Good day, and thank you for standing by. Welcome to the NXP Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being 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, Daniel, and good morning, everyone. Welcome to NXP Semiconductor's Fourth Quarter 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 macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the first quarter of 2025. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure for 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 fourth quarter 2024 earnings press release, which will be furnished to the SEC on Form 8-K and is 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 really appreciate you joining our call today. I will review both our quarter four and our full year 2024 performance, and then I will discuss our guidance for quarter one. Beginning with quarter four, our revenue was $11 million better than the midpoint of our guidance. The revenue trends in our end markets were slightly above in Automotive, in line in Mobile, slightly below in Industrial & IoT, while communication infrastructure and other missed our expectations. So taken together, NXP delivered quarter four revenue of $3.11 billion, a decrease of 9% year-on-year. The non-GAAP operating margin in quarter four was 34.2%, 140 basis points below the year-ago period and about 10 basis points above the midpoint of our guidance. Year-on-year performance was the result of the lower revenue and the related gross profit fall-through, partially offset by lower operating expenses. From a channel perspective, we kept distributing inventory flat at eight weeks, below our long-term target of 11 weeks. From a direct sales perspective, we supported Western Tier 1 automotive customers with their continued digestion of on-hand inventory in a cloudy auto demand environment. For the full calendar year 2024, revenue was $12.61 billion, a decrease of 5% year-on-year. Full year non-GAAP operating margin was 34.6%, a 50 basis point compression versus the year ago period due to lower revenue and the related gross profit fall-through, partially offset by lower operating expenses. While the second half of 2024 did not play out as we had originally expected, we rigorously focused on what is under our own control to minimize the impacts on our financial performance. And now let me turn to the specific full year 2024 trends in our focus end markets. In Automotive, full year revenue was $7.15 billion, down 4%…

Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q4 and provided our revenue outlook for Q1, I will move to the financial highlights. Overall, our Q4 financial performance was good. Revenue and non-GAAP gross profit were both modestly above the midpoint of our guidance range, while operating expenses were in line with the midpoint of our guidance. Taken together, we delivered non-GAAP earnings per share of $3.18 or $0.05 better than the midpoint of our guidance. Furthermore, we continue to tightly manage sales into the distribution channel with weeks of inventory in the channel flat sequentially at eight weeks. I will first provide full year highlights and then move to the Q4 results. Full year revenue for 2024 was $12.61 billion, down 5% year-on-year due to a weak macro in the Western markets, while China continued to be resilient. We generated $7.33 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 58.1%, down 40 basis points year-on-year. Total non-GAAP operating expenses were $2.96 billion or 23.5% of revenue, slightly above our long-term operating expense model as we continue to invest in our strategy, supporting long-term profitable growth. Total non-GAAP operating profit was $4.37 billion, down 6% year-on-year. This reflects a non-GAAP operating margin of 34.6%, down 50 basis points year-on-year and in line with our long-term financial model. Non-GAAP interest expense was $275 million. Taxes related to ongoing operations were $686 million or a 16.8% non-GAAP effective tax rate. Noncontrolling interest was $32 million and the results from equity account investees associated with our joint venture manufacturing partnerships was zero. Stock-based compensation, which is not included in our non-GAAP earnings, was $461 million. Turning to full year cash flow performance. We generated $2.78…

[Operator Instructions] Our first question comes from CJ Muse with Cantor Fitzgerald. Your line is open.

Yeah. Good morning, good afternoon. Thank you for taking the question. I guess high level, all eyes are on the rate of recovery off of a likely Q1 bottom for you guys as well as the industry. So, would be curious if you think we're set up for normal seasonal trends into Q2 and beyond? And if you could kind of parse through that, where you're seeing relative strength and perhaps where you see relative weakness or where you see concerns where perhaps trends won't be as strong as seasonal?

