NXP Semiconductors N.V.

Good morning, ladies and gentlemen, and welcome to the Q4 2020 NXP Semiconductors Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero, on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Jeff Palmer. Please go ahead, sir.

Great. Thank you, Tiffany. Good morning, everyone. Welcome to the NXP Semiconductor's fourth quarter 2020 earnings call. With me on the call today is Kurt Seavers, NXP's president and CEO, and Peter Kelly, our CFO. As Tiffany said, the call is being recorded today and will be available for replay from our corporate websites. 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 financial results for the first quarter of 2021. Please be reminded that NSP undertakes no obligation to revise or update publicly any forward-looking statements. For full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures today, which are driven primarily by discrete events that management does not consider to be directly related to NSP's underlying core operating performance. Pursuant to Regulation G, NSP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our fourth quarter 2020 earnings press release, which will be furnished to the SEC on form 8K and is available on the NXP website in the investor relations section at nxp.com. Now I'd like to turn the call over to Kurt.

Yeah, thanks very much, Jeff, and good morning, everyone. We really appreciate you all joining the call this morning. Today I will review our Q4 and our full year 2020 performance. I will provide insights on how we view the current supply-demand environment, and I will certainly discuss our guidance for quarter one. Now, let me begin with quarter four. Our results were near the high end of our guidance, with the contribution from the automotive and mobile markets both meaningfully stronger than planned. And with trends in the industrial and IoT, and communication infrastructure markets in line with our expectations. Taken together, NXP delivered quarter four revenue of $2.5 billion, an increase of 9% year over year, and $57 million above the midpoint of our guidance range. Our non-GAAP operating margin in quarter four was a strong 30.5%. That is 60 basis points better than the year-ago period, and about 80 basis points above the midpoint of our guidance. Our outperformance was thanks to good fall-through on strength revenue growth, thanks to early benefits of our improved factory utilization, and solid operating expenses control. For the full year, revenue was 8.6 billion, a decline of 3% year over year. And as 2020 progressed and the initial impacts from the pandemic earlier in the year subsided, our customers began to accelerate orders at a very robust rate, which we do anticipate will continue throughout 2021. Our full year non-GAAP operating margin was 25.9%, a 310 basis points decline because of lower revenue, reduced factory loadings, combined with slightly reduced operating expenses. It is important to note, though, that throughout the year, we shifted more of our OPEX spend from SG&A towards R&D, as we do continue to invest in new and differentiated products, which are definitely the lifeblood of our long-term growth ambitions. Now let me turn to the specific trends in our focus and markets, starting with automotive. Full year revenue was 3.83 billion, down 9% year on year, materially better than overall auto production, and the reflection of strong new product traction and content gains in ADAS, in digital clusters, and in electrification, which we have all spoken about in the past. For quarter four, automotive revenue was 1.2 billion, up 9% versus the year-ago period, and 20 million better than our guidance. Now moving to industrial and IoT. Full-year revenue was 1.84 billion, 15% year-on-year up, with both the wireless connectivity and our crossover processes supporting the growth. For quarter four, industrial and IoT revenue was 511 million, 23% versus the year-ago period. And with that, in line with our guidance. Now moving to mobile. Our full-year revenue in mobile was 1.25 billion, up 5% year-on-year. Now, if we are reconciling this for the sale of our voice and audio business during quarter one last year, the underlying mobile end market growth was up a robust 19% year on year. And during the year, we experienced continued strong adoption of our secure mobile wallet and the early ramps of our ultra-wideband solutions, offset by the anticipated discontinuation of some parts of our semi-costume mobile analog interface business. We do estimate the full year attach rate of mobile wallets increased to about 40%, which is in line with our expectations, and which is also supportive of our 50% attach rate target exiting 2021. For quarter four, mobile revenue was 409 million, up 23% versus the year ago period. and with that 40 million better than our guidance. And last but not least, communication infrastructure and other full year revenue was 1.7 billion, down 9% year over year. The year on year decline was due to reduced sales of RF power products into the cellular base station market relative to the positive trends which we had experienced in the first half of 2019. For quarter four, revenue was 394 million, down 14% year on year, and in line with our guidance. Now, before turning to our guidance and expectations for the first quarter, I would like to offer my view on the current demand and supply environment as it pertains to NXP. When our customers began to reopen after the shutdowns in the second quarter, we did see order rates through Q3 and Q4 accelerate at a very rapid rate. This trend has continued and it will likely be the case over several quarters to come. The increased demand has been broad-based across most of our focus end markets most of our product portfolio and all of our geographies as well as across our direct and our distribution fulfillment channels. We actually believe that the working from home trends because of the pandemic, which emerged in full force beginning in the first half of the year led to an explosion in demand for high volume consumer compute and mobile type products in the industry. And then, as the auto and industrial markets began to rebound in the second half of the year, the available foundry capacity was largely sold out. As a result, we and others are experiencing significant increases in lead times, and in certain cases, increased costs from suppliers. Taking that all together, the setup indicates a really robust demand environment combined with a very challenging supply situation, which we anticipate may continue for several more quarters. And we are working very diligently with both our external suppliers, our internal operations team, and our customers to adequately align supply with demand. Against this backdrop, now let me come to the quarter one guidance. We are guiding quarter one revenue at 2.55 billion, up about 26% versus the first quarter of 2020, within the range of up 22 to up 30% year over year. From a sequential basis, this represents growth of about 2% at the midpoint versus the prior quarter. At the midpoint, we anticipate the following trends in our business. First automotive is expected to be up in the mid 20% range versus quarter one 2020 and up in the mid single digits versus quarter four 2020. Industrial and IOT is expected to be up nearly 50% year over year and up high single digits versus quarter four 2020. Mobile, is expected to be up 40% year over year, and down in the mid teens versus quarter 420. And finally, communication infrastructure and other is expected to be flat versus the same period a year ago, and up in the low single digit range on a sequential basis. Now, while we are really encouraged by the rapid rebound in demand, it is important to remember we are still challenged by the impact of the global pandemic. And we will carefully navigate the improving demand environment, focused on meeting our customers' requirements, while simultaneously assuring at all times the safety and health of all of our employees. And I am extremely proud of their adaptability, their dedication, and their hard work in the face of continued adversity. So in summary, customer engagement levels, our design bin momentum, and our strategic focus areas continue to be all very positive. And hence, we continue to be very optimistic about the future potential of NXP. And with that, I would like to pass the call to you, Peter, for a review of our financial performance.