The NXP 4Q '23 Earnings Conference Call is beginning, with the operator introducing Jeff Palmer, Senior Vice President of Investor Relations. The call will include forward-looking statements and non-GAAP financial measures, and participants are reminded to refer to the press release for full disclosures. Kurt Sievers, NXP's President and CEO, will be leading the call.

The company's revenue in quarter four was $22 million higher than expected, with strong performance in the Mobile market and in-line performance in other sectors. Overall, revenue for the full year increased by 1%, with pricing increases offsetting higher input costs. Non-GAAP operating margin for both quarter four and the full year were slightly below the year-ago period, but still within expectations. The company has intentionally limited inventory build in the channel and with direct customers.

In 2023, the company saw growth in its Automotive sector, with a 9% increase in revenue due to higher pricing and company-specific growth drivers. The Industrial and IoT sector experienced a decline in revenue, but showed signs of improvement in the fourth quarter. Mobile revenue was down due to weak trends in the handset market, but the company exceeded its guidance. Communication Infrastructure and Other saw a 5% increase in revenue, driven by sales of secured card and tracking solutions, but was offset by declines in RF Power products. The company's six accelerated growth drivers, including radar and electrification, are performing well and ahead of plan.

The company's revenue from radar is below plan due to limiting shipments to customers with high inventory. However, their Automotive growth drivers are performing well and the core Auto business is in line with expectations. Industrial and IoT are trading below expectations due to weak end-market conditions and a disciplined approach to managing the distribution channel. The Mobile sector is also below expected revenue growth due to weakness in the Android handset market, but ultra-wideband traction in the Automotive market is progressing well. In the Communications Infrastructure sector, revenue growth is below expectations due to weaker base station deployments and a faster-than-expected transition to gallium nitride technology. However, the core portion of Communications Infrastructure performed well due to pent-up demand for secure cards and tracking solutions.

In the first quarter of 2024, the company expects revenue to be around $3.125 billion, which is flat compared to the same period in 2023. This is due to seasonality and efforts to normalize inventory levels. Pricing is expected to remain flat due to improved input costs. The Automotive segment is expected to decline, while Industrial and IoT is expected to increase. Mobile is expected to see a significant increase, while Communications Infrastructure and Other will see a decline. Overall, the company experienced variations in the semiconductor cycle in different parts of its portfolio in 2023.

The company experienced a decline in revenue in the first half of 2023 due to the post-COVID reset, but expects gradual improvement throughout 2024. The Automotive and core Industrial segments have entered a multi-quarter inventory correction phase, but are expected to resume growth in the second half of 2024. The Communications Infrastructure and Other business is expected to decline in 2024. The company is managing everything in their control to navigate a soft landing and is supporting direct customers to facilitate inventory digestion. The potential outcome for 2024 is projected to be a modest annual revenue growth or decline. A review of the company's financial performance will be provided by Bill Betz.

In this paragraph, the speaker discusses the financial highlights of the company's performance in Q4 and for the full year of 2023. They mention that revenue was slightly above the midpoint of their guidance range and non-GAAP gross profit was also above the midpoint. They also provide figures for non-GAAP operating expenses, operating profit, interest expense, taxes, and non-controlling interests. They then mention the company's cash flow performance, including cash flow from operations, net CapEx, and non-GAAP free cash flow. They also mention the company's actions in terms of share repurchases and dividends.

In the fourth quarter, total revenue for the company was $3.42 billion, with a non-GAAP gross profit of $2.01 billion and a gross margin of 58.7%. Operating expenses were $791 million, resulting in a non-GAAP operating profit of $1.22 billion and a margin of 35.6%. Interest expense was $69 million and taxes were $178 million. The company's total debt remained flat at $11.17 billion, while their cash balance increased by $229 million. They paid $261 million in dividends and repurchased $434 million of their shares. Inventory days decreased by two days to 132 days, with distribution channel inventory remaining at 1.5 months.

The company has limited inventory in the channel due to uncertain demand and has improved their cash conversion cycle. They expect flat revenue for the first quarter and a non-GAAP operating margin of 33.9%. Stock-based compensation will be higher due to restructuring activities. They anticipate a non-GAAP earnings per share of $3.17.

The company expects non-GAAP gross margin to be at the high end of their long-term model for 2024 and operating expenses to stay within their long-term model. They suggest using a range for non-GAAP tax rate and a specific amount for stock-based compensation and non-controlling interests. Capital expenditures are expected to remain within their long-term model. The company plans to retire a $1 billion debt tranche in 2024 and continue their capital allocation strategy of returning excess free cash flow to shareholders. They have already repurchased $116 million worth of shares in Q1 2024 and plan to continue repurchasing shares. The operator then opens the call for questions.

Kurt Sievers, the CEO of NXP Semiconductors, confirms that their inventory management is under control on the channel side, with no plans to increase inventory in the first quarter. They will only start replenishing when there is sufficient market momentum. The $500 million discussed previously is not a factor in their annual revenue movement.

In the second quarter of last year, the company noticed excess inventory at some automotive Tier 1 customers, thanks to their NCNR system. They have been working to normalize this and expect to be done by the middle of this year. In the second half of the year, they anticipate shipping to end demand in the automotive sector. The company also mentioned six growth drivers overall, including radar, EV, and S32, and expects growth in these areas in fiscal 2024.

