Nxp Semiconductors — Call Transcript 2026

All right. Good morning. Welcome to TD Cowen's Technology, Media & Telecom Conference. I'm Joshua Buchalter, semiconductor analyst here. Very pleased to be joined by Jeff Palmer, EVP of IR from NXP Semis. Sure. Hi, Josh. Wow. Thanks for having us. Thanks for being here. I guess to start, we were just talking off to the side, there's a lot of positivity in the mature node semiconductor space, and there's, I think, some element of an AI and data center halo involved there, but also some legitimately improving cyclical elements. Maybe you could just spend a couple of minutes talking through overall the backdrop, what you guys are seeing coming out of your Q1 earnings call. Yeah. A great place to start. I'd say compared to 90, 180 days ago, I think we're more optimistic than we have been in a while. I think, with automotive being 58% of the company, when automotive starts feeling good, in general, we feel good, even though other parts of the company are doing well. We track a number of KPIs that give us an insight on how the business is trends are acting. Those KPIs are things like book-to-bill, solidly above one, end customer backlog through distribution, very nice and building. Late orders coming in and expedites going up, lead times stretching out. We have had to raise some prices in Q1. We're feeling some inflationary input costing, and our model is to gross up any inflationary input costs and pass to customers if we cannot digest it before doing so. We've also looked like we're going to have to raise prices into the second half. This is primarily in the area of energy, transportation, precious metals, substrates, not on the wafer side as much. Okay. I guess maybe on that topic, anything you can give us on the scope of the pricing increases, how they're being received by customers? Is it generally everyone went through this kind of already a few years ago, and there's empathy and understanding, or pushback? Customers never like price increases. I think we've tried to be. We're consistent with our approach as we have been in the past. We're not trying to pad our margins. All we're looking to do is maintain our gross margins. As I said, our first course of action is to determine can we digest and operationally take care of any inflationary input costs. When we cannot, we do have to gross those up and pass them to customers. They don't like it. I can understand that, but we try to be transparent and fair about what we're doing. Okay. I'm going to try to get some of the cycle stuff out of the way before we get to. Sure the more fun product discussion. I think Bill guided internal utilization rates to run in the low 80% range in the first half. Yep The mid-80s in the second half. Can you walk through maybe what are the key drivers of that and any major differences on your internal versus external loadings? As you know, internal, external, so externally, we produce about 60% of our wafers, internal 40%. Utilization is really only in effect on the internal portion, right? Because we have no effect of utilization externally. Remember, we have four main eight-inch factories, which are not fungible. They run different processes and products. Two in the U.S., one in the Netherlands, and a joint venture in Singapore with TSMC. While we are building some bridge stock on one of the factories, as we're planning to decommission it, the others are really doing better on fundamental and demand. Okay. Is there any way to quantify how much of that utilization rate increase is from the bridge inventory versus the sell-through? No, not really. Okay. Last one on this topic. Correct me if I'm wrong, I believe auto is over-indexed to internal manufacturing. Is that right? Should we think about better auto demand equals higher share of internal utilization rates increasing? That's not actually correct, Josh. Okay. A number of years ago, what we did was we moved all of our bulk CMOS products out of our internal factories. Our internal factories today are all primarily proprietary mixed signal factories. Anything that's on CMOS, including automotive, is done in the foundry now. Okay. No. Okay. The way to really think about it is if you hear us speak about any of our analog products or our mixed signal products, or RF products, those tend to be built internally. Got it. Okay. I think there's been a lot of debate in the investment community on the China auto backdrop. People saw weak domestic consumption in the Q1 and were concerned, but exports have obviously been very strong. Given your vantage, could you maybe speak to us about what you guys are seeing in the China auto market and from both a unit and also content standpoint? Yeah. I read that question last night and thought about it for a while. I think, Joshua, we have to take a step back. If you think about the auto industry, it's been running high 80s, 90 million cars a year for many, many years. Essentially flattish, right? Our auto business has been up nine percent CAGR over the last three years and up 13% in the last five years, which really reflects and underpins it's a content-per-vehicle story, and that's really what we're focused on. As China's become bigger, it's about a third of the total global production right now, it has its own unique seasonal trends. They tend to push really hard into theQ4, take a little bit of pause into the Q1, and then resume. That was contemplated in our guidance for Q1. That's why we were not surprised when we saw a little bit of weakness in China. As you said, export is really what is driving that industry right now. I'd say we feel overall, compared to last year, very positive about the auto industry. I'd say auto in general will be up this year. I'd say China auto will be up this year. When you say you're positive on auto, it sounds like certainly China. Do you feel similarly about North America and Europe? Yes. Holistically, the business has improved. As you remember, last year, one of the headwinds we faced was in the Western markets, North America and Europe. We had quite a few of the tier ones who were over-inventoried. We thought that over-inventory situation would digest in 90 days, maybe 180 tops. It went on nine quarters. It was very brutal. Right? That's finally behind us. Most of them are buying what I'd say two end demands. Some of them are still highly under-inventoried. They've run very lean. We're not expecting any restocking to occur. We think we're just going to have to accept that many of the tier ones are going to run lower working capital metrics than they have in the past. Yeah. Is that something that surprised you? After the shortages in 2021 and 2022, maybe I was a bit naive, but I assumed that the tier ones wouldn't necessarily put themselves in that position again to be under-inventoried. Can you maybe speak to what's driving that? Also, what could potentially break that and force them to change the trends of carrying too little inventory? First, we should be clear. While the tier one situation is in a Western market, it's North American, Europe. That's about 60% of automotive. It's not a one-size-fits-all. We have some very large tier ones who are sitting right at the number of weeks of inventory that we would expect and giving us forecasts as we would expect, everything's fine. We have a few other large tier ones who are running three and four weeks, and the view from their perspective is they just have very thin margins. They just aren't getting any compensation from the OEMs, and they're going to run at just very low metrics. going into the cycle. What could change that? Well, as you know, we put a letter out to customers last year, said, "Look, our cycle times are three to six months fab to finished product. Get at least your forecast to us so we can get you in the queue." If a customer decides they're just not going to do that, they are probably going to go lying down at some point. Got you. I know you had another question there, but while we have some shortages on substrates and precious metals are high, and labor and transportation are high, wafers, the actual wafers themselves, we have a fairly well-defined envelope of what we can expect this year. If we have a customer who comes into us and says, "Oh, I didn't forecast," and they take us outside of that envelope, we will be charged for those additional wafers, and we will have to pass that on to those customers. I guess on that topic, do you think there's enough capacity out there in the short term to handle an increase in expedite orders? Maybe, perhaps more importantly, I think there's increasing concern that there has not been enough investment in mature node semis capacity. You guys are sort of doing that with your partners in some of these JVs. How do you feel about structurally the industry's ability to support nine percent auto CAGR and then also seemingly some data center demand as well? I think companies like our peers probably have to plan out a roadmap for wafer supply quite farther out in time. We started working on VSMC, our joint venture in Singapore, three, four years ago, and it's not even up and fully running yet. It takes time. Our partners, TSMC and GlobalFoundries, are great partners. They try to accommodate us whenever we can. When you say short term, you have to remember there's a certain amount of physics that go into this. If you don't forecast and you come to us and we do not have the product, you're probably looking at a full three - six month cycle time. There's nothing we can do about that. That doesn't even take into the fact that there's demand from other customers on that capacity. Got you. Sorry, one more on the auto cyclicality piece. One of your peers said on their earnings call recently that in particular in China, things strengthened at the end of the quarter. I know you can't speak to what happened after the print, but linearly, can you maybe speak to what happened in 1Q with China Auto? Was February super weak? Not that granular, Josh. Yeah. What I will say is, contrary to popular, China auto for NXP in Q1 was actually up. It wasn't up great. There were other regions up stronger, and we've guided auto to be up again here in Q2, of which China is a participant of that. Okay. That's probably the closest I'm going to get to that topic. Okay. Understood. It's a good segue, though. I think you and your peers, in particular this earnings call, but for years have been leaning into, "You shouldn't think about us as tied to SAAR. We're much more a content store. Yep. I think with inventory now normalized, we hopefully should be able to see the evidence of that in your and your peers' models. Could you maybe walk through what are the key vectors for content growth that you see and you're most excited about at NXP? Yeah. The way we've defined it, Josh, as I think you know this, we've looked at our auto business and we've said there's a certain portion of it, which we call our core business. These are franchises where we have a high market share, and it's unlikely that we're going to outgrow the market. That core we think will grow at about low single digits. There's a layer on top of that, which we call our accelerated growth drivers. There's four very well-defined accelerated growth drivers. The largest one is being the effort towards software-defined vehicles. Which is really around our S32 MPU family, our K1 series zonal processors, auto Ethernet, and software. That business was $1 billion in 2024. It was over $1 billion in 2025 and is expected to be about $2 billion by the end of 2027. In that horizon, Josh, that is not design wins we go get. We have the design wins. We have to just wait for customers to get ready to go to production. That's a good chunk of that. Our radar business, 77 GHz radar, that's probably going to grow at 15%-20%. It was about a little under $900 million in 2024. Had a little bit of a soft year last year. Grew, but it's a little softer as we were going through a product transition towards imaging radar, but that's, I think, really a good franchise for us. Electric vehicles, primarily focus there is battery management systems and gate drivers. Last year, we did have a program that kind of went sideways on us. Coming back this year, we feel good about that. That's probably, it was about $500 million in 2024. Should grow at about a 15%-20% CAGR. Lastly is connectivity, and by connectivity, it's really two types. There's in-cabin connectivity, Wi-Fi, Bluetooth for the passengers and things like that. There's ultra-wideband connectivity, which goes into your phone as well as into the car. Okay, a lot there. I know. Let's double-click on- I know a lot there, but I wanted to give you the laundry list. No, it's very helpful. Let's start with S32. Right. Your guys' approach in investments in your S32 and five-nanometer MPU family is a bit different than a lot of the other legacy auto microcontroller players. Can you walk through why you made those investments in more advanced process geometry, microcontrollers, SOCs, and microprocessors, what you're seeing in the trend of the software-defined vehicle, and why that's important? Sure. About seven years ago, we made the decision. We said, "Where's the puck going to go, and where is it today?" If we wanted to just continue along with our peers, we would've invested in another auto microcontroller family. We made the decision based on conversations with OEMs that the current flat point-to-point architecture in a car had kind of reached its useful life, and that OEMs were starting to contemplate how they could move more towards a hierarchical switching fabric in a car. We made the decision at that time to invest in a whole family of MPUs. These are high-performance, primarily 16 and five-nanometer products on MPUs. This ranges from the S32N series, which is not even in production yet, the S32G, which is a gateway product, S32R, which is a radar product, and other product families. The idea here is to create a hierarchy of processing, and different companies are approaching it different ways. Some companies are going more of a zonal approach, where you'll have powerful microcontrollers in four or five different zones around the car, and maybe a gateway as a kind of a traffic cop type of a thing, whereas others are going full-on central compute with lighter IO aggregator zones around the edge. Our view is not to dictate to our customers what architecture is better or worse. We try to have a portfolio of products of both processors, microcontrollers, ethernet products, and software enablement to allow them to develop the car they want to do. Okay. Maybe can you help us, where are we in that evolution? I think we've been talking