NXP Semiconductors Q4 2025 NXP Semiconductors NV Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 NXP Semiconductors NV Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to NXP Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you would need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jeff Palmer, Senior Vice President, Investor Relations. Please go ahead.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to NXP Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you would need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jeff Palmer, Senior Vice President, Investor Relations. Please go ahead.
Speaker #1: Ladies and gentlemen , thank you for standing by . Welcome to Next . Fourth quarter , 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #1: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press star one one on your telephone.
Speaker #1: You will then hear an automated message of fires in your hand . Is raised . To withdraw your question , please press star one one again .
Speaker #1: Please be advised that today's conference is being recorded . I would now like to turn your conference over to Jeff Palmer Senior Vice President , Investor Please go Relations .
Jeff Palmer: Thank you, Michelle, and good morning, everyone. Welcome to NXP Semiconductors earnings call today. With me on the call today is Rafael Sotomayor, NXP's President and CEO, and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. The 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 the specific end markets in which we operate, the sale of new and existing products, and our expectations for the financial results for Q1 2026. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release.
Jeff Palmer: Thank you, Michelle, and good morning, everyone. Welcome to NXP Semiconductors earnings call today. With me on the call today is Rafael Sotomayor, NXP's President and CEO, and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website. The 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 the specific end markets in which we operate, the sale of new and existing products, and our expectations for the financial results for Q1 2026. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release.
Speaker #1: . ahead
Speaker #2: Thank you, Michel. Good morning, everyone. Welcome to the NXP Semiconductors earnings call today. With me on the call today is Rafael Sotomayor.
Speaker #2: And President and CEO Kurt Sievers, and Bill Betz, our CFO. The call today is being recorded and will be available for replay from our corporate website.
Speaker #2: The 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 #2: These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific markets in which we operate.
Speaker #2: The sale of new and existing products , and our expectations for the financial results for the first quarter of 2026 , NXP undertakes no obligation to revise or update publicly any forward looking statements for a full disclosure of forward statements , looking please refer to our press release .
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. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our Q4 2025 earnings press release, which will be furnished to the SEC on a Form 8-K and available from NXP's website in the investor relations section. Now, I'd like to pass the call to Rafael.
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. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our Q4 2025 earnings press release, which will be furnished to the SEC on a Form 8-K and available from NXP's website in the investor relations section. Now, I'd like to pass the call to Rafael.
Speaker #2: 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 the underlying core operating performance.
Speaker #2: 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 2020 earnings.
Speaker #2: Press release , which will be furnished to the SEC on form 8-K and available from website Nsp's in the Investor Relations section . Now , I'd like to pass the call to Rafael .
Rafael Sotomayor: Thank you, Jeff, and good morning. We appreciate you joining our call today. Our overall performance during the fourth quarter was solid, with all end markets performing either in line or better than expected. All regions were up on a year-on-year basis. Turning to the specifics, NXP delivered fourth quarter revenue of $3.34 billion, an increase of 7% year-on-year and up 5% sequentially. This was $35 million better than the midpoint of our guidance. Non-GAAP operating margin in the fourth quarter was about 35%, 40 basis points above the same period a year ago, and in line with the midpoint of our guidance. Taken together, we drove non-GAAP earnings per share of $3.35, seven cents better than guidance. Distribution inventory was 10 weeks, consistent with our guidance.
Rafael Sotomayor: Thank you, Jeff, and good morning. We appreciate you joining our call today. Our overall performance during the fourth quarter was solid, with all end markets performing either in line or better than expected. All regions were up on a year-on-year basis. Turning to the specifics, NXP delivered fourth quarter revenue of $3.34 billion, an increase of 7% year-on-year and up 5% sequentially. This was $35 million better than the midpoint of our guidance. Non-GAAP operating margin in the fourth quarter was about 35%, 40 basis points above the same period a year ago, and in line with the midpoint of our guidance. Taken together, we drove non-GAAP earnings per share of $3.35, seven cents better than guidance. Distribution inventory was 10 weeks, consistent with our guidance.
Speaker #2: Thank you, Jeff, and good morning. We...
Speaker #3: Appreciate you joining our call today. Our overall performance during the fourth quarter was solid, with all in markets performing either in line or better than expected.
Speaker #3: All regions were up on a year on year basis . Turning to the specifics , NXP delivered fourth quarter revenue of $3.34 billion , an increase of 7% year on year , and up 5% sequentially .
Speaker #3: This was $35 million better than the midpoint of our guidance. Non-GAAP operating margin in the fourth quarter was about 35%, 40 basis points above the same period a year ago.
Speaker #3: And in line with the midpoint of our guidance. Taken together, we drove non-GAAP earnings per share of $3.35, $0.07 better than guidance.
Speaker #3: Distribution inventory was ten weeks . Consistent with our guidance . We remain disciplined on channel health prioritizing sell through of high demand products rather than broad based restocking .
Rafael Sotomayor: We remain disciplined on channel health, prioritizing sell-through of high-demand products rather than broad-based restocking. Now, I would like to reflect on our performance in 2025. The year was a tale of two halves, with the first half of the year exhibiting weaker demand trends, while in the second half of the year, demand began to accelerate in support of our long-term revenue growth model. Looking at the specifics, automotive revenue was $7.1 billion, flat year-over-year, due to slower inventory digestion at direct customers in the first half of 2025. With the inventory digestion behind us, the second half performance aligns with our eight to twelve long-term growth outlook, reflecting the underlying strength of our auto portfolio.
We remain disciplined on channel health, prioritizing sell-through of high-demand products rather than broad-based restocking. Now, I would like to reflect on our performance in 2025. The year was a tale of two halves, with the first half of the year exhibiting weaker demand trends, while in the second half of the year, demand began to accelerate in support of our long-term revenue growth model. Looking at the specifics, automotive revenue was $7.1 billion, flat year-over-year, due to slower inventory digestion at direct customers in the first half of 2025. With the inventory digestion behind us, the second half performance aligns with our eight to twelve long-term growth outlook, reflecting the underlying strength of our auto portfolio.
Speaker #3: Now , I would like to reflect on our performance in 2025 . The year was a tale of two halves , with the first half of the year exhibiting weaker demand trends , while in the second half of the year demand began to accelerate in support of our long term revenue growth model .
Speaker #3: Looking at the specifics, automotive revenue was $7.1 billion, flat year on year due to slower inventory digestion at direct customers in the first half of 2025, when the inventory digestion was...
Speaker #3: behind The second half performance aligns with our our 8 to 12 long term growth outlook , reflecting the underlying strength of our auto portfolio .
Rafael Sotomayor: A few examples which underpin our optimism include our efforts in software-defined vehicles, where we have seen strong global adoption of NXP products. These include design win rates for our S32N family of 5 nanometer vehicle compute processors, the newly introduced S32K family of 16 nanometer zonal processors, and continued adoption of automotive Ethernet products. These efforts are now material and global in nature, with most auto OEMs undertaking SDV platform initiatives. Additionally, the early conversations with customers on the recently acquired technologies from TTTech Auto and Aviva Links are accelerating interest in NXP's SDV portfolio. The potential revenue contribution from these engagements should materialize beyond 2027. This multiyear SDV platforms deepen customer commitment and support mix improvement over time. Turning to the industrial and IoT end market, revenue was $2.3 billion, flat year-over-year.
A few examples which underpin our optimism include our efforts in software-defined vehicles, where we have seen strong global adoption of NXP products. These include design win rates for our S32N family of 5 nanometer vehicle compute processors, the newly introduced S32K family of 16 nanometer zonal processors, and continued adoption of automotive Ethernet products. These efforts are now material and global in nature, with most auto OEMs undertaking SDV platform initiatives. Additionally, the early conversations with customers on the recently acquired technologies from TTTech Auto and Aviva Links are accelerating interest in NXP's SDV portfolio. The potential revenue contribution from these engagements should materialize beyond 2027. This multiyear SDV platforms deepen customer commitment and support mix improvement over time. Turning to the industrial and IoT end market, revenue was $2.3 billion, flat year-over-year.
Speaker #3: A few examples which underpin our optimism include our efforts in software defined vehicles where we have been , where we have seen strong global adoption of NXP products .
Speaker #3: These include design win rates for S32 and family of five nanometer vehicle compute processors . The newly introduced S32 K family of 60 nanometer processors , and continued adoption of Automotive Ethernet products .
Speaker #3: These efforts are now material and global in nature , with most auto OEMs undertaking SDV platform initiatives . Additionally , the early conversations with customers on the recently acquired technologies from tech , Auto and Aviva are accelerating interest in Nxp's .
Speaker #3: SDV portfolio. The potential revenue contribution from this engagement should materialize beyond 2027. These multi-year SDV platforms deepen customer commitment and support mix improvement over time.
Speaker #3: Turning to the industrial and IoT and market revenue was $2.3 billion flat year on year . The second half growth was materially above our 8 to 12% long term growth outlook across both core industrial and consumer and IoT , supporting our ambition to lead in intelligent systems at the edge .
Rafael Sotomayor: The second half growth was materially above our 8% to 12% long-term growth outlook across both core industrial and consumer and IoT. Supporting our ambition to lead in intelligent systems at the edge, we continue to see strong customer engagements in the emerging market for physical AI. By combining the industry-leading i.MX family of industrial application processors with the recently acquired Kinara NPU, we can deliver complete and scalable AI platforms that accelerate deployment at the edge. A few examples of applications include medical imaging systems, camera-based workplace safety system in the industrial market, logistic automation systems, and robotics. Customer interest has been exceptionally strong, and these engagements reinforce our vision of physical AI and the power of the NXP platform. These opportunities expand our addressable market, support sustainable growth, and validate the unique competitive nature of our complete system portfolio.
The second half growth was materially above our 8% to 12% long-term growth outlook across both core industrial and consumer and IoT. Supporting our ambition to lead in intelligent systems at the edge, we continue to see strong customer engagements in the emerging market for physical AI. By combining the industry-leading i.MX family of industrial application processors with the recently acquired Kinara NPU, we can deliver complete and scalable AI platforms that accelerate deployment at the edge. A few examples of applications include medical imaging systems, camera-based workplace safety system in the industrial market, logistic automation systems, and robotics. Customer interest has been exceptionally strong, and these engagements reinforce our vision of physical AI and the power of the NXP platform. These opportunities expand our addressable market, support sustainable growth, and validate the unique competitive nature of our complete system portfolio.
Speaker #3: We continue to see strong customer engagements in the emerging markets for physical AI by combining the industry leading IMX family of industrial application processors with the recently acquired Kinnara NPU .
Speaker #3: We can deliver complete and scalable platforms that AI accelerate deployment at the edge . A few examples of applications include medical imaging systems , camera based workplace safety system , and industrial market logistics , automation systems , and robotics .
Speaker #3: Customer interest has been exceptionally strong, and these engagements reinforce our vision of physical AI and the power of the NXP platform. These opportunities expand our addressable market, support sustainable growth, and validate the unique competitive nature of our complete system portfolio.
Rafael Sotomayor: Looking at our mobile business, revenue in 2025 was solid at $1.6 billion, up 6% year-on-year. We saw stronger demand and content gains in the premium mobile market. Overall, NXP remains a specialty supplier in the mobile market, with a unique and defensible franchise center on secure mobile transactions. Finally, the revenue in the communications infrastructure market was $1.3 billion, down 24% year-on-year. As we have said in the past, we anticipate flat growth over the longer term as the digital networking and RF power business decelerate, which will be offset by growth in our Secure Card business, which includes our UCODE RFID tagging solutions. Now, I will turn to our expectations for the first quarter. Our forecast for Q1 is better than we anticipated 90 days ago.
Looking at our mobile business, revenue in 2025 was solid at $1.6 billion, up 6% year-on-year. We saw stronger demand and content gains in the premium mobile market. Overall, NXP remains a specialty supplier in the mobile market, with a unique and defensible franchise center on secure mobile transactions. Finally, the revenue in the communications infrastructure market was $1.3 billion, down 24% year-on-year. As we have said in the past, we anticipate flat growth over the longer term as the digital networking and RF power business decelerate, which will be offset by growth in our Secure Card business, which includes our UCODE RFID tagging solutions. Now, I will turn to our expectations for the first quarter. Our forecast for Q1 is better than we anticipated 90 days ago.
Speaker #3: Looking at our mobile business, revenue in 2025 was solid at $1.6 billion, up 6% year on year. We saw stronger demand in content, games, and the premium mobile market.
Speaker #3: Overall, NXP remains a specialty supplier in the mobile market with a unique and defensible franchise centered on mobile secure transactions. Finally, the revenue in the communications infrastructure market was $1.3 billion, down 24% year on year.
Speaker #3: As we've said in the past, we anticipate flat growth over the longer term as the digital networking and RF power business decelerate, which will be offset by growth in our secure card business, which includes our core RFID tagging solutions.
Speaker #3: Now I will turn to our expectations for the first quarter. Our forecast for the first quarter is better than we anticipated 90 days ago.
Rafael Sotomayor: We expect all regions and all end markets to be up year-on-year. We're guiding first quarter revenue to $3.15 billion, up 11% versus the year-ago period, and seasonally down 6% sequentially. Compared to 90 days ago, the improvements reflect steady inventory normalization and auto Tier 1s, broadening order strength across both core industrial and consumer and IoT, and program ramps in the premium mobile market, consistent with seasonal patterns. Our guide does not assume broad-based restocking. At the midpoint, we expect the following trends in our business during Q1: Automotive is expected to be up in the mid-single digit versus Q1 2025, and down in the mid-single digit percent range versus Q4 2025. I would like to highlight that our first quarter revenue guidance only includes about $25 million or one month of revenue contribution from the MEMS sensor business.
We expect all regions and all end markets to be up year-on-year. We're guiding first quarter revenue to $3.15 billion, up 11% versus the year-ago period, and seasonally down 6% sequentially. Compared to 90 days ago, the improvements reflect steady inventory normalization and auto Tier 1s, broadening order strength across both core industrial and consumer and IoT, and program ramps in the premium mobile market, consistent with seasonal patterns. Our guide does not assume broad-based restocking. At the midpoint, we expect the following trends in our business during Q1: Automotive is expected to be up in the mid-single digit versus Q1 2025, and down in the mid-single digit percent range versus Q4 2025. I would like to highlight that our first quarter revenue guidance only includes about $25 million or one month of revenue contribution from the MEMS sensor business.
Speaker #3: We expect all regions and all markets to be up year on year, for guiding first quarter revenue to $3.15 billion, up 11% versus the year-ago period.
Speaker #3: And seasonally down 6% sequentially compared to 90 days ago . The improvements reflect steady inventory normalization and auto tier one broadening order strength across both core industrial and consumer and IoT and ramps in program the premium mobile market .
Speaker #3: Consistent with seasonal patterns. Our guide does not assume broad-based restocking at the midpoint. We expect the following trends in our business during Q1.
Speaker #3: Automotive is expected to be up in the mid-single digits versus Q1 2025, and down in the mid-single digit percent range versus Q4 2025.
Speaker #3: I would like to highlight that our first quarter revenue guidance only includes about $25 million, or one month of revenue contribution from the MEMS sensor business.
