day and thank you for standing by welcome to the nxp first quarter 2026 earnings conference call at this time all participants on a listen-only mode after the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one one on your telephone you will then hear an automated message advisory hand is raised to assure your question please press star one one again please be advised that today's conference is being recorded. I would now like to turn the conference over to Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Lisa. Good afternoon, everyone. Welcome to NXP Semiconductor's first quarter earnings call. With me on the call today is Rafael Sotomayor, NXP's President and CEO, and Bill Betts, our CFO. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products, and our expectations for the financial results for the second quarter of 2026. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2026 earnings press release, which will be furnished to the SEC on Form 8K and is available on MSP's website in the Investor Relations section.

Now I'd like to turn the call over to Rafael.

Thank you, Jeff, and good afternoon. We appreciate you joining us today. Our first quarter performance exceeded expectations, with broad-based improvements across all our focus end markets, led by our company-specific well drivers, and importantly, with Momentum now visibly broadening into the core of our business what we're seeing today is the compounding result of sustained investment discipline execution and deepening customer adoption across our differentiated portfolio that is increasingly well positioned for the most durable secular trends and semiconductors software the five vehicles physical AI and now with greater visibility than before data center infrastructure the remainder of 2026 is set up to be stronger than we anticipated just 90 days ago now I want to walk you through the key drivers behind that improvement turning to the quarter we deliver revenue of 3.18 billion dollars up 12% year-over-year and seasonally down 5% sequentially all the markets grew year-over-year in an aggregate we outperformed by 31 million dollars above the midpoint of our guidance our Our company-specific strategic growth drivers across the auto and industrial IoT end markets grew 18% year-over-year and represented roughly one-third of first quarter revenue. Our core businesses encompassing all end markets increased 10% year-over-year, underscoring that momentum is broadening beyond the strategic drivers. non-gap operating margin was about 33 percent 120 basis points above last year and 40 basis points about the midpoint of our guidance taking together we deliver non-gap earnings per share of three dollars and five cents eight cents about the midpoint over guidance now turning to a market performance in automotive revenue was 1.78 billion dollars up 6% year-over-year and in line with expectations adjusted for the sales of the men's sense of business automotive growth was 10% year-over-year during the quarter the growth was driven primarily by accelerating customer suffering from vehicle programs improve electrification trends and continue momentum and radar connectivity together the auto accelerated growth drivers contributed nearly 90% of the year over year growth from a customer adoption perspective we're seeing strong design win traction for our s32 n and s32 k5 products platforms that will serve as the backbone of our automotive processing franchise for years to come we also secure new radar awards for imaging radar solutions along with wins for our 10 gigabit automotive extended products these are multi-year platform commitments that expand nxp content per vehicle and deepen the structural relationship with our customers the automotive opportunity is a long duration compounding story in a progress reinforces that trajectory in industry and IOT revenue was 628 million dollars up 24 percent year over year and near the high end of our guidance growth was driven by our newer industrial processing solutions including IMX our team and MCX together these products grew about 75% year over year and contributed nearly half the end market growth versus Q1 2025 within the end market industrial was strong with notable strength and factory automation data centers and energy storage looking ahead the industrial IoT market is entering a transformative phase as physical AI moves intelligence into real-world systems and robotics this is creating significant content growth opportunities for NXP particularly processing connectivity and security as AI is deployed at the edge customers need greater processing headroom to future prove their platforms as a result we're seeing customers making deeper multi-generational commitments to NXP because of the strength of our AI enabled product performance now I want to take a moment to speak directly about our data center exposure because this is an area that we haven't previously emphasized in 2025 revenue related to data center applications was about 200 million dollars and it was reflected evenly in both our industry and IOT in communication infrastructure and markets based on a water programs not ramping we believe this business will be north of 500 million dollars this year with a similar in market split we have established meaningful positions in system cooling power supply board management and control plane switching applications across these subsystems customers choose an XP for a processing depth and security capabilities based on customer engagements we are reinforcing our art IMX application process for family for this opportunity creating a durable and expanding revenue presence in data centers with communications infrastructure revenue was $380 million up 21% year-on-year and at the high end of our guidance growth was driven by digital networking exposure to data center and continue ramps of our new code RFID products and lastly mobile revenue was 391 million dollars up 16 percent year-over-year and in life with guidance reflecting continuous strength in our secure mobile transactions franchise now turning to the second quarter our outlook is better than we anticipated 90 days ago we are guiding second quarter revenue to 3.45 billion dollars up 18 percent year-over-year and up 8% sequentially this sequential world represents an acceleration of our company specific drivers we expect all regions and all the markets to be up year-on-year a reflection of expanding customer adoption of our differentiated portfolio at the midpoint we expect the following trends in our business during Q2 automotive is expected to be up in the low double digit percent range year year and up in the high single-digit range sequentially adjusted for the sales of the men's sense of business our guidance implies a high teens percentage growth year-over-year and 10% sequentially industrial and IOT is expected to be up in the high 30% range year-over-year and up in the high teens range sequentially continuing the acceleration we saw in Q1 mobile is expected to be up in the low single-digit percent range year-over-year and down in the low double-digit percent range on a sequential basis and finally communications infrastructure and other is expected to be up in the mid 30% range versus Q2 2025 and up in the mid teens percent range versus Q1 2026 in summary our second quarter outlook and our growth trajectory 2026 reflect the story of breadth depth and acceleration our company specific core drivers are performing self-design our core business is inflecting and today we have made the growth of our data center revenue transparent to support your understanding of our exposure to this important market data center revenue is ramping now and it will more than double in 2026 from a year ago we remain disciplined and how we invest how we allocate capital and how we manage the factors we can control our framework is unchanged invest for growth pursue targeted M&A to strengthen the portfolio in return excess cash to dividends and buybacks consisting with our long-term model and now I would like to pass the call to Bill for a review or financial performance thank you Raphael and good afternoon to everyone on today's call as Raphael has

