Hello. Thank you for standing by and welcome to the NXP Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Josh and good morning everyone. Welcome to the NXP Semiconductors' third quarter 2022 earnings call. With me on the call today is Kurt Sievers, 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. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-19 pandemic on our business, 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 the fourth quarter of 2022. 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, 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 third quarter 2022 earnings press release, which will be furnished to the SEC on Form 8-K and be available on NXP's website in the Investor Relations section at nxp.com. Now, I'd like to turn the call over to Kurt.

Thank you, Jeff and good morning everyone. We appreciate you joining our call today. Now, let me begin with a review of our quarter three performance. Our revenue was $20 million better than the midpoint of our guidance with performance in the Mobile, Automotive, and Communication Infrastructure markets all better than our expectations. For the consumer exposed IoT subset of the Industrial & IoT market, we started to experience weaker sell-through in the channel. And let me remind you that our consumer IoT exposure is approximately 40% of the Industrial and IoT segment revenue. It is made up of thousands of customers primarily in China and serviced through our distribution partners. Taken together, NXP delivered quarter three revenue of $3.45 billion, an increase of 20% year-on-year. Our non-GAAP operating margin in quarter three was a record 36.9%, 340 basis points better than the year ago period and 80 basis points above the midpoint of our guidance. Our results reflect strong execution with solid profit fall-through on the incrementally higher revenue and better than guided operating leverage. Notwithstanding our results, which surpassed our guidance, we are facing a tricky demand environment. On the one hand, the demand trends from automotive and core industrial customers are very resilient. And we continue to face supply constraints across multiple microcontroller and advanced analog products. And on the other hand, we see weakness in the broad consumer IoT and in the Android mobile market. Given that unbalanced dynamic of the demand environment, we are going to pull those levers that are in our control, namely stringent channel inventory management and discipline and discretionary operating expense. In terms of inventory, we have decided to take a Draconian approach to managing our distribution channel inventory. Specifically, our quarter four guidance contemplates a channel inventory at the 1.6…

Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q3 and provided our revenue outlook for Q4, I will move to the financial highlights. Overall, our Q3 financial performance was very good. Revenue was $20 million above the midpoint of our guidance range. And both non-GAAP gross profit and non-GAAP operating profit were above the midpoint of our guidance. Now moving to the details of Q3. Total revenue was $3.45 billion, up 20% year-on-year, notwithstanding weakness in the consumer-centric portion of the Industrial and IoT segment. We generated $1.99 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58%, up 150 basis points year-on-year and both above the midpoint of guidance range, as a result of higher factory utilization and higher sales volume. Total non-GAAP operating expenses were $730 million or 21.2%, up $73 million year-on-year and up $6 million from Q2, better than our guidance range and below our long-term model. From a total operating profit perspective, non-GAAP operating profit was $1.27 billion, and non-GAAP operating margin was 36.9%, up 340 basis points year-on-year and both above the midpoint of the guidance range. Non-GAAP interest expense was $91 million, with cash taxes for ongoing operations of $160 million or 13.6% effective cash tax rate. And non-controlling interest was about $12 million. Stock-based compensation, which is not included in our non-GAAP earnings, was $89 million. Now I would like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $11.16 billion, flat sequentially. Our ending cash position was $3.76 billion, up $214 million sequentially, thanks to improved operating performance. The resulting net debt was $7.40 billion. And we exited the quarter with a trailing 12-month…

Thank you. [Operator Instructions] Our first question comes from Ross Seymore with Deutsche Bank. You may proceed.

Hi guys. Thanks for letting me ask the question. Kurt, I wanted to ask about the inventory side of the equation, both on the channel and on your balance sheet. On the channel side of things, you guys are, like you said, well below target about 1.6 months, well below where you were at similar points where people were worried about us being at a peak cycle. So, I guess the question is, could you ship more into the channel if you wanted to? And what's led to the philosophical shift to significantly lessen the channel and more on your balance sheet as in prior cycles it seems to be the opposite prioritization?

