NXP Semiconductors NV Q1 2025 Earnings Call Transcript

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

Question: Christopher Muse - Cantor Fitzgerald - Analyst : And Kurt, you will clearly be very missed. Thank you for everything that you've done over the last five years and obviously, before that as President. I guess maybe first question, you highlighted in your prepared remarks the Kinara acquisition. But you've also made acquisitions with Aviva and TTTech. And I guess my question is this. As you think about competition from China in the MCU world, how much of these acquisitions are defensive in terms of a world where MCU discrete purchases probably decrease and focus on software is more important or conversely more offensive in terms of true differentiation, both in the auto and in the industrial side, this where you look to really separate yourselves?

Question: Christopher Muse - Cantor Fitzgerald - Analyst : Very helpful. And then as a quick follow-up, could you give us a level set where we are in the auto correction. You talked about under shipping end demand. I guess, when do you now expect excess inventory to be digested? And how are you thinking from a geographic perspective. I think three months ago, you talked about China strong. Americas slowly recovering in Europe weak. Is that consistent with where we are again today.

Question: Ross Seymore - Deutsche Bank - Analyst : A couple of questions and first want to echo what CJ said. Thank you so much for all your help over the years, and congrats and best of luck in retirement. So I guess my first question is, I know you talked about the direct and indirect, not really having an impact on the tariff front. But can you just talk a little bit about how NXP is viewed by the customers and by the various governments. I know where you're technically headquartered, but -- are you a US company to China? Are your US China for China play? Or does the US consider you a European company? Just trying to talk through the manufacturing footprint you have and the flexibility that might provide. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 29, 2025 / 12:00PM, NXPI.OQ - Q1 2025 NXP Semiconductors NV Earnings Call

Question: Ross Seymore - Deutsche Bank - Analyst : I guess for my follow-up, I just want to put it over to the industrial side of things. You gave a lot of color about the order patterns, et cetera, in automotive channel versus direct, et cetera. We heard from other companies that they're seeing some of the green shoots and I know those are dangerous word these days, but nonetheless, in the industrial business. I just wondered what you're seeing on that side of things, both direct or geographically and then, of course, the channel.

Question: Chris Caso - Wolfe Research - Analyst : I wonder if you could expand a little bit on some of the comments you made on your China-for-China strategy. And I guess how far that progresses -- and I guess, ultimately, within China, how much of your China revenue do you expect to be able to supply domestically and under which time? And then maybe you could speak a little bit to the US, obviously, because that's something we're awaiting the regulations and how much of the US you'd be able to satisfy from a US fab?

Question: Chris Caso - Wolfe Research - Analyst : As a follow-up, a question for Bill. And I think you made a comment that you would get to your 30 -- I'm sorry, your 23% expense as a percentage of revenue target in the second half of the year after accounting for the acquisitions. Could you go into a little more detail on that? And what assumptions you're making to get to those numbers?

Question: Francois Bouvignies - UBS Equities - Analyst : And again, Kurt, thank you very much for your help. And you will be missed as the CEO leaving, but well deserved, have to say as well. The two questions I had is on -- firstly, on -- you said the cut that you don't see much pull in so far and not much impact there in terms of order behavior. Obviously, you managed very well during COVID the inventories in the channel. So my question is, if you were seeing some pull-in at some point, would you allow your customers to increase their inventories? Or would you control it the way you did during COVID. I mean how do you want to play this dynamic here given, I mean, your customers, maybe they would like to increase the buffer and inventory may be above some level that you used to -- you would like to see?

Question: Francois Bouvignies - UBS Equities - Analyst : Maybe my follow-up would be for Bill on the gross margin side. I mean your inventory days are relatively high when you look at the history, you said you think it will be flat and then when I look at the gross margin, you are around 56 -- low 56 in H1. I look at the consensus, it has more than 57% gross margin in the second half of the year. So how should we think about the gross margin here? Because it seems tricky to get a big improvement of gross margin with inventories having to come down on your balance sheet, maybe not in Q2, but in Q3, Q4. So can you help us or reassure us on the gross margin side trajectory in the second half of the year? Can it go up despite inventories coming down on your balance sheet? And maybe you can remind us the mix effect?

Question: Stacy Rasgon - Bernstein - Analyst : Bill, first, a question for you. So I know you said you weren't guiding the second half. That being said, the OpEx targets, I mean, you're running $710 million a quarter in OpEx, 23% of that would be like $3.1 billion at some point in the second half. You got close to $50 million a quarter in OpEx coming in Q3. So I mean, $750 million a quarter would be like $3.3 billion at some point in the second half. I mean are these the kinds of revenue targets into the second half that you have in mind when you give those OpEx targets? Like how do we think about that in the context of everything else.

Question: Stacy Rasgon - Bernstein - Analyst : Got it. That is helpful. And I guess for my follow-up, I guess I'm going to try it. So I know, again, you said you didn't want to give color on the back up. But I mean any just even soft commentary on how you guys are seeing Q3 right now? Like I mean, what's typical seasonality in Q3? Is there any reason to expect you could be above or below that typical season now? I'm just -- I'm sympathetic to the idea that nobody knows what the hell is going on at all right now. But any color you can give us at all even a little bit further out would be helpful if you're so inclined.

Question: Stacy Rasgon - Bernstein - Analyst : I mean, how do you even tell the difference between like a cycle recovery or green shoots and pull forwards and short-term orders and things like that way. Wouldn't they look the same?

Question: Vivek Arya - BofA Global Research - Analyst : I just wanted to go back to the green shoots that were discussed because when I look at your Q1 results, auto and industrial sales, industrial IoT sales are actually modestly below expectations. I think the upside came from mobile and the comm segment. And Q2, you're largely guiding to seasonal trends. So if there are green shoots, is it fair to say they have not yet shown up in this first half and they could show up in the second half? I'm just trying to get a sense for where are these green showing up, if any?

Question: Vivek Arya - BofA Global Research - Analyst : Got it. And for my follow-up, the last, I think, forecast that we saw from IHS or S&P was for light vehicle production to be down, I think, low single digit. So let's assume that, that is the case, right, including all the effects of tariffs and whatnot. So if that is the industry backdrop, what does that tell us about what NXP's automotive business could do this year given all your company-specific growth drivers?

Question: Vivek Arya - BofA Global Research - Analyst : So does that -- they can offset the SAAR decline? Or are we willing to say that.

Question: Mark Lipacis - Evercore ISI - Analyst : And Kurt, congrats on your retirement. I really appreciate all your insights and help over the years and wish you luck. The question, Kurt, for you. Every two to three years, there's like a new theory on inventory stocking that gets proposed before COVID, it was just in time and then -- then during COVID became just in case, announced just in time. And I think our own checks are consistent with your own that some of the Tier 1s are well below normal for their inventory stocking on semis at least. And my question is about like what would you expect on a restocking cycle? Are you of the view that that something has foundationally changed like you and your semiconductor peers, keep inventories well above normal and your lead times lower than where they had been historically. And then downstream, your supply chain feels comfortable with the idea of just keeping things very low, and then you don't really benefit from a restocking cycle? Or are you of the view that really nothing has changed and this is all driven by lead times -- well lead time stretch everybody is just going to restock again.