already covered the revenue drivers i will turn to the financial highlights overall our q1 results were solid which were led by our company specific growth drivers across our focus and markets reinforcing the strength of our strategic priorities we continue to ramp our new products and see strong customer adoption and design win momentum across our latest products and solutions This momentum reinforces the value of our long-term R&B investments and the strength of our product roadmap. In summary, revenue, gross profit, and operating profit were all better than the midpoint of guidance, and we delivered non-GAAP earnings per share of $3.05, or $0.08 better than the midpoint. Non-GAAP gross profit was $1.82 billion, with a 57.1% non-GAAP gross margin modestly above guidance, driven by solid fall-through on higher revenues. Non-GAAP operating expenses were $758 million, or 23.8% of revenue favorable to guidance driven by efficiency gains. Non-GAAP operating profit was $1.05 billion, and non-GAAP operating margin was 33.1%, 40 basis points above guidance. Below the line, non-GAAP interest expense was $90 million, and taxes were $173 million. Non-controlling interest expense was $11 million. And results from equity accountant investees were a $4 million loss. Taken together, below-the-line items were $3 million unfavorable to guidance. During the quarter, stock-based compensation was $109 million, and it is excluded from our non-GAAP earnings. Turning to changes in cash, debt, and capital returns. Our balance sheet remains strong and provides flexibility to invest in our strategic priorities and hybrid manufacturing plans. We ended Q1 with $11.7 billion in total debt and $3.7 billion in cash. Cash usage during the quarter reflected debt repayments, joint venture investments, capital returns and capex partially offset by cash generation including 878 million of proceeds from the sale of the men's sensor business net debt was 8 billion or 1.7 times adjusted ebitda and our adjusted ebitda interest coverage ratio was 14.5 times during q1 we retired the 500 million 5.35% tranche due in March, and after the end of the quarter, we retired the $750,003.875% tranche due in June. In Q1, we returned $358 million to our owners comprised of $256 million in dividends and $102 million in share repurchases. After quarter end, we repurchased another $32 $2 million under our 10B5-1 program, we remain committed to our long-term capital allocation strategy, balancing returns to shareholders with disappointed investments in the business to support long-term profitable growth. Turning to working capital, days of inventory were 165 days, including seven days of free Receivables were 34 days, and payables were 59 days. resulting in a cash conversion cycle of 140 days. Inventory levels remain aligned to support our future growth and our planned front-end factory consolidation plans. Cash flow from operations was $793 million, and net capex was $79 million, resulting in non-GAAP free cash flow of $714 million, or 22% of revenue. From a cash deployment perspective during Q1, we continue to advance our manufacturing strategy, which supports our long-term supply resiliency. Over time, this is expected to contribute approximately 200 basis points of structural gross margin expansion once the facility is fully operational in 2028. In the quarter, we invested $385 million in BSMC, our manufacturing joint venture in Singapore. This is comprised of $189 million in long-term capacity access fees and $196 million in equity contributions. Overall, we are about 67% through the investment cycle for VSMC, and about 30% for ESMC. For VSMC, we expect an additional $425 million in 2026. For ESMC, we expect the 2026 investments to be about $50 million. Now, turning to our expectations for Q2. Q2. We expect Q2 revenue of $3.45 billion, plus or minus $100 million. This is up 18% year-on-year and 8% sequentially. The expected first-half results support our view that NXP's growth is increasingly company-specific and reinforces our confidence in achieving our long-term revenue growth targets. We expect non-gap gross margin of 58%, plus or minus 50 basis points, up 150 basis points year-on-year, and up 90 basis points sequentially. This is driven by higher revenue, product mix, and front-end utilization improvements. We expect operating expenses of $800 million, plus or minus $10 million. This reflects the $17 million annual RFID licensing fee and normal annual merit increases. At the midpoint, this results into a non-GAAP operating margin of 34.7%. Below the line, we expect non-GAAP financial expense to be approximately $92 million and our non-GAAP tax rate to be 18%. We expect non-controlling interest to be $14 million, including $4 million losses in our equity-accounted investees. Stock-based compensation is expected to be approximately $107 million and is excluded from our non-GAAP guidance. This implies Q2 non-GAAP earnings per share of $3.50 at the midpoint. Turning to Q2 uses of cash, we expect capital expenditures to be approximately 3% of revenue with a capacity access fee payment to VSMC of $55 million and equity investments into VSMC of $125 million and for ESMC, $10 million. Overall, our first-half performance and expectations reinforce the durability of our financial model, driven by our company-specific growth drivers finally shining through, gross margin back to expansion mode, and improved efficiency in our operating expenses. In closing, we remain confident in delivering our 2027 financial commitments, which implies double-digit revenue growth in both 2026 and 2027, gross margin expanding toward 60-plus percent, and continued discipline in our operating expenses. I would like to now turn the call back to the operator for your questions.