Rafael Sotomayor: Industrial and IoT is expected to be up in the low 20% range year-on-year and down in the mid-single-digit range versus Q4 2025. Mobile is expected to be up in the mid-teen % range year-on-year and down in the 20% range on a sequential basis. And finally, communication infrastructure and other is expected to be up in the mid-teen % range versus Q1 2025, and up 10% versus Q4 2025. In summary, our first quarter outlook reflects early validation of the company's specific growth drivers we've been investing in, and we expect these trends to continue throughout 2026. We believe the NXP-specific secular drivers for our business are now outweighing the broader industry cyclical headwinds, which we have experienced over the last few years.
Industrial and IoT is expected to be up in the low 20% range year-on-year and down in the mid-single-digit range versus Q4 2025. Mobile is expected to be up in the mid-teen % range year-on-year and down in the 20% range on a sequential basis. And finally, communication infrastructure and other is expected to be up in the mid-teen % range versus Q1 2025, and up 10% versus Q4 2025. In summary, our first quarter outlook reflects early validation of the company's specific growth drivers we've been investing in, and we expect these trends to continue throughout 2026. We believe the NXP-specific secular drivers for our business are now outweighing the broader industry cyclical headwinds, which we have experienced over the last few years.
Speaker #3: Industrial IoT is expected to be up in the low 20% range year on year, and down in the mid-single-digit range versus Q4 2025.
Speaker #3: Mobile is expected to be up in the mid-18% range year on year and down in the 20% range on a sequential basis.
Speaker #3: And finally, Communication Infrastructure and Other is expected to be up in the mid-18% range versus Q1 2025, and up 10% versus Q4 2025.
Speaker #3: In summary, our first quarter outlook reflects early validation of the company's specific growth drivers. We've been investing in these areas, and we expect these trends to continue throughout 2026.
Speaker #3: We believe the specific secular drivers for our business are now outweighing the broader industry cyclical headwinds, which we have experienced over the last few years.
Rafael Sotomayor: Overall, we expect product mix and disciplined cost execution to continue to support a gross and operating margin framework. We're focused on disciplined investment and portfolio enhancements to drive profitable growth while maintaining control over the factors we can influence. Our capital allocation framework is unchanged. Invest for growth, pursue targeted M&A to strengthen the portfolio, and return excess cash through dividends and buybacks within our long-term model. And now, I would like to pass the call to Bill for a review of the financial performance.
Overall, we expect product mix and disciplined cost execution to continue to support a gross and operating margin framework. We're focused on disciplined investment and portfolio enhancements to drive profitable growth while maintaining control over the factors we can influence. Our capital allocation framework is unchanged. Invest for growth, pursue targeted M&A to strengthen the portfolio, and return excess cash through dividends and buybacks within our long-term model. And now, I would like to pass the call to Bill for a review of the financial performance.
Speaker #3: Overall, we expect product mix and disciplined cost execution to continue to support our growth and operating margin framework. We're focused on disciplined investment and portfolio enhancements to drive profitable growth, while control over the main factors that influence our capital allocation framework is unchanged.
Speaker #3: Invest for growth. Pursue targeted M&A to strengthen the portfolio and excess return cash through dividends and buybacks within our long-term model.
Speaker #3: And now I would like to pass the call to Bill for a review of financial performance. Thank you, Rafael, and good morning to everyone.
Bill Betz: Thank you, Rafael, and good morning to everyone on today's call. As Rafael has already covered the drivers of the revenue, I will move to the financial highlights. Overall, our results reflect the strength of our strategic priorities in our end markets, our disciplined investment in manufacturing and product leadership, and our consistent commitment to generating long-term shareholder value. Q4 was solid, with strong execution and results above the midpoint of guidance. Revenue, gross profit, and operating profit were all back into our long-term financial model. We delivered non-GAAP earnings per share of $3.35, or $0.07 better than the midpoint of guidance. Non-GAAP gross profit was $1.91 billion, with a 57.4% non-GAAP gross margin, a slight miss versus guidance, driven by stronger than expected mobile revenue.
Bill Betz: Thank you, Rafael, and good morning to everyone on today's call. As Rafael has already covered the drivers of the revenue, I will move to the financial highlights. Overall, our results reflect the strength of our strategic priorities in our end markets, our disciplined investment in manufacturing and product leadership, and our consistent commitment to generating long-term shareholder value. Q4 was solid, with strong execution and results above the midpoint of guidance. Revenue, gross profit, and operating profit were all back into our long-term financial model. We delivered non-GAAP earnings per share of $3.35, or $0.07 better than the midpoint of guidance. Non-GAAP gross profit was $1.91 billion, with a 57.4% non-GAAP gross margin, a slight miss versus guidance, driven by stronger than expected mobile revenue.
Speaker #4: Everyone, on today's call, as Rafael has already covered the drivers of the revenue, I will move to the financial highlights.
Speaker #4: Overall , our results reflect the strength of our strategic priorities . In our end markets . Our disciplined investment in manufacturing and product leadership and are consistent commitment to generating long term shareholder value .
Speaker #4: Q4 was solid with strong execution and results above the midpoint of guidance . Revenue . Gross profit and all operating backed were profit into our long term financial model .
Speaker #4: We delivered non-GAAP earnings per share of $3.35 , or $0.07 better than the midpoint of guidance . non-GAAP gross profit was 1.91 billion , with a 57.4% non-GAAP gross margin , a slight miss versus guidance driven by stronger than expected mobile revenue .
Bill Betz: Non-GAAP operating expenses were $756 million, or 22.7% of revenue. The primary increase sequentially is driven by our two new acquisitions, where we continue to make space for our strategic investments, offset by restructuring actions. Non-GAAP operating profit was $1.15 billion, and non-GAAP operating margin was 34.6%, up 80 basis points sequentially. Below the line, non-GAAP interest expense was $99 million, and taxes were $190 million. Non-controlling interest was a $13 million expense, and results from equity accounted investees was a $1 million dollar loss. Taken together, the below-the-line items were $4 million better than our guidance. While stock-based compensation, which is not in our non-GAAP earnings, was $100 million, $18 million lower than guidance, driven by the retirement of several executives.
Non-GAAP operating expenses were $756 million, or 22.7% of revenue. The primary increase sequentially is driven by our two new acquisitions, where we continue to make space for our strategic investments, offset by restructuring actions. Non-GAAP operating profit was $1.15 billion, and non-GAAP operating margin was 34.6%, up 80 basis points sequentially. Below the line, non-GAAP interest expense was $99 million, and taxes were $190 million. Non-controlling interest was a $13 million expense, and results from equity accounted investees was a $1 million dollar loss. Taken together, the below-the-line items were $4 million better than our guidance. While stock-based compensation, which is not in our non-GAAP earnings, was $100 million, $18 million lower than guidance, driven by the retirement of several executives.
Speaker #4: non-GAAP operating expenses were 756 million , or 22.7% of revenue . The primary increase sequentially is driven by our two new acquisitions , where we continue to make space for our strategic investments , offset by restructuring actions .
Speaker #4: non-GAAP operating profit was 1.15 billion and non-GAAP operating margin was 34.6% , up 80 basis points line , sequentially . Below the non-GAAP interest expense was 99 million and taxes were 190 million .
Speaker #4: Noncontrolling interest was a 13 million expense and results from equity accounted Investees was a $1 million loss . Taken together , the below the line items were 4 million better than our guidance .
Speaker #4: While stock based compensation , which is not in our non-GAAP earnings , was 100 million . 18 million lower than guidance driven by the retirement of several executives .
Bill Betz: Turning to changes in cash, debt, and capital returns, our balance sheet remains strong, giving us the flexibility to invest in our strategic priorities and hybrid manufacturing plans. We ended Q4 with $12.2 billion in total debt and $3.3 billion in cash, reflecting uses of cash for capital returns, acquisitions, joint venture investments, and CapEx, offset by cash generation during the quarter. Net debt was $8.96 billion, and net debt to adjusted EBITDA was 1.9 times, with adjusted EBITDA interest coverage ratio of 14.7 times. In Q4, we returned $338 million through buybacks and $254 million in dividends. Over the last ten years, we have returned over $23 billion to our shareholders for 95% of free cash flow and reduced our diluted share count by 27%.
Turning to changes in cash, debt, and capital returns, our balance sheet remains strong, giving us the flexibility to invest in our strategic priorities and hybrid manufacturing plans. We ended Q4 with $12.2 billion in total debt and $3.3 billion in cash, reflecting uses of cash for capital returns, acquisitions, joint venture investments, and CapEx, offset by cash generation during the quarter. Net debt was $8.96 billion, and net debt to adjusted EBITDA was 1.9 times, with adjusted EBITDA interest coverage ratio of 14.7 times. In Q4, we returned $338 million through buybacks and $254 million in dividends. Over the last ten years, we have returned over $23 billion to our shareholders for 95% of free cash flow and reduced our diluted share count by 27%.
Speaker #4: Turning to changes in cash, debt, and capital returns. Our balance sheet remains strong, giving us the flexibility to invest in our strategic priorities and hybrid manufacturing plans.
Speaker #4: We ended Q4 with a 12.2 billion in total debt and 3.3 billion in cash , reflecting uses of cash for capital returns , acquisitions , joint venture investments and CapEx , offset by cash generation .
Speaker #4: During the quarter, net debt was $8.96 billion and net debt to adjusted EBITDA was 1.9 times, with an adjusted EBITDA interest coverage ratio of 14.7 times. In Q4, we returned $338 million through buybacks and $254 million in dividends. Over the last ten years,
Speaker #4: We have returned over 23 billion to our shareholders for 95% of free cash flow and reduced our diluted share count by 27% . After Q4 , WI repurchased another 36 million under our ten five one program , and on January 5th , we redeemed the 500 million .
Bill Betz: After Q4, we repurchased another 36 million under our 10b5-1 program, and on 5 January 2024, we redeemed the $500 million March 2026 notes with our cash on hand. Now, turning to working capital metrics. Days of inventory was 154 days, which included 7 days of pre-bill. Receivables were 29 days, payables were 60 days. Taken together, our cash conversion cycle was 123 days. As revenue growth accelerates, we expect working capital efficiency, particularly days of inventory, including pre-bills, to meaningfully improve throughout the year. From a cash usage perspective, we continue to advance our long-term manufacturing strategy, including contributions to both VSMC and ESMC. This will lead to a long-term supply resiliency and strong gross margin expansion.
After Q4, we repurchased another 36 million under our 10b5-1 program, and on 5 January 2024, we redeemed the $500 million March 2026 notes with our cash on hand. Now, turning to working capital metrics. Days of inventory was 154 days, which included 7 days of pre-bill. Receivables were 29 days, payables were 60 days. Taken together, our cash conversion cycle was 123 days. As revenue growth accelerates, we expect working capital efficiency, particularly days of inventory, including pre-bills, to meaningfully improve throughout the year. From a cash usage perspective, we continue to advance our long-term manufacturing strategy, including contributions to both VSMC and ESMC. This will lead to a long-term supply resiliency and strong gross margin expansion.
Speaker #4: March 2026 notes with our cash on hand . Now , turning to working capital metrics days of inventory was 154 days , which included seven days of Pre-build receivables were 29 days , payables were 60 days .
Speaker #4: Taken together , our cash conversion cycle was 123 days . As revenue growth accelerates , we expect working capital efficiency , particularly days of inventory , including pre builds , to meaningfully improve throughout the year .
Speaker #4: From a cash usage perspective , we continue to advance our long term manufacturing strategy , including contributions to both Vsmc and Ismc . This will lead to a long term supply resiliency and strong gross margin expansion .
Bill Betz: Cash flow from operations was $891 million, and net CapEx was $98 million, resulting in non-GAAP free cash flow of $793 million, or 24% of revenue. We invested $195 million in long-term capacity access fees, made a $282 million equity payment to VSMC, and a $44 million equity payment to ESMC. Taken together, we are about 50% through the investment cycle for both VSMC and ESMC, having invested about $1.7 billion of the $3.4 billion planned investments. We expect the majority of remaining investments will occur in 2026. Now, turning to our expectations for Q1.
Cash flow from operations was $891 million, and net CapEx was $98 million, resulting in non-GAAP free cash flow of $793 million, or 24% of revenue. We invested $195 million in long-term capacity access fees, made a $282 million equity payment to VSMC, and a $44 million equity payment to ESMC. Taken together, we are about 50% through the investment cycle for both VSMC and ESMC, having invested about $1.7 billion of the $3.4 billion planned investments. We expect the majority of remaining investments will occur in 2026. Now, turning to our expectations for Q1.
Speaker #4: Cash flow from operations was $891 million, and net CapEx was $98 million, resulting in non-GAAP free cash flow of $793 million, or 24% of revenue.
Speaker #4: We invested $195 million in long-term capacity access fees, made a $282 million equity payment to VSMC, and a $44 million equity payment to ISMC.
Speaker #4: Taken together, we are about 50% through the investment cycle for both VSMC and ISMC, having invested about $1.7 billion of the $3.8 billion and $3.4 billion planned investments.
Speaker #4: Expect the majority of the remaining investments will occur in 2026. Now, turning to our expectations for Q1. We expect revenue of $3.15 billion, plus or minus $100 million, which is up 11% year-on-year and down 6% sequentially. This is better than our view 90 days ago. Expect non-GAAP...
Bill Betz: We expect revenue of $3.15 billion, ±100 million, up 11% year-on-year and down 6% sequentially, which is better than our view 90 days ago. We expect non-GAAP gross margin of 57%, ±50 basis points. Operating expenses are expected to be $765 million, ±10 million, reflecting normal seasonal increases at the start of the year. We are committed to our long-term operating expense model of 23% of revenue, though there are seasonal variations, with the first half of the year normally higher than the second half, resulting in non-GAAP operating margin of 32.7% at the midpoint. Below the line, we expect non-GAAP financial expense to be about $92 million and our non-GAAP tax rate to be 18%.
We expect revenue of $3.15 billion, ±100 million, up 11% year-on-year and down 6% sequentially, which is better than our view 90 days ago. We expect non-GAAP gross margin of 57%, ±50 basis points. Operating expenses are expected to be $765 million, ±10 million, reflecting normal seasonal increases at the start of the year. We are committed to our long-term operating expense model of 23% of revenue, though there are seasonal variations, with the first half of the year normally higher than the second half, resulting in non-GAAP operating margin of 32.7% at the midpoint. Below the line, we expect non-GAAP financial expense to be about $92 million and our non-GAAP tax rate to be 18%.
Speaker #4: Gross We margin of 57%, plus or minus 50 basis points. Operating expenses are expected to be $765 million, plus or minus $10 million, reflecting normal seasonal increases at the start of the year.
Speaker #4: We are committed to our long-term expense operating model of 23% of revenue, though there are seasonal variations, with the first half of the year normally higher than the second half.
Speaker #4: Resulting in non-GAAP operating margin of 32.7% at the midpoint. Below the line, we expect non-GAAP financial expense to be about $92 million, and our non-GAAP tax rate to be 18%.
Bill Betz: Non-controlling interest expense will be $11 million, with our joint venture startup losses of about $3 million. Stock-based compensation should be about $108 million, which is not included in our non-GAAP guidance. This implies Q1 non-GAAP earnings per share of $2.97 at the midpoint. Turning to the uses of cash in Q1, we expect capital expenditures to be approximately 3% of revenue, our capacity access fee payment of $190 million, and an equity investment into VSMC of $210 million. Before turning to your questions, I have a few housekeeping items to highlight. After thoughtful consideration, we have decided that our RF power business no longer aligns with our long-term strategic direction. Consequently, we will stop new product development and have taken an approximately $90 million restructuring charge, which is reflected in our fourth quarter GAAP results.
