Good day, ladies and gentlemen, and welcome to the Third Quarter 2015 NXP Semiconductors Earnings Conference Call. My name is Candice and I'm your operator for today. As a reminder, this call is being recorded for replay purposes. Now, I would like to hand it over to Mr. Jeff Palmer, Vice President of Investor Relations. Please proceed, sir.

Thank you, Candice, and good morning, everyone. Welcome to the NXP Semiconductors Third Quarter 2015 Earnings Call. With me on the call today is Rick Clemmer, NXP's President and CEO; and Peter Kelly, NXP's CFO. If you've not obtained a copy of our third quarter 2015 earnings release, it can be found at our company website under the Investor Relations section at nxp.com. Additionally, we have posted on our Investor Relations website a supplemental earnings summary presentation and a document of our historical financials to assist you in your modeling efforts. This call is being recorded and will be available for replay from our corporate website. Our call today will include forward-looking statements that involve risks, uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on specific end-markets in which we operate, the sale of new and existing products, and our expectations for financial results for the fourth quarter of 2015. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, during our call today, we will make reference to certain non-GAAP financial measures which exclude the impact of purchase price accounting, restructuring, stock-based compensation, impairment and other charges that 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 third quarter 2015 earnings press release, which will be furnished to the SEC on Form 6-K and is available on NXP's website in the Investor Relations section at…

Thank you. And our first question comes from John Pitzer of Credit Suisse. Your line is now open. John William Pitzer - Credit Suisse Securities (USA) LLC (Broker): Hi, guys. Good morning. Thanks for letting me ask a question. Rick, I wanted to go back to your comments about the distribution channel. You gave us some good metrics for the calendar third quarter: sell-in, up 8%; sell-through, down 5%, three months of inventory. I'm kind of curious. Embedded in the Q4 guidance of down 15% for the total company, what's the view sort of in sell-in versus sell-through for distribution and where do you think distribution inventories will be at the end of the quarter? Richard Lynn Clemmer - President, CEO & Executive Director: Yes, that's a really good point, John. And as you realize, with all the distributors we have and the broad range of product portfolios, it's hard to call that specifically, but clearly, when you look at our decreased revenue for the quarter at something in the mid-teens, our sell-in to distribution will be at least at that level, if not even maybe a little bit more of a decrease than the overall total. Based on everything we see from the distributors, Q3 clearly did not materialize with the growth that they had originally anticipated, that they put the orders in place for. And so, what we see today is – is their expectations to be a slight decline. Not a precipitous decline. The reason that we have the projected 15% decline is as we begin to correct those inventory levels that were increased in Q3. It's interesting, because at around three or slightly above three months of inventory, those aren't really so far out of the range of perspective of where we had really liked to…

And our next question comes from Ross Seymore of Deutsche Bank. Your line is now open.

Hi, guys. Thanks for letting me ask a question. I want to follow up John's first question, maybe ask it a different way. If you did not have the inventory burn, because we know you're a sell-and-revenue recognizer in the channel, from your answer, Rick, it sounds like your guidance would still be down at the same range. So, maybe the way to summarize it is down 15%. Is that what the guidance would be even if you weren't burning channel inventory, and if it would be different than that number, where do you think that the revenue guidance would in fact have been? Richard Lynn Clemmer - President, CEO & Executive Director: So, I guess what I'll say, that's not what I intended to say. So, let me try to clarify. I think the decrease in our outlook for Q4 clearly comprehend some of the realignment in our distribution inventory with our partners. So, if we did not have that correction in the distribution inventory, our decline would not be 15% in the Q4 timeframe. I think, based on what we hear from our disti partners, on basic demand, I think it would be kind of low- to mid-single-digit decline in Q4 associated with it. So, clearly there's a significant chunk of our reduced outlook for Q4 that has to do with the realignment of the disti inventory, and there's a portion of it that's just associated with the reduced demand from our customers on an ongoing basis. And I don't know how to be too specific with that, but it's probably somewhat close to kind of half on both. But I think clearly, if we looked at the – just the demand from our customers, it would've been more like kind of low to mid-single digit decline with the remainder of our decline projected being really the realignment associated with our distribution inventory.

So, if that's – whether it's half 7% or 10% from what you just said of the 15% as coming from the channel inventory burn, I know it's hard to talk about the duration of that inventory burn. But whether it's 1Q or 2Q, is it your estimation that in all likelihood, you'll return to shipping in line and so the negative that you're facing in the fourth quarter will turn to kind of a mathematical positive at some point, and do you think that's kind of first quarter or it's going to be longer than that? Richard Lynn Clemmer - President, CEO & Executive Director: Ross, I think it's hard for us to do a projection about absolutely specifics. I think it's going to take a while. I don't know that we'll be back at an absolute ship-through level on an equivalent basis by Q1 where there still won't be a little bit of inventory adjustment in Q1. I think it's really hard for us to see that. But clearly, I think we're taking a very direct and specific action in Q4 trying to realign as quickly as we can. I think it's important for us to get this cleaned up before we go into the combination. I think as we proceed with the combination, we want to be sure that our inventory levels are approaching in-line levels and where we would like to be to operate on more of a normal basis point forward.