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. If you would like to remove yourself from the queue, press star one one again. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. First question will be coming from the line of Viek Arya of Bank of America Securities. Your line is open.

Thanks for taking my question. Rafael, I was hoping that you could give us a sense for what is driving the growth in your automotive business, both kind of within China and outside of China. And then how much of a pricing benefit are you seeing? Because everything appears to be in kind of short supply right now.

And I was wondering if NXP is seeing any benefit from the pricing side of the equation, or you think this is more just kind of company specific and these are more unit rather than pricing driven growth upside that you're seeing right now in autos yeah thank you Vivek for that for the question I think let me let me tackle the the question in all of it I think I think that we have right now is is the backdrop of constant news of sour being down and maybe people getting confused about what it's in need for for us in auto business and I'll say out of the back right sorry gives you how many vehicles are produces there's nothing about semiconductor company for vehicle now in this environment our auto business and XP is performing well you can see from the from the front think you want it grew 10% after you account for the sensor business and Q2 guide implies a high teens year-over-year growth on the same basis so you can see that clearly the momentum is improving and so that tells you already that this is not necessarily a story about unit growth this is a story about the transformation the architecture transformation that is driving content growth so my answer to you is it's architecture led and that's a real story right for us it's a constant story that starts showing our numbers the one thing I want to leave you as well is this growth this is increasingly structural what does that mean well our accelerated growth drivers have been growing double digits since Q4 and that also that also happened in Q1 is going to continue with Q2 and they're contributing to 90% or 90 plus percent of the growth of the segment and that kind of tells you that our growth is increasingly structural you talk about China you talk about so much movement the events, it says production is down, but every segment, I'm sorry, every region in automotive is up year over year. Despite the sequential decline of quarter, year on year, we're actually growing year on year in every segment, and that continues into Qt.

And for my follow-up, perhaps, on the comms infrastructure segment, I think the last call, you kind of broke it out, right, half, I think, in your tagging products and then, you know, digital networking and RF power. And back at your analyst day, you had essentially kind of a flattish outlook from 24 to 27. What is the right way to think about this business? How much of this do you still plan to exit? How much of this are you reinvesting in?

