NXP Semiconductors N.V. Q3 FY2025 earnings call

• Overall performance during the third quarter was solid with revenue exceeding guidance by $23 million and sequential growth across regions and end markets. • Third quarter non-GAAP operating margin was about 34%, 170 basis points below the same period a year ago but 10 basis points above the midpoint of guidance. • Outlook for fourth quarter reflects continued strength of company-specific growth drivers and signs of a steady cyclical recovery in automotive and industrial markets. • Pending acquisitions of Kinara and Aviva Links have received all regulatory approvals and been closed, with long-term benefits expected though short-term impact on revenue and financial model is immaterial. • Strategy laid out during November 2024 Investor Day stays firmly in place, focusing on product innovation and financial capital return model, and highly differentiated product road maps position the company well for long-term goals.

NXP delivered third quarter revenue of $3.17 billion, a decline of 2% year-on-year and up 8% sequentially. Non-GAAP operating margin in the third quarter was about 34%. Automotive: shipments into the Tier 1 automotive supply chain has approached end demand, aggregate inventory levels of NXP-specific products at major Tier 1 partners are below NXP's manufacturing cycle time. Industrial and IoT: expected to be up in the mid-20% range year-on-year and up 10% versus Q3 2025. Mobile: expected to be up in the mid-teens percent range year-on-year and up in the mid-single-digit range on a sequential basis. Communication Infrastructure and Other: expected to be down in the 20% range versus Q4 2024 and flat versus Q3 2025.

• Expect Q4 revenue to be $3.3 billion, up 6% versus the fourth quarter of 2024 and up 4% sequentially. • Expect non-GAAP gross margin to be 57.5%, plus or minus 50 basis points. • Operating expenses are expected to be about $757 million, plus or minus $10 million or about 23% of revenue. • Non-GAAP operating margin is seen to be 34.6% at the midpoint. • Guidance includes about 2 months of operating expenses for the close of Aviva Links and Kinara acquisitions. • Implies a non-GAAP earnings per share of $3.28 at the midpoint.

• Macroeconomic impact on specific end markets in which NXP operates. • Uncertainties regarding the sale of new and existing products and expectations for financial results for the fourth quarter of 2025. • Inventory management risks, such as the cautious approach in the automotive supply chain due to the uncertain macro environment affecting inventory levels.

Q: Ross Seymore asked about what specifically got better over the last 90 days for the fourth quarter guidance.

A: Rafael Sotomayor said the things they expected to go wrong didn't materialize, order book remains strong, end customer backlog through distribution partners is healthy, and signs of demand improvement in Industrial and IoT.

Q: Francois-Xavier Bouvignies asked about gross margin direction and inventory.

A: Bill Betz said gross margin is guided up sequentially due to higher revenues, improved operational costs, and higher utilizations offsetting unfavorable product mix; on inventory, in Q3 inventory was up 3 days, staging inventory to support growth into Q4 and holding more inventory for late orders.

Q: Joseph Moore asked about automotive customers' inventories and impact on production.

A: Rafael Sotomayor said they don't anticipate impacts on automotive production from Nexperia-related products as orders don't indicate such impacts; Bill Betz added Nexperia has no direct impact on NXP and restocking hasn't happened.

Q: Stacy Rasgon asked about gross margin mix and guidance.

A: Bill Betz explained mix issues with different end markets like comm and infra and mobile impacting gross margin, and guidance is based on revenue levels, utilization, cost reductions, etc.

Q: Thomas O'Malley asked about Industrial and IoT and automotive S32 portfolio.

A: Rafael Sotomayor said Industrial and IoT has strong demand improvement in IoT, consumer wearables, and core industrial; automotive S32 portfolio is driven by software-defined vehicle secular shift.

Q: Christopher Caso asked about direct automotive customers' inventory levels and restocking impact.

A: Rafael Sotomayor said they see normalization and shift to end demand but can't comment on magnitude of restocking impact; Bill Betz added they've been undershipping into Tier 1 supply chain and now seeing headwind subside.

Q: Blayne Curtis asked about cyclical tailwinds versus seasonality.

A: Rafael Sotomayor said there are elements of a soft up cycle with inventory digestion done, some specific growth in industrial, and encouraging signs of true demand in industrial and IoT.

Q: Joshua Buchalter asked about recent acquisitions' strategic purpose and China auto market.

A: Rafael Sotomayor said acquisitions are aligned with bringing intelligent systems at the edge of industrial and automotive; China auto market is strong with good customer traction.

Q: William Stein asked about recent acquisitions' strategic purpose and infotainment competitive dynamics.

A: Rafael Sotomayor framed acquisitions as aligned with strategic direction; Bill Betz said NXP is a dominant player in vehicle infotainment visualization though performance may be below some peers in that area.