Great. And I guess as my follow up, you mentioned about the combination of things. Peter, given the lower base of revenues that you have, I know Rick said that the target for cost synergies remains unchanged at the $200 million and then eventually $500 million. What's the – is there any change to the leverage target that you have, given the different base of revenues for both companies? Peter Kelly - Chief Financial Officer & Executive Vice President: No. We kind of looked to that. So, I still think we'll be down in to – back to 2 by the summer of next year.

Great. Thank you. Richard Lynn Clemmer - President, CEO & Executive Director: Thanks, Ross.

Thanks. Thank you. And our next question comes from Blayne Curtis of Barclays Capital. Your line is now open.

Hey, guys. Thanks for taking my question. Rick, you mentioned that you saw in late August some softening, but then – September revenue didn't miss by that much. I'm just curious the trajectory here, did it accelerate into October? And then any view as to whether those trends have stabilized? And then a related question: OpEx came in much better for September. Were those planned moves ahead of the merger or were you able to react to this weakening demand? Richard Lynn Clemmer - President, CEO & Executive Director: No. I think we should be specific about kind of our OpEx levels. We've talked about that we were really being very cautious relative to any additions in people in the current environment until we get into the merger. The fact is, is that we know we're going to have some people that are going to end up with their rows going away, and we want to be sure that we take advantage of placing as many of those people in the ongoing value-added growth as possible. So, we've been very specific in not adding resources in the current timeframe. But that's more associated with trying to do the best thing for the combination of the pre-scaling NXP employees as opposed to any specific action associated with what we saw on the near term with the demand reductions. When you think about this – this is product that ships through the channel. We're building it based on the expectations from our customers, as the expectations don't materialize, we'd still have the product that we built and shipping to our customers. It's better for it to be in the channel, where it can be shipped to the customers, than sitting on our docks after we finish building it. But clearly, that's the…

Excellent. And just a clarification for you, Peter. I just want to make sure I understand the mechanics. You said lower utilization but then pointed to the December guidance. Would you take the unrealization in the current quarter? Is that something you recognize when the product sells through, i.e., first half of next year? Peter Kelly - Chief Financial Officer & Executive Vice President: Yes. Yes. On ICNH (36:12), which is the internal fab, it would move out three months, but that's completely full. On SSMC, the numbers are a lot lower than three months. But the reality is the underutilization we're talking about in Q4 is maybe a couple of points. I mean, we're talking about really low-90%s. Underutilization is not an issue for us.

Right. Richard Lynn Clemmer - President, CEO & Executive Director: But the major implications of that since it's really not our products were the miss is – it's probably more – it's reflected more on the real-time, Blayne, as opposed to being more when we ship it. Peter Kelly - Chief Financial Officer & Executive Vice President: Yes. But it's – it doesn't have any impact from a timing perspective. And it's absolutely negligible, so I wouldn't worry about that.

Appreciate that. Thanks.

Thanks. Operator, we'll take the next question, please.

And our next question comes from William Stein of SunTrust. Your line is now open.

Great. Thank you for taking my question. Gentlemen, you're characterizing the shortfall in Q4 as – it sounds more like a short-term demand in inventory issue and less of a problem with positioning with your customers, can you confirm that? And then also, relative to that, you've had a 10% top line revenue growth target for some time, you've been doing very well on top line growth until this quarter in recent years and I'm wondering if you can comment on that longer-term growth outlook, please? Richard Lynn Clemmer - President, CEO & Executive Director: Yes. Well, thanks a lot. We still believe that the fundamentals of our business support the double-digit growth that we've talked about over a three-year compounded growth rate basis. So, it's really important to reflect that as we've talked about that, that's always been on a three-year compounded growth rate basis. And we still see the same opportunity, Secure Connected Devices, we still think we're growing the high teens to low 20%s. Our Secure Interface & Power business which has – clearly has some disruption from the major adjustments in the RF power supply chain. We think over long term, we'll still grow in the low-double digit to mid-teen basis. And our Secure Identification Solutions, even though we continue to see the lumpiness that we've talked about on the eGov side being a detriment, we expect to see high-single to low-double digit growth. And then clearly, in automotive, with the strength and especially when we begin to look at the combined portfolio, on our current portfolio, we expect to see high-single digit growth. So, we feel very comfortable with the consistent growth over the three-year compounded growth rate basis that we've talked about were not reflective. The current expectations in alignment that we're talking about for Q4 doesn't really change that at all. But clearly, is aggravated by the significant adjustment that we have to do associated with the distribution inventory basis. If you look at our Q3 year-to-date, as we talked about, it's kind of high-single digit, and for our high-performance mixed-signal business is actually a 12% growth. So, we think that's still quite significantly above where we see the market growing through year-to-date through September.