Yes, good morning and thanks, Ross. Yes, the answer is a blunt yes. We could have shipped more into the channel against open orders actually in this fourth quarter, and that especially into the consumer IoT part of our segments. But as I mentioned, given the whole macroeconomic uncertainty, we just feel it is a much more prudent approach to actually limit this channel inventory at this very low level of 1.6 months and mind you that the delta to 2.5 months in terms of revenue would be about $500 million. And that's the level of open orders, which we would easily have, which we could serve. But we think it's more prudent because it's unclear how the macro is going to further develop and how the demand in that part of the market is going to develop. So we feel it's a better idea to keep what we have already in the pipeline to keep in-house and on the balance sheet, also for eventually being in a position to redirect it to other customers. Now that's the one side of the house. I just have to also remind you that at the same time, Ross, we have this real situation that in the auto and core industrial side of the house, we have the opposite situation. We do not have enough supply, so we continue to be sold out. And also there, we could actually -- if only we have the supply, we could make more revenue in quarter four. We have a lot of open orders, which are very real. We checked all of them, but can't really serve them. But again, back to your initial question, yes, we could sell more, but we found it is much more wise to stick to this very low channel inventory of 1.6 months at this time. It's not a long-term target, though, but at this particular period in the cycle, we feel it's the best thing we should do.

Thanks for that color. I guess as my follow-up, one is for Bill on the gross margin side of things. I'm impressed that the gross margin is staying flat, maybe surprised would be the word more than impressed, given that the revenues are dropping 4% or so. Your predecessor had a very rough rule of thumb that a 5% drop in revenue was a 1% drop in gross margin. So how are you able to keep that flat? And what's the sustainability of that ability to keep the gross margin at this general level?

Yes. Thanks, Ross, for your question. And you're right, we did slightly better than our guidance driven by the higher revenues and fall-through. One area I think we need to understand a little bit better is that our internal utilizations remain in the high 90s as we are still well constrained specifically in our auto. And if you think about internally, more than two-thirds of our capacity is just pinpointed to our IP proprietary mixed-signal, auto-centric capacity internally. And we are constrained. As you heard Kurt mention, we are sold out, and we expect this to be well-utilized all throughout 2023. Second, as mentioned on previous calls, you're right, we mentioned we'd stay in a tight range, delivering toward our high-end model. And I think we've demonstrated that, and it's incorporated in our Q4 guide. And more longer term, what gets us to 58% is really those new product introductions, which are further out in the journey, I would say.

Thank you.

Thanks Ross.

Thank you. One moment for questions. Our next question comes from C.J. Muse with Evercore. You may proceed.

Yeah, good morning. Thank you for taking the question. I guess, the follow-on on Ross's question, I guess, can you comment on the ability at all to repurpose wafers capacity? My sense is internal versus external, the answer is no. And then as part of that, before coming to the recovery, you had a gross margin construct, I think, of every 5% change in top line, 100 bps growth in gross margins. Now that you see a clear mix shift here in terms of auto, core industrial holding strong, yet consumer weaker, is there kind of a thought process or model we should be thinking about on the gross margin side as we push forward into some sort of further correction on the consumer side?

Hey C.J. good morning. Let me first go at the repurposing or the potential for repurposing of capacity. So first of all, yes, I can confirm directionally that indeed repurposing between internal and external is very limited. I mean that's really how we've built our supply strategy. When you then think about within internal and within external, repurposing between the different segments which we serve, and that's now specifically between the more consumer-oriented versus the more auto or core industrial-oriented markets to a limited level, it is possible. It is typically not at all possible on a finished product level. So once the product is completely manufactured. And sometimes program, we have hardly any products which are swappable. However, if you still speak about buyback, inventory for example, we do have the opportunity with several process nodes to actually swap between those markets, but not with all of them. I'll give you one example which is quite sizable for us. We have a lot of product going in 55 nanometers with embedded nonvolatile memory that for example, is very, very purely automotive, which means we are sold out we are short in that technology, but that same technology is also not used for any of the consumer applications. So the demand drop in consumer doesn't really help us there. However, there is other technologies, like 90 nanometers or 180 nanometers, where we can do this if the product is not yet finished goods. So it's a bit of an in between, but we have some liberty here. And that is also the reason why, amongst others, for example in parts of our [indiscernible] market in Q4, we start to see acceleration in our revenues because we actually could swap some of our existing capacity into those markets like the e-government markets or RFID markets, which were super constrained over the past 8 quarters. On the margin side, I'd say there is quite some variation of margin within each of the segments. So you cannot easily draw conclusions between the four revenue segments, what their mix is and what it means to the end margin of the company. It is more sophisticated, to be fair. Bill I'm not sure if you want to go a little bit deeper. But in the end, you cannot draw conclusions on the level of the total segment.