Thanks, CJ, and good morning. Let me start with reiterating what I said in my prepared remarks, the visibility we have is really, really poor. Given the low order lead times, there is a lot of turns business and customers place their orders very late. So we have, in total, a pretty limited visibility. Now, coming more specifically back to your question, yeah. So Q1 with the 9% sequential decline is, I'd say, it's on the lower bound of seasonal as we had anticipated and kind of soft guided in the previous quarter. There in -- I would qualify this actually as kind of okay in automotive and industrial, kind of okay, meaning that the year-on-year decline in automotive is the same as we had it in quarter four. So that's like a mid-single-digit year-on-year decline. And in industrial IoT, we actually are flat from Q4 into Q1. Where it really comes down is in the comms infra segment where we have an accelerated pace of the earlier discussed end-of-life situation with some of the former digital networking or former Freescale digital networking products. That's the one which really falls short, in line with what we said over last year that this part of that segment is really becoming weak. Now, I heard your question. You were asking for quarter two. With the little visibility we have, we really can't call quarter two. Now, I understand you need something for the model CJ. If anything, probably a flat to slightly up is what I would use for modeling purposes. But that isn't really based on a hell lot of forward visibility, which we have at this stage. But I guess, flat to slightly up is the best proxy at this stage.

Very helpful. And then maybe a question for you, Bill. Our gross margins, given where we are in the cycle, 56.3% is spectacular. Would love to hear kind of how you see a recovery playing out from utilization rates from mix, from bringing in higher-margin distribution? Would love to kind of how you see things evolve.

CJ, absolutely. As you could see, the gross margins declined as we anticipated by about 120 basis points. And the attributes, again, we are now returning to our normal annual price negotiations. And as Kurt alluded to, down to low to mid single-digit range. So when you do the quick math, you can understand that effect. And then as we enter toward in Q4 guidance, we would lose some of the fall-through over our fixed costs, which actually happen. But on the bright side, which is more of a tailwind, we were able actually to partially offset some of those headwinds through the improved mix in Q1. And also, we are getting lower supplier and operating costs, which are tying throughout the year to offset that total pricing effect that occurred in the first quarter. So the cost adjustments come throughout the year. Overall, I would say at these revenue levels. And as I mentioned, we're running front-end internal utilizations in the low 70s, I feel pretty confident that we will remain at these gross margin levels, plus or minus the normal 50 basis points, driven by mix. I'd say once we return to revenue growth, we will then move back into our long-term gross margin range of 57% to 63%.

Thank you. Our next question comes from Thomas O'Malley with Barclays. Your line is open. Thomas O’Malley: Hey, guys. Thanks for taking my question. I wanted to focus in on the regional trends. It sounds very similar, what you're kind of talking about, at least on the auto side with some inventory at the North American guys with potentially some better environments elsewhere. Could you just maybe talk about the inventory situation at the North American customers versus three months ago? Do you feel like that's coming to a bottom here with some inflection from this point forward or are you still kind of working that down? Any additional color there would be helpful.

Yeah. Thanks, Tom. I hear two parts in your question. One is the regional one and the other one, the inventory. On the regional side, in quarter four, clearly, Asia, led by China was on the brighter side of things with Europe and the US being very weak, and that very weakness was certainly driven both by inventory digestion as you're hinting to and a weak end demand. That was pretty much as we had anticipated. So I'd say quarter four, there was nothing really changing through the quarter versus our anticipation. And going into quarter one, overall, I'd say we do see some early strength in Asia for industrial IoT. You saw that we sequentially guided that flat. Also for auto, Asia is robust. So, it's kind of the same situation like 90 days ago from a regional split perspective with a strong Asia and a relatively weak or especially weak Europe and maybe the US getting a little better. Now on the inventory side, so the answer, first of all, Thomas, yes, we continue to digest on-hand inventory at our direct Tier 1 customers. That process continues, and it is both for the US as well as for the European Tier 1 customers. How much it is and how long that still lasts? I can't really tell you. And I would also not put Q1 into comparison to Q4 in terms of its less or more. No, we have individual plans there with each single customer, and we got to see how that plays out. But that is clearly still weighing on our revenue performance, especially in automotive, keeping it at a sub end demand level. At the same time, and I -- for completeness, I have to say that also the discipline on the general inventory holds,…