Non-controlling interest expense will be $11 million, with our joint venture startup losses of about $3 million. Stock-based compensation should be about $108 million, which is not included in our non-GAAP guidance. This implies Q1 non-GAAP earnings per share of $2.97 at the midpoint. Turning to the uses of cash in Q1, we expect capital expenditures to be approximately 3% of revenue, our capacity access fee payment of $190 million, and an equity investment into VSMC of $210 million. Before turning to your questions, I have a few housekeeping items to highlight. After thoughtful consideration, we have decided that our RF power business no longer aligns with our long-term strategic direction. Consequently, we will stop new product development and have taken an approximately $90 million restructuring charge, which is reflected in our fourth quarter GAAP results.
Speaker #4: Non-controlling interest expense will be 11 million . With our venture joint start up losses of about 3 million . Stock based compensation should be about 108 million , which is not included in our non-GAAP guidance .
Speaker #4: This implies Q1 non-GAAP earnings per share of $2.97 at the midpoint . Turning to the uses of cash in Q1 , we expect capital expenditures to be approximately 3% of revenue .
Speaker #4: Our capacity access fee payment of 190 million and an equity investment into Vsmc of 210 million . Before turning to your questions , I have a few housekeeping items to highlight .
Speaker #4: After thoughtful consideration, we have decided that our RF Power business no longer aligns with our long-term strategic direction. Consequently, we have taken product development actions and will have an approximately $90 million restructuring charge, which is reflected in our fourth quarter GAAP results.
Bill Betz: We will direct, redirect, and focus our R&D resources to accelerate and enhance our strategic priorities towards software-defined vehicles and physical AI. Yesterday, after the market closed, STMicroelectronics announced the closure of NXP's MEMS sensor business acquisition. This is a positive transaction for both parties. NXP received $900 million in gross proceeds, with another $50 million to be received upon completion of certain closing conditions. We will recognize a one-time gain of approximately $630 million from the sale of the business, which is reflected in our first quarter's GAAP guidance. Next, we have made the decision to shift our geographic revenue reporting to headquarter-based region as opposed to a ship-to basis. We believe reporting headquarter-based region better reflects how we manage the business internally and where customer engagements and design win awards occur.
We will direct, redirect, and focus our R&D resources to accelerate and enhance our strategic priorities towards software-defined vehicles and physical AI. Yesterday, after the market closed, STMicroelectronics announced the closure of NXP's MEMS sensor business acquisition. This is a positive transaction for both parties. NXP received $900 million in gross proceeds, with another $50 million to be received upon completion of certain closing conditions. We will recognize a one-time gain of approximately $630 million from the sale of the business, which is reflected in our first quarter's GAAP guidance. Next, we have made the decision to shift our geographic revenue reporting to headquarter-based region as opposed to a ship-to basis. We believe reporting headquarter-based region better reflects how we manage the business internally and where customer engagements and design win awards occur.
Speaker #4: We will direct our focus or we will direct redirect and focus our R&D resources to accelerate and enhance our strategic priorities toward software defined vehicles and physical AI .
Speaker #4: Yesterday, after the market closed, STMicroelectronics announced the closure of NXP's MEMS sensor business acquisition. This is a positive transaction for both parties.
Speaker #4: NXP received $900 million in gross proceeds, with another $50 million to be received upon completion of certain closing conditions. We will recognize a one-time gain of approximately $630 million from the sale of the business, which is reflected in our first quarter GAAP guidance.
Speaker #4: Next, we have made the decision to shift our geographic revenue reporting to a headquarter-based region, as opposed to a ship-to basis.
Speaker #4: We believe reporting headquarter based region better reflects how we manage the business internally and where customer engagements and design win awards occur . The 2025 change can be found in the posted IR presentation and finally , based on the positive trends , including current order rates and business signals , we track .
Bill Betz: The 2025 change can be found in the posted IR presentation. And finally, based on the positive trends, including current order rates and business signals we track, we are confident NXP will operate within its long-term financial model for the full year of 2026. In closing, we are well positioned to benefit from the powerful secular trends in our for-focused end markets. We are confident about the strategic priorities and investments we are making across our entire portfolio and manufacturing footprint. With a strong balance sheet and a disciplined capital return philosophy, we are exceptionally well positioned to drive long-term value for our shareholders. Now, I would like to turn it back to the operator for your questions.
The 2025 change can be found in the posted IR presentation. And finally, based on the positive trends, including current order rates and business signals we track, we are confident NXP will operate within its long-term financial model for the full year of 2026. In closing, we are well positioned to benefit from the powerful secular trends in our for-focused end markets. We are confident about the strategic priorities and investments we are making across our entire portfolio and manufacturing footprint. With a strong balance sheet and a disciplined capital return philosophy, we are exceptionally well positioned to drive long-term value for our shareholders. Now, I would like to turn it back to the operator for your questions.
Speaker #4: We are confident NXP will operate within its long-term financial model for the full year of 2026. In closing, we are well positioned to benefit from the powerful secular trends in our four focused end markets.
Speaker #4: We are confident about the strategic priorities and investments we are making our across entire portfolio and manufacturing footprint sheet balance . With a strong and a disciplined capital return philosophy , we are exceptionally well positioned to drive long term value for our shareholders .
Speaker #4: Now, I would like to turn it back to the operator for your questions.
Operator: To ask questions, press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We do ask that you please limit to one question and one follow-up. The first question will come from Tom O'Malley with Barclays. Your line is open.
Operator: To ask questions, press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We do ask that you please limit to one question and one follow-up. The first question will come from Tom O'Malley with Barclays. Your line is open.
Speaker #1: Please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again.
Speaker #1: And we ask, please, that you limit to one question and one follow-up. And the first question will come from Tom O'Malley with Barclays.
Speaker #1: Your line is open .
[Analyst] (Barclays): Hey, guys, thanks for taking my question. I wanted to ask about the channel restock. So it looks like you guys went from 9 to 10 weeks. In your guidance, you're saying no additional restock, kind of, baked in. Could you talk about where you are with the channel today, what you saw in the last quarter? And is it the decision to just not go to 11 weeks overall? Or is it just we're gonna wait a little bit until we take it to the 11 weeks that we talked about previously? Thank you.
Thomas O'Malley: Hey, guys, thanks for taking my question. I wanted to ask about the channel restock. So it looks like you guys went from 9 to 10 weeks. In your guidance, you're saying no additional restock, kind of, baked in. Could you talk about where you are with the channel today, what you saw in the last quarter? And is it the decision to just not go to 11 weeks overall? Or is it just we're gonna wait a little bit until we take it to the 11 weeks that we talked about previously? Thank you.
Speaker #5: Hey guys . Thanks for taking my question . I wanted to ask about the the channel restock . So it looks like you guys went from 9 to 10 weeks in your guidance .
Speaker #5: You're saying no additional restock kind of baked in . Could you talk about where you are with the channel today ? What you saw in the last quarter , and is it the decision to just not go to 11 weeks overall , or is it just we're going to wait a little bit it to the until we take 11 weeks that we talked about previously ?
Speaker #5: Thank you .
Rafael Sotomayor: Thank you, Tom. Let me take that one. It's Rafael. Yeah, clearly, I mean, I would say that our channel strategy has shifted from, you know, what before we considered tight control to ensure that we staged the right product, the right product to satisfy demand. We are moving to our long-term target of 11 weeks. And the reason we're doing that is because it is a reflection of an improving demand environment for us. We finished Q4 with about 10 weeks. We will move into our long-term plan and long-term target of 11 weeks into 2026, and that's how we are going to manage our business in a steady state.
Rafael Sotomayor: Thank you, Tom. Let me take that one. It's Rafael. Yeah, clearly, I mean, I would say that our channel strategy has shifted from, you know, what before we considered tight control to ensure that we staged the right product, the right product to satisfy demand. We are moving to our long-term target of 11 weeks. And the reason we're doing that is because it is a reflection of an improving demand environment for us. We finished Q4 with about 10 weeks. We will move into our long-term plan and long-term target of 11 weeks into 2026, and that's how we are going to manage our business in a steady state.
Speaker #3: Thank you . Tom . Let me take that one . It's Raphael , clearly . I mean , I would say that our channel strategy has shifted from , you what , know before we consider tight control to ensure that we stage the right product , the right product to satisfy demand , we are moving to our long term target of 11 weeks .
Speaker #3: And the reason we're doing that is because it is a reflection of an improving demand environment for us. We finished Q4 with about 10 to 10 weeks.
Speaker #3: We will move into our long-term plan and long-term target of 11 weeks into 2026. And that's how we are going to manage our business in a steady state.
[Analyst] (Barclays): Gotcha. And then as a follow-up, just on the comms business, so, you're deciding to move away from RF, but you had already kind of moved away from digital networking. You're guiding that business up 10. Could you maybe walk through the moving pieces? Obviously, with digital networking coming down, you needed to see some really, you know, some strength from maybe the SIS business. Just walk through what's contributing to that Q1 strength. Thank you.
Thomas O'Malley: Gotcha. And then as a follow-up, just on the comms business, so, you're deciding to move away from RF, but you had already kind of moved away from digital networking. You're guiding that business up 10. Could you maybe walk through the moving pieces? Obviously, with digital networking coming down, you needed to see some really, you know, some strength from maybe the SIS business. Just walk through what's contributing to that Q1 strength. Thank you.
Speaker #5: Gotcha . And then as a follow up , just on the comms business , so you're deciding to move away from RF , but you had already kind of moved away from digital networking .
Speaker #5: that guiding You're business up ten . maybe walk through the Could you moving pieces . Obviously with digital networking coming down , you needed to see some really , you know , some strength from maybe the Sis business .
Speaker #5: Just walk through what's contributing to that Q1 strength. Thank you.
Rafael Sotomayor: Yeah, indeed, Tom, we did guide C&I about 10%, sequentially in Q1. If you remember, C&I includes three distinct businesses: secure cards, digital networks, and our power. And all of these three businesses can move differently quarter to quarter. C&I, I think right now is benefiting from the fact that, one, there's normalization in the digital networking business, but there's growth coming from the secure card, and that strength really will benefit C&I throughout 2026.
Rafael Sotomayor: Yeah, indeed, Tom, we did guide C&I about 10%, sequentially in Q1. If you remember, C&I includes three distinct businesses: secure cards, digital networks, and our power. And all of these three businesses can move differently quarter to quarter. C&I, I think right now is benefiting from the fact that, one, there's normalization in the digital networking business, but there's growth coming from the secure card, and that strength really will benefit C&I throughout 2026.
Speaker #3: indeed Yeah , we did guide CNI about 10% sequentially in Q1 , and if you remember , CNI includes three distinct businesses secure cars , Digital Networks , and our power and they they all of these three businesses can move differently quarter to quarter .
Speaker #3: And CNI I think right now is benefiting from the fact that one , there's no mention in the digital networking business , but there's coming from growth the secure card .
Speaker #3: And that strength really will benefit CNI throughout 2026.
[Analyst] (Barclays): Thank you.
Thomas O'Malley: Thank you.
Operator: Thank you. The next question will come from Matthew Prisco with Canaccord. Your line's open.
Operator: Thank you. The next question will come from Matthew Prisco with Canaccord. Your line's open.
Speaker #6: Thank you .
Speaker #1: Thank you. And the next question will come from Matthew Prisco with Cantor. Your line is open.
Bill Betz: Hey, guys. Thanks for taking the questions. I guess starting with the cyclical side, can you maybe offer some more color on customer ordering trends over the past few months, and maybe what type of linearity you saw through the quarter and into Q1?
Matthew Prisco: Hey, guys. Thanks for taking the questions. I guess starting with the cyclical side, can you maybe offer some more color on customer ordering trends over the past few months, and maybe what type of linearity you saw through the quarter and into Q1?
Speaker #1: .
Speaker #7: Hey , guys . questions . I guess starting with this side , can you maybe offer some more color on customer ordering trends over the past few months ?
Speaker #7: taking the
Speaker #7: And maybe, what type of linearity you saw through the quarter and into Q1?
Rafael Sotomayor: Yeah, Matt, are you asking about the kind of trends that we track internally? Is that what you're asking? We couldn't quite hear your question. We apologize.
Rafael Sotomayor: Yeah, Matt, are you asking about the kind of trends that we track internally? Is that what you're asking? We couldn't quite hear your question. We apologize.
Speaker #3: Yeah .
Speaker #2: Are you asking about the kind of trends that we track internally? Is that what you're asking? We couldn't quite hear your question.
Bill Betz: Oh, yes, that's exactly it. The trends that you track internally when you look at just customer ordering trends over those past few months, and then linearity through the quarter and into Q1.
Matthew Prisco: Oh, yes, that's exactly it. The trends that you track internally when you look at just customer ordering trends over those past few months, and then linearity through the quarter and into Q1.
Speaker #2: We apologize .
Speaker #7: Oh , yes . That's exactly it . The trends that you track internally when you look at just customer ordering trends over those past few months , and then linearity through the quarter and into one .
Rafael Sotomayor: Yeah, linearity, we don't, we don't disclose, but I think Bill will take some of the other metrics we track.
Rafael Sotomayor: Yeah, linearity, we don't, we don't disclose, but I think Bill will take some of the other metrics we track.
Speaker #2: yeah Q , linearity . We don't we don't disclose . But I think Bill will take some of the other metrics we track .
Bill Betz: Yeah. No, no. Obviously, over the quarter and the last 90 days ago, all our internal signals that we talked about in the past have improved. So think about our backlog, our distributions backlog, our customer escalations have increased. The short-term orders continue to increase as well, and we try to service as much as possible related to that. So across the board, we haven't seen anything like this in quite a while, and so we feel very confident about being in a long-term business model for 2026. And maybe I'll just add one thing, Bill. If you kind of step back, Matt, and look at kind of the trends in the second half of 2025, they've truly started to accelerate, and we're in, you know, close to our growth rates that we presented at our Analyst Day.
Bill Betz: Yeah. No, no. Obviously, over the quarter and the last 90 days ago, all our internal signals that we talked about in the past have improved. So think about our backlog, our distributions backlog, our customer escalations have increased. The short-term orders continue to increase as well, and we try to service as much as possible related to that. So across the board, we haven't seen anything like this in quite a while, and so we feel very confident about being in a long-term business model for 2026.
Speaker #4: Yeah . No , no , obviously over the quarter in the last 90 days ago , all our internal signals that we talked about in the past have improved .
Speaker #4: So think about our backlog , our distributions backlog , our customer escalations have increased . The short term orders continue to increase as well .
Speaker #4: And we try to service as much as possible related to that. So, across the board, we haven't seen anything like this in quite a while.
Speaker #4: And so we feel very confident about being in the long-term business model for 2026.
Rafael Sotomayor: And maybe I'll just add one thing, Bill. If you kind of step back, Matt, and look at kind of the trends in the second half of 2025, they've truly started to accelerate, and we're in, you know, close to our growth rates that we presented at our Analyst Day. We believe that will continue as we progress through 2026. So we- we're feeling pretty optimistic that we are off the trough of the business. Did you have a follow-up?