about software-defined vehicle for a while, but it feels like this is the year when it's supposedly hitting the knee in the curve. What's taken so long, and what, I guess, are the benefits that can be unlocked by the software-defined vehicle from your customer standpoint? I think what's taken so long from your perspective is the software lifting that had to take place, especially for those customers who are thinking about going towards a central compute model. It is just such a different way to build a car. If you think back to how cars had been built just a few short years ago, the awards were given to different tier ones who would develop different parts of the car, different ECUs independently, and then put the car together and deliver it to the OEM and say, "Here you go. Figure out how to write software for these islands of different computing architectures." The idea of software-defined vehicles is to have a holistic processing architecture so they can have software that can be pushed down to any layer of the vehicle. You park your car at night, you get an update overnight. Over the time you're driving the car, the car tends to learn your behaviors, maybe update software to your driving behaviors. I'd say that when you start to see Western car makers rolling out SDV cars, probably the 2028 model year, go on sale late 2027. That's our current plan. Our current business has been primarily driven by a number of the Chinese and Korean OEMs. Okay. Maybe can you talk about the five-nanometer MPU? I believe a couple of years ago you talked about having one or two lead customers. Yeah. Any updates there you're able to share? No how material that could be? What I can say is that probably the last time we spoke, it was probably a more fragmented market globally. I would say today, fast-forward, every auto OEM in the world has an SDV program. They're either running a program today actively, and we're engaging with them trying to win business. They're architecting it. We're trying to influence that architecture or they're thinking about how they're going to roll one out. This will be the secular change in how cars will be built in the future. Okay. Maybe two more on this topic, then I'll finally leave it alone. You guys also recently made a few acquisitions, I think, to bolster your portfolio, specifically on the software side and middleware for software-defined vehicles. Right. Can you maybe walk through the rationale of those deals and how they differentiate you? Then I'll just squeeze both questions in at once. You described this hierarchical architecture in the vehicle. How synergistic is it? For instance, if you own the central compute, does that mean you will get higher share in the ECUs, or is that not really how it works? Right. Okay, let's start with the software. We acquired two kind of what I'll call auto-centric companies. One was a company called TTTech Auto out of Austria. Their product was something called MotionWise, which was a middleware operating system for auto OEMs. Their expertise was in the area of functional safety and security. We looked at them, and it was really a make versus buy. We knew we were going to need more software engineers going forward than we currently had. By acquiring them and we engaged with them, it was 1,200 very, very well-versed, very well industry-respected auto software security people, and was really make versus buy. The idea here is to not only have them continue to focus on MotionWise, which is the product, but to also help us enable the software on top of the S32 families. That's going well. It was really a make versus buy decision. The second acquisition was something called Aviva Links. What Aviva Links offers is a multi-gigabit asymmetric SerDes technology. A lot of geeky words there. The idea is you have certain applications in a car where the data from the end node, the sensor, is higher upstream than the amount of data you have to push down to the center, so asymmetric. It's perfect for things like ADAS applications where you have multiple cameras or multiple radars or even lidar in certain situations. It also works very well for things like in-cabin, where you may have multiple screens and you're only looking to push data one way to those screens. Early acquisition. The nice thing is a couple of our customers kind of nudged us towards it, so we do already have design wins. We probably won't see revenue till next year at the earliest. Okay. Your second question was? Synergies between- Yeah. If you win the central computers. Yes. The thing to understand about the S32N product, it is very interesting. It is effectively a virtual ECU. It has 16 independent ECUs built into the same die, with independent resources, switching capability. What you are really doing is you are aggregating all the ECUs from around a car into a single device, and you will probably have more than one for redundancy. What you tend to see in those applications is customers then going to a lighter, more of a zonal aggregator around the edge, grabbing the data from different sensors, packaging it up, putting it up to the central compute. The interesting thing about the S32N is it can dynamically change its function depending on how the software is. It is not fixed like ECU one through N only does one type of function. It can actually be dynamically programmed by the car company. Does it give us a lead on pulling other data, other sockets along? Sure, of course. It would be naive of me to say that it's a slam dunk. I will say SDV is probably more like the opportunities are bigger, the opportunities to win are bigger, but if you don't win them, if they decide to go a different direction, it can be big as well. Okay to the negative. I'll stop on auto, finally. It's all right. You guys, I think for the first time, called out your data center business on your most recent earnings call. $200 million, expected to go to $500 million this year. Can you walk through the key components of that? There's a few different buckets that are contributing to that revenue. Yeah. It's really two kind of functional areas. I should be real clear up front here. You are probably smarter on data center than I am, Josh. I don't know about that. We're a bit new on this topic. Fundamentally, we only focus on the control plane. We're not in the data plane at all. We don't compete with the accelerator guys. It's really in control plane. Think about those functions that are doing kind of housekeeping monitoring across the rack and communicating between the rack. There's really two types of products. There's the Layerscape-based products, which are top-of-rack switches. This is technology we've had for many years. We've continued to invest in it in other parts of the business. It's a 16 nanometer product. It's a 16-core, 16 64-bit Arm cores with a really big switch fabric in it. That's sold into top-of-rack switches and also an eight-core version, which go into NICs. That's which we reflect in our digital networking business. We didn't talk about it until recently because we had been awarded the design win several years ago. They just weren't going anywhere. Like every company, we get design wins. Until they turn to revenue, they're not worth the paper they're printed on. It wasn't until late last year that they started to accelerate and contributed to the $200 million last year, and have really accelerated this year, contributing to the $500 million we talked about. That's kind of one half of the business. The other half of the business in data center is what the industry terms board management control, and these are functions on the different line cards in a rack that manage cooling, power management, security, inter-card security, zone-of-trust security. It's similar to the type of function that we do in factory automation. It's really kind of in our wheelhouse of strength, if you will. Products there are our i.MX application processors, also our MCX root-of-trust security microcontrollers. We have a pretty decent portfolio of what's known as I2C and I3C for high-speed data movement, things like that. Different sensor products. I would say on the board management control, it's more akin to what we do in core industrial. It's a broader customer base. We have engagements with different hyperscalers, different server OEMs in Taiwan, and certain key reference design OEMs in the U.S. Okay. Is the digital networking piece in comm infrastructure and then the board management in IoT? Correct. Okay. Yeah. We know it's confusing, and we are thinking about maybe looking at how we may change the segments a little bit. All right. I'll look out for it. because it is confusing. We understand. I guess, you mentioned it started to take off end of last year into this year. Why that timing? Was there specific programs? Is it tied more to accelerated computing, or is it general purpose data center builds? I would say on the Layerscape products, the top-of-rack switches, that is a few hyperscalers who are building out their own proprietary AI kind of racks, if you will. We've been awarded the designs a number of years ago. It just took them a long time to go to production. I couldn't give you more insight than that, Josh. Okay. If it had gone to market sooner, we probably would've announced it sooner. Yep. Investors like big, round numbers. Have you spoken to how big this opportunity could be long term, any kind of TAM? We've said the SAM, and I will tell you that a few investors laughed at us when I shared this data, but we think the SAM is about $4 billion growing at about a 10% CAGR. Right? It's not the whole AI data center, but it's a decent size. We think we can grow our $500 million at some multiple of that SAM. If SAM's at 10, and our ideal sweet spot is to grow 2x of SAM. You can kind of do a matrix and figure between 2x - 1x of SAM, get a sense of how it should go. Okay. Thank you for the color there. Switching to the industrial IoT business. There's a lot of questions of when AI is going to migrate out of the data center into edge environments. Yeah. I think you and your peers have talked about this trend for a while. Can you maybe talk about what you're seeing with your i.MX family and how we should think about edge AI or edge computing, whatever buzzword you want to throw around it, as contributing and changing the long-term growth trajectory of your broader industrial business? Yeah. What we're seeing in the core industrial part is more and more of our customers are looking to run distilled models locally without having to go to the cloud. We're starting to see them be more forward-thinking and future-proofing their processor decisions. They want to have more headroom in the processor choice that they're picking. Now, today, most of our industrial and IoT processor families do have variants that have embedded, I'll call, moderate performance NPUs in them. The brand name's eIQ. It's a smaller performance. Most of the i.MX, and we're seeing customers starting to use that lower performance NPU to kind of sandbox ideas. We acquired a company called Kinara, which is a much higher performance Ara-based, the family's called Ara, NPUs, that can be multiple ganged up on one i.MX. The way to think about it is the i.MX views the NPU from Kinara as just a resource, and it can use up to three different NPUs with one instance. We're really kind of amazed at the ideas customers are coming up with. I'd say they range in all sorts of forms and fashions. Fundamentally, the idea is they're taking large language models, they want to distill those and have them run locally without having to go to the cloud on an ongoing basis. Okay. All right. We're bumping up on time. I did my best to avoid talking about gross margins, but I have to get there. Okay. You have a 57%-63% gross margin target. You're sort of operating in the middle of that right now. Your internal utilization rates, as you mentioned, 80% range. There's a little room there, but can you maybe walk through some of the drivers that'll get you further into the top half of that range? Sure How we should think about the timing of that? Sure. Given our hybrid manufacturing that 40% of our wafers come internally, which are affected by utilization, the other 60%. external are not affected. The rule of thumb that we've given is for every $1 billion of incremental revenue, we believe we can throw off 100 basis points of gross margin expansion. You heard us very clearly on the Q1 call, and we tried on our Q4 call to clearly state that we believe we can grow in the low double digits this year and next year. You can do the math. That kind of points, if you get to $15 billion-$15.5 billion, you should be about 60% gross margin using the rule of thumb. The one thing I know I've warned you on is don't take the rule of thumb and divide it by four and think you're going to get it every quarter. Mix does play an influence on gross margin. That gets you into the 2027 horizon. The benefits from VSMC, which is the joint venture in Singapore, don't come to the table until 2028. At full load in 2028, it should add about 200 basis points of incremental gross margin at the corporate level. If we exit 2027 at, let's just do the math, at 60%, that would say that VSMC in its first full year of loading would add another 200 basis points. Okay. Last question. I think NXP perpetually seems to represent an underappreciated capital return story. Can you speak to your priorities for uses of cash the next few years with those investments in mind? Yeah. Our capital allocation policy hasn't changed. It's to return all excess free cash flow to our owners in the form of either dividends or buybacks. Now, the key word there is excess free cash flow not invested in the business. I think most investors would agree the best thing we can do with your free cash flow is to help build the business. The last few years, we have had a number of requirements on the cash we generated, the three acquisitions we talked about. We also have the joint venture fab in Singapore. These have been all calls on cash. Those are starting to tail off. I think we're going to be past the big demands on cash here in 2026 and 2027, and we believe we can get back to that 100% free cash flow return. We've returned, I think, almost $23 billion in the last 10 years, which represented almost 95%, 96% of all free cash flow we've generated. I think in the long term, we're consistent, but we will have periods when we're going to look at decisions to invest in the business first, giving cash back to owners. Got it. All right. We are out of time. Jeff, appreciate you joining us. Thanks. It's nice to be on the other side of the cycle this time. Yeah. Thanks.