Yeah. Let me take this one. Obviously, we're focused on what we control. At the same time, our internal inventory from a dollar perspective is up quarter-over-quarter. We expect those dollars going into Q2 as Kurt alluded to, on flat to slightly up, from a dollar perspective is to stay flattish. So that's what we're balancing, the dollars and the utilization from an internal standpoint as well as we have to adjust our foundry and subcon orders with current revenue levels. So again, we're balancing all that. I would say if the second half comes up and we’re planned and ready for that, that's probably when that will take effect when we would increase our utilization. But again, we're going to be very cautious as Kurt alluded to, we kind of got this wrong last year, so we're just going to take it one quarter at a time.

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

Thanks for letting me ask the question. Kurt, the auto -- excuse me, the Industrial IoT segment being flat sequentially. You alluded a little bit to Asia acting a bit better, but I think that flatness is a welcome surprise to people. Can you dive a little bit deeper into what's going on there and keeping that business flat?

Yeah, Ross. As I said, the relative strength, I don't want to use the strength yet, but the relative strength from a sequential perspective indeed comes from Asia. And within Asia, clearly, from China, and you know that we have a relatively high exposure in that segment to China. I think we are helped by our low channel inventory in that case because we don't have to reduce that further. So, any possible light at the end of the tunnel in terms of end demand directly comes to us because we don't have to work down inventory in the channel. That's how I would characterize it. But I -- Ross, I also don't want to go that far to talk about green shoots or anything. I mean it's kind of -- it looks a little better indeed in Asia, but too early to play the trend.

Thanks for that. And then I guess as my follow-up, switching over to the comms business and other. You've mentioned about kind of an accelerated end-of-life process. Is that now behind us? And so the business a little under $300 million, I guess, in the first quarter for your guide is now going to act along with whatever demand does? Or is there more room that, that has to be taken down?

Yeah, let me try to parse this. So when exiting last year, calendar '24, think about the comms infra segment with roughly the following split. So 50% was in the secure card area, which includes also RFID, 20% in the radio power for the mobile base station networks and 30% in this digital networking business. So, that's about the size we talk about here and that end of [lighting] (ph) still continues, Ross. It goes into Q1, but I would expect it further continues beyond Q1.

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

Thanks for taking my question. Kurt, on the first one, maybe a little deeper into the Automotive segment. There's a lot of talk of tariffs, et cetera, this year. Have you seen any change yet in customer behavior, pull in, push out, mix of EV, et cetera? Just how are you reflecting this kind of evolving landscape in your thinking for 2025?

Yeah. So first of all, to be clear, given all the uncertainty and the many moving parts, it is not reflected in anything we told you today. I just want to be very clear, there is so many unknowns that we could only get it wrong. So it's just not reflected, Vivek. Most of it from what we are hearing about today, there’ll be indirect impact on NXP. Let me give you the example of Canada and Mexico. That's not something where we would be impacted because we don't ship from Canada or Mexico into the US. So for us, that's not relevant. The China one clearly touches us eventually because we have some production in China. As you know, we have this back-end facility in Tianjin. And there is also some shipments from there to the US. We looked through this, Vivek, and it would be completely immaterial to us. So that's the only one where I can get my hands firmly around because we know what it is and that has absolutely immaterial impact on us. Why that is? We can discuss it another time and there’s a complex consideration behind it. So therefore, the straight answer is beyond that, nothing is contemplated in our -- in what we said today.

And maybe one for Bill, just kind of a hypothetical, if I sort of take what was said about Q2, and I completely understand visibility is limited. But if I assume some semblance of normal seasonality in the back half, I kind of get it conceptually sales down high single-digit or so this year. So I'm not asking you to endorse that. But let's say that was the situation what would be the right way to mathematically think about gross margins and OpEx this year? Thank you.