Speaker #2: And maybe I'll just add one thing , Bill , if you kind of step back and look at kind of the trends in the second half of 25 , they've truly started to accelerate and we're close to our growth rates that we presented at our Analyst Day .
Bill Betz: We believe that will continue as we progress through 2026. So we- we're feeling pretty optimistic that we are off the trough of the business. Did you have a follow-up?
Speaker #2: We believe that will continue as we progress through 26 . So we're feeling pretty optimistic that we are off the trough of the business .
[Analyst] (Morgan Stanley): Yes, please. I guess on the auto side, would love if you can offer some detail on the demand dynamics within your core auto business versus your accelerated growth drivers, and have you seen any impact to date from component price increases potentially pressuring unit demand there? Thanks.
Matthew Prisco: Yes, please. I guess on the auto side, would love if you can offer some detail on the demand dynamics within your core auto business versus your accelerated growth drivers, and have you seen any impact to date from component price increases potentially pressuring unit demand there? Thanks.
Speaker #2: Did you have a follow?
Speaker #7: Up ? Yes , please . I guess on the auto side , we'd love if you can offer some detail on the demand dynamics within your core auto business versus your accelerated growth drivers .
Speaker #7: And have you seen any impact to date from component price increases potentially pressuring unit demand there? Thanks.
Rafael Sotomayor: Yeah, so we've I think there are a few questions there in auto. If you look at what happens if you look at auto and the reason why we remain quite optimistic in auto, in Q4, our business returned to growth year on year. And the guide that we provided continues, you know, year on year, the Q1 guide gives you growth as well, year on year. And what we see is that this remains unchanged with respect to content gains. You asked me about pricing. Second question was on pricing. VPAs for the most part are done, right? With in the pricing that is already reflected in our Q1 guide.
Rafael Sotomayor: Yeah, so we've I think there are a few questions there in auto. If you look at what happens if you look at auto and the reason why we remain quite optimistic in auto, in Q4, our business returned to growth year on year. And the guide that we provided continues, you know, year on year, the Q1 guide gives you growth as well, year on year. And what we see is that this remains unchanged with respect to content gains. You asked me about pricing. Second question was on pricing. VPAs for the most part are done, right? With in the pricing that is already reflected in our Q1 guide.
Speaker #3: Yeah . So we I think there are a few questions there on auto . If you look at what happened , if you look at auto and the reason why we remain quite optimistic in auto in Q4 , our business returned to growth year on year .
Speaker #3: And the guide that we provided continues year on year to Q1 guide, gives you growth as well, year on year. And so, what we see is that these remain unchanged with respect to content gain.
Speaker #3: You asked me about pricing . Second question was pricing vpas for the most part are are done right with in the pricing that that that that is already reflected on our Q1 guide .
Rafael Sotomayor: And we are modeling low single-digit price declines, and that's what we see not only in auto, but across, across the business.
And we are modeling low single-digit price declines, and that's what we see not only in auto, but across, across the business.
Speaker #3: And Are and we . modeling low single digit price declines . And that's what we see . Not only in auto , but across across the business .
Operator: Thank you. And our next question will come from Ross Seymour with Deutsche Bank. Your line is open.
Operator: Thank you. And our next question will come from Ross Seymour with Deutsche Bank. Your line is open.
Speaker #1: Thank you. And our next question will come from Seymore Ross with Deutsche Bank. Your line is open.
[Analyst] (Deutsche Bank): Hi, guys. Thanks for asking the question. Just sticking on the auto side of things, it's been, you know, pretty much flat for a couple, two, three years in a row, and I know there's been a bunch of puts and takes on inventory and demand, et cetera. But I really wanted to dive into what you've seen over that period of time in your accelerated growth drivers. Is anything changing your thesis there? Are you more optimistic, less optimistic? Any sort of clarifications there, especially as we move forward. Hopefully, the headwinds are done, and so I just wanted to judge the growth rate from those drivers going forward. Thank you.
Ross Seymore: Hi, guys. Thanks for asking the question. Just sticking on the auto side of things, it's been, you know, pretty much flat for a couple, two, three years in a row, and I know there's been a bunch of puts and takes on inventory and demand, et cetera. But I really wanted to dive into what you've seen over that period of time in your accelerated growth drivers. Is anything changing your thesis there? Are you more optimistic, less optimistic? Any sort of clarifications there, especially as we move forward. Hopefully, the headwinds are done, and so I just wanted to judge the growth rate from those drivers going forward. Thank you.
Speaker #8: Hi guys . Thanks for the question . Just sticking on the auto side of things . It's been pretty much flat for a couple , two , three years in a row .
Speaker #8: And I know there's been a bunch of puts and takes on inventory and demand, etc., but I really wanted to dive into what you've seen over that period of time.
Speaker #8: In your accelerated growth drivers , is anything changing your thesis there or are you more optimistic , less optimistic ? Any sort of clarifications there , especially as we move forward ?
Speaker #8: Hopefully the headwinds are done. And so I just want to judge the growth rate from those drivers going forward. Thank you.
Rafael Sotomayor: Yeah, thanks, Ross. So we have, I think what I said on the prepared remarks, right, auto in our business in general in 2025 was the story of two halves, and the first half was all about inventory digestion, and it really masked the true dynamics of our business. For the full year, the auto accelerated drivers were slightly below model. Remember model, we said that we were going to grow 8% to 12%, but they were still growing in a year where auto was flat. And they were about 10%, and it was all led by our SDV efforts, our radar and our productivity. What you see right now in auto is our auto is shifting.
Rafael Sotomayor: Yeah, thanks, Ross. So we have, I think what I said on the prepared remarks, right, auto in our business in general in 2025 was the story of two halves, and the first half was all about inventory digestion, and it really masked the true dynamics of our business. For the full year, the auto accelerated drivers were slightly below model. Remember model, we said that we were going to grow 8% to 12%, but they were still growing in a year where auto was flat. And they were about 10%, and it was all led by our SDV efforts, our radar and our productivity. What you see right now in auto is our auto is shifting.
Speaker #3: Yeah . Thanks , Ross . So I think what what I said on the prepared remarks , right . Auto and our business in general in 2025 was the story of two halves in the first half was all about inventory , digestion .
Speaker #3: And it really masked the true underlying dynamics of business flow for the year. The auto accelerated drivers were slightly below model. Model?
Speaker #3: Remember We said that we were going to grow 8 to 12% , but there were growing still in a in a in a in a year where auto was flat and there were about 10% .
Speaker #3: And it was all led by our STB efforts—our radar and our connectivity. What you see right now in auto is our auto is shifting, our auto exposure is shifting to more and more structural and less cyclical.
Rafael Sotomayor: Our auto exposure is shifting to more and more structural and less cyclical, and it's driven by, you know, tying our roadmap to circular trends are really transforming the architectures of auto. So we feel quite optimistic. The answer to the question on the core drivers, those, the whole story, the thesis is completely intact, and we feel stronger than ever that our roadmap is really addressing the needs of the market.
Our auto exposure is shifting to more and more structural and less cyclical, and it's driven by, you know, tying our roadmap to circular trends are really transforming the architectures of auto. So we feel quite optimistic. The answer to the question on the core drivers, those, the whole story, the thesis is completely intact, and we feel stronger than ever that our roadmap is really addressing the needs of the market.
Speaker #3: And it's driven by tying our roadmap towards secular trends that are really transforming the architectures of our business. So we feel quite optimistic.
Speaker #3: We have the answer to the question on the core drivers. There's the whole story. That thesis is completely intact, and we feel stronger than ever.
Speaker #3: That our our roadmap is really addressing the needs of the market .
[Analyst] (Deutsche Bank): Great, thanks for that. And I guess, you had the MEMS divestiture and now the exit of the RF side of things. Can you aggregate, you know, how much of a headwind those exits are gonna be for this year? And I obviously know where the RF sits, but is the MEMS headwind in the auto side? Just wanna kind of make sure to level set on that.
Ross Seymore: Great, thanks for that. And I guess, you had the MEMS divestiture and now the exit of the RF side of things. Can you aggregate, you know, how much of a headwind those exits are gonna be for this year? And I obviously know where the RF sits, but is the MEMS headwind in the auto side? Just wanna kind of make sure to level set on that.
Speaker #8: Great, thanks for that. And I guess you had the MEMS divestiture, and now the exit of the RF side of things.
Speaker #8: Can you aggregate how much of a headwind those exits are going to be for this year? And I obviously know where the RF sits, but is the mEMS headwind in the auto side? Just want to kind of make sure to level set on that.
Bill Betz: Sure. The way to think about... Oh, this is Bill, Ross. Good morning. The way to think about the sensors divestment, it runs around $300 million per year, and, Rafael shared, we recognized $25 million in Q1, and I think you guys can do the math of the impact that has from a year-over-year compare in our auto end market. Related to the RF business, the RF business is probably gonna track similar to what DN did. If you recall, our digital networking business, when we walked away from it, I don't know, 8 years ago, it lives quite long. And so what we're actually doing is stop investing next generation products.
Bill Betz: Sure. The way to think about... Oh, this is Bill, Ross. Good morning. The way to think about the sensors divestment, it runs around $300 million per year, and, Rafael shared, we recognized $25 million in Q1, and I think you guys can do the math of the impact that has from a year-over-year compare in our auto end market. Related to the RF business, the RF business is probably gonna track similar to what DN did. If you recall, our digital networking business, when we walked away from it, I don't know, 8 years ago, it lives quite long. And so what we're actually doing is stop investing next generation products.
Speaker #4: Sure. The way to think about all this is Bill Ross. Good morning. The way to think about the sensors divestment.
Speaker #4: It runs around $300 million per year . And Raphael shared , we recognized 25 million in the first quarter . And I think you guys can do the math of the impact that has from a year over year .
Speaker #4: our Compare in auto and market , relate to the RF business , the RF , RF business is probably going to track similar to what Dean did .
Speaker #4: If you recall , our digital networking business , when we walked away from it , I don't know , eight years ago , it lives quite long .
Speaker #4: And so what we're actually doing is stopping investment in next generation products. So that will probably stay with us for at least the next two years, is what we're projecting at the current rate.
Bill Betz: So that will probably stay with us for at least the next two years, is what we're projecting at the current rate. And I think, Jeff, if we had to break out 2025 as a percentage of comms infra pieces, I don't have that on my fingertips, so we usually share that, but maybe you can share how the three businesses fared in 2025 to get the size of it.
So that will probably stay with us for at least the next two years, is what we're projecting at the current rate. And I think, Jeff, if we had to break out 2025 as a percentage of comms infra pieces, I don't have that on my fingertips, so we usually share that, but maybe you can share how the three businesses fared in 2025 to get the size of it.
Speaker #4: And I think , Jeff , if we had a breakout 2025 as a percentage of comms , infra pieces , I , I don't have that on my fingertips .
Speaker #4: But we usually share that. But maybe you can share how the three businesses fared in 2025 to get the size of it.
Rafael Sotomayor: Sure. Well, so the secure cards business was just over 50%, and both the digital network and RF power businesses were each about 25%.
Rafael Sotomayor: Sure. Well, so the secure cards business was just over 50%, and both the digital network and RF power businesses were each about 25%.
Speaker #2: Sure . Well , so the secure cards business was just over 50% . And both the digital network and RF power business businesses were each about 25% .
[Analyst] (Deutsche Bank): Thank you.
Ross Seymore: Thank you.
Rafael Sotomayor: Thanks, Ross.
Rafael Sotomayor: Thanks, Ross.
Speaker #6: Thank you .
Operator: Thank you. Our next question will come from Joe Moore with Morgan Stanley. Your line's open.
Operator: Thank you. Our next question will come from Joe Moore with Morgan Stanley. Your line's open.
Speaker #2: Thanks , Ross .
Speaker #1: Thank you. And our next question will come from Joe Moore with Morgan Stanley. Your line is open.
[Analyst] (Morgan Stanley): Great. Thank you. In the auto business, there's been a number of sort of these supply disruptions. We had Nexperia a few months ago, causing issues. DDR4 now is causing some shortages. You know, is that impacting you guys in any way? Are you seeing either weaker demand because they're bottlenecked by those things, or is there any desire for Tier 1s to start building inventory to react to any of those things?
Joseph Moore: Great. Thank you. In the auto business, there's been a number of sort of these supply disruptions. We had Nexperia a few months ago, causing issues. DDR4 now is causing some shortages. You know, is that impacting you guys in any way? Are you seeing either weaker demand because they're bottlenecked by those things, or is there any desire for Tier 1s to start building inventory to react to any of those things?
Speaker #6: Great . Thank you . In the auto business , there's been a number of sort of these supply disruptions . We had an experience a few months ago causing issues .
Speaker #6: DDR4 now is causing some shortages. Is that impacting you guys in any way, or are you seeing either weaker demand because they're bottlenecked by those things, or is there any desire for tier ones to start building inventory to react to any of those things?
Rafael Sotomayor: Yeah, let me take that, Joe. So the next period is not a conversation. It's not been a non-issue for NXP. The discussions on memory, there's always this chatter on memory. It's not just in auto, it's across our end markets. We have not seen memory impact the orders of our customers, but clearly it's a conversation that our customers discuss with us as an area of concern for the second half of the year, but nothing has been reflected in our orders.
Rafael Sotomayor: Yeah, let me take that, Joe. So the next period is not a conversation. It's not been a non-issue for NXP. The discussions on memory, there's always this chatter on memory. It's not just in auto, it's across our end markets. We have not seen memory impact the orders of our customers, but clearly it's a conversation that our customers discuss with us as an area of concern for the second half of the year, but nothing has been reflected in our orders.
Speaker #3: Yeah , let me take that , Joe . So the the the next area is , is is not a conversation . It's not been a non-issue for , for NXP .
Speaker #3: The the discussions on on memory . There's always this is the chatter on memory is is not just an auto . It's across across across our in markets .
Speaker #3: We have not seen memory impact the orders of our customers. But clearly, it's a conversation that our customers discuss with us as an area.
Speaker #3: Concerns for the second half of the year, but nothing has been reflected in our orders.
[Analyst] (Bank of America Securities): Great. Thank you for that. Then in your auto business, any difference by region? I guess there's been some concern about China demand, just anything you're seeing regionally in your auto business.
Joseph Moore: Great. Thank you for that. Then in your auto business, any difference by region? I guess there's been some concern about China demand, just anything you're seeing regionally in your auto business.
Speaker #6: Great . Thank you for that . And then in your auto business , any difference ? By region , I guess there's been some concern about China Just anything demand .
Speaker #6: you're seeing regionally in your auto business ?
Rafael Sotomayor: No, we don't see anything particular to comment on. I think the auto business, we believe is gonna be, it's gonna be within model for 2026 for us. It's strong, the accelerated growth drivers are executing, so we expect our thesis to continue towards 2026.
Rafael Sotomayor: No, we don't see anything particular to comment on. I think the auto business, we believe is gonna be, it's gonna be within model for 2026 for us. It's strong, the accelerated growth drivers are executing, so we expect our thesis to continue towards 2026.
Speaker #3: No , we we we don't see any anything particular to to to comment on . I think the auto business we believe is going to be it's going to be within model for 2026 for us as strong .
Speaker #3: That's the accelerate growth drivers are executing. So we expect our thesis to continue, and towards 2026.
[Analyst] (Bank of America Securities): Great. Thank you.