Speaker 2: All right. Good morning. Welcome to TD Cowen's Technology, Media & Telecom Conference. I'm Joshua Buchalter, semiconductor analyst here. Very pleased to be joined by Jeff Palmer, EVP of IR from NXP Semis. All right. all right Good morning. good morning Welcome to TD Cowen's Technology, Media & Telecom Conference. welcome to td cowen's technology, media & telecom conference I'm Joshua Buchalter, semiconductor analyst here. i'm joshua buchalter semiconductor analyst here Very pleased to be joined by Jeff Palmer, EVP of IR from NXP Semis. very pleased to be joined by jeff palmer evp of ir from nxp semis

Speaker 1: Sure. Hi, Josh. Sure. sure Hi, Josh. hi josh

Speaker 2: Wow. Wow. wow

Speaker 1: Thanks for having us. Thanks for having us. thanks for having us

Speaker 2: Thanks for being here. I guess to start, we were just talking off to the side, there's a lot of positivity in the mature node semiconductor space, and there's, I think, some element of an AI and data center halo involved there, but also some legitimately improving cyclical elements. Thanks for being here. thanks for being here I guess to start, we were just talking off to the side, there's a lot of positivity in the mature node semiconductor space, and there's, I think, some element of an AI and data center halo involved there, but also some legitimately improving cyclical elements. i guess to start we were just talking off to the side there's a lot of positivity in the mature node semiconductor space and there's i think some element of an ai and data center halo involved there but also some legitimately improving cyclical elements Maybe you could just spend a couple of minutes talking through overall the backdrop, what you guys are seeing coming out of your Q1 earnings call. Maybe you could just spend a couple of minutes talking through overall the backdrop, what you guys are seeing coming out of your Q1 earnings call. maybe you could just spend a couple of minutes talking through overall the backdrop what you guys are seeing coming out of your q1 earnings call

Speaker 1: Yeah. A great place to start. I'd say compared to 90, 180 days ago, I think we're more optimistic than we have been in a while. I think, with automotive being 58% of the company, when automotive starts feeling good, in general, we feel good, even though other parts of the company are doing well. We track a number of KPIs that give us an insight on how the business is trends are acting. Those KPIs are things like book-to-bill, solidly above one, end customer backlog through distribution, very nice and building. Late orders coming in and expedites going up, lead times stretching out. We have had to raise some prices in Q1. We're feeling some inflationary input costing, and our model is to gross up any inflationary input costs and pass to customers if we cannot digest it before doing so. Yeah. yeah A great place to start. a great place to start I'd say compared to 90, 180 days ago, I think we're more optimistic than we have been in a while. i'd say compared to 90 180 days ago i think we're more optimistic than we have been in a while I think, with automotive being 58% of the company, when automotive starts feeling good, in general, we feel good, even though other parts of the company are doing well. i think with automotive being 58% of the company when automotive starts feeling good in general we feel good even though other parts of the company are doing well We track a number of KPIs that give us an insight on how the business is trends are acting. we track a number of kpis that give us an insight on how the business is trends are acting Those KPIs are things like book-to-bill, solidly above one, end customer backlog through distribution, very nice and building. those kpis are things like book-to-bill solidly above one end customer backlog through distribution very nice and building Late orders coming in and expedites going up, lead times stretching out. late orders coming in and expedites going up lead times stretching out We have had to raise some prices in Q1. we have had to raise some prices in q1 We're feeling some inflationary input costing, and our model is to gross up any inflationary input costs and pass to customers if we cannot digest it before doing so. we're feeling some inflationary input costing and our model is to gross up any inflationary input costs and pass to customers if we cannot digest it before doing so We've also looked like we're going to have to raise prices into the second half. This is primarily in the area of energy, transportation, precious metals, substrates, not on the wafer side as much. We've also looked like we're going to have to raise prices into the second half. we've also looked like we're going to have to raise prices into the second half This is primarily in the area of energy, transportation, precious metals, substrates, not on the wafer side as much. this is primarily in the area of energy transportation precious metals substrates not on the wafer side as much

Speaker 2: Okay. I guess maybe on that topic, anything you can give us on the scope of the pricing increases, how they're being received by customers? Is it generally everyone went through this kind of already a few years ago, and there's empathy and understanding, or pushback? Okay. okay I guess maybe on that topic, anything you can give us on the scope of the pricing increases, how they're being received by customers? i guess maybe on that topic anything you can give us on the scope of the pricing increases how they're being received by customers Is it generally everyone went through this kind of already a few years ago, and there's empathy and understanding, or pushback? is it generally everyone went through this kind of already a few years ago and there's empathy and understanding or pushback

Speaker 1: Customers never like price increases. I think we've tried to be. We're consistent with our approach as we have been in the past. We're not trying to pad our margins. All we're looking to do is maintain our gross margins. As I said, our first course of action is to determine can we digest and operationally take care of any inflationary input costs. When we cannot, we do have to gross those up and pass them to customers. They don't like it. I can understand that, but we try to be transparent and fair about what we're doing. Customers never like price increases. customers never like price increases I think we've tried to be. i think we've tried to be We're consistent with our approach as we have been in the past. we're consistent with our approach as we have been in the past We're not trying to pad our margins. we're not trying to pad our margins All we're looking to do is maintain our gross margins. all we're looking to do is maintain our gross margins As I said, our first course of action is to determine can we digest and operationally take care of any inflationary input costs. as i said our first course of action is to determine can we digest and operationally take care of any inflationary input costs When we cannot, we do have to gross those up and pass them to customers. when we cannot we do have to gross those up and pass them to customers They don't like it. they don't like it I can understand that, but we try to be transparent and fair about what we're doing. i can understand that but we try to be transparent and fair about what we're doing

Speaker 2: Okay. I'm going to try to get some of the cycle stuff out of the way before we get to. Okay. okay I'm going to try to get some of the cycle stuff out of the way before we get to. i'm going to try to get some of the cycle stuff out of the way before we get to

Speaker 1: Sure Sure sure

Speaker 2: the more fun product discussion. I think Bill guided internal utilization rates to run in the low 80% range in the first half. the more fun product discussion. the more fun product discussion I think Bill guided internal utilization rates to run in the low 80% range in the first half. i think bill guided internal utilization rates to run in the low 80% range in the first half

Speaker 1: Yep Yep yep

Speaker 2: The mid-80s in the second half. Can you walk through maybe what are the key drivers of that and any major differences on your internal versus external loadings? The mid-80s in the second half. the mid-80s in the second half Can you walk through maybe what are the key drivers of that and any major differences on your internal versus external loadings? can you walk through maybe what are the key drivers of that and any major differences on your internal versus external loadings

Speaker 1: As you know, internal, external, so externally, we produce about 60% of our wafers, internal 40%. Utilization is really only in effect on the internal portion, right? Because we have no effect of utilization externally. As you know, internal, external, so externally, we produce about 60% of our wafers, internal 40%. as you know internal external so externally we produce about 60% of our wafers internal 40% Utilization is really only in effect on the internal portion, right? utilization is really only in effect on the internal portion right Because we have no effect of utilization externally. because we have no effect of utilization externally Remember, we have four main eight-inch factories, which are not fungible. They run different processes and products. Two in the U.S., one in the Netherlands, and a joint venture in Singapore with TSMC. While we are building some bridge stock on one of the factories, as we're planning to decommission it, the others are really doing better on fundamental and demand. Remember, we have four main eight-inch factories, which are not fungible. remember we have four main eight-inch factories which are not fungible They run different processes and products. they run different processes and products Two in the U.S., one in the Netherlands, and a joint venture in Singapore with TSMC. two in the u.s one in the netherlands and a joint venture in singapore with tsmc While we are building some bridge stock on one of the factories, as we're planning to decommission it, the others are really doing better on fundamental and demand. while we are building some bridge stock on one of the factories as we're planning to decommission it the others are really doing better on fundamental and demand

Speaker 2: Okay. Is there any way to quantify how much of that utilization rate increase is from the bridge inventory versus the sell-through? Okay. okay Is there any way to quantify how much of that utilization rate increase is from the bridge inventory versus the sell-through? is there any way to quantify how much of that utilization rate increase is from the bridge inventory versus the sell-through

Speaker 1: No, not really. No, not really. no not really

Speaker 2: Okay. Last one on this topic. Correct me if I'm wrong, I believe auto is over-indexed to internal manufacturing. Is that right? Should we think about better auto demand equals higher share of internal utilization rates increasing? Okay. okay Last one on this topic. last one on this topic Correct me if I'm wrong, I believe auto is over-indexed to internal manufacturing. correct me if i'm wrong i believe auto is over-indexed to internal manufacturing Is that right? is that right Should we think about better auto demand equals higher share of internal utilization rates increasing? should we think about better auto demand equals higher share of internal utilization rates increasing

Speaker 1: That's not actually correct, Josh. That's not actually correct, Josh. that's not actually correct josh

Speaker 2: Okay. Okay. okay

Speaker 1: A number of years ago, what we did was we moved all of our bulk CMOS products out of our internal factories. Our internal factories today are all primarily proprietary mixed signal factories. Anything that's on CMOS, including automotive, is done in the foundry now. A number of years ago, what we did was we moved all of our bulk CMOS products out of our internal factories. a number of years ago what we did was we moved all of our bulk cmos products out of our internal factories Our internal factories today are all primarily proprietary mixed signal factories. our internal factories today are all primarily proprietary mixed signal factories Anything that's on CMOS, including automotive, is done in the foundry now. anything that's on cmos including automotive is done in the foundry now

Speaker 2: Okay. Okay. okay

Speaker 1: No. No. no

Speaker 2: Okay. Okay. okay

Speaker 1: The way to really think about it is if you hear us speak about any of our analog products or our mixed signal products, or RF products, those tend to be built internally. The way to really think about it is if you hear us speak about any of our analog products or our mixed signal products, or RF products, those tend to be built internally. the way to really think about it is if you hear us speak about any of our analog products or our mixed signal products or rf products those tend to be built internally

Speaker 2: Got it. Okay. I think there's been a lot of debate in the investment community on the China auto backdrop. People saw weak domestic consumption in the Q1 and were concerned, but exports have obviously been very strong. Given your vantage, could you maybe speak to us about what you guys are seeing in the China auto market and from both a unit and also content standpoint? Got it. got it Okay. okay I think there's been a lot of debate in the investment community on the China auto backdrop. i think there's been a lot of debate in the investment community on the china auto backdrop People saw weak domestic consumption in the Q1 and were concerned, but exports have obviously been very strong. people saw weak domestic consumption in the q1 and were concerned but exports have obviously been very strong Given your vantage, could you maybe speak to us about what you guys are seeing in the China auto market and from both a unit and also content standpoint? given your vantage could you maybe speak to us about what you guys are seeing in the china auto market and from both a unit and also content standpoint

