of those products.
Speaker Change: It would probably be my guess more of an impact in the second half of the year. When we decide to announce this and again at this point in time I can just share your yes, that's roughly basically.
Speaker Change: So there is a tailwind when we do and start that process, but we havent yet.
Speaker Change: Thank you. Our next question comes from Chris Caso with Wolfe Research. Your line is open.
Chris Caso: Yes. Thank you. Good morning first question is.
Chris Caso: Then on some of the digital networking products that are going end of life.
Speaker Change: Want to make sure that we're calibrated on this correctly, but I think what you said is that was about 30% of the comm infrastructure segment should we expect that.
Speaker Change: A large part of that goes away over the next few quarters, I guess I'm trying to quantify.
Speaker Change: How much of the businesses.
By end of life and sort of the timing that you expect for that to finally work its way down.
Speaker Change: Yes, so first of all yes.
Speaker Change: Confirm you understood me correctly its about 30%.
Speaker Change: I think last year of the of the total revenue of that segment, which we which we discuss about here.
And by the way just as an aside I mean, the RF power business and there is also pretty lumpy it's.
Speaker Change: So like everything else is Goldman that's the only that's the only concern but thats. The one we speak about.
Speaker Change: And yes, it will continue through the next couple of quarters.
Speaker Change: To further decline given the end of life actions on several of these products that doesn't mean it goes totally away.
Speaker Change: But think about the continued declines through the next couple of quarters of that 30% piece now at the same time.
Speaker Change: <unk> comp business.
Speaker Change: Okay.
Speaker Change: In their behalf RFID, you'll know that RFID is a growth business for NXP. So there are many moving pieces in this comms infra segment, which is why for the next three years, we guided it to be just flat.
Speaker Change: Just wanted to be sure sure today to call out that that 30% portion really sees.
Speaker Change: A quite material declines for this year.
Speaker Change: Understood.
Speaker Change: Follow up question is on China.
Speaker Change: And obviously.
Speaker Change: It's very strong now given some of the share shifts that are happening in the industry.
Speaker Change: In the interest of no good.
Speaker Change: Good deed goes unpunished, we do get a lot of questions about the sustainability of that strength and owing to the fact that there are a lot of Oems in China trying to gain share could you talk about your view of the sustainability of what's happening in China now.
Speaker Change: And the steps youre, taking to make sure that.
Speaker Change: The customers arent arent building inventory, we're not over shipping to that region.
Speaker Change: Yeah. So.
Speaker Change: That's a number of questions, let me, let me try and Boston.
One is indeed last year.
Speaker Change: China as a region for NXP did grow by 4% year over year. So if you take the China portion of the NXP revenue calendar 'twenty for over 23 that was 4% up.
Speaker Change: And Thats made it a 36%.
Speaker Change: A portion of the total NXP revenue.
Speaker Change: So why is the company was down 5%, China was actually up 4% last year.
Speaker Change: We have zero indication I have set very clear, yes zero indication that there was any inventory build or pull in or anything like this.
Speaker Change: In there, we just see it really correlated and a good part of it is obviously automotive to the increased content and the relatively good.
Speaker Change: <unk> trends and global market share trends offer Chinese Oems.
Speaker Change: So that Hasnt there is no cooler heads or inventory build it was just natural growth.
Speaker Change: Structurally we think will continue.
Speaker Change: Which clearly goes at the expense of divested Oems I mean, as I said earlier the SAR. This year the global car production is about flattish.
Speaker Change: So there is a share shift from the west to China.
Speaker Change: Built in.
Speaker Change: Furthermore trends in China.
Speaker Change: Electric vehicle penetration is really fast pace. So through the second half of last year. It was 50% to 50% of the car sold last year second half of last year were in some form of electric hybrid or fully electric in China, So very high penetration already and continuing which of course delivers us.
Over over average content growth from a semiconductor perspective.
Speaker Change: We are dealing with I would say.
Speaker Change: Aggressively to the extent that people will not be the right partner there to not to not have the risk of losing share.
Speaker Change: I just changed my organization I have a business leader now for China, who reports directly to me to make sure that we do what we've spoken about before which is dedicated solutions for Chinese Oems because if you think about software defined vehicle in electrification. It is now in many aspects China is leading so we leveraged them as <unk>.