Kurt Sievers explains that in a normal world, the company would stick to their 9% to 14% long-term growth, but due to excess inventory, growth has been affected. He mentions that radar has not been performing to target due to a concentrated customer base, but inventory control in this segment is already behind them. He assures that in the longer term, all segments will come to the targets specified in November 2021. When asked about Q2, he declines to give specific guidance but mentions that the full year will likely have flat growth. However, he is confident in double-digit growth in the back half of the year, citing limited visibility as a factor.

The speaker explains that their revenue is dependent on the cycle they are exposed to, with the consumer-oriented businesses expected to continue growing in 2024. However, the Comms Infra & Other business is expected to decline in 2024. The speaker also mentions that there will be a decline in the first half of 2024 due to inventory digestion in the automotive industry, but they are confident that the second half will be bigger. Overall, the speaker expects the revenue for the full year of 2024 to be flat or slightly higher.

NXP has seen a gradual improvement in their consumer-oriented businesses due to their tight channel management and lack of excess inventory. This has led to a contrast with their peers who are experiencing declines in their Industrial & IoT business due to over-inventory in the channel. This contrast will continue until their peers are able to correct their over-shipment. NXP's revenue grew 1% last year, with pricing up by 8%.

The company experienced a significant decline in supply last year, resulting in a 7% volume decline. This is in contrast to their peers, who shipped more aggressively and are now facing difficulties. The company's industrial business has been more disciplined, but there is no fundamental difference between their performance and that of their peers. The IoT trend has bottomed out, with the Consumer and core Industrial segments recovering at different rates.

The IoT segment, which accounts for 40% of the overall segment, has gradually improved since the first quarter of last year. However, it is still below pre-COVID levels. The majority of this improvement is in China. The core Industrial segment, on the other hand, is facing challenges similar to the automotive industry due to over-inventory and market weakness. Lead times have normalized to pre-COVID levels, which has helped with pricing control and visibility. However, there is no correlation between lead times and pricing.

The company's pricing for the year is based on input costs and is expected to remain flat. They have found acceptance from customers for this pricing. The increase in revenue for the Mobile side is mainly due to weak compares from the previous year, but there is also some traction in the Android market and potential for growth in the future.

The company's premium handset and gross margin are in good shape, thanks to their efforts to quickly meet customer demand and avoid excess inventory. The gross margin for fiscal year '24 is expected to be 58%, only 50 basis points lower than the previous year, due to a mix of factors such as distribution mix and underutilization. The company is also facing both tailwinds and headwinds in terms of gross margin.

The company is aware that if they go below their current utilization levels, it will be a challenge for them. They are managing it to stay at this level, but if they see lower pricing, they will need to offset it with lower costs and productivity gains. Delayed product introductions could also have an impact. However, there are potential tailwinds such as higher revenues, replenishing their channel, improving utilization, expanding distribution reach, and executing on productivity gains. Ultimately, the company aims to maintain near the high end of their model at current revenue levels.

Kurt Sievers, CEO of NXP Semiconductors, responds to a question about the company's Automotive business during an earnings call. He mentions that they are managing the channel and under-shipping at the moment, but expects a clearer picture in the second half of the year. He cannot provide an exact quantification, but points out that the company's Auto business grew by 9% in the previous year, with an 8% increase in pricing. This suggests that there was almost zero supply growth in the Auto sector last year, despite a bullish market and increase in electric cars.

The speaker discusses the company's view that they have significantly under-shipped in the distribution side of the Automotive sector, and have taken steps to control over-shipments. They also mention the difficulty in predicting the desired inventory levels of their Tier 1 customers, as it can vary greatly and change over time. The speaker believes that by mid-2024, they will have resolved these issues. In terms of pricing, they expect it to remain flat in 2024, which is better than their peers due to factors such as commodity prices and input costs, which are expected to decrease.

Kurt Sievers, CEO of a company, discusses the pressure on mature nodes at foundries, specifically for Tier 2 and Tier 3 foundries. He is unsure about pricing in 2025 and believes the industry will eventually return to low single-digit ASP erosion. However, this year is a transition year and input costs are not as high as they used to be. He clarifies that this does not mean prices will go back to pre-COVID levels.

During a conference call, Chris Danely from Citi asked questions about the current state of the company. Kurt Sievers, the company's representative, confirmed that the demand for their products has weakened and there is also excess inventory with their Tier 1 Automotive customers. Bill Betz, another representative, mentioned that sales to distributors grew more than overall sales, but this was due to matching sell-through.

Joshua Buchalter asked about the push and pull between OEMs and Tier 1s in the automotive industry, where OEMs want Tier 1s to carry more inventory but Tier 1s are trying to manage their working capital and carry less. Kurt Sievers responded that this is a difficult situation and it is hard to predict the final outcome, as OEMs are now enforcing that new business holds a certain amount of inventory for specific semiconductor components.

The speaker discusses the company's plans for the next few years, including new design wins and managing inventory at Tier 1s. They mention that current contracts do not have specific articulations, making it difficult to be precise. The company's capital allocation strategy remains the same, with a focus on dividends, buybacks, debt, and M&A. The speaker concludes by stating that NXP is taking control in a tough environment.

The company took control of their distribution and direct customer side in a disciplined manner in mid 2022 and the second quarter of last year, which they believe will lead to a safe and soft landing in a challenging environment. They remain focused on the Automotive and Industrial markets for long-term growth. The call has now ended.

This summary was generated with AI and may contain some inaccuracies.