Speaker 1: Yeah. I read that question last night and thought about it for a while. I think, Joshua, we have to take a step back. If you think about the auto industry, it's been running high 80s, 90 million cars a year for many, many years. Essentially flattish, right? Our auto business has been up nine percent CAGR over the last three years and up 13% in the last five years, which really reflects and underpins it's a content-per-vehicle story, and that's really what we're focused on. As China's become bigger, it's about a third of the total global production right now, it has its own unique seasonal trends. They tend to push really hard into theQ4, take a little bit of pause into the Q1, and then resume. That was contemplated in our guidance for Q1. Yeah. yeah I read that question last night and thought about it for a while. i read that question last night and thought about it for a while I think, Joshua, we have to take a step back. i think joshua we have to take a step back If you think about the auto industry, it's been running high 80s, 90 million cars a year for many, many years. if you think about the auto industry it's been running high 80s 90 million cars a year for many many years Essentially flattish, right? essentially flattish right Our auto business has been up nine percent CAGR over the last three years and up 13% in the last five years, which really reflects and underpins it's a content-per-vehicle story, and that's really what we're focused on. our auto business has been up nine percent cagr over the last three years and up 13% in the last five years which really reflects and underpins it's a content-per-vehicle story and that's really what we're focused on As China's become bigger, it's about a third of the total global production right now, it has its own unique seasonal trends. as china's become bigger it's about a third of the total global production right now it has its own unique seasonal trends They tend to push really hard into the Q4 , take a little bit of pause into the Q1 , and then resume. they tend to push really hard into the q4 take a little bit of pause into the q1 and then resume That was contemplated in our guidance for Q1. that was contemplated in our guidance for q1 That's why we were not surprised when we saw a little bit of weakness in China. As you said, export is really what is driving that industry right now. I'd say we feel overall, compared to last year, very positive about the auto industry. I'd say auto in general will be up this year. I'd say China auto will be up this year. That's why we were not surprised when we saw a little bit of weakness in China. that's why we were not surprised when we saw a little bit of weakness in china As you said, export is really what is driving that industry right now. as you said export is really what is driving that industry right now I'd say we feel overall, compared to last year, very positive about the auto industry. i'd say we feel overall compared to last year very positive about the auto industry I'd say auto in general will be up this year. i'd say auto in general will be up this year I'd say China auto will be up this year. i'd say china auto will be up this year

Speaker 2: When you say you're positive on auto, it sounds like certainly China. Do you feel similarly about North America and Europe? When you say you're positive on auto, it sounds like certainly China. when you say you're positive on auto it sounds like certainly china Do you feel similarly about North America and Europe? do you feel similarly about north america and europe

Speaker 1: Yes. Holistically, the business has improved. As you remember, last year, one of the headwinds we faced was in the Western markets, North America and Europe. We had quite a few of the tier ones who were over-inventoried. We thought that over-inventory situation would digest in 90 days, maybe 180 tops. It went on nine quarters. It was very brutal. Right? That's finally behind us. Most of them are buying what I'd say two end demands. Some of them are still highly under-inventoried. They've run very lean. We're not expecting any restocking to occur. We think we're just going to have to accept that many of the tier ones are going to run lower working capital metrics than they have in the past. Yes. yes Holistically, the business has improved. holistically the business has improved As you remember, last year, one of the headwinds we faced was in the Western markets, North America and Europe. as you remember last year one of the headwinds we faced was in the western markets north america and europe We had quite a few of the tier ones who were over-inventoried. we had quite a few of the tier ones who were over-inventoried We thought that over-inventory situation would digest in 90 days, maybe 180 tops. we thought that over-inventory situation would digest in 90 days maybe 180 tops It went on nine quarters . It was very brutal. it went on nine quarters . it was very brutal Right? right That's finally behind us. that's finally behind us Most of them are buying what I'd say two end demands. most of them are buying what i'd say two end demands Some of them are still highly under-inventoried. some of them are still highly under-inventoried They've run very lean. they've run very lean We're not expecting any restocking to occur. we're not expecting any restocking to occur We think we're just going to have to accept that many of the tier ones are going to run lower working capital metrics than they have in the past. we think we're just going to have to accept that many of the tier ones are going to run lower working capital metrics than they have in the past

Speaker 2: Yeah. Is that something that surprised you? After the shortages in 2021 and 2022, maybe I was a bit naive, but I assumed that the tier ones wouldn't necessarily put themselves in that position again to be under-inventoried. Can you maybe speak to what's driving that? Also, what could potentially break that and force them to change the trends of carrying too little inventory? Yeah. yeah Is that something that surprised you? is that something that surprised you After the shortages in 2021 and 2022, maybe I was a bit naive, but I assumed that the tier ones wouldn't necessarily put themselves in that position again to be under-inventoried. after the shortages in 2021 and 2022 maybe i was a bit naive but i assumed that the tier ones wouldn't necessarily put themselves in that position again to be under-inventoried Can you maybe speak to what's driving that? can you maybe speak to what's driving that Also, what could potentially break that and force them to change the trends of carrying too little inventory? also what could potentially break that and force them to change the trends of carrying too little inventory

Speaker 1: First, we should be clear. While the tier one situation is in a Western market, it's North American, Europe. First, we should be clear. first we should be clear While the tier one situation is in a Western market, it's North American, Europe. while the tier one situation is in a western market it's north american europe That's about 60% of automotive. It's not a one-size-fits-all. We have some very large tier ones who are sitting right at the number of weeks of inventory that we would expect and giving us forecasts as we would expect, everything's fine. We have a few other large tier ones who are running three and four weeks, and the view from their perspective is they just have very thin margins. They just aren't getting any compensation from the OEMs, and they're going to run at just very low metrics. That's about 60% of automotive. that's about 60% of automotive It's not a one-size-fits-all. it's not a one-size-fits-all We have some very large tier ones who are sitting right at the number of weeks of inventory that we would expect and giving us forecasts as we would expect, everything's fine. we have some very large tier ones who are sitting right at the number of weeks of inventory that we would expect and giving us forecasts as we would expect everything's fine We have a few other large tier ones who are running three and four weeks, and the view from their perspective is they just have very thin margins. we have a few other large tier ones who are running three and four weeks and the view from their perspective is they just have very thin margins They just aren't getting any compensation from the OEMs, and they're going to run at just very low metrics. they just aren't getting any compensation from the oems and they're going to run at just very low metrics going into the cycle. What could change that? Well, as you know, we put a letter out to customers last year, said, "Look, our cycle times are three to six months fab to finished product. Get at least your forecast to us so we can get you in the queue." If a customer decides they're just not going to do that, they are probably going to go lying down at some point. going into the cycle. going into the cycle What could change that? what could change that Well, as you know, we put a letter out to customers last year, said, "Look, our cycle times are three to six months fab to finished product. well as you know we put a letter out to customers last year said "look our cycle times are three to six months fab to finished product Get at least your forecast to us so we can get you in the queue." If a customer decides they're just not going to do that, they are probably going to go lying down at some point. get at least your forecast to us so we can get you in the queue." if a customer decides they're just not going to do that they are probably going to go lying down at some point

Speaker 2: Got you. Got you. got you

Speaker 1: I know you had another question there, but while we have some shortages on substrates and precious metals are high, and labor and transportation are high, wafers, the actual wafers themselves, we have a fairly well-defined envelope of what we can expect this year. If we have a customer who comes into us and says, "Oh, I didn't forecast," and they take us outside of that envelope, we will be charged for those additional wafers, and we will have to pass that on to those customers. I know you had another question there, but while we have some shortages on substrates and precious metals are high, and labor and transportation are high, wafers, the actual wafers themselves, we have a fairly well-defined envelope of what we can expect this year. i know you had another question there but while we have some shortages on substrates and precious metals are high and labor and transportation are high wafers the actual wafers themselves we have a fairly well-defined envelope of what we can expect this year If we have a customer who comes into us and says, "Oh, I didn't forecast," and they take us outside of that envelope, we will be charged for those additional wafers, and we will have to pass that on to those customers. if we have a customer who comes into us and says "oh i didn't forecast," and they take us outside of that envelope we will be charged for those additional wafers and we will have to pass that on to those customers

Speaker 2: I guess on that topic, do you think there's enough capacity out there in the short term to handle an increase in expedite orders? Maybe, perhaps more importantly, I think there's increasing concern that there has not been enough investment in mature node semis capacity. You guys are sort of doing that with your partners in some of these JVs. How do you feel about structurally the industry's ability to support nine percent auto CAGR and then also seemingly some data center demand as well? I guess on that topic, do you think there's enough capacity out there in the short term to handle an increase in expedite orders? i guess on that topic do you think there's enough capacity out there in the short term to handle an increase in expedite orders Maybe, perhaps more importantly, I think there's increasing concern that there has not been enough investment in mature node semis capacity. maybe perhaps more importantly i think there's increasing concern that there has not been enough investment in mature node semis capacity You guys are sort of doing that with your partners in some of these JVs. you guys are sort of doing that with your partners in some of these jvs How do you feel about structurally the industry's ability to support nine percent auto CAGR and then also seemingly some data center demand as well? how do you feel about structurally the industry's ability to support nine percent auto cagr and then also seemingly some data center demand as well

Speaker 1: I think companies like our peers probably have to plan out a roadmap for wafer supply quite farther out in time. We started working on VSMC, our joint venture in Singapore, three, four years ago, and it's not even up and fully running yet. It takes time. Our partners, TSMC and GlobalFoundries, are great partners. They try to accommodate us whenever we can. When you say short term, you have to remember there's a certain amount of physics that go into this. If you don't forecast and you come to us and we do not have the product, you're probably looking at a full three - six month cycle time. I think companies like our peers probably have to plan out a roadmap for wafer supply quite farther out in time. i think companies like our peers probably have to plan out a roadmap for wafer supply quite farther out in time We started working on VSMC, our joint venture in Singapore, three, four years ago, and it's not even up and fully running yet. we started working on vsmc our joint venture in singapore three four years ago and it's not even up and fully running yet It takes time. it takes time Our partners, TSMC and GlobalFoundries, are great partners. our partners tsmc and globalfoundries are great partners They try to accommodate us whenever we can. they try to accommodate us whenever we can When you say short term, you have to remember there's a certain amount of physics that go into this. when you say short term you have to remember there's a certain amount of physics that go into this If you don't forecast and you come to us and we do not have the product, you're probably looking at a full three - six month cycle time. if you don't forecast and you come to us and we do not have the product you're probably looking at a full three - six month cycle time There's nothing we can do about that. That doesn't even take into the fact that there's demand from other customers on that capacity. There's nothing we can do about that. there's nothing we can do about that That doesn't even take into the fact that there's demand from other customers on that capacity. that doesn't even take into the fact that there's demand from other customers on that capacity

Speaker 2: Got you. Sorry, one more on the auto cyclicality piece. One of your peers said on their earnings call recently that in particular in China, things strengthened at the end of the quarter. I know you can't speak to what happened after the print, but linearly, can you maybe speak to what happened in 1Q with China Auto? Was February super weak? Got you. got you Sorry, one more on the auto cyclicality piece. sorry one more on the auto cyclicality piece One of your peers said on their earnings call recently that in particular in China, things strengthened at the end of the quarter. one of your peers said on their earnings call recently that in particular in china things strengthened at the end of the quarter I know you can't speak to what happened after the print, but linearly, can you maybe speak to what happened in 1Q with China Auto? i know you can't speak to what happened after the print but linearly can you maybe speak to what happened in 1q with china auto Was February super weak? was february super weak