So what is kind of the true growth rate of your comms infrastructure business in 26 and 27 that we should be looking forward to versus what you thought of at the analyst day thank you so um let me answer just by by stating that we're not going to change the long-term model uh of comson infra but i think your question is very valid with respect to the composition of what's in it comes in infra and and if if you were if you remember what i said is that this this end market is going to be flat uh carrier basically flat for the next three years between 24 to 27 and and we experienced a decline on close to 25% last year now that we closed the year on the segment with about 50% of this revenue being tied to secure cards but quarter of that was digital networking and a quarter of that was our power now now you can see that the mark that becomes an infra in market is is recovering primarily on the back of the strength of secure cars RFID is actually going up and our exposure to data centers through our digital networking products it's actually rebounding and so I think the composition of this segment is going to shift a little bit more into from RF power which we are actually be emphasizing and is going to probably start decelerating in 2027, the revenue composition is going to change from RF power more towards digital network and secure cars is likely to stay around 50%. And that's the way you should think about it.

Thank you. Thank you. One moment for the next question. And our next question will be coming from the line of Ross Seymour of Deutsche Bank. Your line is open.

Hi, guys. Thanks for letting me ask the question. One of the lines you said in your preamble, Raphael, as well as in your press release, was about the momentum accelerating throughout the rest of the year. Can you just talk about what that is? I'm not trying to get you to guide for the back half of the year, but just is your visibility improving? What gives you the confidence in that? How much is cyclical versus secular? Those sorts of things.

No, I think that is a fair question. First of all, I will kind of resonate with you. I'm not going to die second half today but I will say the setup is clearly improved and if you if you take the q2 guide and you can probably write estimate at 50% growth in the first half of 2026 versus second half first sorry first half of this year versus first half last year and actually it's 18% if you adjust for sensors so actually you can see that we're starting the year stronger what has changed the disability has improved I think what has changed direct order book continues to strengthen the distribution back what continues to improve so I think we believe the momentum continues and so we're going to stay disciplined the way we guide but the signals that we try to give us confidence the momentum our company specific growth drivers will continue throughout the year and it's going to drive that what we believe is going to be growth in the second half.

And I guess for my follow-up, thanks for breaking out the data center side. Talk a little bit about that 200 more than doubling this year. You went through a few of the drivers there, but are these new products? Is this just the rising tide of that CapEx lifting all the boats, you included, or is this a strategic area that you're targeting?

Just talk a little bit about what gives you the confidence in that and how NXP is differentiated. yeah maybe Raza I'll start by maybe explaining what is our exposure to data center because that could be confusing so off the bat right I would say we're not claiming exposure to the data plane so no GPUs no accelerators no high-speed AI connectivity so our domain is in the control plane so the way to think about it as you know data center scales the constraints are not just computing memory they're also power cooling uptime secure controls and I think this is where NXP plays we're on a product our products are layer-skip networking processing for control control plane networking we have our IMX products for board management we have our MCUs to include a trust or be part of the cooling system so the way to think about it is we play in the part of the system where you need high reliability and long life cycle applications and and I think this is where NXP's industrial strength portfolio is differentiated. And so the growth that we anticipated from last year to this year is underpinned. I mean, these are products that they're not only designing, but they're ramping. And I think this is just about just making sure the momentum continues into the second half.

Thank you. Thank you. One moment for the next question. And the next question will be coming from the line of Thomas O'Malley. Your line is open.

Hey guys, thanks for taking my question. Just on the channel, you guys went from 9 weeks to 10 weeks. Now it looks like 10 weeks to 11 weeks. Clearly the demand profile for the rest of the year is stronger. I was curious if you guys had any additional views on the channel. Do you think that you would expand it just given the stronger demand profile? Are you comfortable with it at that 11 weeks mark that you guys have kind of described in the past?

Yes. So in Q1, this quarter, right, in Q1, we went to 11 weeks. And if you remember, our guide of Q1 last quarter already reflected the one week increase in our inventory. And it was primarily to actually service what it was a much stronger demand environment and if you look at look at our growth and industrial out of T and Q1 it grew over 20% and 80% of that business service to distribution so you can see that we already had an idea what the strength is going to come and then our Q2 guide in industrial ID which is remember 80% of that comes from the channel is guiding towards high 30% right so so we're clearly servicing the channel. Now, Q2 guide is based on inventory channels staying flat, staying at 11 weeks. So we intend to stay in our long-term target, which is 11 weeks.

And then just as a follow-up on the data center side, you guys are obviously seeing gross margin benefit from volume, and you also talked about mix as well. You guys don't give specific gross margin targets on your segments, But could you maybe give us a flavor of, are these new products, you know, beneficial to corporate gross margins? And as that scales, should you see a tailwind from the data center business as well on the gross margin line?

