NXP Semiconductors NV at Goldman Sachs Communacopia & Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : So kicking off, Jeff, you guys reported You know, really solid Q2 results. You guided Q3 revenue up 4% sequentially. At the same time, you did modestly take down your full-year revenue outlook from, I think, flattish, plus or minus, year over year, back in April, to down slightly. Again, very modest change, but what were the major industry or company-specific developments that drove the update?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Great. Jeff, you touched on this a little bit, and I realize you don't have perfect visibility into customer inventory levels, but curious, how would you characterize current customer inventory at the OEMs and the Tier 1s relative to three months ago and relative to what you all would consider healthy? And do you see any stark differences between the respective end markets or the device types.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : And obviously your customers and your customers' customers during the pandemic went through a really challenging time from a shortage perspective. Are you concerned at all that some of your customers are running on too little inventory?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : I'm curious, when did that letter go out? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 3:10PM, NXPI.OQ - NXP Semiconductors NV at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Q1, okay.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : No, no, please.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Got it. Okay. Very helpful. Similar question for your distribution business, which again, at the company level, I think is 50%, 55% of revenue. To your point earlier, Q2 was 1.7 months. Your Q3 guide assumes 1.8 months at the end of September. Remind us what your philosophy is as it pertains to managing the channel, and what would it take for you guys to say, okay, we can take it up to 2.5?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Got it. A question on NCNRs. I think you guys did a really, really good job in sort of managing the upturn and managing the downturn. Other companies, a little less so. Hypothetically, if a very sharp upturn were to hit you guys in the industry over the next couple of quarters, and you had non-strategic customers come to you asking for long-term supply, Would you sort of be open to that? And when you sort of think about the NCNR in the most recent cycle, what aspects of it would you inherit and sort of keep, and what aspects of it would you tweak or change?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Shifting gears a little bit, let's dive into some of the businesses. In automotive, your current long-term growth target is 9% to 14% on an annual basis. Level set us by breaking down the automotive business into parts of the business that are tied really to ICE or SAR, if you will, and those that are more secular in nature. And I know you've got an LLC coming up, but If you could remind us how radar, zonal processors, electrification are doing relative to the expectations you had thrown out a couple of years ago. Okay, a lot of questions.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Great. So the recent change in mix sort of in favor of hybrids and EVs coming down, for you guys it's neutral?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay, got it. So on the industrial side, as you spoke to earlier, you've got core industrial, you've got consumer IoT. Again, if you can level set us by giving us a rough split where that business stands today and I think that business has been coming back, but you also spoke to some persistent weakness on the core industrial side, so if you can talk about the two sub-segments in that, that'd be helpful.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : As you think about the business over the long run, similar to automotive, again, you're not going to preview the analyst day, but how we should be thinking about growth relative to the market, relative to GDP, that shouldn't change all that much.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Curious what's driving your content growth today and what are your expectations as it pertains to both smartphone units and content for you as AI starts to become a thing, if you will.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : I appreciate it's a relatively niche sort of business for you, but as sort of the phone becomes more intelligent, if you will, over the next two, three years, any sort of apps that could drive above average growth for your mobile business, or should we just sort of

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : I tend to get a bunch of questions on pricing across your business. You guys have been pretty transparent on pricing over the past couple of years. I believe blended ASPs were up in the mid-teens in 2012, I think it was 14%. up about 8% last year, and I think you've been saying sort of flattish for this year. As you look ahead, I realize negotiations haven't really started yet, perhaps, for next year. But what are your preliminary expectations? What should we be assuming, specifically particularly given sort of the inflationary environment we've been in and the capacity that's been added, both on the IDM side as well as the foundry side?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay. So again, we should assume sort of the big automotive, Tier 1s, those kind of customers?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : You would still have -- you're not jeopardizing margins, your input costs are coming down and therefore you have the ability to -- that's a great point that she has.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : So the benefits that you're getting from your foundry partners are sort of reverting to pre-pandemic times, if you will. Plus or minus.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Right, right. Okay. That makes sense. The other topic we get questions, and I'm sure, Jeff, you get as well, is competition in China, given the geopolitical environment. You know, you're in a little bit of a unique spot, if you will, European slash American, depending on how you sort of look at the setup and where you're located. But can you remind us what percentage of your business today is China for China? And what sort of portion of that would you consider to be at risk on a 3-, 5-, 10-year view? And what percentage of that is sort of safe, if you will?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Okay, helpful. In terms of your manufacturing footprint, you've been focused on diversifying through your foundry partners, particularly in China. You also recently announced a JV with Vanguard. Maybe speak to your overall manufacturing strategy, and more specifically, what drove the decision to team up with VIS? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 3:10PM, NXPI.OQ - NXP Semiconductors NV at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : I'd like to say we have a 2029 estimate, but we're not quite there yet. No, you're not. Gross margins, again, you guys have done a really good job 58% plus, I believe, over the past two years, during a time when utilization rates went from 80% , 80% plus, to now the low 70s. So there were offsets to that headwind. I guess, what were those offsets and how should we think about the puts and takes going forward?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : That makes sense. I'm going to pause here and see if we have any questions in the audience. Can we get a mic in the front, please? Unidentified Participant Thank you for taking the question. A large auto OEM this morning, out of Europe, pre-announced some pretty negative news. I'm just trying to get your reaction when you see statements like that, how you process it in real time. You talked earlier in the presentation, which was very helpful, about seeing some weakness on the industrial side, certainly not getting many better. But do you see these type of announcements as sort of like, whoa, maybe there's actually a step function down that's going on here? And I'm curious to get your view. Is this cyclical, if it is, or structural? Structural being because of China and so forth. So I'm just trying to square that circle. However you want to answer it would be helpful.

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Any other questions? I'll keep going. So from a capital allocation standpoint, Jeff, you guys have been very disciplined. You've essentially returned the vast majority of free cash flow to shareholders in the form of a growing dividend and buybacks. You just recently announced an additional $2 billion buyback program. Going forward, should we expect more of the same from you guys? And I mean that in a positive sense. Or could M&A come into the picture? How should we think about sort of the puts and takes? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 3:10PM, NXPI.OQ - NXP Semiconductors NV at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : I have a bit of a random one that I've been asking all our companies at the conference. AI usage at the company. AI is a big topic. Everyone's talking about it. Curious, inside of NXP, do you guys leverage AI in any shape or form, whether it be chip design or R&D more broadly, the day-to-day operations, and if so, what kind of benefits have you been able to derive?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : I know you spend a lot of time with investors and analysts. You're a well-covered company, but anything that we collectively miss or underappreciate about the story?

Question: Toshiya Hari - Goldman Sachs & Company, Inc. - Analyst : Great. Thank you so much, Jeff. Appreciate it. Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 3:10PM, NXPI.OQ - NXP Semiconductors NV at Goldman Sachs Communacopia & Technology Conference