Speaker 1: Not that granular, Josh. Not that granular, Josh. not that granular josh

Speaker 2: Yeah. Yeah. yeah

Speaker 1: What I will say is, contrary to popular, China auto for NXP in Q1 was actually up. It wasn't up great. There were other regions up stronger, and we've guided auto to be up again here in Q2, of which China is a participant of that. What I will say is, contrary to popular, China auto for NXP in Q1 was actually up. what i will say is contrary to popular china auto for nxp in q1 was actually up It wasn't up great. it wasn't up great There were other regions up stronger, and we've guided auto to be up again here in Q2, of which China is a participant of that. there were other regions up stronger and we've guided auto to be up again here in q2 of which china is a participant of that

Speaker 2: Okay. Okay. okay

Speaker 1: That's probably the closest I'm going to get to that topic. That's probably the closest I'm going to get to that topic. that's probably the closest i'm going to get to that topic

Speaker 2: Okay. Understood. It's a good segue, though. I think you and your peers, in particular this earnings call, but for years have been leaning into, "You shouldn't think about us as tied to SAAR. We're much more a content store. Okay. okay Understood. understood It's a good segue, though. it's a good segue though I think you and your peers, in particular this earnings call, but for years have been leaning into, "You shouldn't think about us as tied to SAAR. i think you and your peers in particular this earnings call but for years have been leaning into "you shouldn't think about us as tied to saar We're much more a content store. we're much more a content store

Speaker 1: Yep. Yep. yep

Speaker 2: I think with inventory now normalized, we hopefully should be able to see the evidence of that in your and your peers' models. I think with inventory now normalized, we hopefully should be able to see the evidence of that in your and your peers' models. i think with inventory now normalized we hopefully should be able to see the evidence of that in your and your peers' models Could you maybe walk through what are the key vectors for content growth that you see and you're most excited about at NXP? Could you maybe walk through what are the key vectors for content growth that you see and you're most excited about at NXP? could you maybe walk through what are the key vectors for content growth that you see and you're most excited about at nxp

Speaker 1: Yeah. The way we've defined it, Josh, as I think you know this, we've looked at our auto business and we've said there's a certain portion of it, which we call our core business. These are franchises where we have a high market share, and it's unlikely that we're going to outgrow the market. Yeah. yeah The way we've defined it, Josh, as I think you know this, we've looked at our auto business and we've said there's a certain portion of it, which we call our core business. the way we've defined it josh as i think you know this we've looked at our auto business and we've said there's a certain portion of it which we call our core business These are franchises where we have a high market share, and it's unlikely that we're going to outgrow the market. these are franchises where we have a high market share and it's unlikely that we're going to outgrow the market That core we think will grow at about low single digits. There's a layer on top of that, which we call our accelerated growth drivers. There's four very well-defined accelerated growth drivers. The largest one is being the effort towards software-defined vehicles. Which is really around our S32 MPU family, our K1 series zonal processors, auto Ethernet, and software. That business was $1 billion in 2024. It was over $1 billion in 2025 and is expected to be about $2 billion by the end of 2027. In that horizon, Josh, that is not design wins we go get. We have the design wins. We have to just wait for customers to get ready to go to production. That's a good chunk of that. Our radar business, 77 GHz radar, that's probably going to grow at 15%-20%. That core we think will grow at about low single digits. that core we think will grow at about low single digits There's a layer on top of that, which we call our accelerated growth drivers. there's a layer on top of that which we call our accelerated growth drivers There's four very well-defined accelerated growth drivers. there's four very well-defined accelerated growth drivers The largest one is being the effort towards software-defined vehicles. the largest one is being the effort towards software-defined vehicles Which is really around our S32 MPU family, our K1 series zonal processors, auto Ethernet, and software. which is really around our s32 mpu family our k1 series zonal processors auto ethernet and software That business was $1 billion in 2024. that business was $1 billion in 2024 It was over $1 billion in 2025 and is expected to be about $2 billion by the end of 2027. it was over $1 billion in 2025 and is expected to be about $2 billion by the end of 2027 In that horizon, Josh, that is not design wins we go get. in that horizon josh that is not design wins we go get We have the design wins. we have the design wins We have to just wait for customers to get ready to go to production. we have to just wait for customers to get ready to go to production That's a good chunk of that. that's a good chunk of that Our radar business, 77 GHz radar, that's probably going to grow at 15%-20%. our radar business 77 ghz radar that's probably going to grow at 15%-20% It was about a little under $900 million in 2024. Had a little bit of a soft year last year. Grew, but it's a little softer as we were going through a product transition towards imaging radar, but that's, I think, really a good franchise for us. Electric vehicles, primarily focus there is battery management systems and gate drivers. Last year, we did have a program that kind of went sideways on us. Coming back this year, we feel good about that. That's probably, it was about $500 million in 2024. Should grow at about a 15%-20% CAGR. Lastly is connectivity, and by connectivity, it's really two types. There's in-cabin connectivity, Wi-Fi, Bluetooth for the passengers and things like that. There's ultra-wideband connectivity, which goes into your phone as well as into the car. It was about a little under $900 million in 2024. it was about a little under $900 million in 2024 Had a little bit of a soft year last year. had a little bit of a soft year last year Grew, but it's a little softer as we were going through a product transition towards imaging radar, but that's, I think, really a good franchise for us. grew but it's a little softer as we were going through a product transition towards imaging radar but that's i think really a good franchise for us Electric vehicles, primarily focus there is battery management systems and gate drivers. electric vehicles primarily focus there is battery management systems and gate drivers Last year, we did have a program that kind of went sideways on us. last year we did have a program that kind of went sideways on us Coming back this year, we feel good about that. coming back this year we feel good about that That's probably, it was about $500 million in 2024. that's probably it was about $500 million in 2024 Should grow at about a 15%-20% CAGR. should grow at about a 15%-20% cagr Lastly is connectivity, and by connectivity, it's really two types. lastly is connectivity and by connectivity it's really two types There's in-cabin connectivity, Wi-Fi, Bluetooth for the passengers and things like that. there's in-cabin connectivity wi-fi bluetooth for the passengers and things like that There's ultra-wideband connectivity, which goes into your phone as well as into the car. there's ultra-wideband connectivity which goes into your phone as well as into the car

Speaker 2: Okay, a lot there. Okay, a lot there. okay a lot there

Speaker 1: I know. I know. i know

Speaker 2: Let's double-click on- Let's double-click on- let's double-click on-

Speaker 1: I know a lot there, but I wanted to give you the laundry list. I know a lot there, but I wanted to give you the laundry list. i know a lot there but i wanted to give you the laundry list

Speaker 2: No, it's very helpful. Let's start with S32. No, it's very helpful. no it's very helpful Let's start with S32. let's start with s32

Speaker 1: Right. Right. right

Speaker 2: Your guys' approach in investments in your S32 and five-nanometer MPU family is a bit different than a lot of the other legacy auto microcontroller players. Can you walk through why you made those investments in more advanced process geometry, microcontrollers, SOCs, and microprocessors, what you're seeing in the trend of the software-defined vehicle, and why that's important? Your guys' approach in investments in your S32 and five-nanometer MPU family is a bit different than a lot of the other legacy auto microcontroller players. your guys' approach in investments in your s32 and five-nanometer mpu family is a bit different than a lot of the other legacy auto microcontroller players Can you walk through why you made those investments in more advanced process geometry, microcontrollers, SOCs, and microprocessors, what you're seeing in the trend of the software-defined vehicle, and why that's important? can you walk through why you made those investments in more advanced process geometry microcontrollers socs and microprocessors what you're seeing in the trend of the software-defined vehicle and why that's important

Speaker 1: Sure. About seven years ago, we made the decision. We said, "Where's the puck going to go, and where is it today?" If we wanted to just continue along with our peers, we would've invested in another auto microcontroller family. We made the decision based on conversations with OEMs that the current flat point-to-point architecture in a car had kind of reached its useful life, and that OEMs were starting to contemplate how they could move more towards a hierarchical switching fabric in a car. We made the decision at that time to invest in a whole family of MPUs. These are high-performance, primarily 16 and five-nanometer products on MPUs. This ranges from the S32N series, which is not even in production yet, the S32G, which is a gateway product, S32R, which is a radar product, and other product families. Sure. sure About seven years ago, we made the decision. about seven years ago we made the decision We said, "Where's the puck going to go, and where is it today?" If we wanted to just continue along with our peers, we would've invested in another auto microcontroller family. we said "where's the puck going to go and where is it today?" if we wanted to just continue along with our peers we would've invested in another auto microcontroller family We made the decision based on conversations with OEMs that the current flat point-to-point architecture in a car had kind of reached its useful life, and that OEMs were starting to contemplate how they could move more towards a hierarchical switching fabric in a car. we made the decision based on conversations with oems that the current flat point-to-point architecture in a car had kind of reached its useful life and that oems were starting to contemplate how they could move more towards a hierarchical switching fabric in a car We made the decision at that time to invest in a whole family of MPUs. we made the decision at that time to invest in a whole family of mpus These are high-performance, primarily 16 and five-nanometer products on MPUs. these are high-performance primarily 16 and five-nanometer products on mpus This ranges from the S32N series, which is not even in production yet, the S32G, which is a gateway product, S32R, which is a radar product, and other product families. this ranges from the s32n series which is not even in production yet the s32g which is a gateway product s32r which is a radar product and other product families The idea here is to create a hierarchy of processing, and different companies are approaching it different ways. Some companies are going more of a zonal approach, where you'll have powerful microcontrollers in four or five different zones around the car, and maybe a gateway as a kind of a traffic cop type of a thing, whereas others are going full-on central compute with lighter IO aggregator zones around the edge. Our view is not to dictate to our customers what architecture is better or worse. We try to have a portfolio of products of both processors, microcontrollers, ethernet products, and software enablement to allow them to develop the car they want to do. The idea here is to create a hierarchy of processing, and different companies are approaching it different ways. the idea here is to create a hierarchy of processing and different companies are approaching it different ways Some companies are going more of a zonal approach, where you'll have powerful microcontrollers in four or five different zones around the car, and maybe a gateway as a kind of a traffic cop type of a thing, whereas others are going full-on central compute with lighter IO aggregator zones around the edge. some companies are going more of a zonal approach where you'll have powerful microcontrollers in four or five different zones around the car and maybe a gateway as a kind of a traffic cop type of a thing whereas others are going full-on central compute with lighter io aggregator zones around the edge Our view is not to dictate to our customers what architecture is better or worse. our view is not to dictate to our customers what architecture is better or worse We try to have a portfolio of products of both processors, microcontrollers, ethernet products, and software enablement to allow them to develop the car they want to do. we try to have a portfolio of products of both processors microcontrollers ethernet products and software enablement to allow them to develop the car they want to do

