NXP Semiconductors N.V.

Hello, thank you for standing by and welcome to the NXP third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. Please be advised that today's conference may be 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, Josh, and good morning, everyone. Welcome to the NXP Semiconductor's third quarter 2022 earnings call. With me on the call today is Kurt Sievers, NXP's president and CEO, and Bill Betts, 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 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 the financial results for the fourth quarter of 2022. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on 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 third quarter 2022 earnings press release, which will be furnished to the SEC on Form 8 and be available on NSP's website in the investor relations section at nsp.com. Now, I'd like to turn the call over to Kurt.

Thank you, Jeff, and good morning, everyone. We appreciate you joining our call today. Now, let me begin with a review of our quarter three performance. Our revenue was $20 million better than the midpoint of our guidance. with performance in the mobile, automotive, and communication infrastructure markets all better than our expectations. For the consumer exposed IoT subset of the industrial IoT market, we started to experience weaker sell-through in the channel. And let me remind you that our consumer IoT exposure is approximately 40% of the industrial and IoT segment revenue. It is made up of thousands of customers primarily in China and serviced through our distribution partners. Taken together, NSP delivered Q3 revenue of 3.45 billion, an increase of 20% year-on-year. Our non-GAAP operating margin in Q3 was a record 36.9%, 340 basis points better than the year-ago period, in 80 basis points above the midpoint of our guidance. Our results reflect strong execution with solid profit fall-through on the incrementally higher revenue and better than guided operating leverage. Notwithstanding our results, which surpassed our guidance, we are facing a tricky demand environment. On the one hand, The demand trends from automotive and core industrial customers are very resilient. And we continue to face supply constraints across multiple microcontroller and advanced analog products. And on the other hand, we see weakness in the broad consumer IoT and in the Android mobile market. Given that unbalanced dynamic of the demand environment, we are going to pull those levels that are in our control, namely, strengthened channel inventory management and discipline and discretionary operating expense. In terms of inventory, we have decided to take a draconian approach to managing our distribution channel inventory. Specifically, our Quarter 4 guidance contemplates a channel inventory at the 1.6 months of supply level which is in line with Quarter 3 and well below our long-term model. We prefer to keep any incremental inventory on our balance sheet, where we have the ability to control and redirect shipments as needed. And in terms of discretionary spending, amongst others, we are slowing the rate of hiring. All in all, we believe these measures are a prudent approach until such time as we see a clearer and more consistent view of the demand environment. Now let me turn to the specific trends in our focus end markets. In automotive, revenue in Q3 was $1.8 billion, up 24% year-on-year, near the high end of guidance. In industrial and IoT, revenue was $713 million, up 17% year-on-year, 32 million below our guidance. In mobile, revenue was 410 million, up 19% year-on-year, 30 million better than our guidance. And lastly, communication infrastructure and other revenue was 518 million, up 14% year-on-year, slightly above our guidance. Now let me look at key operating indicators relative to the noted demand dynamics where we see the following. In terms of quoted product lead times, overall we dropped to just below 70% of our portfolio with lead times that are greater than 52 weeks. This metric was greater than 80% a quarter ago. While this is in aggregate an improvement from prior periods, we continue to be sold out through 23 in the automotive and core industrial end markets. In terms of our NCNR program, most of our automotive and core industrial customers continue to demand assured supply for 2023. Our 23 NCNR order book continues to surpass our 23 supply capability as well as the level of NCNR orders which have been requested for 2022. And in terms of inventory, as noted previously, our Q4 guidance contemplates distribution channel at 1.6 months, well below our long-term target of 2.5 months. With respect to on-hand inventory at NXP, our DIO has increased five days sequentially to 99 days, and it will increase further. Given the application-specific nature of our product portfolio, we are comfortable with this direction. Now let me turn to our expectations for quarter four. We are guiding revenue at 3.3 billion, up about 9% versus the fourth quarter of 2021, within a range of up 5% to up 12% year on year. And from a sequential perspective, this represents a decline of about 4% at the midpoint versus the prior quarter. At the midpoint, we anticipate the following trends in our business. Automotive is expected to be up in the high teens on a percent basis versus quarter 421 and Fledish versus quarter 322 Industrial and IOT is expected to be down in the low double digit range on a percentage basis year-on-year and down in the high teens range versus quarter 322 Mobile is expected to be up in the low single digit range year-on-year and and down in the upper single-digit range versus quarter 322. And finally, communication infrastructure and other is expected to be up in the low teens range versus the same period a year ago and flattish on a sequential basis. Now in summary, there is a real dichotomy in the various end markets that we serve. the potential for some demand destruction in the consumer end markets that we noted as a concern last quarter has materialized. While we could shift more into the channel, we are taking a proactive stance to limit channel inventory buildup. And conversely, we are seeing very resilient customer demand in the automotive and core industrial segments where demand continues to outpace supply which hinders us from shipping to the true end demand. So overall, we remain cautious in the near term due to the uncertainties in the macro environment. And with that, now I would like to pass the call over to you, Bill, for a review of our financial performance.