Joseph Moore: Great. Thank you.
Speaker #6: Great . Thank you .
Operator: Thank you. And our next question will come from Joshua Buchalter with TD Cowen. Your line's open.
Operator: Thank you. And our next question will come from Joshua Buchalter with TD Cowen. Your line's open.
Speaker #1: Thank you . And our next question will come from Joshua Buchalter with TD Cohen . Your line is open .
[Analyst] (TD Cowen): Hey, guys. Thank you for taking my question. I apologize for a bit of a nitpicky semantic one, but it's one I've gotten a couple times. So, you know, in your prepared remarks, you said for 2026 you expect to operate within your target model, this year. You know, I think you're -- given where we ended 2025, to hit your 6 to 10% long-term CAGR, your 2026 and 2027 would have to be higher than that. You know, are you guys suggesting that this year is within the 6 to 10%? Or are you saying that, you know, you should track towards the 6 to 10% over a three-year period, in 2026 and 2027?
Joshua Buchalter: Hey, guys. Thank you for taking my question. I apologize for a bit of a nitpicky semantic one, but it's one I've gotten a couple times. So, you know, in your prepared remarks, you said for 2026 you expect to operate within your target model, this year. You know, I think you're -- given where we ended 2025, to hit your 6 to 10% long-term CAGR, your 2026 and 2027 would have to be higher than that. You know, are you guys suggesting that this year is within the 6 to 10%? Or are you saying that, you know, you should track towards the 6 to 10% over a three-year period, in 2026 and 2027?
Speaker #9: Hey guys . Thank you for taking my question . I apologize for a bit of a nitpicky semantic one , but it's one I've gotten a couple times , so , you know , in your prepared remarks , you said for 2026 , expect to you operate within your target model .
Speaker #9: This year . I think you're you're given the where we ended 2025 to hit your your 6 to 10% long term kegger , 26 and 2027 would have to be that .
Speaker #9: Are you higher than are you guys suggesting that this year is within the 6 to 10% , or are saying that you you should track towards the 6 to 10% over a three year period in 26 and 27 ?
Jeff Palmer: I think, Josh, what we're saying is the long-term model's intact. I think not to be nitpicky back, but I think you know how to do math, and you can probably do the chainsaw on that. But we, we feel very strongly that after the inventory digestion in the first half of 25, things are starting to reaccelerate. So we'll, we'll leave there, leave it there. Did you have a follow-up?
Jeff Palmer: I think, Josh, what we're saying is the long-term model's intact. I think not to be nitpicky back, but I think you know how to do math, and you can probably do the chainsaw on that. But we, we feel very strongly that after the inventory digestion in the first half of 25, things are starting to reaccelerate. So we'll, we'll leave there, leave it there. Did you have a follow-up?
Speaker #2: I think , Josh , what we're saying is the long term model is intact . I think not to be nitpicky back , but I think you know how to do math and you can probably do the chainsaw on that .
Speaker #2: But we feel very strongly that after the inventory , digestion in the first half of 25 , things are starting re-accelerate . we'll leave So there , leave it there .
Speaker #2: Did you have a follow up ?
[Analyst] (TD Cowen): Yeah. You know, can you maybe provide some more puts and takes on gross margin for the first quarter in particular? And how are you thinking about utilization rates as we sort of enter a better cyclical period? I know there were some Die bank builds that boosted utilization rates at the end of the year. You know, and that was done. How should we think about utilization rates from here? Thank you.
Joshua Buchalter: Yeah. You know, can you maybe provide some more puts and takes on gross margin for the first quarter in particular? And how are you thinking about utilization rates as we sort of enter a better cyclical period? I know there were some Die bank builds that boosted utilization rates at the end of the year. You know, and that was done. How should we think about utilization rates from here? Thank you.
Speaker #9: Yeah, you know, you may provide some more puts and takes on gross margin for the first quarter in particular. How are you thinking about utilization rates as we sort of enter a better cyclical period?
Speaker #9: I know there were some die bank builds that boosted utilization rates at the end of the year . You know How should we think about here ?
Bill Betz: Yeah, let me take that one. So I would say gross margins are performing to our expectations into Q1, and this is primarily driven by our annual low single-digit price concessions that Rafael shared, and that is offset only partially from our normal operational efficiencies that we regained back throughout the year. Again, I think for modeling purposes, the best way to think about our gross margins, use that rule of thumb I've provided in the past, for every $1 billion of revenue, we're entitled to approximately 100 basis points expansion gain to our gross margin on a full year basis. And of course, that's the plus or minus normal mix changes that we share on a quarterly basis. Now, as shared in the past, we will continue to work on mixing up our portfolio through our new product introductions.
Bill Betz: Yeah, let me take that one. So I would say gross margins are performing to our expectations into Q1, and this is primarily driven by our annual low single-digit price concessions that Rafael shared, and that is offset only partially from our normal operational efficiencies that we regained back throughout the year. Again, I think for modeling purposes, the best way to think about our gross margins, use that rule of thumb I've provided in the past, for every $1 billion of revenue, we're entitled to approximately 100 basis points expansion gain to our gross margin on a full year basis. And of course, that's the plus or minus normal mix changes that we share on a quarterly basis. Now, as shared in the past, we will continue to work on mixing up our portfolio through our new product introductions.
Speaker #9: Rates from those done. Thank you.
Speaker #4: take Yeah . Let me that one . So I would say gross margins are performing to our expectations into Q1 . And this is primarily driven by our annual low single digit price concessions that Raphael shared .
Speaker #4: And that is offset only partially from our normal operational efficiencies that we regain back throughout the year. And again, I think for modeling purposes, the best way to think about our gross margins is to use that rule of thumb.
Speaker #4: I've provided in the past . For every 1 billion of revenue We're entitled to . approximately 100 basis points . Expansion gain to our gross margin on a full year basis .
Speaker #4: And of course , that's the plus or minus normal mix changes that we share on a quarterly basis . Now , as I shared in the past , we will continue to work on mixing up our portfolio through our new product introductions .
Bill Betz: Also, we're focused on our go-to-market for that long tail, which tends to be a richer mix. We also have the ability to improve our internal front-end utilizations. The front-end utilizations in Q4 were in the high seventies, and in Q1, they will remain in the high seventies. Obviously, if we get any inflationary costs that we can't offset internally, we will protect our gross margins and pass those on to our customers. And as you know, we always do the normal block and tackling on improving our yields and test time reduction. Now, longer term, we're quite excited on our hybrid manufacturing strategy, especially when VSMC is fully loaded in 2028; it is on track. And beyond, we expect our gross margins to be lifted by another 200 basis points at the company level.
Also, we're focused on our go-to-market for that long tail, which tends to be a richer mix. We also have the ability to improve our internal front-end utilizations. The front-end utilizations in Q4 were in the high seventies, and in Q1, they will remain in the high seventies. Obviously, if we get any inflationary costs that we can't offset internally, we will protect our gross margins and pass those on to our customers. And as you know, we always do the normal block and tackling on improving our yields and test time reduction. Now, longer term, we're quite excited on our hybrid manufacturing strategy, especially when VSMC is fully loaded in 2028; it is on track. And beyond, we expect our gross margins to be lifted by another 200 basis points at the company level.
Speaker #4: focused Also , we're to market for that long tail , which tends to be a richer mix . We also have the ability to improve our internal front end Utilizations the front end Utilizations in Q4 were in the high 70s , and in Q1 they will remain in the high 70s .
Speaker #4: Obviously, if we get any inflationary costs that we can't offset internally, we will protect our gross margins and pass those on to our customers.
Speaker #4: And and as you know , we always do the normal block and tackling on improving our yields and test time reductions . Now , longer term , we're quite excited on our hybrid manufacturing strategy , especially when Vsmc is fully loaded in 2028 .
Speaker #4: It is on track and beyond . We expect our gross margins to be lifted by another 200 basis points at the company level .
Bill Betz: So I would say in general, we are very committed to improving our gross margins over the long term. Related to the inventory question, again, our pre-bills were seven to ten at 7 days, sorry, at the end of 2025. As you all know, our consolidation efforts and our manufacturing footprint are underway. I would expect the pre-bills, by the end of 2026, be about 15 to 20 days, related to that. But including those pre-bills, we also expect to take our net inventory days down throughout the year, as we continue to focus on what's in our control and do the right thing operationally, to give you some more color on where we plan to take internal inventory.
So I would say in general, we are very committed to improving our gross margins over the long term. Related to the inventory question, again, our pre-bills were seven to ten at 7 days, sorry, at the end of 2025. As you all know, our consolidation efforts and our manufacturing footprint are underway. I would expect the pre-bills, by the end of 2026, be about 15 to 20 days, related to that. But including those pre-bills, we also expect to take our net inventory days down throughout the year, as we continue to focus on what's in our control and do the right thing operationally, to give you some more color on where we plan to take internal inventory.
Speaker #4: So, I would say in general, we are very committed to improving our gross margins over the long term related to inventory. Question.
Speaker #4: Again , our pre builds were think days . 7 million to of seven Sorry , at the end of the 2025 , as you all know , our consolidation efforts and our manufacturing footprint are underway .
Speaker #4: I we expect the pre-build by the end of 2026 be about 15 to 20 days . Related to that . But including those pre builds , we also expect to take our net inventory days down throughout the year as we continue to focus on what's in our control and do the right thing operationally .
Speaker #4: To give you some more color on where we plan to take internal inventory.
[Analyst] (TD Cowen): Appreciate all the detail there, Bill. Thank you.
Joshua Buchalter: Appreciate all the detail there, Bill. Thank you.
Speaker #9: I appreciate all the detail there, Bill. Thank you.
Operator: Thank you. Our next question will come from the Vivek Arya with Bank of America Securities. Your line's open.
Operator: Thank you. Our next question will come from the Vivek Arya with Bank of America Securities. Your line's open.
Speaker #1: Thank you. And our next question will come from Vivek Arya with Bank of America Securities. Your line is open.
[Analyst] (Bank of America Securities): Thanks for taking my question. On the industrial and IoT segment, Rafael, I was hoping you could help segment how much of that is industrial, how much of that is IoT, and you know, off of easier compares, the growth rate is very high at the start of the year. But should we expect that this segment will also be in model for 2026? Just how are you looking at the you know, potential growth scenarios for industrial and IoT this year?
Vivek Arya: Thanks for taking my question. On the industrial and IoT segment, Rafael, I was hoping you could help segment how much of that is industrial, how much of that is IoT, and you know, off of easier compares, the growth rate is very high at the start of the year. But should we expect that this segment will also be in model for 2026? Just how are you looking at the you know, potential growth scenarios for industrial and IoT this year?
Speaker #10: Thanks for taking my question on the industrial and IoT segment . Rafael , I was hoping you could help segment . How much of that is industrial ?
Speaker #10: How much of that is IoT? And, you know, off of easier compares. The growth rate is very high at the start of the year.
Speaker #10: But should we expect that this segment will also be in model for 2026? How are you looking at the potential growth scenarios for Industrial and IoT this year?
Rafael Sotomayor: ... Yeah, thank you, Vivek. So yeah, very strong growth we're seeing right now in industrial, right? And the growth, you saw the industry begin recovering in Q3, and continue into Q4. I think Q4 was 20% year-on-year growth. The growth is fairly broad-based, and it's not a single segment that is driving the growth. Just to give you an answer on the specific question, you know, we have about 60% of our business there is core industrial, 40% is in the consumer side. But the growth is broad-based. But we saw - I mean, if I would give you - we have some notable traction on fuel sockets in healthcare and smart glasses. We've seen strength in factory automation and energy storage.
... Yeah, thank you, Vivek. So yeah, very strong growth we're seeing right now in industrial, right? And the growth, you saw the industry begin recovering in Q3, and continue into Q4. I think Q4 was 20% year-on-year growth. The growth is fairly broad-based, and it's not a single segment that is driving the growth. Just to give you an answer on the specific question, you know, we have about 60% of our business there is core industrial, 40% is in the consumer side. But the growth is broad-based. But we saw - I mean, if I would give you - we have some notable traction on fuel sockets in healthcare and smart glasses. We've seen strength in factory automation and energy storage.
Speaker #3: Yeah . Thank you Vivek . So yeah , very strong growth that we've seen right now in industrial . Right . And and the growth you saw the industrial began recovering in Q3 and continuing to into Q4 .
Speaker #3: I think U4 was 20% year on year growth . The growth is fairly broad based , not a and there's single segment that is driving the growth .
Speaker #3: Just to give you an answer on the on the question specific , you know , we have about 60 , 60% of our .
Speaker #3: Just to give you an answer on the on the question specific , you know , we have about 60 , 60% of our business There is core industrial , 40% is consumer in the side .
Speaker #3: But the growth is is based is broad we saw I . But mean , if I would give you we have some notable traction on few sockets in healthcare and smart glasses .
Speaker #3: We've seen factory automation, in strength in energy storage. And so very, very strong design wins with very differentiated product that we have in industrial IoT.
Rafael Sotomayor: And so very, very strong design wins with very differentiated product that we have in industrial and IoT. And that strength across in 2025 continues in 2026. I mean, you see the Q1 guide was also growing year-on-year, 20%, and we feel very good about 2026 for industrial IoT.
And so very, very strong design wins with very differentiated product that we have in industrial and IoT. And that strength across in 2025 continues in 2026. I mean, you see the Q1 guide was also growing year-on-year, 20%, and we feel very good about 2026 for industrial IoT.
Speaker #3: And that strength of closing 2025 continues in 2026. And you see the Q1 guide was also growing year on year, 20%.
Speaker #3: And and we feel very good about 2026 for industrial IoT .
[Analyst] (Bank of America Securities): All right. And for my follow-up, I would be remiss not to ask the seasonality question as we look at Q2 and Q3. And I ask that just, just because of, you know, all the kind of the exits and things that, that you're considering this year. So based on, you know, historical patterns and normalizing for all your business divestitures, what would you consider normal seasonal trends in Q2, Q3? And, and are there any other things this year that we should take into account as we model your quarterly cadence this year? Thank you.
Vivek Arya: All right. And for my follow-up, I would be remiss not to ask the seasonality question as we look at Q2 and Q3. And I ask that just, just because of, you know, all the kind of the exits and things that, that you're considering this year. So based on, you know, historical patterns and normalizing for all your business divestitures, what would you consider normal seasonal trends in Q2, Q3? And, and are there any other things this year that we should take into account as we model your quarterly cadence this year? Thank you.
Speaker #11: All right .
Speaker #10: And for my follow up , I would be remiss not to ask seasonality question , as we look at Q2 and Q3 , and I ask that just just because of , all the kind of the exits and things that you're considering this year .
Speaker #10: So, based on historical patterns and normalizing for all your business divestitures, what would you consider a normal seasonal trend in Q2 and Q3, and are there any other things this year that we should take into account as we model your quarterly cadence this year?
Speaker #10: Thank you .
Rafael Sotomayor: Vivek, we're not gonna, we're not gonna give you guidance beyond Q1. But one of the things that you, you should take away, things have gotten better since 90 days ago. And Bill referred to the order patterns that we have. Visibility into Q1 improved as well. We have the conversations with our customers that we're having. It gives us optimism for second half of the year. So we, we like the momentum, we like the strength that we, that we go through 2025. I mean, Q4, the growth was broad-based, and we like that momentum we enter in 2026, because that momentum is also carrying, also broad, broad-based. And so, and the way you should think about it, both in auto and industrial, the strength is increasingly structural rather than purely cyclical.