Yeah. Similar to last quarter, the best metric, I think, for modeling purposes, without knowing all the different movements and visibility, I would just go back to whatever you put in your model for those type of revenues look at from a historical standpoint. That's all I can provide, to be honest with you, because as you know, there's many moving parts, but that's, I would say, a fair representation for modeling purposes.

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

Hi, guys. Thanks for taking my questions. I wanted to go back to gross margins. You said gross margins would probably stay here, give or take, until revenue started to grow. You suggested Q2 would be maybe flattish or up a bit. So I assume Q2 gross margins in that environment don't really go up very much. Hopefully, that revenue grows in the second half. Before, you had suggested that margins for the full year would land still within your range of 57% to 63%. Given you're going to be in the 56% is in the first half, do you think you can still get into the range for the full year? And if you do, is it like very close to the low end because I'm having a hard time getting it much more than that without a lot of growth in the second half.

Yeah, Stacy, first off, related to the gross margins, you're right, for Q2, I said at similar levels, plus or minus the 50 basis points. We never guided the full year and say we would stay within the financial model for...

That’s what you said. At the Analyst Day, you said that.

Correct. We have said that, and a lot will depend on the second half related to return of growth. So, as I mentioned earlier to another question, I said if the second half grows above the first half, we will then get back into model of the 57% to 63%, but a lot depends on the recovery of the second half.

You don't know if you'll be there for the full year now?

I'm not guiding that at this point in time with the low visibility we have.

Okay. And I guess on that point of visibility, you said you have a lot of turns. What is your percentage of orders that are coming from turns right now? And, like, how does that differ across the different segments?

We don't disclose that. All I can tell you is the trend has picked up over the last three quarters, and they're getting larger and larger.

Thank you. Our next question comes from Toshiya Hari with Goldman Sachs. Your line is open.

Hi, good morning. Thanks so much for taking the question. My first one is on the automotive business. Just from a business planning perspective, and again, I realize you've got a little visibility and a lot of moving parts here. But from a planning perspective, what kind of global SAAR or global unit production are you expecting for the year? And more importantly, Kurt, you talked about the secular drivers that you guys have been speaking to the 32 connectivity radar, et cetera, what rate of outperformance or content growth should we or can we expect in calendar '25 versus '24?

Yeah. Hi, Toshiya. So yeah, the first part indeed is pretty simple. We just quote S&P here. We think about around about 89 million units in car production this year, which would be a very slight flat minus. So just a little bit down where it's probably important to understand that in that China is more flat plus versus Europe and the US flat minus. So that's the two directions within that. And as Vivek alluded to, I mean, let's see what the tariffs will do to all of this, we can’t say. But we model with a flat to slightly down car production for the year. The outperformance of the company-specific growth drivers. What I suggest to do, Toshiya, is you use the percentage growth rates, which we guided in our Analyst and Investor Day back in November, offset by what you see the overall business underperforming currently, which is the under-shipment which we have to do on inventory digestion. But the delta between what the core business does and what the accelerated growth drivers do, that does hold. There is no difference because they all have about the same inventory levels. So there is statistically looking at the total, it doesn't make sense to model any difference in inventory, which means they all suffer from the same offset. So, it's the same delta. That's probably the best you can assume. And they run well. I mean, let me say that they also -- all three of them did grow last year from an absolute perspective year-on-year while the total auto business last year was down. Those pieces, which are quite sizable, as you know, were up and we clearly see this continue in this year.

That's helpful. Thank you. And then as my follow-up, you mentioned for the year, you're expecting blended pricing to be down in the low single-digits. I'm curious what your expectations are in terms of foundry costs or wafer costs in '25 versus '24? And then somewhat related to that, Bill, you talked about potentially consolidating 8-inch facilities. If you can expand on that and kind of speak to timing and magnitude in terms of potential gross margin tailwind in future years, that would be helpful. Thank you.