Hey, Tom, how are you? Thanks for your question. Let me address the gross margin in general, and specifically your question. You know, our gross margins continue to expand driven by the higher revenue, the product mix, and the utilization levels. our utilization on our front end think about the first half to be in the low 80s and think about the second half to be in the mid 80s so we will get benefit from that from the utilization levels for a gross margin again all the investments we're making is all about and servicing is all about you know focus being a creative to our corporate gross margins so in these areas and when we make investments or provide our broad portfolio into different applications, it's extremely important that we extract value and also create value for our customers. So the way to think about that, to your question, is yes, they are very favorable to the corporate gross margins, but we'll continue to drive and focus there.

Lisa, we'll take the next caller.

Thank you. And the next question will come from the line of Francois Bouveni of UBS. Please go ahead.

Thank you very much. I wanted to follow up maybe on the pricing dynamics. I mean, we have seen pricing increase in the industry so far since the beginning of the year. And also, we have seen some reports that NXP is also involved in this pricing dynamics. You don't talk much about pricing. So I maybe I'm I think that maybe it's not that a big impact yet, but should we impact the pricing move for the rest of the year as an upside potential? If, you know, it's getting tighter. And Bill, you mentioned 85, you know, in the second half of the year. So maybe you are reaching a level where maybe, you know, you could increase the pricing over time. Is that a scenario possible?

Francois, let me answer the question here in the way we see. I mean, I think your question relates to inflationary costs and the impact into pricing. And pressure in terms of cost is always a challenge. And this is something that we do, that we're paid to actually handle. And so we must tackle it. So our first reaction to cost increases is always to mitigate and do operational efficiency. And that, for us, is our preferred approach. That said, in selected areas, we are seeing high input cost pressure. And so we are taking, selectively, smart pricing adjustments to protect the economics of the The reason we haven't talked about it is because the Q2 impact is immaterial. Now, we will continue to be disciplined and protect gross margins when cost inflation requires a response. And so we'll keep you updated if things change.

Makes sense. Thank you, Rafael. And maybe the second question is on this broad-based recovery across all products and China, when you said China is also growing. And, of course, when we look at Q1, the China auto car sales, at least for the domestic part, is actually down meaningfully, I mean, mid-teens percentage year on year. So do you see as well China still strong year-on-year in Q2 and for the remainder of the year, or do you see as well some impact from that data we see for the sales of cars in China or the content is higher and offsetting any color on this China specifically would be great?

No, first of all, I acknowledge the headlines of China, right? And I think that it's been very public that the production in China was weak, primarily driven by the weakness on the internal consumption. And some of the headlines that the Chinese OEMs are focusing more on export to overcome some of the challenges that are happening with the domestic market. But I think the contradiction is that, and I continue to say it, is that production volatility is very small compared to content. growth. And China is no different than the rest of the world. And like I tell you, for us, China grew year on year in Q1. I mean, it wasn't necessarily massive, but it grew and it continues to grow into Q2. And so I think that is the story. And if the story doesn't change, content growth overcomes unit volatility.

Makes sense. Thank you very much.

Thank you. One moment for the next question. And our next question is coming from the line of Jim Schneider of Goldman Sachs. Your line is open.

Good afternoon. Thanks for taking my question. Given the commentary you made and the idiosyncratic growth drivers you're seeing relative to 26 and 27, just wanted to clarify that you still on track to sort of deliver to your analyst day targets from 2024 out into 2027, and maybe you can confirm both the revenue and growth margin side of that. Thank you.

Yes, I think the question on 2027, we were specific both in our script, both Bill and I, in our preferred remarks, that we are confident and we have a conviction on the trajectory that we have with our secular growth drivers that 2027 is achievable. And so I think the answer is yes, we stay put with our 2027 targets.

Yes, and just to add, the secular drivers, they continue to perform very, very well. We expect for the auto ones to be above our high end in Q2, and also for industrial IoT, the growth rates, be above the high end of what we said for our industrial IoT growth drivers that are companies specific.

That's helpful. Thank you. And then relative to the data center disclosure you provided, that by all accounts appears to be at least at or potentially above the rate of data center growth for many of your analog peers. Can you maybe talk about whether there's any specific areas that are growing throughout growing the overall envelope there and whether you plan to deliver or introduce any new products to further apply towards that opportunity?