Speaker Change: <unk> customers in two or more of our R&D attention to that side of the world to stay competitive secondly behalf or.
Speaker Change: Manufacturing strategy, China for China, because a big requirement. There is that we do local manufacturing, which we are delivering through our <unk> facility, which I mentioned earlier intention.
Speaker Change: Three elements of front end manufacturing being TSMC in Nanjing.
Speaker Change: Smith and Hh Gregg as we as we announced in our invest.
Speaker Change: Investor Day in November so.
Speaker Change: Chris I think this trend continues we do everything to stay and be very competitive locally really with substantial changes in how we operate.
Speaker Change: Because we think this continues to be a significant growth vector for NXP.
Speaker Change: Thank you and our final question comes from Joshua Buchalter with TD Cowen Your line is open.
Joshua Buchalter: Hey, guys. Thanks for squeezing me in and taking my question.
Speaker Change: Very much appreciate that you gave us.
Speaker Change: Rough outlook for the second quarter, given the low visibility environment I.
Speaker Change: I guess as you sit here today do you expect to still be under shipping.
Speaker Change: In the second quarter or is there in order to quantify that amount and I assume within that flat to up number that still includes the channel staying in sort of the eight to nine week range. Thank you.
Yes.
Speaker Change: Just the good proud to further help us guide for second quarter, which we which we did not intend to do.
Speaker Change: Yes, it's just mathematics, if we if we are flat or slightly up.
Speaker Change: Still under ship.
Speaker Change: We clearly think we have a much higher natural demand run rates than best So if it is if it is flat to slightly up only in quotes then it continues to be under shipments, which which I would think.
Speaker Change: In holding discipline on the channel, yes, the eight to nine weeks is it.
Speaker Change: And secondly.
Speaker Change: It would then be probably further digestion of on hand inventory.
Speaker Change: Especially automotive tier one customers.
Speaker Change: Again, all of this is not a guidance Josh but if you if you put it that way if it is flat to slightly up that would be and beat the consequence.
Speaker Change: Got it I appreciate the color there and I'll give the cycle a break for a moment.
Speaker Change: Wanted to ask you about the <unk> acquisition.
Speaker Change: You're moving into further into the software space and acquiring them middleware asset can you maybe speak to I guess, one how that changes your conversations with your OEM customers and the potential poll for your broader set of hardware solutions and also is there any element of what this acquisition in particular.
Speaker Change: Where you're competing a little bit more so with your customers. Thank you.
Speaker Change: Yes.
Speaker Change: Thanks, Paul Thats really I think important question, because that's a key strategic move, which we which we announced there.
Speaker Change: I would say that very very clearly it does enable the conversation and engagement with automotive Oems.
Speaker Change: So when you ask what does it do it enabled it.
Speaker Change: The software defined definition and architecture creation is in the hands of the Oems No single tier one can ever do that it has to be top down for the whole vehicle. So it is owned by the Oems.
Speaker Change: And in order to make NXP, the leading partner for them to architect those those new backbones of the car we need it.
Speaker Change: More software that became abundantly clear over the past couple of quarters and business, where tissue take auto builds ideally and so it makes it gives us the possibility to have that conversation and to co design dose STD architectures with Oems.
Speaker Change: I wouldn't call it competition with our direct customers.
Speaker Change: But we are moving up the value stack.
Speaker Change: That is a matter of fact.
Speaker Change: So in that sense.
Speaker Change: From what <unk> My my leader for the automotive business talked about in our Investor day in November.
Speaker Change: <unk> is a very important building block to make that vision, a reality, which is co architected both platforms with Oems.
Speaker Change: Thank you. This concludes the question and answer session.
Kurt Sievers: I'd now like to turn it back to Kurt Sievers for closing remarks.
Kurt Sievers: Yes, thanks operator.
Kurt Sievers: Yes, thanks for paying attention to today's call.
Speaker Change: <unk> continued to be in a very cloudy environment. There you saw our hesitation and cautiousness.
Speaker Change: Called the Baltimore to speak about the rest of the year.
Speaker Change: We take however, a very rigorous focus on cost and gross margin management switches, which is under our control to continue consistently on that strategy of soft landing to be ready and best prepare for the up cycle when and if it comes.
Speaker Change: With that I. Thank you for your attention. Thank you.
Speaker Change: This concludes today's conference call. Thank.
Speaker Change: Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].