NXP Semiconductors N.V.

Good day, and thank you for standing by. Welcome to the NXP first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 111 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 111 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Palmer. Please go ahead.

Thank you, LaTanya. Good morning, everyone. Welcome to NXP Semiconductor's first quarter earnings call. With me on the call today is Kurt Sievers, NXP's president and CEO, and Bill Vets, 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 specific end markets in which we operate, the sale of new and existing products, and our expectations for the financial results for the second quarter of 2023. 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 first quarter 2023 earnings press release, which will be furnished to the SEC on Form 8K and available on NXP's website in the investor relations section at nxp.com. I would now like to turn the call over to Kurt.

Thanks very much, Jeff, and good morning, everyone. We appreciate you joining our call today. I will start with a review of our quarter one results and then discuss our guidance for the second quarter. So let me begin with quarter one. Our revenue was 121 million better than the midpoint of our guidance, with the trends in all the end market segments performing better than our expectations. Taken together, NXP delivered quarter one revenue of 3.12 billion, essentially flat year on year, while we continue to maintain our distribution channel inventory at a 1.6 months level, which is well below our long-term target. Non-GAAP operating margin in Q1 was 34.8%, 50 basis points above the midpoint of our guidance, so 90 basis points below the year-ago period. Year-on-year performance was a result of flattish revenue combined with better gross margin offset by higher operating expenses. Now let me turn to the specific trends in our focus and markets. In automotive, quarter one revenue was 1.83 billion, up 17% versus the year-ago period, and above the midpoint of our guidance. In industrial and IoT, quarter one revenue was 504 million, down 26% versus the year-ago period, and near the high end of our guidance. In mobile, quarter one revenue was 260 million, down 35% versus the year-ago period, and near the high end of our guidance. And finally, communication infrastructure and other, quarter one revenue was 529 million, up 7% year-on-year, and above the midpoint of our guidance. During that first quarter, after a slow start, we had seen modest incremental improvement in our China-exposed businesses, which are primarily served through the distribution channel. And this was particularly true for our industrial and IoT and mobile businesses. At the same time, we saw solid demand in our North American and European business across all market segments. Now I will turn to our expectations for the second quarter 2023. We are guiding Q2 revenue to 3.2 billion. While this is down about 3% versus the year-ago period, it represents a sequential resumption of growth to about 3% at the midpoint. At the midpoint, we anticipate the following trends in our business. Automotive is expected to be up in the high single-digit percent range versus Q2 2022 and up in the low single-digit range versus Q1 2023. Industrial and IoT is expected to be down in the mid 20% range year on year and up in the high single-digit percent range versus Q1 2023. Mobile is expected to be down in the low 30% range year on year and to be flat on a sequential basis. And finally, communication infrastructure and other is expected to be up about 10% year on year and up in the mid single digit range sequentially. In summary, as we progress through 2023, we do see a continued solid demand environment in our automotive, core industrial and communications infrastructure businesses. while our consumer IoT and mobile business are stabilizing. We believe the severe shortages which we have experienced over the last two years should subside as we progress toward the end of this year, with now only about a third of our portfolio with lead times greater than 52 weeks. This is down substantially from prior periods. However, We continue to still be supply constrained in several specific technology nodes, primarily for the automotive and core industrial segments. In addition, we are experiencing higher input cost. Hence, we continue to execute our consistent pricing policy, which is to pass along the cost increases to our customers while not padding our gross margin. Within automotive, we see a combination of positive tailwinds continuing throughout the year. These include the ongoing secular adoption of XCV drivetrains and ADAS, as well as NXP-specific content and price increases. Third-party research firms anticipate a modest increase year on year of global car production, while at the same time we believe there are pockets of elevated inventory held at some select Tier 1 auto suppliers due to the golden screw issues which have plagued the extended auto supply chain. In industrial IoT, we expect relative strength in the core industrial sub-markets as our products enable critical infrastructure and companies to be more efficient. However, while the consumer IoT business is stabilizing, a more significant growth will be dependent on a cyclical rebound, especially in China. In the mobile segment, we continue to navigate through a sub-seasonal trough in the first half of this year. However, we do anticipate normal premium model releases in the second half to help resume growth. And lastly, in communications, infrastructure, and other, We are further improving our supply capability against growing structural demand specifically in our RFID tagging solutions and against pent-up demand for secure card solutions. On the other hand, our RF power business remains lumpy and growth this year is limited to 5G build-outs in India. Our guidance for the second quarter contemplates that we maintain the 1.6 months channel inventory level. And yet, we may start increasing this level if and when we see consistent strength in channel sell-through into the second half of this year. And overall, we are very well positioned with on-hand inventory to satiate a possible rebound in demand as it emerges. In summary, the combination of our first quarter results, the guidance for the second quarter, and our early views into the second half of the year leads us to believe that total revenue for the second half of the year will be greater than the first half. Despite our cautious optimism, we do acknowledge the ongoing uncertainty in the demand environment. Therefore, we will continue to be very disciplined and manage what is in our control and stay within our long-term financial model. And with that, I would like to pass the call over to you, Bill, for a review of our financial performance.