Yeah. Let me take the first half of your question. So yes, I reconfirm the low single-digit price erosion, which we see this year, this calendar year, by the way, coming from a flat line last year. I'm not sure we said this before, but I can now confirm that last year, as we had anticipated, we were neutral on pricing. This year, low single-digit down. It's now with high confidence that we can say that. And the input cost you were asking for has also started to develop more favorably, which means it helps us offset from a gross profit perspective. The headwinds which we are seeing from that low single-digit price erosion. The only thing is it's a bit of a timing element and Bill spoke about this earlier because a large part of the pricing hits us already in while the cost erosion -- the input cost erosion is through the full year. So [we need through] (ph) the year to offset that. But that has become a more favorable environment, which helps us offset the ASP erosion. And, Bill, maybe you speak about the consolidation of that.

Yes, absolutely. Obviously, this is something we shared during Investor Day. I just hinted that we're basically planning and almost complete. When this occurs, it will occur sometime in 2025. And there will be a natural tailwind associated with the utilization as we start bridging some of the build plan for the transfers of those products. That would probably be my guess more of an impact in the second half of the year when we decide to announce this. And again, at this point in time, I could just show you, yeah, that's roughly basically, I would say there is a tailwind when we do and start that process. But we haven't yet.

Thank you. Our next question comes from Chris Caso with Wolfe Research. Your line is open.

Yeah, thank you. Good morning. The first question is, again, on some of the digital networking products that are going end of life. I want to make sure that we're calibrated on this correctly. So, I think what you said is that was about 30% of the common infrastructure segment. Should we expect that a large part of that goes away over the next few quarters? I guess I'm trying to quantify how much of the business is affected by end of life and sort of the timing that you expect for that to finally work its way down.

Yeah. So first of all, yes, I reconfirm you understood me correctly. It's about 30% exiting last year of the total revenue of the segment, which we discuss about here. And by the way, just as an aside, I mean, the RF power business in there is also pretty lumpy. It's not like everything else is golden, and that's the only concern. But that's the one we speak about. And yes, it will continue through the next couple of quarters to further decline given the end-of-life actions on several of these products. That doesn't mean it goes totally away but think about the continued decline through the next couple of quarters of that 30% piece. Now at the same time, the secure card business is okay. In there, we have RFID. You know that RFID is a growth business for NXP. So there are many moving pieces in this comms infra segment, which is why for the next three years, we guided it to be just flat. I just wanted to show today to call out that, that 30% portion really sees a quite material decline through this year.

Understood. Follow-up question is on China. And obviously, it's very strong now given some of the share shifts that are happening in the industry. I guess, in the interest of no good deed goes unpunished. We do get a lot of questions about the sustainability of that strength and owing to the fact that there are a lot of OEMs in China trying to gain share. Could you talk about your view of the sustainability of what's happening in China now and the steps you're taking to make sure that the customers aren't building inventory, we're not over shipping to that region?