Speaker 2: Okay. Maybe can you help us, where are we in that evolution? I think we've been talking about software-defined vehicle for a while, but it feels like this is the year when it's supposedly hitting the knee in the curve. What's taken so long, and what, I guess, are the benefits that can be unlocked by the software-defined vehicle from your customer standpoint? Okay. okay Maybe can you help us, where are we in that evolution? maybe can you help us where are we in that evolution I think we've been talking about software-defined vehicle for a while, but it feels like this is the year when it's supposedly hitting the knee in the curve. i think we've been talking about software-defined vehicle for a while but it feels like this is the year when it's supposedly hitting the knee in the curve What's taken so long, and what, I guess, are the benefits that can be unlocked by the software-defined vehicle from your customer standpoint? what's taken so long and what i guess are the benefits that can be unlocked by the software-defined vehicle from your customer standpoint

Speaker 1: I think what's taken so long from your perspective is the software lifting that had to take place, especially for those customers who are thinking about going towards a central compute model. It is just such a different way to build a car. If you think back to how cars had been built just a few short years ago, the awards were given to different tier ones who would develop different parts of the car, different ECUs independently, and then put the car together and deliver it to the OEM and say, "Here you go. Figure out how to write software for these islands of different computing architectures." The idea of software-defined vehicles is to have a holistic processing architecture so they can have software that can be pushed down to any layer of the vehicle. You park your car at night, you get an update overnight. I think what's taken so long from your perspective is the software lifting that had to take place, especially for those customers who are thinking about going towards a central compute model. i think what's taken so long from your perspective is the software lifting that had to take place especially for those customers who are thinking about going towards a central compute model It is just such a different way to build a car. it is just such a different way to build a car If you think back to how cars had been built just a few short years ago, the awards were given to different tier ones who would develop different parts of the car, different ECUs independently, and then put the car together and deliver it to the OEM and say, "Here you go. if you think back to how cars had been built just a few short years ago the awards were given to different tier ones who would develop different parts of the car different ecus independently and then put the car together and deliver it to the oem and say "here you go Figure out how to write software for these islands of different computing architectures." The idea of software-defined vehicles is to have a holistic processing architecture so they can have software that can be pushed down to any layer of the vehicle. figure out how to write software for these islands of different computing architectures." the idea of software-defined vehicles is to have a holistic processing architecture so they can have software that can be pushed down to any layer of the vehicle You park your car at night, you get an update overnight. you park your car at night you get an update overnight Over the time you're driving the car, the car tends to learn your behaviors, maybe update software to your driving behaviors. I'd say that when you start to see Western car makers rolling out SDV cars, probably the 2028 model year, go on sale late 2027. Over the time you're driving the car, the car tends to learn your behaviors, maybe update software to your driving behaviors. over the time you're driving the car the car tends to learn your behaviors maybe update software to your driving behaviors I'd say that when you start to see Western car makers rolling out SDV cars, probably the 2028 model year, go on sale late 2027. i'd say that when you start to see western car makers rolling out sdv cars probably the 2028 model year go on sale late 2027 That's our current plan. Our current business has been primarily driven by a number of the Chinese and Korean OEMs. That's our current plan. that's our current plan Our current business has been primarily driven by a number of the Chinese and Korean OEMs. our current business has been primarily driven by a number of the chinese and korean oems

Speaker 2: Okay. Maybe can you talk about the five-nanometer MPU? I believe a couple of years ago you talked about having one or two lead customers. Okay. okay Maybe can you talk about the five-nanometer MPU? maybe can you talk about the five-nanometer mpu I believe a couple of years ago you talked about having one or two lead customers. i believe a couple of years ago you talked about having one or two lead customers

Speaker 1: Yeah. Yeah. yeah

Speaker 2: Any updates there you're able to share? Any updates there you're able to share? any updates there you're able to share

Speaker 1: No No no

Speaker 2: how material that could be? how material that could be? how material that could be

Speaker 1: What I can say is that probably the last time we spoke, it was probably a more fragmented market globally. I would say today, fast-forward, every auto OEM in the world has an SDV program. They're either running a program today actively, and we're engaging with them trying to win business. They're architecting it. We're trying to influence that architecture or they're thinking about how they're going to roll one out. This will be the secular change in how cars will be built in the future. What I can say is that probably the last time we spoke, it was probably a more fragmented market globally. what i can say is that probably the last time we spoke it was probably a more fragmented market globally I would say today, fast-forward, every auto OEM in the world has an SDV program. i would say today fast-forward every auto oem in the world has an sdv program They're either running a program today actively, and we're engaging with them trying to win business. they're either running a program today actively and we're engaging with them trying to win business They're architecting it. they're architecting it We're trying to influence that architecture or they're thinking about how they're going to roll one out. we're trying to influence that architecture or they're thinking about how they're going to roll one out This will be the secular change in how cars will be built in the future. this will be the secular change in how cars will be built in the future

Speaker 2: Okay. Maybe two more on this topic, then I'll finally leave it alone. You guys also recently made a few acquisitions, I think, to bolster your portfolio, specifically on the software side and middleware for software-defined vehicles. Okay. okay Maybe two more on this topic, then I'll finally leave it alone. maybe two more on this topic then i'll finally leave it alone You guys also recently made a few acquisitions, I think, to bolster your portfolio, specifically on the software side and middleware for software-defined vehicles. you guys also recently made a few acquisitions i think to bolster your portfolio specifically on the software side and middleware for software-defined vehicles

Speaker 1: Right. Right. right

Speaker 2: Can you maybe walk through the rationale of those deals and how they differentiate you? Then I'll just squeeze both questions in at once. You described this hierarchical architecture in the vehicle. How synergistic is it? For instance, if you own the central compute, does that mean you will get higher share in the ECUs, or is that not really how it works? Can you maybe walk through the rationale of those deals and how they differentiate you? can you maybe walk through the rationale of those deals and how they differentiate you Then I'll just squeeze both questions in at once. then i'll just squeeze both questions in at once You described this hierarchical architecture in the vehicle. you described this hierarchical architecture in the vehicle How synergistic is it? how synergistic is it For instance, if you own the central compute, does that mean you will get higher share in the ECUs, or is that not really how it works? for instance if you own the central compute does that mean you will get higher share in the ecus or is that not really how it works

Speaker 1: Right. Okay, let's start with the software. We acquired two kind of what I'll call auto-centric companies. One was a company called TTTech Auto out of Austria. Their product was something called MotionWise, which was a middleware operating system for auto OEMs. Their expertise was in the area of functional safety and security. We looked at them, and it was really a make versus buy. We knew we were going to need more software engineers going forward than we currently had. By acquiring them and we engaged with them, it was 1,200 very, very well-versed, very well industry-respected auto software security people, and was really make versus buy. Right. right Okay, let's start with the software. okay let's start with the software We acquired two kind of what I'll call auto-centric companies. we acquired two kind of what i'll call auto-centric companies One was a company called TTTech Auto out of Austria. one was a company called tttech auto out of austria Their product was something called MotionWise, which was a middleware operating system for auto OEMs. their product was something called motionwise which was a middleware operating system for auto oems Their expertise was in the area of functional safety and security. their expertise was in the area of functional safety and security We looked at them, and it was really a make versus buy. we looked at them and it was really a make versus buy We knew we were going to need more software engineers going forward than we currently had. we knew we were going to need more software engineers going forward than we currently had By acquiring them and we engaged with them, it was 1,200 very, very well-versed, very well industry-respected auto software security people, and was really make versus buy. by acquiring them and we engaged with them it was 1,200 very very well-versed very well industry-respected auto software security people and was really make versus buy The idea here is to not only have them continue to focus on MotionWise, which is the product, but to also help us enable the software on top of the S32 families. That's going well. The idea here is to not only have them continue to focus on MotionWise, which is the product, but to also help us enable the software on top of the S32 families. the idea here is to not only have them continue to focus on motionwise which is the product but to also help us enable the software on top of the s32 families That's going well. that's going well It was really a make versus buy decision. The second acquisition was something called Aviva Links. What Aviva Links offers is a multi-gigabit asymmetric SerDes technology. A lot of geeky words there. The idea is you have certain applications in a car where the data from the end node, the sensor, is higher upstream than the amount of data you have to push down to the center, so asymmetric. It's perfect for things like ADAS applications where you have multiple cameras or multiple radars or even lidar in certain situations. It also works very well for things like in-cabin, where you may have multiple screens and you're only looking to push data one way to those screens. Early acquisition. The nice thing is a couple of our customers kind of nudged us towards it, so we do already have design wins. It was really a make versus buy decision. it was really a make versus buy decision The second acquisition was something called Aviva Links. the second acquisition was something called aviva links What Aviva Links offers is a multi-gigabit asymmetric SerDes technology. what aviva links offers is a multi-gigabit asymmetric serdes technology A lot of geeky words there. a lot of geeky words there The idea is you have certain applications in a car where the data from the end node, the sensor, is higher upstream than the amount of data you have to push down to the center, so asymmetric. the idea is you have certain applications in a car where the data from the end node the sensor is higher upstream than the amount of data you have to push down to the center so asymmetric It's perfect for things like ADAS applications where you have multiple cameras or multiple radars or even lidar in certain situations. it's perfect for things like adas applications where you have multiple cameras or multiple radars or even lidar in certain situations It also works very well for things like in-cabin, where you may have multiple screens and you're only looking to push data one way to those screens. it also works very well for things like in-cabin where you may have multiple screens and you're only looking to push data one way to those screens Early acquisition. early acquisition The nice thing is a couple of our customers kind of nudged us towards it, so we do already have design wins. the nice thing is a couple of our customers kind of nudged us towards it so we do already have design wins We probably won't see revenue till next year at the earliest. We probably won't see revenue till next year at the earliest. we probably won't see revenue till next year at the earliest

Speaker 2: Okay. Okay. okay

Speaker 1: Your second question was? Your second question was? your second question was

Speaker 2: Synergies between- Synergies between- synergies between-

Speaker 1: Yeah. If you win the central computers. Yeah. yeah If you win the central computers. if you win the central computers

