NXP Semiconductors N.V.

Good day and thank you for standing by. Welcome to the NXP Third Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. If you would like to ask a question, please press star 11 on your telephone. If you would like to remove yourself from the queue, press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Mike Lucarella, Senior Vice President, Vice, excuse me, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Lisa, and good afternoon, everyone. Welcome to NXP's third quarter earnings call. Moving on the call today are Rafael Sotomayor, NXP's President and CEO, and Bill Betz, 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 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 2026. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of 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 2026 earnings release. will be furnished to the SEC on Form 8K and is available on NXP's website in the investor relations section at nxp.com. I'll now turn the call over to Rafael.

Thank you, Mike, and good afternoon. In Q3, we exceeded our outlook across all end markets and every region grew double digits year on year. Growth was led by our company-specific growth drivers in automotive and industrial, which grew 30% year over year, and represent roughly a third of our total revenue, as well as continuous strength in data center infrastructure. Revenue was $3.79 billion, up 19% year over year or up 22% excluding the MEMS sensor business. Non-GAAP operating margin was 37%, up 330 basis points, and non-GAAP BPS was $4.20, up 35% year-over-year. These results are translating into strong free cash flow generation, enabling us to invest in the business and return cash to shareholders. To that end, our board has authorized an incremental $5 billion for share repurchases, bringing total authorization to around $6.3 billion. turning to end market performance. Automotive revenue crossed $2 billion for the first time, up 17% excluding sensors. This growth is driven by content gains led by our SDV portfolio in a flat-edge unit production environment. SDV revenue in Q3 is running above $1.5 billion annualized and remains well on track to reach our $2 billion 2027 target. We view the transition from domain-based architectures to SONO and centralized compute as a multi-year upgrade cycle that will enable physical AI and autonomous capabilities in the vehicle. These new architectures create a need for system solutions that drive higher content across NXP's portfolio, including additional processing end nodes, connectivity, and power management. This results in two to three times higher content per vehicle compared to today's architecture. This evolution is still in its early stages. In 2027, we will begin shipping our next generation SDV processors, including the S32K5 Sono and S32N central compute platforms. We are starting to see material proof points of the SDV transition. RVtech, the joint venture of Volkswagen and Rivian, announced yesterday it has standardized its own platform on NXP S32K5 across both companies. This is a clear signal of the leadership of NXP's SDV portfolio and where the industry is heading. Engagements with our new platform continue to expand globally, and we now expect our first S32K5 shipments in China as early as the first quarter of 2027. Software-defined vehicles are one of the first deployments of physical AI, and the opportunity reaches well beyond the car. The same building blocks of central compute, sensing, networking, and secure control are moving into robotics and other intelligent systems at the edge. This quarter, we secure our first S32K5 design win in human or robotics with a leading US global technology company. Now, moving to industrial and IoT. Revenue was $802 million, up 39% year-over-year. The industrial portion of this end market grew nearly 50%, led by data center, factory automation, and healthcare. It now represents about 70% of industrial IoT. As we mentioned in our Q2 call, AI-enabled processors will represent approximately 15% of industrial IoT processor revenue in 2026. more than doubling from last year. Given market adoption of intelligent systems, we expect growth to continue in 2027. ARA, our discrete NPU, is a key component of our AI portfolio. It continues to gain traction across industrial automation and automotive AI applications, and we expect to be in volume production in 2028. Now, let me give you an update on our data center business. Given the strength we've seen year to date, We now expect the revenue to exceed the $500 million outlook provided earlier this year. Given the new products we're developing, combined with expanding customer engagements, we now expect this business to be over a billion dollars in a couple years. Going to communication infrastructure and other, revenue was $503 million, up 54% year over year, driven by data center and secure cards. and lastly, mobile revenue was $411 billion, down 4% year-over-year. Turning to our Q4 outlook. We're guiding revenue to $3.85 billion, up 2% sequentially and up 15% year-over-year or 18% excluding sensors. This would represent our fourth consecutive quarter of double-digit annual growth. At the midpoint, we expect the following trends in our business during Q4. Automotive is expected to be up in the low double-digit percent range year-over-year and up low single-digit sequentially. Adjusted for the sale of the MEMS sensor business, our guidance implies a high teams percentage growth year-over-year. Industrial and IoT is expected to be up in high 20% range year-over-year and up in the low single digit range sequentially. Mobile is expected to be down in the mid teens percent range year over year and up slightly on a sequential basis. And finally, communication infrastructure and other is expected to be up over 50 percent range year over year and up low single digit sequentially. and now the call to bill for a review of our financial performance.