Rafael Sotomayor: Vivek, we're not gonna, we're not gonna give you guidance beyond Q1. But one of the things that you, you should take away, things have gotten better since 90 days ago. And Bill referred to the order patterns that we have. Visibility into Q1 improved as well. We have the conversations with our customers that we're having. It gives us optimism for second half of the year. So we, we like the momentum, we like the strength that we, that we go through 2025. I mean, Q4, the growth was broad-based, and we like that momentum we enter in 2026, because that momentum is also carrying, also broad, broad-based. And so, and the way you should think about it, both in auto and industrial, the strength is increasingly structural rather than purely cyclical.
Speaker #3: Vivek , we're not going to we're not going to give you guidance beyond Q1 , but one of the things that you you should take away , things have gotten better since 90 days ago .
Speaker #3: And Bill referred to the order patterns that we have visibility into. Q1 improved as well. We have the conversations with our customers that we're having.
Speaker #3: It gives us optimism for second half of the year . So we we like the momentum . We like the strength that we that we close in 2020 , 2025 .
Speaker #3: I mean , Q4 , the growth was broad based and we like that momentum . We're entering 2026 because that momentum is also carrying also broad , broad base .
Speaker #3: And so, the way you should think about it, both in auto and industrial, the strength is increasingly structural rather than purely cyclical.
Rafael Sotomayor: And we feel good about the trajectory we carry in here towards the second half of the year.
And we feel good about the trajectory we carry in here towards the second half of the year.
Speaker #3: And we feel good about the trajectory we carry in here towards the second half of the year.
[Analyst] (Bank of America Securities): Thank you.
Vivek Arya: Thank you.
Operator: Thank you, and our next question is gonna come from Joe Quatroche with Wells Fargo. Your line's open.
Operator: Thank you, and our next question is gonna come from Joe Quatroche with Wells Fargo. Your line's open.
Speaker #11: Thank you .
Speaker #1: Thank you. And our next question is going to come from Jo Quatrochi with Wells Fargo. Jo, your line is open.
[Analyst] (Wells Fargo): Yeah, thanks for taking the question. You talked about the acquisitions accelerating interest in your software-defined vehicle portfolio. Wondering if you could just kind of expand upon that or just, you know, what are the particulars that customers are excited about?
Joseph Quatroche: Yeah, thanks for taking the question. You talked about the acquisitions accelerating interest in your software-defined vehicle portfolio. Wondering if you could just kind of expand upon that or just, you know, what are the particulars that customers are excited about?
Speaker #1: .
Speaker #12: taking the Yeah . Thanks for questions . You talked about acquisitions , accelerating the interest in your software defined vehicle portfolio , wondering if you could just kind of expand upon that of just , you know , what are the particulars that customers are excited about ?
Rafael Sotomayor: Yes. So the three acquisitions there, look, that, that we discussed, on the auto side, TTTech Auto has been really an injection of horsepower to accelerate our software-defined vehicle story. One of the deliverables that we have that are very important for us and for some of our customers is a deliverable of software-defined architecture, would be delivering a system around zonals towards the end of the year. And so TTTech Auto and the injection of the TTTech Auto has really accelerate our path into delivering a zonal architecture and zonal systems by the end of, by the end of the, by the end of the year. They also come in with a, a middleware, and now we're a different middleware called MotionWise. And that engagement right now is on track.
Rafael Sotomayor: Yes. So the three acquisitions there, look, that, that we discussed, on the auto side, TTTech Auto has been really an injection of horsepower to accelerate our software-defined vehicle story. One of the deliverables that we have that are very important for us and for some of our customers is a deliverable of software-defined architecture, would be delivering a system around zonals towards the end of the year. And so TTTech Auto and the injection of the TTTech Auto has really accelerate our path into delivering a zonal architecture and zonal systems by the end of, by the end of the, by the end of the year. They also come in with a, a middleware, and now we're a different middleware called MotionWise. And that engagement right now is on track.
Speaker #3: Yes . So the three acquisitions there that that we discussed on the on the other side , Tech Auto has been really an injection of horsepower to accelerate our software defined vehicle story .
Speaker #3: One of the deliverables that we have that are very important for us, and for some of our customers, is the deliverable of software defined architecture.
Speaker #3: That would be delivering a system around Sonus towards the end of the year . And so tech , auto and the injection of the tech auto is really accelerate our path into delivering a sono architecture and sono systems by the end , by the end of the by the end of the year , they also come in with a middleware .
Speaker #3: And now we're a different middleware called motion Wise . And that engagement right now is on the take . We're taking . I think the interest of our customers is quite high now that they move into Sdvs on the , on the , on the industrial and IoT in my prepared remarks , we talked about the , the the , the interest level that our customers are not showing for physical AI and the capabilities that that we have in our NXP platform .
Rafael Sotomayor: We're taking, I think the interest of our customers is quite high now that they move into SDVs. On the industrial and IoT, in my prepared remarks, we talked about the interest level that our customers are now showing for physical AI and the capabilities that we have in our NXP platform. And I just want to double down on that. The interest in the combination of the Kinara NPU and the i.MX family of products that we have is really, really strong. And the level of the conversations right now that we're having with our customers has changed significantly. The traction that we get has changed significantly. So we're excited right now in that engagement, and I think that it's going to result in strong design wins in 2026.
We're taking, I think the interest of our customers is quite high now that they move into SDVs. On the industrial and IoT, in my prepared remarks, we talked about the interest level that our customers are now showing for physical AI and the capabilities that we have in our NXP platform. And I just want to double down on that. The interest in the combination of the Kinara NPU and the i.MX family of products that we have is really, really strong. And the level of the conversations right now that we're having with our customers has changed significantly. The traction that we get has changed significantly. So we're excited right now in that engagement, and I think that it's going to result in strong design wins in 2026.
Speaker #3: And I just want to double down on that . The interest in the of the combination Kinnara , MPU and the IMX family of products that we have , is is really , really strong .
Speaker #3: And the level of the conversations right now that we're having with our customers has changed traction significantly . The that we get is changed significantly .
Speaker #3: So we're excited right now in that engagement . I think that it's going to result in strong design wins in 2026 .
[Analyst] (Wells Fargo): Thanks for that. And then as a follow-up on the automotive side, is there any color you can share just geographically on the demand you're seeing, you know, in the fourth quarter, and then kind of what's embedded in Q1?
Joseph Quatroche: Thanks for that. And then as a follow-up on the automotive side, is there any color you can share just geographically on the demand you're seeing, you know, in the fourth quarter, and then kind of what's embedded in Q1?
Speaker #12: Thanks for that . And as a follow up on the automotive side , is there any any color you can share just geographically on the demand you're seeing ?
Speaker #12: You know, in the fourth quarter, and then kind of what's embedded in Q1.
Rafael Sotomayor: Yeah, on the auto side, I mean, so I think this is an important question. Just give you our perspective. And let's look at the data closely in auto, right? The inventory correction, one we said, is largely behind us. Q4, we returned year-on-year growth. Q4 auto finished within 1% of its prior peak in 2023, and we're guiding automotive to grow in Q1 year over year. And our guide in Q1 only includes 1 month of the sensor business. And so the sequential decline, I think it would have been very close to normal seasonality. So regionally, not a whole lot of differences. Usually, in Q1, you have a normal seasonality because of, because now the weight that China has in the market-... But fundamentally, our thesis hasn't changed, right?
Rafael Sotomayor: Yeah, on the auto side, I mean, so I think this is an important question. Just give you our perspective. And let's look at the data closely in auto, right? The inventory correction, one we said, is largely behind us. Q4, we returned year-on-year growth. Q4 auto finished within 1% of its prior peak in 2023, and we're guiding automotive to grow in Q1 year over year. And our guide in Q1 only includes 1 month of the sensor business. And so the sequential decline, I think it would have been very close to normal seasonality. So regionally, not a whole lot of differences. Usually, in Q1, you have a normal seasonality because of, because now the weight that China has in the market-... But fundamentally, our thesis hasn't changed, right?
Speaker #3: Yeah , the auto side . I mean , so I think this is an important question . It just gives you our perspective .
Speaker #3: And let's look at the data closely and auto right . The inventory correction , what we said is largely behind us . Q4 we return year on year growth Q4 auto finished within 1% of its peak in 2023 .
Speaker #3: And we're automotive to guiding grow up in Q1 year over year. And our guide in Q1 only includes one month of the sensor business.
Speaker #3: And so the sequential decline , I think it would have been very close to normal seasonality . So regionally , not a whole lot of differences .
Speaker #3: Usually in Q1 you have a normal seasonality because of, because now the way that China has in the market, but fundamentally our pieces haven't changed, right?
Rafael Sotomayor: The shift to SDVs, the advanced ADAS, these are multi-year platform transitions, and they're gonna drive content growth. And this is where we at NXP are very strong in portfolio.
The shift to SDVs, the advanced ADAS, these are multi-year platform transitions, and they're gonna drive content growth. And this is where we at NXP are very strong in portfolio.
Speaker #3: The shift to has the advanced Adas , these are multi-year platform transitions . And and they're going to drive content growth . And this is where we at NXP are very strong in portfolio .
Bill Betz: Thank you.
Joseph Quatroche: Thank you.
Operator: Thank you. Our next question will come from Chris Caso with Wolfe Research. Your line's open.
Operator: Thank you. Our next question will come from Chris Caso with Wolfe Research. Your line's open.
Speaker #11: Thank you .
Speaker #1: Thank you. And our next question will come from Chris Caso with Wolfe Research. Your line is open.
[Analyst] (Wolfe Research): Yeah, thank you. Good morning. If I could follow up on auto again, and specifically the areas of accelerated growth drivers. You know, what you said last year is that those accelerated growth drivers were a bit below plan, and it sounds like the message is that is now likely to improve as you go into this year. What's the reason for that? You know, what was the reason you believe it was below plan last year? And I guess the question is because going forward, it doesn't sound like you're assuming that SAR improved. So what's driving the change that gets those accelerated growth drivers back on track?
Chris Caso: Yeah, thank you. Good morning. If I could follow up on auto again, and specifically the areas of accelerated growth drivers. You know, what you said last year is that those accelerated growth drivers were a bit below plan, and it sounds like the message is that is now likely to improve as you go into this year. What's the reason for that? You know, what was the reason you believe it was below plan last year? And I guess the question is because going forward, it doesn't sound like you're assuming that SAR improved. So what's driving the change that gets those accelerated growth drivers back on track?
Speaker #11: Yes . Thank you . Good morning . If I could follow up auto on again . And specifically the areas of accelerated growth drivers , you know what you said last year is that those accelerated growth drivers were a bit below plan , it and sounds like the message is that is now likely to improve as you go into this year .
Speaker #11: What's the reason for that ? What was the reason you believe it was below plan last year ? And I guess the question is because going forward , it doesn't sound like you're assuming that SA improves .
Speaker #11: So, so what's driving the change that get those accelerated growth drivers back on track.
Rafael Sotomayor: So 2025, Chris, I mean, if you remember, first half of the year was a tough year with a lot of inventory digestion. That period put a pause in some of the accelerated growth drivers, because, for instance, some of the business, like radar, got caught up into inventory digestion. Electrification got caught up into inventory digestion. It slowed down the ramp of new models that basically address some of the slightly less growth, I would say, in the SDV piece. But we saw that second half accelerate. Once the inventory digestion, all the... Our thesis became true, right? The accelerated growth drivers started to grow.
Rafael Sotomayor: So 2025, Chris, I mean, if you remember, first half of the year was a tough year with a lot of inventory digestion. That period put a pause in some of the accelerated growth drivers, because, for instance, some of the business, like radar, got caught up into inventory digestion. Electrification got caught up into inventory digestion. It slowed down the ramp of new models that basically address some of the slightly less growth, I would say, in the SDV piece. But we saw that second half accelerate. Once the inventory digestion, all the... Our thesis became true, right? The accelerated growth drivers started to grow.
Speaker #3: So 2025 Chris I mean , if you remember , first half of the year was was a tough year with a lot of inventory , digestion that period put a pause in some of the accelerated growth drivers because , for instance , some of the some of the some of the business , like radar got caught up into inventory digestion , electrification , got caught up into inventory digestion .
Speaker #3: It slowed down the ramp of new models that , that , that , that that basically address some of the slow the slightly less growth .
Speaker #3: I would say in the piece . But we saw that second half accelerate once the inventory , digestion , all the our thesis became true .
Speaker #3: Right . The accelerated growth drivers started to grow . By the way , accelerate growth has still grew in 2025 , just didn't grow at target because of the challenges we have in the first half of the year .
Rafael Sotomayor: By the way, the accelerated growth still grew in 2025, just didn't grow at target because of the challenges we had in the first half of the year. And now that thesis continues in 2026. We see our accelerated growth drivers now being within model and/or even better, and so we, we see that traction being in 2025, taking hold.
By the way, the accelerated growth still grew in 2025, just didn't grow at target because of the challenges we had in the first half of the year. And now that thesis continues in 2026. We see our accelerated growth drivers now being within model and/or even better, and so we, we see that traction being in 2025, taking hold.
Speaker #3: And now that thesis continues in 2026 , we see our accelerate growth drivers . Now being within model and or even better . we And so see that traction being in 2026 , taking hold .
[Analyst] (Wolfe Research): Thank you. As a follow-up, if I could follow up on operating margin expectations and what you said for the year, returning to the long-term model, you know, I guess you've given some indication with regard to gross margins, but what does that mean for OpEx and operating leverage as you go forward through the year?
Chris Caso: Thank you. As a follow-up, if I could follow up on operating margin expectations and what you said for the year, returning to the long-term model, you know, I guess you've given some indication with regard to gross margins, but what does that mean for OpEx and operating leverage as you go forward through the year?
Speaker #11: Thank you . As a follow up , if I could follow up on operating margin expectations and and what you said for the year to the , returning long term model , assume that that involves operating margins as well .
Speaker #11: You know , I guess you've given some some indication with regard to gross margins . But what does that mean for opex and operating leverage as you go forward through the year ?
Bill Betz: Yeah, sure. As I mentioned in my prepared remarks related to OpEx, you know, typically as expense, as a percentage of revenue for the first half are typically higher than the second half, driven by our seasonal revenue profile. The timing effect of our US benefits at the start of the new year, that's why you see our guide up in Q1. Q2, remind you, we have our Q2 annual merits and promotions. And then we also have, at the moment, that one-time IP license impact in Q2 that we previously shared, that occurs every year. So we're typically out of model in the first half, but then we expect to give below that 23% model in the second half, leading to a full year of about 23% or below.
Bill Betz: Yeah, sure. As I mentioned in my prepared remarks related to OpEx, you know, typically as expense, as a percentage of revenue for the first half are typically higher than the second half, driven by our seasonal revenue profile. The timing effect of our US benefits at the start of the new year, that's why you see our guide up in Q1. Q2, remind you, we have our Q2 annual merits and promotions. And then we also have, at the moment, that one-time IP license impact in Q2 that we previously shared, that occurs every year. So we're typically out of model in the first half, but then we expect to give below that 23% model in the second half, leading to a full year of about 23% or below.
