NXP Semiconductors N.V.

Good day, and thank you for standing by. Welcome to NXP's second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star 1-1 again. Please be advised, today's conference is being recorded. I would now like to hand the conference over to Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, Norma. And good morning, everyone. Welcome to NXP Semiconductor's second quarter earnings call. With me on the call today is Kurt Sievers, NXP's President and CEO of BuildVets, 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, 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 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 third 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 second quarter 2023 earnings press release, which will be furnished to the SEC on Form 8K and is available on NXT's website in the investor relations section at NXT.com. Now I'd like to turn the call over to Kurt.

Thank you, Jeff, and good morning, everyone. We really appreciate you joining our call today. I will start with a review of our quarter two results and then discuss our guidance for quarter three. Now let me begin with quarter two. Our revenue came in at the high end of our guidance, or about 100 million better than the midpoint, with the trends in all end market segments performing better than our expectations. Taken together, NXP delivered quarter two revenue of 3.3 billion, essentially flat year on year, while we continued to maintain our distribution channel inventory strictly at a 1.6 month level. which remains to be well below our long-term target of two and a half months. Long gap operating margin in quarter two was 35 percent, 50 basis points above the midpoint of our guidance, so 100 basis points below the year-ago period. That year-on-year performance was a result of stronger gross margin offset by higher R&D investments in support of our mid- and long-term growth targets. Now let me turn to the specific trends in our focus and markets. In automotive, quarter two revenue was 1.87 billion, up 9% versus the year ago period, and near the high end of our guidance. In industrial and IoT, quarter two revenue was 578 million, down 19% versus the year ago period, and near the high end of our guidance. In mobile, quarter two revenue was 284 million, down 27% versus the year ago periods, and above the high end of our guidance. In communication, infrastructure, and other, quarter two revenue was 571 million, up 15% year on year, and at the high end of our guidance. During the second quarter, we had experienced incremental improvement across all regions, with China also gradually improving quarter over quarter. Year-on-year growth was led by our direct business, while our distribution business continues to grow sequentially from the trough in Q1, so still down on a year-on-year basis. Now let me turn to our expectations for quarter three, 2023. We are guiding quarter three revenue to 3.4 billion. This is down about 1% versus the year-ago period and represents sequential growth of about 3% at the midpoint. We do anticipate the following trends in our business. Automotive is expected to be up in the mid-single-digit percent range versus quarter 322 and up in the low single-digit range sequentially. Industrial and IoT is expected to be down in the mid teens percent range versus quarter 322 and up in the low single digit percent range sequentially. Mobile is expected to be down in the mid teens percentage range versus quarter 322 and to be up in the mid 20% range on a sequential basis. And finally, communication infrastructure and other is expected to be up about 10% versus quarter 322 and flattish sequentially. Our guidance for the third quarter contemplates that we maintain the 1.6 months distribution channel inventory level. And very consistent to our approach in prior quarters, we will manage sell-in for the channel tightly, so we may start to increase channel inventory if and when we see consistent strength in channel sell-through for future periods. We are well-positioned with on-hand inventory to set a possible rebound in demand as it emerges. Furthermore, we continue to experience higher input costs. Hence, we stick to our consistent pricing policy, which is to pass along the input cost increases to our customers while not padding our gross margin. From a more strategic standpoint, we focus on enhancing how we work with our suppliers and customers in order to enable long-term supply and demand assurance programs, especially in the automotive and core industrial businesses. Now as we progress through 2023, we are gaining confidence that we will be able to return to predictable year-over-year growth of the business. Demand in the automotive and core industrial businesses continues to be solid, with only a few pockets of supply shortages persisting through year end. Within the mobile segment, we are seeing the expected strong seasonal trends in the premium portion of the market in quarter three. And our consumer IoT business appears to be accelerating from the drop in Q1. However, it does not show signs of a sharp rebound as of yet. And finally, in our communications infrastructure segment, We see soft and lumpy demand in the cellular base station markets, offset by strength in our secure cart and tagging businesses. So, taken together, our first half results and our guidance for quarter three give us confidence that we are successfully navigating through the cyclical downturn in our consumer-exposed businesses, while we do see continued strength in our automotive, core industrial, and communications infrastructure businesses. We believe quarter one was the trough in our business. And we anticipate the second half of 2023 will be greater than the first half of this year. And also the second half of 2023 will grow over the second half of 2022. And this outlook does not contemplate a strong rebound in the consumer IoT business or the Android handset market. nor does it assume the refill of the distribution channel to our long-term target of two and a half months. So overall, we will continue to be very, very disciplined, manage what is in our control, and stay within our long-term financial model. And before I turn the call over to Bill, I'd like to take a moment and thank our automotive processor team for achieving a very significant milestone for the enablement of the software-defined vehicle. At the end of June, NXP taped out the industry's first fully automotive-specified safe and secure 5-nanometer vehicle computer. This is a 4-billion-transistor multicore MPU based on an innovative chip architecture that allows the up-integration of new functions and consolidation of existing EZU functions. The vehicle of the future will utilize new software-defined platforms to allow easy upgrades and new features to be added through the vehicle lifetime. Software-defined vehicles get more performance, more reliable, more functional with time instead of degrading as is the case today. In order to achieve this capability, auto OEMs require both flexibility in their computer architecture as well as the opportunity to tap into a broad ecosystem of application developers. At the top of the compute hierarchy in the car is the vehicle computer that runs the vehicle's core services and orchestrates functionality across domains, deployed into new solo and actual processes. With our S32 platform, NXP is the only semiconductor company which offers a complete portfolio to address a wide range of processing requirements across the entire compute hierarchy of the software-defined vehicle. The challenge the Auto OEMs are facing with this transformation is the enablement of both software reuse and software scalability. And NXP's S32 platform addresses that challenge by enabling software reuse both horizontally across domains as well as vertically from low-end microcontrollers all the way up to the high-performance vehicle computer. Over the last several years, we have engaged with and enabled multiple automotive OEMs in their journey towards the software-defined vehicle. We have continued to receive significant OEM awards, including the new 5-nanometer vehicle computer, which will help accelerate our automotive growth very well beyond 2024. We are and I am really excited to be on this truly transformational journey with the automotive industry. And now I would like to pass the call over to you, Bill, for a review of our financial performance.