Speaker 2: Yes. Yes. yes

Speaker 1: The thing to understand about the S32N product, it is very interesting. It is effectively a virtual ECU. It has 16 independent ECUs built into the same die, with independent resources, switching capability. What you are really doing is you are aggregating all the ECUs from around a car into a single device, and you will probably have more than one for redundancy. What you tend to see in those applications is customers then going to a lighter, more of a zonal aggregator around the edge, grabbing the data from different sensors, packaging it up, putting it up to the central compute. The interesting thing about the S32N is it can dynamically change its function depending on how the software is. It is not fixed like ECU one through N only does one type of function. It can actually be dynamically programmed by the car company. The thing to understand about the S32N product, it is very interesting. the thing to understand about the s32n product it is very interesting It is effectively a virtual ECU. it is effectively a virtual ecu It has 16 independent ECUs built into the same die, with independent resources, switching capability. it has 16 independent ecus built into the same die with independent resources switching capability What you are really doing is you are aggregating all the ECUs from around a car into a single device, and you will probably have more than one for redundancy. what you are really doing is you are aggregating all the ecus from around a car into a single device and you will probably have more than one for redundancy What you tend to see in those applications is customers then going to a lighter, more of a zonal aggregator around the edge, grabbing the data from different sensors, packaging it up, putting it up to the central compute. what you tend to see in those applications is customers then going to a lighter more of a zonal aggregator around the edge grabbing the data from different sensors packaging it up putting it up to the central compute The interesting thing about the S32N is it can dynamically change its function depending on how the software is. the interesting thing about the s32n is it can dynamically change its function depending on how the software is It is not fixed like ECU one through N only does one type of function. it is not fixed like ecu one through n only does one type of function It can actually be dynamically programmed by the car company. it can actually be dynamically programmed by the car company Does it give us a lead on pulling other data, other sockets along? Sure, of course. It would be naive of me to say that it's a slam dunk. I will say SDV is probably more like the opportunities are bigger, the opportunities to win are bigger, but if you don't win them, if they decide to go a different direction, it can be big as well. Does it give us a lead on pulling other data, other sockets along? does it give us a lead on pulling other data other sockets along Sure, of course. sure of course It would be naive of me to say that it's a slam dunk. it would be naive of me to say that it's a slam dunk I will say SDV is probably more like the opportunities are bigger, the opportunities to win are bigger, but if you don't win them, if they decide to go a different direction, it can be big as well. i will say sdv is probably more like the opportunities are bigger the opportunities to win are bigger but if you don't win them if they decide to go a different direction it can be big as well

Speaker 2: Okay Okay okay

Speaker 1: to the negative. to the negative. to the negative

Speaker 2: I'll stop on auto, finally. I'll stop on auto, finally. i'll stop on auto finally

Speaker 1: It's all right. It's all right. it's all right

Speaker 2: You guys, I think for the first time, called out your data center business on your most recent earnings call. $200 million, expected to go to $500 million this year. Can you walk through the key components of that? There's a few different buckets that are contributing to that revenue. You guys, I think for the first time, called out your data center business on your most recent earnings call. $200 million, expected to go to $500 million this year. you guys i think for the first time called out your data center business on your most recent earnings call $200 million expected to go to $500 million this year Can you walk through the key components of that? can you walk through the key components of that There's a few different buckets that are contributing to that revenue. there's a few different buckets that are contributing to that revenue

Speaker 1: Yeah. It's really two kind of functional areas. I should be real clear up front here. You are probably smarter on data center than I am, Josh. Yeah. yeah It's really two kind of functional areas. it's really two kind of functional areas I should be real clear up front here. i should be real clear up front here You are probably smarter on data center than I am, Josh. you are probably smarter on data center than i am josh

Speaker 2: I don't know about that. I don't know about that. i don't know about that

Speaker 1: We're a bit new on this topic. Fundamentally, we only focus on the control plane. We're not in the data plane at all. We don't compete with the accelerator guys. It's really in control plane. Think about those functions that are doing kind of housekeeping monitoring across the rack and communicating between the rack. There's really two types of products. There's the Layerscape-based products, which are top-of-rack switches. This is technology we've had for many years. We've continued to invest in it in other parts of the business. It's a 16 nanometer product. It's a 16-core, 16 64-bit Arm cores with a really big switch fabric in it. That's sold into top-of-rack switches and also an eight-core version, which go into NICs. That's which we reflect in our digital networking business. We're a bit new on this topic. we're a bit new on this topic Fundamentally, we only focus on the control plane. fundamentally we only focus on the control plane We're not in the data plane at all. we're not in the data plane at all We don't compete with the accelerator guys. we don't compete with the accelerator guys It's really in control plane. it's really in control plane Think about those functions that are doing kind of housekeeping monitoring across the rack and communicating between the rack. think about those functions that are doing kind of housekeeping monitoring across the rack and communicating between the rack There's really two types of products. there's really two types of products There's the Layerscape-based products, which are top-of-rack switches. there's the layerscape-based products which are top-of-rack switches This is technology we've had for many years. this is technology we've had for many years We've continued to invest in it in other parts of the business. we've continued to invest in it in other parts of the business It's a 16 nanometer product. it's a 16 nanometer product It's a 16-core, 16 64-bit Arm cores with a really big switch fabric in it. it's a 16-core 16 64-bit arm cores with a really big switch fabric in it That's sold into top-of-rack switches and also an eight-core version, which go into NICs. that's sold into top-of-rack switches and also an eight-core version which go into nics That's which we reflect in our digital networking business. that's which we reflect in our digital networking business We didn't talk about it until recently because we had been awarded the design win several years ago. They just weren't going anywhere. Like every company, we get design wins. Until they turn to revenue, they're not worth the paper they're printed on. It wasn't until late last year that they started to accelerate and contributed to the $200 million last year, and have really accelerated this year, contributing to the $500 million we talked about. That's kind of one half of the business. The other half of the business in data center is what the industry terms board management control, and these are functions on the different line cards in a rack that manage cooling, power management, security, inter-card security, zone-of-trust security. It's similar to the type of function that we do in factory automation. We didn't talk about it until recently because we had been awarded the design win several years ago. we didn't talk about it until recently because we had been awarded the design win several years ago They just weren't going anywhere. they just weren't going anywhere Like every company, we get design wins. like every company we get design wins Until they turn to revenue, they're not worth the paper they're printed on. until they turn to revenue they're not worth the paper they're printed on It wasn't until late last year that they started to accelerate and contributed to the $200 million last year, and have really accelerated this year, contributing to the $500 million we talked about. it wasn't until late last year that they started to accelerate and contributed to the $200 million last year and have really accelerated this year contributing to the $500 million we talked about That's kind of one half of the business. that's kind of one half of the business The other half of the business in data center is what the industry terms board management control, and these are functions on the different line cards in a rack that manage cooling, power management, security, inter-card security, zone-of-trust security. the other half of the business in data center is what the industry terms board management control and these are functions on the different line cards in a rack that manage cooling power management security inter-card security zone-of-trust security It's similar to the type of function that we do in factory automation. it's similar to the type of function that we do in factory automation It's really kind of in our wheelhouse of strength, if you will. Products there are our i.MX application processors, also our MCX root-of-trust security microcontrollers. We have a pretty decent portfolio of what's known as I2C and I3C for high-speed data movement, things like that. Different sensor products. I would say on the board management control, it's more akin to what we do in core industrial. It's a broader customer base. We have engagements with different hyperscalers, different server OEMs in Taiwan, and certain key reference design OEMs in the U.S. It's really kind of in our wheelhouse of strength, if you will. it's really kind of in our wheelhouse of strength if you will Products there are our i.MX application processors, also our MCX root-of-trust security microcontrollers. products there are our i.mx application processors also our mcx root-of-trust security microcontrollers We have a pretty decent portfolio of what's known as I2C and I3C for high-speed data movement, things like that. we have a pretty decent portfolio of what's known as i2c and i3c for high-speed data movement things like that Different sensor products. different sensor products I would say on the board management control, it's more akin to what we do in core industrial. i would say on the board management control it's more akin to what we do in core industrial It's a broader customer base. it's a broader customer base We have engagements with different hyperscalers, different server OEMs in Taiwan, and certain key reference design OEMs in the U.S. we have engagements with different hyperscalers different server oems in taiwan and certain key reference design oems in the u.s

Speaker 2: Okay. Is the digital networking piece in comm infrastructure and then the board management in IoT? Okay. okay Is the digital networking piece in comm infrastructure and then the board management in IoT? is the digital networking piece in comm infrastructure and then the board management in iot

Speaker 1: Correct. Correct. correct

Speaker 2: Okay. Okay. okay

Speaker 1: Yeah. We know it's confusing, and we are thinking about maybe looking at how we may change the segments a little bit. Yeah. yeah We know it's confusing, and we are thinking about maybe looking at how we may change the segments a little bit. we know it's confusing and we are thinking about maybe looking at how we may change the segments a little bit

Speaker 2: All right. I'll look out for it. All right. all right I'll look out for it. i'll look out for it

Speaker 1: because it is confusing. We understand. because it is confusing. because it is confusing We understand. we understand

Speaker 2: I guess, you mentioned it started to take off end of last year into this year. I guess, you mentioned it started to take off end of last year into this year. i guess you mentioned it started to take off end of last year into this year Why that timing? Was there specific programs? Is it tied more to accelerated computing, or is it general purpose data center builds? Why that timing? why that timing Was there specific programs? was there specific programs Is it tied more to accelerated computing, or is it general purpose data center builds? is it tied more to accelerated computing or is it general purpose data center builds

Speaker 1: I would say on the Layerscape products, the top-of-rack switches, that is a few hyperscalers who are building out their own proprietary AI kind of racks, if you will. We've been awarded the designs a number of years ago. It just took them a long time to go to production. I couldn't give you more insight than that, Josh. I would say on the Layerscape products, the top-of-rack switches, that is a few hyperscalers who are building out their own proprietary AI kind of racks, if you will. i would say on the layerscape products the top-of-rack switches that is a few hyperscalers who are building out their own proprietary ai kind of racks if you will We've been awarded the designs a number of years ago. we've been awarded the designs a number of years ago It just took them a long time to go to production. it just took them a long time to go to production I couldn't give you more insight than that, Josh. i couldn't give you more insight than that josh

Speaker 2: Okay. Okay. okay

Speaker 1: If it had gone to market sooner, we probably would've announced it sooner. If it had gone to market sooner, we probably would've announced it sooner. if it had gone to market sooner we probably would've announced it sooner

Speaker 2: Yep. Investors like big, round numbers. Have you spoken to how big this opportunity could be long term, any kind of TAM? Yep. yep Investors like big, round numbers. investors like big round numbers Have you spoken to how big this opportunity could be long term, any kind of TAM? have you spoken to how big this opportunity could be long term any kind of tam

Speaker 1: We've said the SAM, and I will tell you that a few investors laughed at us when I shared this data, but we think the SAM is about $4 billion growing at about a 10% CAGR. Right? It's not the whole AI data center, but it's a decent size. We think we can grow our $500 million at some multiple of that SAM. If SAM's at 10, and our ideal sweet spot is to grow 2x of SAM. You can kind of do a matrix and figure between 2x - 1x of SAM, get a sense of how it should go. We've said the SAM, and I will tell you that a few investors laughed at us when I shared this data, but we think the SAM is about $4 billion growing at about a 10% CAGR. we've said the sam and i will tell you that a few investors laughed at us when i shared this data but we think the sam is about $4 billion growing at about a 10% cagr Right? right It's not the whole AI data center, but it's a decent size. it's not the whole ai data center but it's a decent size We think we can grow our $500 million at some multiple of that SAM. we think we can grow our $500 million at some multiple of that sam If SAM's at 10, and our ideal sweet spot is to grow 2x of SAM. if sam's at 10 and our ideal sweet spot is to grow 2x of sam You can kind of do a matrix and figure between 2x - 1x of SAM, get a sense of how it should go. you can kind of do a matrix and figure between 2x - 1x of sam get a sense of how it should go