Yeah, the data center. So the way to think about the data center is that we are just ramping, right? So the growth, and again, we're going to be focusing the control plane of the data center. The growth of that exposure to that segment is just beginning because we're just ramping. And our SAM, if you look at our SAM on the control plane, it's probably growing about 10% to 11% per year. We are going to outgrow the SAM because we're just ramping, and I expect that to continue to happen in 2006 and 2007. We are doubling down on some of the products to actually seize kind of the opportunity that we have in the current engagements. We are talking to our customers what the next generation of products is going to be. And I tell you, the exposure in the data centers has about 20 to 25 products. Obviously, some of the higher ASP products are in the networking side and the IMX products for board management control. And so we're speaking to our customers what the next generation needs are going to be, and we're developing those products.

Thank you. Thank you. One moment for the next question. And our next question is coming from the line of Matthew Prisco of Cantor. Your line is open.

Hey, guys. Thank you for taking the question.

Maybe to kick it off, you started a little more color on the customer ordering patterns that you've seen, what's changed over the past 90 days, and have you seen any impact from memory dynamics out there or Middle East conflict either in the order patterns today or in the customer conversation? the well the visibility on our on our backlog and then the distributors backlog has improved significantly and that's what gives us the confidence that we have going into second half of the year that the demand is strong memory is always a topic and in our customers are doing everything possible to actually secure supply this is more of a supply issue versus a price issue so we all know what the prices are of the memory um we are if you look at our customers and the consumer side they are very well funded customers that they have the ability to actually go get the supply they need um so we haven't seen any impact in our orders uh yet in industriality and automotive due to memory even though memory is still a big conversation uh in every customer meeting that we have helpful and then maybe um talking about the supply backdrop a bit are you seeing any tightness out there impacting the business as we kind of see those tier two way for

pricing increases and and how we're talking about supply and update on VSMC or or ESMC timing thanks oh sure let me take that let me take your last question first on the timing of the SMC and ESMC both are on schedule the SMC maybe I know the tools are installed there start ramping soon and hopefully we get up and running in 2028 where we get the expand our structural gross margins by another 200 basis points relate to other supply factor yet to find different parts of the supply chain are tight and and we do see these inflationary costs that Raphael referred to and if we can't offset them internally from operational efficiency or productivity we then unfortunately have to pass them along on to our customers. And so we are starting to do that in selective areas, but trying to do that in a controlled way. If things get really tight, we'll do what we did during COVID to make sure that we protect our gross margins related to it. But we are seeing, you know, bottlenecks, slight bottlenecks in certain parts of the supply chain.

Thank you. One moment for the next question. And the next question will be coming from the line of Joe Moore of Morgan Stanley. Your line is open.

Great. Thank you. I wonder if you could talk about the growth drivers in the auto space. And, you know, you sort of talked about seeing your business get better from that. Any, you know, is that kind of an indication of 2027 model year or I sort of think of these as five-year rolling programs? Just anything you can do to help us, you know, what's giving you the confidence to sort of call that an inflection rather than something cyclical?

Yeah. So let me let me talk about the auto growth drivers. they've become a very important part of the business now and it's really changing the the composition of the revenue in auto the the growth drivers used to give you a sense the growth drivers in q1 they were north north north than 45 percent of the revenue now composition and so we continue to see growth and just to give you a sense this is now coming from a 39 composition I think we're going to end up the year in 2026 closer to to the 50 range as opposed to the mid 40s and because they are growing strongly right and they are growing double digits and it's driven by the software defined vehicle portfolio that we have that is the strength of of NXP and automotive is we have products in the processing portfolio that today don't have equivalents in the market and they are really well positioned for solo architectures and central computer architecture so we expect um this this transition into sdb to really be a very very strong tailwind and position nxp as the leadership in automotive but it's all driven by our sdb platform great and is there anything different about that in the in the china market as sort of thinking you know when you build the car architecture from scratch it's probably easier to build around software defined vehicles than it is if you're sort of in an entrenched architecture on the other hand there's local suppliers and things like that just is the China market any different in terms of those growth drivers it is not necessarily different in terms of the adoption of the growth drivers I think what is different is in the speed in which we they adopt the products and for instance I would say that let me just take an example s32k5 which is our 60 nanometer latest 60 nanometers on product a product with a lot of performance we expect the k5 to go to production in China despite the fact that you know this this product has been sampled to Western customers first so the speed in which they adopt the next generation architectures is what is different now you made a comment with respect to local competitors I think that the shift in architecture is also benefiting us because at the end of the day you will see local competitors emerge in the automotive market and they are likely to emerge in the low end but this architectural shift to someone on central compute it favors higher for processing capabilities they have it favors higher redundancy the other thing that you have to take into account China is moving fast to total to to automation to level three level four eight us so that also requires more redundancy a better security better safety and so this is where i think innovation and and mcus and mpus is going to be key uh to actually win in the market so we're quite excited about the transformative move that chinese are making in architectures and the speed in which we're doing it because we have the right roadmap for them great thanks so much thank you one moment for the next question and the next question will be coming from the line of chris casco of Wolf Research.