Yeah. So that's a number of questions. Let me try and parse them. One is, indeed, last year, China as a region for NXP, did grow by 4% year-over-year. So if you take the China portion of the NXP revenue, calendar '24 over 23%, that was 4% up. And that made it a 36% portion of the total NXP revenue. So while the company was down 5%, China was actually up 4% last year. We have zero indication. I have said very clear, we have zero indication that there was any inventory build or pull-in or anything like this in there. We just see it really correlated and a good part of it is obviously automotive to the increased content and the relatively good production trends and global market share trends of Chinese OEMs. So there is no pull ahead or inventory build. It was just natural growth, which structurally, we think, will continue which clearly goes at the expense of the Western OEMs. I mean as I said earlier, the SAAR this year, the global car production is about flattish. So there is a share shift from the West to China building. And furthermore, test in China, the electric vehicle penetration is really fast paced. So through the second half of last year, it was 50%. So 50% of the cars sold last year -- second half of last year, were in some form, electric, hybrid or sfully electric in China. So, very high penetration already and continuing, which, of course, delivers us over-average content growth from a semiconductor perspective. We are dealing with that, I would say, aggressively to the extent that we want to be the right partner there to not have the risk of losing share. I just changed my organization. I have a business leader now for China who reports directly to me to make sure that we do what we've spoken about before, which is dedicated solutions for Chinese OEMs because -- if you think about software-defined vehicle and electrification, it is now that in many aspects, China is leading. So we leverage them as lead customers and turn more of our R&D attention to that side of the world to stay competitive. Secondly, we have our manufacturing strategy, China for China because a big requirement there is that we do local manufacturing, which we are delivering through our back-end facility, which I mentioned earlier in Tianjin and three elements of front-end manufacturing being TSMC and Lansing, SMIC and HHGrace as we announced in our Investor Day in November. So, Chris, I think this trend continues. We do everything to stay and be very competitive locally, really with substantial changes in how we operate because we think this continues to be a significant growth factor for NXP.

Thank you. And our final question comes from Joshua Buchalter with TD Cowen. Your line is open.

Hey, guys. Thanks for squeezing me in and taking my questions. Very much appreciate that you gave us the rough outlook for the second quarter, given the low visibility environment. I guess as you sit here today, do you expect to still be under-shipping in that second quarter? Is there any way to quantify that amount? And I assume within that flat to up number, that still includes the channel staying in sort of the eight to nine week range? Thank you.

Josh, this is a trial to further have us guide the second quarter, which we did not intend to do. Yes, it's just mathematics. If we are flat or slightly up, we still under-ship. We very clearly think we have a much higher natural demand in run rates than that. So if it is flat to slightly up, only then it continues to be under-shipment, which I would think is in holding discipline on the channel. Yes, the eight to nine weeks is it? And secondly, it is -- it would then be probably further digestion of on-hand inventory at especially automotive Tier 1 customers. Again, all of this is not a guide, Josh. But if you put it that way, if it is flat to slightly up, then that would be indeed the consequence.

Got it. Appreciate the color there. And I'll give the cycle a break for a moment. I wanted to ask about the TT Tech acquisition. You're moving into -- further into the software space and acquiring the middleware assets. Can you maybe speak to, I guess, one, how that changes your conversations with your OEM customers and the potential pull for your broader set of hardware solutions. And also, is there any element of -- with this acquisition in particular that where you're competing a little bit more so with your customers? Thank you.

Yeah, Josh. Thanks for that really, I think, important question because that's a key strategic move which we announced there. I would say that very clearly, it does enable the conversation and engagement with automotive OEMs. So when you ask what does it do? It enables it. The software-defined vehicle definition and architecture creation is in the hands of the OEMs. No single Tier 1 can ever do that. It has to be top down for the whole vehicle. So it is owned by the OEMs. And in order to make NXP the leading partner for them to architect those new backbones of the car, we needed more software that became abundantly clear over the past couple of quarters. And this is where TT Tech Auto builds ideally in. So it makes -- it gives us the possibility to have that conversation and to codesign those STD architectures with OEMs. I wouldn't call it competition with our direct customers, but we are moving up the value stack. I mean that is a matter of fact, Josh. So in that sense, from what Jens Hinrichsen, my leader for the automotive business talked about in our Investor Day in November, TT Tech is a very important building block to make that vision a reality, which is co-architecting those platforms with OEMs.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Kurt Sievers for closing remarks.

Yeah. Thanks operator. Yeah. Thanks for paying attention to today's call. We continue to be in a very cloudy environment where you saw our hesitation and cautiousness to call the bottom or to speak about the rest of the year. We take, however, a very rigorous focus on cost and gross margin management, which is under our control to continue consistently on that strategy of soft landing to be ready and best prepared for the upcycle when and if it comes. With that, I thank you for your attention. Thank you.

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