Speaker 2: Okay. Thank you for the color there. Switching to the industrial IoT business. Okay. okay Thank you for the color there. thank you for the color there Switching to the industrial IoT business. switching to the industrial iot business There's a lot of questions of when AI is going to migrate out of the data center into edge environments. There's a lot of questions of when AI is going to migrate out of the data center into edge environments. there's a lot of questions of when ai is going to migrate out of the data center into edge environments

Speaker 1: Yeah. Yeah. yeah

Speaker 2: I think you and your peers have talked about this trend for a while. Can you maybe talk about what you're seeing with your i.MX family and how we should think about edge AI or edge computing, whatever buzzword you want to throw around it, as contributing and changing the long-term growth trajectory of your broader industrial business? I think you and your peers have talked about this trend for a while. i think you and your peers have talked about this trend for a while Can you maybe talk about what you're seeing with your i.MX family and how we should think about edge AI or edge computing, whatever buzzword you want to throw around it, as contributing and changing the long-term growth trajectory of your broader industrial business? can you maybe talk about what you're seeing with your i.mx family and how we should think about edge ai or edge computing whatever buzzword you want to throw around it as contributing and changing the long-term growth trajectory of your broader industrial business

Speaker 1: Yeah. What we're seeing in the core industrial part is more and more of our customers are looking to run distilled models locally without having to go to the cloud. We're starting to see them be more forward-thinking and future-proofing their processor decisions. They want to have more headroom in the processor choice that they're picking. Now, today, most of our industrial and IoT processor families do have variants that have embedded, I'll call, moderate performance NPUs in them. The brand name's eIQ. It's a smaller performance. Most of the i.MX, and we're seeing customers starting to use that lower performance NPU to kind of sandbox ideas. We acquired a company called Kinara, which is a much higher performance Ara-based, the family's called Ara, NPUs, that can be multiple ganged up on one i.MX. Yeah. yeah What we're seeing in the core industrial part is more and more of our customers are looking to run distilled models locally without having to go to the cloud. what we're seeing in the core industrial part is more and more of our customers are looking to run distilled models locally without having to go to the cloud We're starting to see them be more forward-thinking and future-proofing their processor decisions. we're starting to see them be more forward-thinking and future-proofing their processor decisions They want to have more headroom in the processor choice that they're picking. they want to have more headroom in the processor choice that they're picking Now, today, most of our industrial and IoT processor families do have variants that have embedded, I'll call, moderate performance NPUs in them. now today most of our industrial and iot processor families do have variants that have embedded i'll call moderate performance npus in them The brand name's eIQ. the brand name's eiq It's a smaller performance. it's a smaller performance Most of the i.MX, and we're seeing customers starting to use that lower performance NPU to kind of sandbox ideas. most of the i.mx and we're seeing customers starting to use that lower performance npu to kind of sandbox ideas We acquired a company called Kinara, which is a much higher performance Ara-based, the family's called Ara, NPUs, that can be multiple ganged up on one i.MX. we acquired a company called kinara which is a much higher performance ara-based the family's called ara npus that can be multiple ganged up on one i.mx The way to think about it is the i.MX views the NPU from Kinara as just a resource, and it can use up to three different NPUs with one instance. We're really kind of amazed at the ideas customers are coming up with. I'd say they range in all sorts of forms and fashions. Fundamentally, the idea is they're taking large language models, they want to distill those and have them run locally without having to go to the cloud on an ongoing basis. The way to think about it is the i.MX views the NPU from Kinara as just a resource, and it can use up to three different NPUs with one instance. the way to think about it is the i.mx views the npu from kinara as just a resource and it can use up to three different npus with one instance We're really kind of amazed at the ideas customers are coming up with. we're really kind of amazed at the ideas customers are coming up with I'd say they range in all sorts of forms and fashions. i'd say they range in all sorts of forms and fashions Fundamentally, the idea is they're taking large language models, they want to distill those and have them run locally without having to go to the cloud on an ongoing basis. fundamentally the idea is they're taking large language models they want to distill those and have them run locally without having to go to the cloud on an ongoing basis

Speaker 2: Okay. All right. We're bumping up on time. I did my best to avoid talking about gross margins, but I have to get there. Okay. okay All right. all right We're bumping up on time. we're bumping up on time I did my best to avoid talking about gross margins, but I have to get there. i did my best to avoid talking about gross margins but i have to get there

Speaker 1: Okay. Okay. okay

Speaker 2: You have a 57%-63% gross margin target. You're sort of operating in the middle of that right now. Your internal utilization rates, as you mentioned, 80% range. There's a little room there, but can you maybe walk through some of the drivers that'll get you further into the top half of that range? You have a 57%-63% gross margin target. you have a 57%-63% gross margin target You're sort of operating in the middle of that right now. you're sort of operating in the middle of that right now Your internal utilization rates, as you mentioned, 80% range. your internal utilization rates as you mentioned 80% range There's a little room there, but can you maybe walk through some of the drivers that'll get you further into the top half of that range? there's a little room there but can you maybe walk through some of the drivers that'll get you further into the top half of that range

Speaker 1: Sure Sure sure

Speaker 2: How we should think about the timing of that? How we should think about the timing of that? how we should think about the timing of that

Speaker 1: Sure. Given our hybrid manufacturing that 40% of our wafers come internally, which are affected by utilization, the other 60%. Sure. sure Given our hybrid manufacturing that 40% of our wafers come internally, which are affected by utilization, the other 60%. given our hybrid manufacturing that 40% of our wafers come internally which are affected by utilization the other 60% external are not affected. The rule of thumb that we've given is for every $1 billion of incremental revenue, we believe we can throw off 100 basis points of gross margin expansion. You heard us very clearly on the Q1 call, and we tried on our Q4 call to clearly state that we believe we can grow in the low double digits this year and next year. You can do the math. That kind of points, if you get to $15 billion-$15.5 billion, you should be about 60% gross margin using the rule of thumb. The one thing I know I've warned you on is don't take the rule of thumb and divide it by four and think you're going to get it every quarter. Mix does play an influence on gross margin. That gets you into the 2027 horizon. external are not affected. external are not affected The rule of thumb that we've given is for every $1 billion of incremental revenue, we believe we can throw off 100 basis points of gross margin expansion. the rule of thumb that we've given is for every $1 billion of incremental revenue we believe we can throw off 100 basis points of gross margin expansion You heard us very clearly on the Q1 call, and we tried on our Q4 call to clearly state that we believe we can grow in the low double digits this year and next year. you heard us very clearly on the q1 call and we tried on our q4 call to clearly state that we believe we can grow in the low double digits this year and next year You can do the math. you can do the math That kind of points, if you get to $15 billion-$15.5 billion, you should be about 60% gross margin using the rule of thumb. that kind of points if you get to $15 billion-$15.5 billion you should be about 60% gross margin using the rule of thumb The one thing I know I've warned you on is don't take the rule of thumb and divide it by four and think you're going to get it every quarter. the one thing i know i've warned you on is don't take the rule of thumb and divide it by four and think you're going to get it every quarter Mix does play an influence on gross margin. mix does play an influence on gross margin That gets you into the 2027 horizon. that gets you into the 2027 horizon The benefits from VSMC, which is the joint venture in Singapore, don't come to the table until 2028. At full load in 2028, it should add about 200 basis points of incremental gross margin at the corporate level. If we exit 2027 at, let's just do the math, at 60%, that would say that VSMC in its first full year of loading would add another 200 basis points. The benefits from VSMC, which is the joint venture in Singapore, don't come to the table until 2028. the benefits from vsmc which is the joint venture in singapore don't come to the table until 2028 At full load in 2028, it should add about 200 basis points of incremental gross margin at the corporate level. at full load in 2028 it should add about 200 basis points of incremental gross margin at the corporate level If we exit 2027 at, let's just do the math, at 60%, that would say that VSMC in its first full year of loading would add another 200 basis points. if we exit 2027 at let's just do the math at 60% that would say that vsmc in its first full year of loading would add another 200 basis points

Speaker 2: Okay. Last question. I think NXP perpetually seems to represent an underappreciated capital return story. Can you speak to your priorities for uses of cash the next few years with those investments in mind? Okay. okay Last question. last question I think NXP perpetually seems to represent an underappreciated capital return story. i think nxp perpetually seems to represent an underappreciated capital return story Can you speak to your priorities for uses of cash the next few years with those investments in mind? can you speak to your priorities for uses of cash the next few years with those investments in mind

Speaker 1: Yeah. Our capital allocation policy hasn't changed. It's to return all excess free cash flow to our owners in the form of either dividends or buybacks. Now, the key word there is excess free cash flow not invested in the business. Yeah. yeah Our capital allocation policy hasn't changed. our capital allocation policy hasn't changed It's to return all excess free cash flow to our owners in the form of either dividends or buybacks. it's to return all excess free cash flow to our owners in the form of either dividends or buybacks Now, the key word there is excess free cash flow not invested in the business. now the key word there is excess free cash flow not invested in the business I think most investors would agree the best thing we can do with your free cash flow is to help build the business. The last few years, we have had a number of requirements on the cash we generated, the three acquisitions we talked about. We also have the joint venture fab in Singapore. These have been all calls on cash. Those are starting to tail off. I think we're going to be past the big demands on cash here in 2026 and 2027, and we believe we can get back to that 100% free cash flow return. We've returned, I think, almost $23 billion in the last 10 years, which represented almost 95%, 96% of all free cash flow we've generated. I think most investors would agree the best thing we can do with your free cash flow is to help build the business. i think most investors would agree the best thing we can do with your free cash flow is to help build the business The last few years, we have had a number of requirements on the cash we generated, the three acquisitions we talked about. the last few years we have had a number of requirements on the cash we generated the three acquisitions we talked about We also have the joint venture fab in Singapore. we also have the joint venture fab in singapore These have been all calls on cash. these have been all calls on cash Those are starting to tail off. those are starting to tail off I think we're going to be past the big demands on cash here in 2026 and 2027, and we believe we can get back to that 100% free cash flow return. i think we're going to be past the big demands on cash here in 2026 and 2027 and we believe we can get back to that 100% free cash flow return We've returned, I think, almost $23 billion in the last 10 years, which represented almost 95%, 96% of all free cash flow we've generated. we've returned i think almost $23 billion in the last 10 years which represented almost 95% 96% of all free cash flow we've generated I think in the long term, we're consistent, but we will have periods when we're going to look at decisions to invest in the business first, giving cash back to owners. I think in the long term, we're consistent, but we will have periods when we're going to look at decisions to invest in the business first, giving cash back to owners. i think in the long term we're consistent but we will have periods when we're going to look at decisions to invest in the business first giving cash back to owners

Speaker 2: Got it. All right. We are out of time. Jeff, appreciate you joining us. Got it. got it All right. all right We are out of time. we are out of time Jeff, appreciate you joining us. jeff appreciate you joining us

Speaker 1: Thanks. Thanks. thanks

Speaker 2: It's nice to be on the other side of the cycle this time. It's nice to be on the other side of the cycle this time. it's nice to be on the other side of the cycle this time

Speaker 1: Yeah. Thanks. Yeah. yeah Thanks. thanks