Thanks for that thorough answer, Rick. Maybe just one follow-up if I can. Many semiconductor companies saw weakness earlier in the year. In NXP's case, it sort of came upon us suddenly in Q4, or maybe from a bookings perspective during Q3, but we're seeing it in Q4. Is there something different about either the way you use distribution, the number of partners, something else that would sort of explain the difference, or how can you help us reconcile that, please? Richard Lynn Clemmer - President, CEO & Executive Director: Yes. I think clearly our product mix is different than most of our peers when you think about it, with our ID business and our security business associated with it. So, I don't think you can draw a direct correlation with ours versus our peer group. Clearly, the growth that we saw early in the year, or through Q3, puts us in a good position. About 60% of our total revenue goes through the distribution channel business. And the fact is with the significant increase in the channel inventory, a 25% increase in inventory, as the orders that they had placed on us we were able to ship to, but the sell-through that they were originally planning didn't materialize to increase sell through. So, it's not like they've seen a significant decline in demand in most cases. There are some cases like the car radio aftermarket. But in most areas, it's not like they've seen a significant decline in demand. It's just they haven't seen the increase that they had originally planned that we were shipping inventory into the channel to be able to meet. So, since that increase did not materialize, we clearly are taking actions to reduce the inventory in Q4 associated with it.

Thanks, Rick.

Thank you. And our next question comes from Chris Caso of Susquehanna Financial. Your line is now open.

Yes. Thank you. Just wondering if there's been any, I guess, changes in lead times or availability or products again, something that may have encouraged the distribution channel to build up some of that inventory and how that may have changed as you go into the back of the year. In addition, was there anything – we talked a lot about inventory and the distribution channel. What do you think has been the case with inventory at your customers as well? Has that similarly risen? And I guess that would also be something that would need to be burned off if that were the case. Richard Lynn Clemmer - President, CEO & Executive Director: Well, Chris, the one area that we did see something specific was in our Secure Interface where a number of the supply chain with the custom manufacturers actually had built significant inventory for some of our key smartphone OEM partners. And we're seeing a correction that's taking place for that that was really disappointing, that kind of came up as we really peeled the onion and understood the inventory levels at some of the custom manufacturers associated with it. But that's probably the only thing that's really unique versus an ongoing basis. I think the other area that continues to be a major swing is in the RF power business where there's been very significant adjustments in the demand rates from our customers and inventory levels associated with that, where they're trying to go through a significant correction. So, I think those are some of the areas that are different than just the normal ongoing distribution levels.

Okay. Thank you. As a follow-up, can you talk about the financing for the upcoming transaction? The commitments are in place. Have the terms been fixed right now and are there any changes to the terms that you've either seen or may foresee as the deal gets to closure? Peter Kelly - Chief Financial Officer & Executive Vice President: No, no. We still -- the commitments are the commitments. So, that's not an issue. I think, as you know, we put $1 billion of bonds in place a quarter ago and we intend to go out pretty shortly with some term loans such that we won't need the commitments.

Okay. And the terms of the term loans? Do you have information with regard to what should we expect from that? Peter Kelly - Chief Financial Officer & Executive Vice President: No, until I do them, I won't know.

Okay. Thank you.

Thank you. And our next question comes from Stacy Rasgon of Bernstein Research. Your line is now open. Stacy A. Rasgon - Sanford C. Bernstein & Co. LLC: Hi, guys. Thanks for taking my questions. On gross margins, I just wanted to just be very specific. So, I wonder, are you basically saying – let me ask you this, if revenues in Q1 were flat to down, are you basically saying there would be limited to no-impact on gross margin from that? Would all the gross margin impacts at that point only be around product mix and the like? There would be no measurable issues from utilization if Q1 revenues were flat to down on Q1 gross margins?