No, nothing else there.

CJ, did you have a follow-up? Q – C.J. Muse: Thanks guys. Yes, just a quick follow-up. The China IoT piece, I would have thought that, that would have shown weakness earlier, so I guess, are there particular kind of sub end markets that have proven to be more resilient, at least until today, that's kind of enabled that to hold up or kind of can you give us a little more color on how to think about the key drivers within that bucket?

Yes. It really started in, I'd say, August and then going into October to quite significantly drop. But again, of course, our approach to stick to the 1.6 level of month of channel inventory gives this a different color, CJ. I mean, in former days, honestly, we would just have kept shipping. So we it would have felt like, oh, finally, we get the channel inventory up. Now, it's very much our choice that we said we don't want to do this, and that's why it sees quite a harsh decline. But again, as I explained earlier, we think that's the better way to do it. But again, it started in August time frame. I would say, it's the consumer IoT market globally which is softening. It's just such that we have a relatively sizable exposure to China. But it's not that the non-Chinese consumer IoT customers would be still very resilient. I think this is globally weakening, but it hits us harder from a China perspective. And this is also where we have a very large channel exposure, which is why this general approach which I explained earlier, I think, makes a significant difference in how we want to deal with it.

Very helpful. Thank you.

Thank you. One moment for questions. Our next question comes from Vivek Arya with Bank of America. You may proceed.

Thanks for taking my question. Kurt, for my first one, I'm curious to get your perspective on just the supply-demand equation in the automotive industry at your OEM and Tier 1 customers. Do you think they're still undersupplied or oversupplied or just kind of rightly supplied? And just what are the hotspots of over or undersupply right now? And just how is your visibility of growth into the first half of next year? I think you've added Q4 flattish, which I assume is more a supply variable. But just what's your perspective into the supply-demand balance at your auto customers right now?

Yes. Thanks, Vivek. First of all, let me just indeed unfortunately confirm that the sequential flat in auto into Q4 is purely a function of supply. I wish it was different, but it is a straight function of supply. Now it still has a nice year-on-year growth, by the way, but the sequential is a supply limitation. In general, many microcontrollers, if not all, in our portfolio and the large part of the analog products, which we have, continue to be significantly supply constrained in automotive. And that is after a very careful and very thorough analysis of the demand in this whole web from the OEMs through to Tier 1. So I think we have more transparent and more detailed discussions than ever before in trying to understand that. And it really shows also, given the NCNR order level which we are getting in automotive for all of last year, that those constraints will continue to be in place through a large part of next year, depending, of course, on how the supply possibly further improves above the visibility we have today. But with our current supply visibility, we will continue to be sold out in the automotive market through next year. If you’d ask me how much was the gap to true demand, probably it is in the order of -- that we have a supply coverage of 85% next year in Automotive and core Industrial versus true demand. Now there is still this golden screw problem, so I don't want to take this off the table. So sometimes one component is indeed missing from us or from another peer in the market, and then it takes a few weeks until stuff is being flushed through. But that doesn't take away that there is overall shortage in the key microcontrollers and analog products.