Speaker #4: sure . Yeah , As I mentioned in my prepared remarks related to OpEx , you know , typically as expense , as a percentage of revenue for the first half are typically higher than the second half , driven by our seasonal revenue profile .
Speaker #4: The timing effect of our US benefits is the start of the new year. That's why you see our guide up in Q1, Q2.
Speaker #4: I'll remind you , we have our Q2 annual merits and promotions , and then we also have at the moment , that one time IP license impact in Q2 that we previously shared , that occurs every year .
Speaker #4: So we're typically out of model in the first half, but then we expect to get below that 23% model in the second half.
Speaker #4: Leading to a full year of about 23% or below . Obviously , we'll always have leverage on the G&A side of the house , but the investments that are required for sdvs and physical AI and where we want to take the company , we want to keep that at that 16% level .
Bill Betz: Obviously, we'll always have leverage on the SG&A side of the house, but the investments that are required for SDVs and physical AI and where we wanna take the company, we wanna keep that at that 16% level, I would say, to make sure that we can capture that growth, that long-term growth that we're after. So for your modeling purposes, I gave you the gross margin, we gave you the revenue, here's the OpEx. I, I think you can get to the answer.
Obviously, we'll always have leverage on the SG&A side of the house, but the investments that are required for SDVs and physical AI and where we wanna take the company, we wanna keep that at that 16% level, I would say, to make sure that we can capture that growth, that long-term growth that we're after. So for your modeling purposes, I gave you the gross margin, we gave you the revenue, here's the OpEx. I, I think you can get to the answer.
Speaker #4: I would say to make sure that we can capture that growth that long term growth , that we're after . So for your modeling purposes , I gave you the gross margin .
Speaker #4: Gave you the WE revenue. Here's the opex. I think you can get to the answer.
Operator: Thank you. Our next question will come from Gary Mobley with Loop Capital. Your line's open.
Operator: Thank you. Our next question will come from Gary Mobley with Loop Capital. Your line's open.
Speaker #1: Thank you . And our next question will come from Gary Mobley with Loop Capital . Your line is open .
[Analyst] (Loop Capital): Hey, guys. Thanks for taking my question. I know I'm gonna make Jeff cringe here, but I did wanna ask a follow-up question with respect to your statement on long-term operating model. When you laid out in November 2024, that long-term operating model, you know, the base off which you were guiding from was 2024, obviously. And so, you know, that would indicate, you know, $15.8 billion in revenue in fiscal year 2027, based on that 6% to 10% revenue growth rate, minus the sale of the MEMS sensor business and whatever other adjustments since then. So for the fiscal year 2026 commentary about being on target, is that with respect to 6% to 10% growth or that 2027 destination for revenue?
Gary Mobley: Hey, guys. Thanks for taking my question. I know I'm gonna make Jeff cringe here, but I did wanna ask a follow-up question with respect to your statement on long-term operating model. When you laid out in November 2024, that long-term operating model, you know, the base off which you were guiding from was 2024, obviously. And so, you know, that would indicate, you know, $15.8 billion in revenue in fiscal year 2027, based on that 6% to 10% revenue growth rate, minus the sale of the MEMS sensor business and whatever other adjustments since then. So for the fiscal year 2026 commentary about being on target, is that with respect to 6% to 10% growth or that 2027 destination for revenue?
Speaker #13: Hey , guys . Thanks for taking my question . I know I'm going to make Jeff cringe here , but I did want to ask a follow up question with respect to your statement on long term operating model .
Speaker #13: When you laid out in November 2020 for that long-term operating model, the base off which you were guiding from was 2024.
Speaker #13: Obviously . And so that would indicate $15.8 billion of revenue in fiscal year 27 . Based on that 67% revenue growth rate . Minus the sale of the mEMS sensor business and whatever other adjustments since then .
Speaker #13: So, for the fiscal year '26 commentary, being about on target, is that with respect to 6 to 10% growth, or that 2027 destination for revenue?
Rafael Sotomayor: It's the model as we've laid out at the Analyst Day. I think, Gary, you, we both agree with you on the endpoint where we wanna get to. We both know what we have to do to get there. We're gonna leave it to you and the analyst community to figure out how that march is. But we feel very good that after coming out of the first half of '25 inventory digestion, we can accelerate through the next two years. I think that's the best we can do.
Rafael Sotomayor: It's the model as we've laid out at the Analyst Day. I think, Gary, you, we both agree with you on the endpoint where we wanna get to. We both know what we have to do to get there. We're gonna leave it to you and the analyst community to figure out how that march is. But we feel very good that after coming out of the first half of '25 inventory digestion, we can accelerate through the next two years. I think that's the best we can do.
Speaker #2: Model , as we've laid out at the Analyst Day , we I think , Gary , you know , we both agree with you on the endpoint where we want to get to .
Speaker #2: We both know what we have to do to get there. We're going to leave it to you in the analyst community to figure out how that march is.
Speaker #2: But we feel very good that after coming out of the first half of '25, inventory digestion, we can accelerate through the next two years.
Speaker #2: I think that's the best we can do.
[Analyst] (Loop Capital): I appreciate what you gave there, Jeff. As my follow-up, I wanted to ask about the impact on the expense side from the sale of the MEMS sensor business. We know the revenue impact of $300 million, but what's the impact to gross margin in OpEx?
Gary Mobley: I appreciate what you gave there, Jeff. As my follow-up, I wanted to ask about the impact on the expense side from the sale of the MEMS sensor business. We know the revenue impact of $300 million, but what's the impact to gross margin in OpEx?
Speaker #13: I appreciate what you gave there , Jeff . My follow up , I wanted to ask about the impact on the expense side from the sale of the mEMS sensor business .
Speaker #13: We know the revenue impact of 300 million , but what's the impact to gross margin and opex ?
Bill Betz: Yeah, this is Bill. I mean, if you think about with the sale, it was about 100 people. On gross margin, as we said, I think, or shared in the past, it was below our corporate margins. So I mean, not much, maybe 10, 20 basis points improvement related to that one model. But it's, you know, those are the colors I can give you on it.
Bill Betz: Yeah, this is Bill. I mean, if you think about with the sale, it was about 100 people. On gross margin, as we said, I think, or shared in the past, it was below our corporate margins. So I mean, not much, maybe 10, 20 basis points improvement related to that one model. But it's, you know, those are the colors I can give you on it.
Speaker #4: Yeah , this is Bill . I mean , think about with the sales , about 100 people on gross margin . As we said , I think are shared in the past , is was below our corporate margins .
Speaker #4: So , I mean , not much maybe ten , 20 basis points improvement related to that . One can model . But it's it's , you know , those are those are the colors I can give you on it .
Jeff Palmer: And remember, Gary, that we did go through some corporate restructuring along with this to make room for the new headcount from Aviva Links, TTTech, and Kinara. So I'd still like to say we made room for the additional headcounts.
Jeff Palmer: And remember, Gary, that we did go through some corporate restructuring along with this to make room for the new headcount from Aviva Links, TTTech, and Kinara. So I'd still like to say we made room for the additional headcounts.
Speaker #2: And Gary , remember , that we did go through some corporate restructuring along with this to make room for the new headcount from Aviva Links Tech and ConAgra .
Speaker #2: So Bill likes to say we made room for the additional headcount.
Bill Betz: Yeah, and also remind you the, the other reason for divesting this business is we did see headwinds, as we know. The current acquirer, the buyer, actually manufactures the front end, and so we saw this as a great opportunity to prevent headwinds to our gross margin in the future as well.
Bill Betz: Yeah, and also remind you the, the other reason for divesting this business is we did see headwinds, as we know. The current acquirer, the buyer, actually manufactures the front end, and so we saw this as a great opportunity to prevent headwinds to our gross margin in the future as well.
Speaker #4: Yeah . And also you remind the other reason for divesting this business is we did see headwinds , as we know , the current acquired the buyer actually manufactures the front end .
Speaker #4: And so we saw this as a great opportunity to prevent headwinds to our gross margin in the future as well.
Operator: Thank you. And our next question will come from Jim Schneider with Goldman Sachs. Your line's open.
Operator: Thank you. And our next question will come from Jim Schneider with Goldman Sachs. Your line's open.
Speaker #1: Thank you. And our next question will come from Jim Schneider with Goldman Sachs. Your line is open.
[Analyst] (Goldman Sachs): Good morning. Thanks for taking my question. You know, relative to everything you said about this year's cadence and being within model and obviously, kind of the inventory situation out there, is there any reason to believe that, you know, if you exclude the divestitures, that automotive and industrial IoT would not be operating sort of at the upper end of your long-term target model for the year?
Jim Schneider: Good morning. Thanks for taking my question. You know, relative to everything you said about this year's cadence and being within model and obviously, kind of the inventory situation out there, is there any reason to believe that, you know, if you exclude the divestitures, that automotive and industrial IoT would not be operating sort of at the upper end of your long-term target model for the year?
Speaker #14: Good morning . Thanks for taking my question . You know , relative to everything you said about this year's cadence and being within model , and obviously kind of the the inventory situation out there .
Speaker #14: Is there any reason to believe that, you know, if you exclude the divestitures, that automotive and industrial IoT would not be operating sort of at the upper end of your long-term target model for the year?
Jeff Palmer: Hey, Jim, it's Jeff again. We're not going to guide 2026. Let me be very clear about that. We've given you guys as much as we're willing to do, but we're not guiding for 2026.
Jeff Palmer: Hey, Jim, it's Jeff again. We're not going to guide 2026. Let me be very clear about that. We've given you guys as much as we're willing to do, but we're not guiding for 2026.
Speaker #2: Jim , it's Jeff again , we're not going to guide 2026 . be Let me very clear about that . We've given you guys as much as we're willing to do , but we're not guiding for 26 .
[Analyst] (Goldman Sachs): Okay, fair enough. And then maybe just on the capital allocation side of things, at this point, I mean, you've made, you know, a decent amount of investments in, you know, the fab relationships, et cetera. I mean, do you think that, you know, you're gonna get into a place where you could or you see that your way clear to sort of increasing the buyback component of that at some point this year?
Jim Schneider: Okay, fair enough. And then maybe just on the capital allocation side of things, at this point, I mean, you've made, you know, a decent amount of investments in, you know, the fab relationships, et cetera. I mean, do you think that, you know, you're gonna get into a place where you could or you see that your way clear to sort of increasing the buyback component of that at some point this year?
Speaker #14: Okay . Fair enough . And then maybe just on on the capital allocation side of things at this point , I mean , you've made , you know , decent amount of investments in , you know , the February , fab the relationships , etc.
Speaker #14: . I mean , do you think that , you know , you're going to get into a place where you could or you see your way clear to sort of increasing the the buyback component of that at some point this year ?
Bill Betz: Yeah, I mean, our capital allocation policy strategy has not changed one bit. We are very comfortable buying back the stock as long as we're below our net leverage ratio of 2 times. And I think in Q4, we were at 1.9 times. So, there's lots of opportunity with our investments in the long term of the business, along with buybacks, and I hope, into the future, as we expand, we also increase our dividend, as the company performs better. So again, we are doing multiple things, we're very flexible, and we demonstrate that, and we're committed to returning 100% of our excess free cash flow back to our owners.
Bill Betz: Yeah, I mean, our capital allocation policy strategy has not changed one bit. We are very comfortable buying back the stock as long as we're below our net leverage ratio of 2 times. And I think in Q4, we were at 1.9 times. So, there's lots of opportunity with our investments in the long term of the business, along with buybacks, and I hope, into the future, as we expand, we also increase our dividend, as the company performs better. So again, we are doing multiple things, we're very flexible, and we demonstrate that, and we're committed to returning 100% of our excess free cash flow back to our owners.
Speaker #4: Yeah , I mean , our capital allocation policy strategy has not changed one bit . We are very comfortable buying back the as long as stock we're below our net leverage ratio of two times .
Speaker #4: And I think in Q4 we were at 1.9 times . So there's lots of opportunity with our investments in the long term of the business , along with buybacks .
Speaker #4: And I hope into the future as we expand, we also increase our dividend as the company performs better. So again, we are doing multiple things.
Speaker #4: We're very flexible . And we demonstrate that . And we're committed to returning 100% of our excess free cash flow back to our owners .
[Analyst] (Goldman Sachs): Thank you.
Jim Schneider: Thank you.
Operator: Thank you. Our next question comes from Tore Svanberg with Stifel. Your line's open.
Operator: Thank you. Our next question comes from Tore Svanberg with Stifel. Your line's open.
Speaker #14: Thank you .
Speaker #1: Thank you. And our next question comes from Tore Sandberg with Stifel. Your line is open.
[Analyst] (Stifel): Yes, thank you. Rafael, could you talk a little bit more about changing the way you report on geography? What some of the main reasons are behind that? I mean, I assume it's because, you know, things are changing so, so much as far as, you know, where your customers are taking design wins. But, yeah, if you could elaborate on that, that'd be really great.
Tore Svanberg: Yes, thank you. Rafael, could you talk a little bit more about changing the way you report on geography? What some of the main reasons are behind that? I mean, I assume it's because, you know, things are changing so, so much as far as, you know, where your customers are taking design wins. But, yeah, if you could elaborate on that, that'd be really great.
Speaker #13: Yes .
Speaker #6: Thank you .
Speaker #15: Rafael , could you talk a little bit more about changing the way you report on geography ? What some of the main reasons are behind that ?
Speaker #15: I mean , I assume it's because , you know , things are changing . So , so much as far as , you know , where your customers are taking design wins .
Speaker #15: But yeah , if you could elaborate on that , that'd be really great .
Rafael Sotomayor: Yeah, let me start then with that one. That question of why do it now? There's no way of reporting really reflects how we manage the company internally, how we direct our resources, how we direct our sales organization. I mean, think about the way we report today, a major handset maker will receive products in Asia, in Europe, in the US, but in reality, most of the decisions are being in one place, it will be here in the US. And so, and that gives you an example there that kind of gives you the ability to really think about how we internally we're organizing our sales force and our marketing is to go after design wins and address customers.
Rafael Sotomayor: Yeah, let me start then with that one. That question of why do it now? There's no way of reporting really reflects how we manage the company internally, how we direct our resources, how we direct our sales organization. I mean, think about the way we report today, a major handset maker will receive products in Asia, in Europe, in the US, but in reality, most of the decisions are being in one place, it will be here in the US. And so, and that gives you an example there that kind of gives you the ability to really think about how we internally we're organizing our sales force and our marketing is to go after design wins and address customers.
Speaker #3: Yeah . Let me let me start with that one . That question of why why do it now . This new way of reporting really reflects how we manage the company internally , how we direct our resources , how we direct our sales organization .
Speaker #3: I mean , think about the way we report today . A major handset maker will will receive products in Asia , in Europe , in the US , but in reality , most of those decisions are being in one place and will be here in the US .
Speaker #3: so And and that gives you an example . There that that kind of gives you the ability to really think about how we internally we're organizing our sales force and our marketing is to go after design wins and address customers .
Rafael Sotomayor: So this is how we manage internally, and I think it's better to reflect our business that way.
So this is how we manage internally, and I think it's better to reflect our business that way.
Speaker #3: we this is how So we manage internally . And I think it's better to reflect our business that way .
[Analyst] (Stifel): Yeah, that's very helpful. And as a follow-up for you, Bill, Bill, I think you mentioned you'll get your $3.4 billion capacity expansion investment in 2026. Just curious, between VSMC and ESMC, what's the split gonna be when the year is complete?
