NXP Semiconductors NV at Morgan Stanley Technology, Media & Telecom Conference Transcript

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

Question: Joseph Moore - Morgan Stanley - Analyst : So maybe we could just start with recapping some of the recent Analyst Day. In November, you sort of talked through a financial model through 2027. Can you give us an overview of your targets and how you sort of thought through the guidance process in a time of low visibility?

Question: Joseph Moore - Morgan Stanley - Analyst : Yeah. No, that's great. I guess it's always tricky to me to give three-year growth forecast because of the starting point, cyclically so difficult, and I feel like you have a pretty good chance of outperforming when you do it at the low point in the cycle and underperforming it back. But how do you guys think about, I know Kurt is very thoughtful and quantitative and kind of straightforward, setting targets that give the sort of aspirational things for the organization to achieve versus targets that you feel comfortable you can beat for Wall Street.

Question: Joseph Moore - Morgan Stanley - Analyst : Great. And then on the gross margin side, I mean you've really been a standout at protecting gross margin on the downside as we've gone into this period of turbulence. You talked about being in that 60% range. You've outperformed those targets in the past. You've actually relative -- on gross margin, you've outperformed more than on topline. Can you just kind of talk to the general puts and takes there and how has that held up so well, and is there vulnerability that if this downturn ends up being extended, that it gets lower?

Question: Joseph Moore - Morgan Stanley - Analyst : Great. And I think you're the only company that actually gives us like-for-like pricing changes from year to year, which is quite helpful to understand, the role of pricing in terms of the gross margin forecast.

Question: Joseph Moore - Morgan Stanley - Analyst : Okay, helpful. Thank you. So maybe looking at some of the segments as you mentioned, starting with automotive, always top of mind with you guys, 8% to 12% CAGR through '27, pretty healthy number, and you've talked about some of the product cycle drivers of that. Can you just talk to what gives you the confidence in that and how does that break down?

Question: Joseph Moore - Morgan Stanley - Analyst : It's really interesting, I think, when a company have this kind of portfolio approach where they tell us they're transparent about the growth drivers. The first thing I do is look back three years and see, okay, what changed, what dropped out, and it's the same thing. It's the same thing, you're still investing in the same areas, still consistency. There's nothing that you're excited about three years ago that's not exciting anymore. So that seems nice to me that it's a pretty durable set of growth drivers.

Question: Joseph Moore - Morgan Stanley - Analyst : Yeah. And I know you've done some software acquisitions in the automotive space and things like that. Can you talk to what that might be telling us about where you might be taking the business?

Question: Joseph Moore - Morgan Stanley - Analyst : That's interesting. Thank you. Can you talk about the role of inventory in auto currently? We went through a shortage that's as tough as I've ever seen. I tried to buy a car at the peak of that and it was almost impossible. And I know there was a desire to put safety, inventory into place in the aftermath of that, but now we're kind of on the flip side and we're purging. What do you think is happening there? Do you think -- I think Kurt said on the callback, that some inventories are criminally low, people are taking it down too far. What's the spectrum? How many people are way too low? How many people are at normal inventory levels? Is everyone depleting now? And is there still a memory of the shortage? Do you think that comes back in some form that --

Question: Joseph Moore - Morgan Stanley - Analyst : Yeah, no, that makes a lot of sense. I guess the role of China in all of this, China has emerged as the center of innovation for EV. I think you guys have done very well there, but there's always sort of the existential threat of China's silico. And if there's a tie, do you win the ties or not. But just great market for you guys, but how do you think about the long-term pushes and pulls there?

Question: Joseph Moore - Morgan Stanley - Analyst : And if they build it in Ohio, you may see it in America. I mean --

Question: Joseph Moore - Morgan Stanley - Analyst : Sorry, not trying to go to politics here, but maybe shifting to industrial and IoT, your targets there are 9% to 14%, faster than you've grown that in the past. Can you talk about the growth drivers on the line?

Question: Joseph Moore - Morgan Stanley - Analyst : That's helpful, thanks. I guess it's really interesting when you sort of think about the science fiction elements of all of this when you sort of -- you do an S32 to build a software-defined vehicle, you're doing battery management for that vehicle, it takes five years for any of that to get implemented in an actual car because of the safety concerns around it. And yet you think about the applicability of those technologies to industrial robotics and things like that, it seems like there's an awful lot of transferability between the two.

Question: Joseph Moore - Morgan Stanley - Analyst : Your sense of the inventory in industrial, not for NXP but for the industry as a whole, has been challenging there for quite a while, and it's been surprising how long it's going to take to hit bottom there. Can you just talk about your visibility into that?

Question: Joseph Moore - Morgan Stanley - Analyst : Okay. And you've talked a lot about distribution and the role there. I mean, you've been very careful about that. What leads to that decision? And I think the last couple of quarters, you've let that come up a little bit to try to support some of the drivers of the business, but how are you just thinking about maintaining that distribution level? And overall distribution inventory still seem high, so I feel like a lot of companies are -- not for you, but for the distributors. How are you keeping it lower?

Question: Joseph Moore - Morgan Stanley - Analyst : And what's the logic of holding fewer weeks when there's lower lead times? Because you almost could argue the other way that you want more --

Question: Joseph Moore - Morgan Stanley - Analyst : Yeah, yeah, interesting. Can you talk about the manufacturing strategy? Again, in contrast maybe to your peer in Texas who's putting a lot of capacity in the US and very much focused on insourcing, you guys maintain kind of a hybrid structure and also a very geographically diversified structure where you're manufacturing in the regions to some degree. Can you talk about that strategy?

Question: Joseph Moore - Morgan Stanley - Analyst : Okay, great. We do have questions from the audience, I guess we have a few. Unidentified Participant You alluded to the battle for EVs kind of being over, China has won. Could you talk at all about the time frame in which you think you're going to see significant competition from Chinese semiconductor producers? Clearly, the Chinese government wants local supply into those EV manufacturers.

Question: Joseph Moore - Morgan Stanley - Analyst : Takes us up to the end of our time.