Got it. So my follow-up, you continue to build inventory on your balance sheet. And when I couple that with the fact that you mentioned you're sold out in automotive and core industrial, that's almost two-thirds of your business, so is it fair to assume that you're planning for next year, I know you're not giving 2023 guidance, but are you planning for next year sales to be at least flattish year-on-year with auto and core industrial growth offsetting any weakness on the consumer side, or is that stretching right too much the conclusion from combining the fact that you still continue to build inventory and your auto and core Industrial demand is sold out for next year?

Hey Vivek, this is Bill. Let me take this one. First off, we're not guiding 2023, but let me go into the internal inventory and try to summarize for everyone. Yes, we've increased five days, which is about 50% raw material and work-in-process. And the remainder was in finished goods from a quarter-over-quarter perspective. Clearly, as Kurt mentioned, a portion of these finished goods was driven primarily by NXP preventing inventory buildup in the channel as we reroute this material to other customers in need or some of it's fungible and some of it is not. Areas where we have higher consumer or mobile inventory levels, we hold the wafers in die bank, as Kurt mentioned, before completing assembly and test in our back-end facilities. At the same time, we remain highly constrained in the wafer areas of 28, 40, 55, 65 and 90 in our auto and core industrial segments. And again, as we mentioned in both our opening remarks, it's better to keep control of your own inventory and putting it into the channel, which will just create future issues if demand falls. And again, majority of what we build is very application specific and long-lived, which gives us confidence to hold and be ready to service future demand.

Thanks, Bill. Let me maybe just add that one view on next year when it comes to automotive since you were asking earlier. We see no reason why the strong trend of content increase following, amongst others, electrification and ADAS would break. I think every quarter, we look at the ratio of electric cars of the total SAAR is higher than in the quarter before. For this year, we see now 27% of the total SAAR being ex EVs. And for next year, it's forecasted to be 34%. And you know what that means for the semiconductor content in a car. So from that perspective, I think there is, from a demand view, certainly good reason to believe that it continues to be a very strong and very resilient market, while at the same time, the extended supply chain in our view continues to be underfilled. It is still actually dysfunctional, because it is still too low level. So those two perspectives should maybe add to a pretty healthy view from an automotive demand perspective on 2023.

Thank you.

Thank you. One moment for questions. Our next question comes from Stacy Rasgon with Bernstein Research. You may proceed.

Hi, guys. Thanks for taking my questions. The first one, I get the issues in consumer and mobile. Those seem to be in the numbers now at this point. But auto and industrial look really resilient. You're sold out. You've got these NCNRs. I guess why do you sound so worried given that long-term support in those core markets and presumably given how sustainable it is, like, are you seeing any signs at all of weakness, even small signs, any tiny upticks in cancellations or anything like that in those core markets?

Stacy, we have no cancellations or push-outs in auto or core industrial. At the same time, I don't have a crystal ball, and I don't want to take a position here to be the economic schedule is for the macro for next year. But -- so this -- also this guidance here is based on the orders and the supply capability which we have at hand for quarter four. But I can absolutely confirm no push-outs, no cancellations in core Industrial and Auto. And the one indicator which gives maybe a somewhat better feel on the longer term is the level of inventory sitting in the extended supply chains in those two markets. And from anything we can check and see there, that level continues to be super low. And that's why we continue to believe it should stay very resilient.

Got it. Thank you. For my follow-up question, I wanted to, again, I guess, dig in on the channel inventories. So a lot of the consumer stuff which is weak goes to the channel, it sounds like you're not shipping that into the channel, but the channel inventories are still flat. So are you shipping other stuff into the channel that's making up for it? Like how is the mix, I guess, of end markets within that channel changing as the consumer stuff is weakening?

We will not speak about the mix because then it really becomes complicated. But it is not that we do not ship at all in the channel. We ship into the channel to keep a steady level of 1.6 months of inventory. So it's not to say that this is so dramatic that we have to stop all shipments. That's not how it works. We just -- we are very disciplined. Bill and I are actually sitting every week as we look at the sell-through and sell-in data with each of our distribution partners by segment. And then we make sure every week, that's not only at the end of the quarter, that's true for the quarter, that it doesn't surpass the 1.6. The change we wanted to communicate today is only that, so far, honestly, for eight quarters in a row, I was desperate to get it up. I mean, I would have wished we could have shipped more into it, in order to have a higher channel inventory. Now given those consumer trends, we are actually more disciplined to make sure it doesn't go higher, especially in those parts where actual demand is -- but it doesn't mean there is zero shipments.