Please go ahead.

Yes, thank you. Good evening. The first question is coming back to some of the comments you made about input costs rising. And if you could talk to us about what you're seeing with regard to foundry wafer pricing now and how that gets affected as VSMC starts to ramp next year you know what what what what impact is that on you and perhaps does that provide you with some sort of an advantage if the pet risk pricing does go up as the SMC ramps yeah let me take that one the way to think about the supply the SMC services one sort of supply which we kind of have a little bit more control over and and why we're paying additional capacity access fees to get additional supply but that's probably more linked to some of our technologies that are mostly in-house we're from part of our consolidation rationalization project that we're doing the other capacity what we're seeing is when you want additional so if you have surprises above what you know the agreements that you kind of entered in the beginning of the year we're seeing additional charges because they may need to obviously capacity gets tight so they also may need to add new tools and so forth to help you supply but we're not you know from the current agreement it's probably more upside that they charge and then can we offset that internally if we can't then we pass it along to our customers right understood um as a follow-up you mentioned in your opening remarks that I guess you were confident still in the analyst day targets, and that implied double-digit growth for 26 and 27. Obviously, 27 is far away. I'm not sure what we should read into that. Is there, you know, any particular visibility that you have, or is this just, you know, some confidence that perhaps we finally turned the corner, and, you know, If that's the case, we get a good growth year next year. Not sure how much we should read into those comments.

Well, let me address that, because I think it's a question on the model and why we're doubling down on basically our commitments in 2027, which you will imply, just doing the math, a particular growth rate in 2026 and 2027. and that conviction or revenue targets emanates from from the traction that we have in our in our actual drivers and the traction that we have now data center and the traction that we show you in both the industry and IOT and I think we you can get there to different contributions by the different end markets and some segments are going to be in the low end of the range some sectors are going to be the higher end of the range but our targets for us in 2027 they seem to be within reach now just be brown is I don't we internally in the NXP we don't see 2027 as a destination of course it's just a milestone and if you were to look into 2027 getting and what's important obviously you know from you from a regular perspective is why we have the conviction but for us internally is how we close the year and enter 2028 with momentum in our focus markets the progress we make in our portfolio the traction that we have on becoming mission critical to our customers and and I think the conviction that we have is that progress we're making right now

in 2026 and last year with the adoption of our customers in our new products I think makes our view in this path towards 2027 very very constructive so yeah maybe I just said just on the secular drivers you know obviously we have visibility next for the quarter after the following quarter and the order intake on those you know secular growth drivers for the company specific are all at high end or above of what we said during investor day so really a lot of company specific growth that's given us confidence behind it because again it's a content it's a ramp of product design wins that one and they're you know ramping now and so since they're tracking to you know at the high end or above the high end of the model that we provided we feel very confident that this will continue because of the adoption of our solutions thank you thank you one moment for the next question and our next question is coming from the line of Gary Mobley of loop capital your line is open hey guys thanks for taking my question I was hoping that you can give us an update on the integration of Canera, Aviva, TT Tech, how that's progressing, whether it

relates to, you know, enhancements to existing roadmaps or, you know, full commercialization on an independent basis. Any update there would be helpful. Yes, I'll give you an update. So I think let's start with TT Tech. I think great engineering organization. They have been redeployed now to our internal efforts to do S32 cord ride. This is a very important kind of initiative that we have. We expect to sample with customers in Q3 this Sonal reference design, the Sonal K5 reference design that involves not only the K5s, but other MCUs and our 48 volt architecture. and we're doing it both in the East and the West I think we have a high single digit number of customers engaged in POC so it's quite exciting and we do expect that this effort is going to accelerate the k5 adoption in 2027 Aviva links I think it's a great platform that we got uncertainty platform this is an open standard very important for SDV is giving the fact that the sensors and displays are multiplying and next-generation vehicles and all these are connected to 30s and I think companies are looking for an open platform versus the proprietary solutions they have today we have customer awards now and we expect to be in production with them in 2028 so this is a new sound for us this is a new market that we haven't entered and in the process there were two very entrenched obviously competitors there but now with this open standard allows NSP to come and compete and compete with great technology and the last one on Kinara what a great acquisition directly in the middle of our of our North Star which is becoming intelligent systems at the edge and Kinara is it's been a perfect combination for our MX platform that is our application processor it allows us to really engage with customer in ways that we couldn't have done in the past just because we didn't have the capability we didn't even have the credibility on it and so today sales funnel is is quite large and literally over a billion dollars of sales funnel so obviously a lot of a lot of things to go in and go and chase a customer reaction is really good we have you know I think we have like more than 30 POC is going on and we expect again we are on track to have some revenue of combination of the of the Kinara asset with IMX and the second half 2027 in 2028 the other important thing is that we're starting to integrate the Kinara IP already into our industrial processors and our auto processors this is monolithic integration of the IP so this is also going to be part of our next generation processing for for our auto industrial products appreciate it Raphael want to ask really more of a direct question on your comfort to the 2027 targets we all know what the revenue would materialize to