Tore Svanberg: Yeah, that's very helpful. And as a follow-up for you, Bill, Bill, I think you mentioned you'll get your $3.4 billion capacity expansion investment in 2026. Just curious, between VSMC and ESMC, what's the split gonna be when the year is complete?
Speaker #15: Yeah , that's very helpful . And as a follow up for you , Bill . Billy , I think you mentioned you'll get your 3.4 billion capacity expansion investment in 2026 .
Speaker #15: I'm just curious , between Vsmc and SMC , what's the split going to be when the year is complete ?
Bill Betz: Oh, yeah, I would say majority of the investments, you know, VSMC is ahead of schedule, just purely timing, right? I think it's expected to start ramping in 2027 and then be in full load in 2028. And so majority of our investments will be out in 2026. Now, maybe a little bit into Q1 2027, I don't know, we'll see on the timing of that on the equity side, but I think majority will be out in 2026. ESMC, since that ramp occurs later, think about some payments going out this year, but then there's still a string of payments that go out from 2027 to 2029, which is much smaller in the aggregate. But majority of most of the payments, hopefully, we will be done at the end of 2026.
Bill Betz: Oh, yeah, I would say majority of the investments, you know, VSMC is ahead of schedule, just purely timing, right? I think it's expected to start ramping in 2027 and then be in full load in 2028. And so majority of our investments will be out in 2026. Now, maybe a little bit into Q1 2027, I don't know, we'll see on the timing of that on the equity side, but I think majority will be out in 2026. ESMC, since that ramp occurs later, think about some payments going out this year, but then there's still a string of payments that go out from 2027 to 2029, which is much smaller in the aggregate. But majority of most of the payments, hopefully, we will be done at the end of 2026.
Speaker #4: Oh yeah , I would say majority of the investments , you know , Vsmcs ahead of schedule , just purely timing , right ?
Speaker #4: I think it's expected to start ramping in 27 and then being full load in 2028 . And so majority of our investments will be out in 2026 .
Speaker #4: Now maybe a little bit into Q1 2027 , I don't know . We'll see . On the timing of that . On the equity side .
Speaker #4: But I think the majority will be out in '26, since that ramp occurs. Think later about some payments going out this year.
Speaker #4: But then there's still a string of payments that go out from the 27th to the 29th, which is much smaller in the aggregate. But the majority of most of the payments—
Speaker #4: Hopefully, we will be done at the end of 2026.
[Analyst] (Stifel): Very helpful. Thank you.
Tore Svanberg: Very helpful. Thank you.
Speaker #15: Helpful. Thank you very much.
Operator: Thank you. And our next question will come from Vijay Rakesh with Mizuho. Your line's open.
Operator: Thank you. And our next question will come from Vijay Rakesh with Mizuho. Your line's open.
Speaker #1: Thank you. And our next question will come from Vijay Rakesh with Mizuho. Your line is open.
Jeff Palmer: Yeah. Hi, Rafael and Bill. Just a quick question on the auto side. Just wondering, as you look at the software-defined vehicles-
Vijay Rakesh: Yeah. Hi, Rafael and Bill. Just a quick question on the auto side. Just wondering, as you look at the software-defined vehicles and you mentioned a structural pickup there in autos. How are you looking at that auto segment revenue growth versus LVP? Like, should it grow like high single digit above LVP, or how should we look at it?
Speaker #6: Yeah , hi .
Speaker #10: Bill , just .
Speaker #16: A quick question on the auto side. I’m just wondering, as you look at the software-defined vehicles and you mentioned a structural pickup there in order.
Operator: ... And you mentioned a structural pickup there in autos. How are you looking at that auto segment revenue growth versus LVP? Like, should it grow like high single digit above LVP, or how should we look at it?
Speaker #16: How are you looking at that auto segment revenue growth versus LVP . Like should it grow like high single digit above LVP ? Or how should we look at it ?
Jeff Palmer: Yeah. Hi, Vijay, it's Jeff. I think for next year, you know, the way our algorithm works is we assumed over a multi-year period that SAR would grow in the low single digits. You know, the long-term math for auto was 9% to 12%, 8% to 12%, excuse me. And so if you were to say, flattish SAR, you kind of back that out of that total rate and, you know, take you down. But we still see content per vehicle as the real accelerator of automotive growth.
Jeff Palmer: Yeah. Hi, Vijay, it's Jeff. I think for next year, you know, the way our algorithm works is we assumed over a multi-year period that SAR would grow in the low single digits. You know, the long-term math for auto was 9% to 12%, 8% to 12%, excuse me. And so if you were to say, flattish SAR, you kind of back that out of that total rate and, you know, take you down. But we still see content per vehicle as the real accelerator of automotive growth.
Speaker #2: Yeah . Hi , it's Jeff , I think for next year . You know , the way our algorithm works is we assumed over a multi-year period that star would grow in the low single digits .
Speaker #2: The long term math for auto 9 to 12% , 8 to 12% . Excuse me . And so if you were to say flattish star , you could kind of back that out of that total rate and , you know , take you down .
Speaker #2: But we still see content per vehicle as the real accelerator of automotive growth.
Operator: Got it. Then, you know-
Vijay Rakesh: Got it. Then, you know-
Speaker #16: Got it. And then, you know.
Jeff Palmer: Vijay, and just maybe just kind of give you the one piece that we have. You know, we use S&P as our, our kind of Bible for, for SAR, and they're looking at 2026 at just a little, almost, you know, 93 million, 92.6 million cars in 2026, which is kind of flattish year on year from 2025. But when you kind of peel that back, you still see good acceleration of EVs, and good market share gains of the Chinese OEMs. So you kind of use that with the CPV content.
Jeff Palmer: Vijay, and just maybe just kind of give you the one piece that we have. You know, we use S&P as our, our kind of Bible for, for SAR, and they're looking at 2026 at just a little, almost, you know, 93 million, 92.6 million cars in 2026, which is kind of flattish year on year from 2025. But when you kind of peel that back, you still see good acceleration of EVs, and good market share gains of the Chinese OEMs. So you kind of use that with the CPV content.
Speaker #2: Just maybe, just kind of give you the one piece that we have. You know, we use S&P as our kind of Bible for, for star.
Speaker #2: And they're looking at 26 that oh just a little almost , you know , 93,000,092.6 million cars in 26 , which is kind of flattish year on year from 25 .
Speaker #2: But when you kind of peel that back, you still see good acceleration of EVs and good market share gains of the Chinese OEMs.
Speaker #2: So you can kind of use that with the CPV content.
Operator: Got it. And then as you look at 2025, I think you guys mentioned autos were $7 billion, $7.1 billion-ish. And I think you put out a long term, I think 2027, $9.5 billion. I know there's been a lot of puts and takes with acquisitions and divestitures, but just wondering how you are looking at that $9.5 billion by 2027 number?
Vijay Rakesh: Got it. And then as you look at 2025, I think you guys mentioned autos were $7 billion, $7.1 billion-ish. And I think you put out a long term, I think 2027, $9.5 billion. I know there's been a lot of puts and takes with acquisitions and divestitures, but just wondering how you are looking at that $9.5 billion by 2027 number?
Speaker #16: Got it . And then as you look at 2025 , I think you guys mentioned autos was 7 billion , 7.1 billion ish .
Speaker #16: And the thing we put out a long term , I , 2027 , think 9.5 billion , I know there's been a lot of puts and takes with acquisitions and divestitures , but just wondering how you're looking at that by 27 .
Speaker #16: 9.5 billion number. So, the auto.
Jeff Palmer: So the only change... Yeah, the only change that we would make to the model is in 2024. To be honest, you probably have to back out the $300 million, $300 million in sale of sensors off that baseline in 2024, and then apply the 8% to 12% growth rate off of that.
Jeff Palmer: So the only change... Yeah, the only change that we would make to the model is in 2024. To be honest, you probably have to back out the $300 million, $300 million in sale of sensors off that baseline in 2024, and then apply the 8% to 12% growth rate off of that.
Speaker #2: Yeah, the only change we would make to the model is in '24. To be honest, you probably have to back out $300 million in sale of sensors off that baseline in '24.
Speaker #2: And then apply the 8% to 12% growth rate off of that.
Operator: Got it. Thank you.
Vijay Rakesh: Got it. Thank you.
Jeff Palmer: Thanks, Vijay.
Jeff Palmer: Thanks, Vijay.
Speaker #16: All right . Thank you .
Operator: Thank you. Our next question will come from William Stein with Truist Securities. Your line's open.
Operator: Thank you. Our next question will come from William Stein with Truist Securities. Your line's open.
Speaker #2: Thank you Jeff .
Speaker #1: Thank you. And our next question will come from William Stein with Truist Securities. Your line is open.
[Analyst] (Truist Securities): Great, thanks for taking my questions. First, I'd like to ask another one on automotive. A couple of other suppliers have discussed this, EV incentive expiry in China as damaging their Q1 outlook somewhat. And I wonder if you're seeing that dynamic as well, and your guidance is certainly net of any of those effects. But can you discuss whether that's influencing your outlook either in Q1 or for the rest of the year? And then I have a follow-up. Thank you.
William Stein: Great, thanks for taking my questions. First, I'd like to ask another one on automotive. A couple of other suppliers have discussed this, EV incentive expiry in China as damaging their Q1 outlook somewhat. And I wonder if you're seeing that dynamic as well, and your guidance is certainly net of any of those effects. But can you discuss whether that's influencing your outlook either in Q1 or for the rest of the year? And then I have a follow-up. Thank you.
Speaker #6: Great . Thanks for taking my questions I'd . First , like to ask another one on automotive . A couple of other suppliers have discussed this EV incentive expiry in China as damaging their Q1 outlook somewhat .
Speaker #6: wonder that dynamic as if And that's well . you're seeing And I is certainly guidance net those effects . of any of But can you discuss whether that's influencing your outlook either in Q1 or for the rest of the year ?
Speaker #6: And then I have a follow up . Thank you .
Rafael Sotomayor: No, we don't see—we don't have the same perspective. As a matter of fact, one of the changes, well, that we see in China, a couple of changes, you mentioned incentives, which tilts the incentive towards more of a high-end, high-end of the vehicles. The other change that China has made is that they increase certain regulations to improve the quality and resilience of the vehicles. And I think the both attempts is to reduce the pollution in the market. I think we see both of those initiatives to be good for us. The resilient or quality requirements they're putting in place right now, I think is really going to be a tailwind for us and the sign wins for 2026.
Rafael Sotomayor: No, we don't see—we don't have the same perspective. As a matter of fact, one of the changes, well, that we see in China, a couple of changes, you mentioned incentives, which tilts the incentive towards more of a high-end, high-end of the vehicles. The other change that China has made is that they increase certain regulations to improve the quality and resilience of the vehicles. And I think the both attempts is to reduce the pollution in the market. I think we see both of those initiatives to be good for us. The resilient or quality requirements they're putting in place right now, I think is really going to be a tailwind for us and the sign wins for 2026.
Speaker #3: No , we don't see we don't have the same perspective . As a matter of fact , one of the changes well , that that we see in China , a couple of changes .
Speaker #3: mentioned You incentives , which tells the incentive towards more of the high end , high end of the of the vehicles . The other change that China has made is that they increase certain regulations to improve the quality and resilience of the of of the vehicles .
Speaker #3: And I think the both attempts is to reduce the pollution in the market . I think we see both of those initiatives to be good for us .
Speaker #3: The resilient quality requirements they're putting in place right now—I think it's going to be a really good tailwind for us in wins for design 2026.
Rafael Sotomayor: So we see some of the changes actually are good for us, for NXP and the auto and our auto biz as well.
So we see some of the changes actually are good for us, for NXP and the auto and our auto biz as well.
Speaker #3: So we see some of the changes actually , for good for us , for NXP and the auto and our auto business will .
[Analyst] (Truist Securities): Great, thank you. And as a follow-up, you know, there's a rapid growth area in semis, we all know, not just endpoint, physical AI, but data center AI. And I think historically, you haven't talked about any exposure there, but my best guess is that you have something in that market. Can you discuss any ongoing development or any exposure to that market? Thank you.
William Stein: Great, thank you. And as a follow-up, you know, there's a rapid growth area in semis, we all know, not just endpoint, physical AI, but data center AI. And I think historically, you haven't talked about any exposure there, but my best guess is that you have something in that market. Can you discuss any ongoing development or any exposure to that market? Thank you.
Speaker #6: Great. Thank you. And as a follow-up, there's a rapid growth area in semis. We all know not just endpoint physical AI, but data center AI as well.
Speaker #6: And I think historically you haven't talked about any exposure there. But my best guess is that you have something in that market.
Speaker #6: Can you discuss any ongoing development or any exposure to that market? Thank you.
Rafael Sotomayor: Yes, well, so today, our data center revenue sits within the industrial segment, and our exposure is indeed, you mentioned, through processors, to support the data center infrastructure. Think there will be things like power supplies, net cars, cooling systems. But we also have our high-performance products there for control functions and things that they need, probably security, like PQC. We don't break this revenue out separately, but it is growing nicely, and it will contribute to industrial momentum of 2026.
Rafael Sotomayor: Yes, well, so today, our data center revenue sits within the industrial segment, and our exposure is indeed, you mentioned, through processors, to support the data center infrastructure. Think there will be things like power supplies, net cars, cooling systems. But we also have our high-performance products there for control functions and things that they need, probably security, like PQC. We don't break this revenue out separately, but it is growing nicely, and it will contribute to industrial momentum of 2026.
Speaker #3: Yes. Well, so today our data center revenue sits within the Industrial segment. And our exposure is indeed, as you mentioned, through processors to support the data center infrastructure.
Speaker #3: I think that will be things like power supplies, cars, cooling systems. But we also have our high control performance for products—there are functions that they need.
Speaker #3: and things Probably security like Pqc . We don't break this revenue out separately , but it is growing nicely and it will contribute to industrial momentum in 2026 .
[Analyst] (Truist Securities): Thank you.
William Stein: Thank you.
Speaker #6: Thank you .
Operator: Thank you. I would now like to turn the call back over to Rafael for closing remarks.
Operator: Thank you. I would now like to turn the call back over to Rafael for closing remarks.
Speaker #1: Thank you. I would now like to turn the call back over to Rafael for closing remarks.
Rafael Sotomayor: Thank you, everyone, for joining us today and your thoughtful questions. This quarter reaffirms the continuity of our strategy and the durability of our model, focused on profitable growth, disciplined execution, and predictable returns. With clear visibility into our company's specific growth drivers, we're confident in our ability to compound value through 2026 and beyond. Thank you.
Rafael Sotomayor: Thank you, everyone, for joining us today and your thoughtful questions. This quarter reaffirms the continuity of our strategy and the durability of our model, focused on profitable growth, disciplined execution, and predictable returns. With clear visibility into our company's specific growth drivers, we're confident in our ability to compound value through 2026 and beyond. Thank you.
Speaker #3: Thank you, everyone, for joining today. And your thoughtful questions this quarter reaffirm the continuity of our strategy and the durability of our model.
Speaker #3: Focus on profitable growth , discipline , execution , and predictable returns with clear visibility into our company specific growth drivers . We're confident in our ability to compound value through 2026 and beyond .
Speaker #3: Thank you .
Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.