I understand that. I guess what I'm asking is, is it fair to say, even if you don't want to go to the mix, the detailed mix that the consumer mix within the channel is lower and mix of other stuff is higher now versus maybe a couple of quarters ago?

No.

No? Okay.

I'm not sure why you think it should be. No, it is not.

Well, I mean, if the consumer stuff is so much weaker, you said it's 40% of your Industrial business, and a lot of it goes through the channel, and clearly, demand there is weakening. And it sounds like they're limiting shipments of that stuff into the channel. That's all. But the total inventories look the same.

Yeah, Stacy, we are limiting shipments. But I mean I think about it this way. The industrial IoT segment is 18% of the total revenue of the company, and 40% of that is the consumer IoT, and that's still not at a zero shipment level. So it is not that dramatic from a change perspective.

Got it. Okay. That’s helpful. Thank you guys. Appreciate it.

Thank you. One moment for questions. Our next question comes from William Stein with Truist. You may proceed.

Sorry, I was muted. Thanks for taking my question. I'm hoping you might have some discussion in terms of the difference in demand levels and lead times and your level of constraints between automotive on the one hand and industrial on the other. I think in prior quarters, you've noted that industrial is even more constrained than automotive. That doesn't quite get the same level of attention. Can you update us on that dynamic, please?

We really don't have it broken down that way, but we’ll still -- the key shortages in the core industrial are indeed continuing to be highly escalated and quite painful. So I think I can repeat the statement I made earlier that while there continues to be a lot of public reports about the shortages in auto and much less noise about industrial, in our case, in the core industrial, we continue to be as short as we used to be before. I said it earlier, I think, in the context of a different question. Say for the next couple of quarters, I think about four or five quarters, we believe after risk adjusting our demand, we should have about 85% coverage against -- that used to be 80%. So you see we are five percentage points higher, but that is not necessarily because the supply capability in auto or industrial has gone up so much, it is just that the consumer IoT demand on the other side or for the total company has dropped such that in aggregate for the total we come up to 85%. But it continues to be equally painful in auto and industrial than it used to be.

Appreciate that. As a follow-up, I'd like to linger on this small pivot you're making in terms of the way you're dealing with the channel in your inventory. And I wonder if the company has evaluated potentially moving to a consignment oriented model, which would allow you to make even more control. There's only one company that I'm aware of that has perceived that in a big way this sort of an outlier in terms of how to deal with distribution. But I wonder if that's a growing thought given your approach that you're discussing today? Thank you.

Thanks, Bill. But that's a quick answer, no, we are not contemplating that.

Okay. Thanks.

Thank you. One moment for questions. Our next question comes from Gary Mobley with Wells Fargo. You may proceed.

Hey guys. Thanks for taking my question. I wanted to talk about one of your smaller businesses for a second, and that is the mobile side of the business. You highlighted what sounds like 8% upside to your Q3 revenue forecast for that particular business. And we step back and look at the full year. Based on your Q4 guide, you're going to grow that business by close to 10%, which is counterintuitive given some of the weak mobile handset-related data points. So what's helping you outperform there? Is it content growth, or is it inventory channel related?

It's got nothing to do with channel or inventory, because we put the same discipline on all segments. Now it has to do with our strategy, which is really on content growth. Think about the mobile wallet. Think about the kicking in ultra wide bands. And we also have, I'd say, directionally, it's not black and white, but we have a bias to higher-end mobile phone market, which comparably is doing better this year than the very low-end Android. So I'd say, therefore two answers. Our company-specific content increase in share gains are working out. I mean, that is very much in line with how we put it a year ago at our Investor Day. And secondly, you might say we are in a good position because we are somewhat more exposed to the higher end rather than the feature phones, with the Android phones.