Yes. I think, Stacy, this is Jeff. Just one comment. The percentage of our external foundry business has gone up substantially over the number of the years. Peter Kelly - Chief Financial Officer & Executive Vice President: Yes. So, basically, in our COGS, we have a lot more variable cost than we have historically. Stacy A. Rasgon - Sanford C. Bernstein & Co. LLC: Got it. That's helpful. Peter Kelly - Chief Financial Officer & Executive Vice President: So, there are outer limits. We do have some fixed costs still. So, if my revenue doubles or halves, in the end, you do have some limit. But kind of where we are today, it's much more impacted by the mix of the products we're selling than the actual manufacturing structure. Yes. Stacy A. Rasgon - Sanford C. Bernstein & Co. LLC: Got it. That's helpful. For my follow up, I just want to dig into the overall demand environment. It sounds like you're suggesting that this is a short pause. It's more inventory-driven. You're saying your customers aren't really seeing demand slowdowns necessarily, but they're not seeing the pickup. It sounds like a lot of the issues that are across many of your businesses were from China. Given we've been seeing some weakness there for a while, I'm just wondering why your customers would've been expecting to see a pretty big demand pickup into the end of the year and have to place the kind of orders that they did. What were they seeing, I guess, exiting Q2 and into the beginning of Q3? Why didn't they see issues earlier and kind of what changed? I find that dynamic very surprising. Richard Lynn Clemmer - President, CEO & Executive Director: Well, Stacy, I think you've got to really address that on…

Thank you. And our next question comes from Ambrish Srivastava of BMO. Your line is now open.

Hi. Thank you. A few clarifications for me as well, Rick. Just going back to the Auto segment, most of the other chip guys actually have called out for not such a big decline in Auto. So, maybe you could help us understand your exposure by geos. And is China disproportionally higher for you? That was my first question. Second, also a clarification, I just want to make sure I got it correct. You are not seeing a pickup in EMV in the U.S. And if not, why not? Because the EMV card rollout seems to be accelerating as we're entering the year. Thank you. Richard Lynn Clemmer - President, CEO & Executive Director: Yes. So, let's talk about Auto first. I think it's not as much on a geo basis, although it does – it is based on where it's built. But it's more about the aftermarket car radio market. And what we've seen is the amount of money that consumers are willing to spend in the developing countries, in China on aftermarket car radio products where they're looking to upgrade their audio systems has kind of completely collapsed in the near term because of the economic environment that we're in. Now, that happens to be primarily built in China but it's basically to serve the market in China as well as the overall aftermarket. So, we still see healthy demand in our overall Automotive business and if you look at the growth rate that we've been able to drive this year, and as we get through this inventory correction going forward, we feel very comfortable with the growth rate in our overall Automotive business. But the particular concentration that we see in Automotives has a lot to do with the car radio aftermarket where the demand has basically gone away for a period of time. It won't stay at zero forever, but we're doing a hard correction to be sure that we get the inventory levels in line with that. But the growth rate in the rest of the business, we certainly feel comfortable about it, as you and I both know, you don't win or lose market share on design wins on a quarter-by-quarter basis in Automotive. So, the market position we have in Automotive is still quite secure. It just happens to be the concentration that we have in the car radio aftermarket. On the (52:22).

I'm sorry, Rick. How big is the aftermarket? Richard Lynn Clemmer - President, CEO & Executive Director: Well, our car infotainment in total is about half of our Automotive business. We haven't broken out the aftermarket specifically but it's probably something like a third maybe of that. We'd have to get the specifics for you. But it's not the dominant share of the car infotainment business but it's a big chunk of the total still and certainly one as it goes to zero that has an impact on overall demand.

Got it. Richard Lynn Clemmer - President, CEO & Executive Director: On the U.S. EMV market, I think the thing that's really important to put into perspective, the U.S. EMV market, as it's implemented would contact EMV, the dollar size of that market is a much smaller market than where we are focused in other areas where we have dual interface that adds a lot more value for the users and a lot more content. We're beginning to see some opportunities on design wins in the U.S., on dual interface where people will have multiple wallets on the same card and have loyalty programs and other factors associated with it where we offer the contact expand that can be used, for example, for children to be able to use payments that can be replenished online, associated with it. So, we see some emerging opportunities in the U.S. so-called EMV market. Although it's dual interface as opposed to contact EMV the ones that we see from a growth basis. But if you look at the actual U.S. EMV market, because of the pricing point associated with the contact level and the actual volume, we don't see a significant uptick in the dollar size of that marketplace. And it's certainly dwarfed by the size of the other markets associated with it.

Okay. Thank you.

Thanks, Ambrish.

Thank you.

Operator, do we have any other callers waiting to ask questions at this point?

I'm showing no further questions at this time. Richard Lynn Clemmer - President, CEO & Executive Director: Okay. So again, thanks a lot for joining us today. Clearly when we look at the expectations for Q4, we're disappointed with revenue results. Although frankly, we're encouraged with ability to maintain our gross margins in a much more difficult environment with top-line revenue. So, we do have the positive aspects of that. The small range growth opportunity that we see for the current NXP portfolio is still intact.