Thanks for that. As my follow-up, I want to ask about the latest US export restrictions. My hunch is you're not so much directly impacted from these US export restrictions. But I guess indirectly, can you speak to how it may result in some kitting issues in certain end markets and/or whether it requires you to change your manufacturing footprint?

Yes. So first of all, of course, at all times, we will 100% make sure that we are in total compliance with any export control regulations, and so we are also after these latest changes. All of our assessment so far of these latest changes in the regulations show that, if anything, we have super immaterial impact on our revenues. When it comes to second or third order effect, which you were hinting to, also there I must admit we haven't really found anything, which looks like being an issue for us. But of course, we keep researching it. But at this point, I can only say no, if anything, only super immaterial impact.

Thanks, Kurt.

Thank you. One moment for questions. Our next question comes from Matt Ramsay with Cowen. You may proceed.

Good morning. Thank you very much. Kurt, for my first question, you were very clear about the trends in your Automotive business and the business continues to do quite well. And I think to an earlier question, you mentioned that sort of on a quarterly basis, the SAAR numbers and the LTL 3 penetration numbers of ADAS continue to kind of go higher in your own estimates. But how do you guys made any changes to those kind of mix and content assumptions in the next year or two just based on interest rates? I think a lot of us externally saw some of the data out of CarMax and some other sources and the auto. New car purchases are obviously financed pretty heavily. So is there any assumptions that might have changed recently in your forecasting based on some of the interest rates? That would be interesting. Thanks.

Yes, Matt. So we -- I give you here two answers. The one is the short term. So when it comes to the guidance for Q4 is really based on orders at hand. I mean we don't -- it holds a bit done, but we don't make these strategic considerations for the next three months. This is really about orders and supply capability. Longer term, say next year, again, I don't want to say I have the crystal ball. So we use IHS typically for the SAAR, which I think just updated their forecast for next year for a 4% SAAR growth to, I believe, something like 85 million units. However, it really isn't that important at all. What really matters is the content increase, which has a lot to do with the mix to e-vehicles, premium vehicles and other features kicking in. So I think the whole discussion around interest rates and recessions looming left and right, I agree with you it could have impact on the demand behavior of people buying cars. But unless that drops incredibly far down, I believe that the content -- semiconductor content per car is actually dumping the moves on the SAAR itself. And that is for us much more relevant. But again, I mean, we don't guide next year. I don't know what it is going to be, but we really should more and more start to look at this as a semiconductor company and industry from a content perspective rather than a unit perspective in automotive.

Thanks for that. Really it’s a tough, big picture question. But it’s the one that we’re getting. As my follow-up, I wanted to ask, in the automotive sector, you guys obviously have a strong position in BMS, so managing the battery. But there's two sides to managing the battery. There's actually running the car, and then there's the charging side and lots of conversation on why, one, in batt semis and what it means for fast -- onboard fast chargers. And I wonder, as a full BMS solution managing the charging and the discharge of the battery, is that something that you guys are looking into, not the manufacturer or anything applied against it, but buying it from someone else and doing a fully integrated both side of the battery type solution? And any thoughts there would be helpful. Really appreciate it.

Well, actually, we not only look at it, but we work the system end-to-end. So we are also very busy with companies building and providing the charging infrastructure. I think we have revealed earlier, so I may use the name. We work closely with ChargePoint, for example, in the US. And that is not only on the charging, but that even includes payment to make this a very seamless process for the consumer. So our payment and identification and security technologies are also being included in this. So yes, we look at it as a -- from a total end-to-end basis. However, I have to say this still means we are not going into discrete power. So whenever these systems and wherever they need discrete power solutions, so like silicon carbide, this is not our focus. Our focus remains on the advanced analog and logic products, which we think is about 50% of that opportunity.

Josh, we’ll take the next question please.

Thank you. One moment for questions. Our next question comes from Joseph Moore with Morgan Stanley. You may proceed.

Great. Thank you. I know last quarter you guys have talked about the desire of the automotive companies to build up safety stock at the Tier 1 level. I think you talked about six months. Where are they in that process? I mean it definitely sounds like things are still pretty tight, but is there any indication that they're able to put any of that inventory into place?

Yeah. Indeed, that is strategic requirement, which, in many cases, OEMs are and have been putting on Tier 1s. My guess is -- it's very hard to get the full picture of this, but my guess is that in some few cases, they start to be able to start building somewhat on a lot of those core products which are plaguing us and others from a sheer built performance perspective, they are very, very far from achieving anything in this, because, again, even before that would happen, the whole supply chain, the whole extended supply chain needs to build a higher inventory level. That's not just in one company, but it's just that the whole trade becomes more functional. So, I would say, given the end demand trends and how I would judge the supply capability of us and the industry, this will take all of next year still, before we come even close to that requirement.

Great. Thank you very much.

Thank you. One moment --

Joe, did you have a follow-up or is that it?

No, I'm good, Jeff. Thank you.

This will probably be our last question. Operator?

Thank you. One moment for questions. Our next question comes from Toshiya Hari with Goldman Sachs. You may proceed.

Hi. Good morning. Thanks so much for squeezing me in. I have two questions. First one is on pricing. I think if we take the midpoint of your Q4 revenue guidance, you're going to be growing around 19% for the full year. I think you gave really good color last quarter on how significant the tailwind is from pricing. If we can get an update on 2022 pricing, that would be great. And then your preliminary thoughts into 2023, again, from a pricing perspective particularly given, I think, the intent on your foundry supplier to raise pricing next year as well.

Yes, Toshiya, so as a good practice, as we've done for last year, we will provide the full year pricing impact for calendar year 2022 in quarter one of 2023. It's still very, very dynamic, I would almost say day-in, day-out. So we will give you and provide you the aggregate pricing impact on our revenue growth for this year in Q1 of next year. From an overall dynamic perspective, we continue to see quite sizable cost -- input cost decreases to us. That is from the foundry partners, but there's also a lot of other inflationary cost increases. And, of course, we absolutely walk the talk that we stick to our strategy to pass on those input cost increases to our customers to exactly that level that we can protect our gross profit percentage. And seeing how the supply-demand imbalance in our core markets is moving into next year, I guess, it is reasonable to assume that we will continue to raise prices also next year. We are now so much to the end of 2022 that I think it's fair to say it's highly likely that we will also continue next year's prices, just following those input cost increases.

That's helpful. Thank you. Sorry.

Yes. Go ahead.

Sorry about that. As my follow-up, just on how you're thinking about utilization rates and CapEx going forward, Bill, you talked about utilization rates being in the high 90s, given your comment on inventory growing in the quarter, my guess is you're keeping utilization rates to where they are but just wanted to clarify that. And then on CapEx, you mentioned you've had equipment delivery delays. Should we expect CapEx to be elevated into 2023, or is it a little bit premature to say at this point? Thanks so much.

So let me quickly take the utilization, and Bill is going to speak about CapEx. On the utilization, yes, we will stay very, very highly utilized because, as Bill put it earlier, the majority of our internal front-end factories are working for automotive and core industrial. So that's exactly there where we see the strong demand continuing, and that's why the utilization rates there will stay very high. Bill, over to you for CapEx.

Yes. Related to the CapEx, as I mentioned, we will do better this year, 10% going to 8%. And next year, we will be in the range between 6% and 8%.

Thanks so much. End of Q&A:

Yeah. I guess that gets us to the end of the call. So in summary, I would say we are cautious in the near-term given all the macro uncertainty. However, under the surface, we see what I call the dichotomy, which is really a very disciplined approach to a weakening consumer IoT market, where we want to stay ahead of the game and not trap the channel while, at the very same time, we continue to be supply constrained quite significantly in our core industrial and automotive markets, where we try to do everything in-house and with our foundry partners to get the supply the soonest in line with the pretty resilient demand signals, which we are having. And that sets it for the call today. Thank you all very much. Thank you.

Thank you, Josh. Appreciate everybody's attendance. That concludes the call today.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.