it 15.8 billion if you hit the growth targets is laid out you know November 2024 but we've had of course the divestiture the men's sensor business so So should we think about the end point or I guess the milestone for 2027 is about $15.4 billion in revenue?

So, hey, Gary, let me take that modeling question. So first, in your calculation, remember you've got to back off the sale of the MEMS business. That's just a housekeeping item. But I think of what you've heard from both Raphael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6% to 10% total company. And I know you guys know how to do modeling better than anybody. You can kind of back into what that means for 26 and 27. And we're going to leave that exercise to you. But we are not backing away from those targets. And I would say the thing to take away from maybe some of the comments from both Bill and Raphael is the design wins we have. And they are starting to go into production. So our clarity and our belief in achieving those targets is increasing daily. Thanks, Jeff. Yep, sure.

One moment for the next question. And the next question will be coming from the line of Quinn Bolton of Needham & Company. Your line is open.

Hey, guys. Thanks for taking my question. I guess I wanted to come back to the IIoT business, and if I've got my numbers right, it looks like that business will hit a record revenue level in the second quarter. How much of that is just broad-based industrial and market recovery versus your company-specific growth drivers? And then I've got a quick follow-up for Bill.

Yeah, let me jump on that one. I think you're right. I think the strength of IoT, industrial and IoT, for us, started showing strength in Q3 last year. We started to grow year over year. And that growth continued in Q4, continued in Q1 with a 20-plus percent range, and that will guide you to the high term. so that if we said it clearly the strength is blood base is all geographical ratio regions and in all markets we we have certain products right now they're driving the growth we said they have that growth came from new new industrial processing a portfolio that is on that is an accelerated secular growth drivers what is also very encouraging is that we're seeing the core part of industrial IOT also growing this is a this is a part of the revenue the last year's decline now is back in growth in q1 it grew 15% year on year and so you can see that the rest of the portfolio is also recovering so it's very it's broad-based now it's also not only the accelerated growth drivers performing by the core part of our business in the nationality is coming back. And so that kind of tells you, hopefully, a little bit of flavor of the strength of the momentum that we have going into Tier 2 and likely carry in the second half of the year.

Yeah, maybe I'll just put a number there. The way I think about industrial IoT, the secular growth drivers are representing about 37%, and they're growing north of 40, 50% kind of range. I was thinking, and for Bill, you've talked about the 200 basis points that you get from the ramp of ESMC and insourcing or moving production from 200 millimeter to 300 millimeter can you give us a sense you know as that facility comes online how quickly do you get that benefit does it you know can you see it all in one year or does it take several years to achieve the full 200 basis points yeah it's a great question typically we should start to see it when the factory is fully utilized which is probably you know a good utilization number for that type of factory runs 90-95 percent and so it will take several quarters to get that full benefit depending on you know the ramp of course um so my guess is you probably get a partial of it

for sure in 2028 will you get the full amount not sure it all depends on the timing of the ramp but we're pushing strong uh and uh we want to get it as well and and drive it thank you thank you Lisa I think that'll be our last question and I think we'll pass it back to Raphael to conclude the call today thank you everyone for joining us today and for your thoughtful questions in closing I would like to leave you with three takeaways first NSP growth is driven by leadership and SDV and physical AI and industrial IOT second our company specific growth drivers are performing as designed. Lastly, we're reaffirming our analyst debt commitments, which implies double digit growth in both 2026 and 2027. This quarter reaffirms the strength of the execution to our strategy. We remain committed to discipline investment, margin expansion, and portfolio optimizations to deliver sustainable long-term value for our shareholders. Thank you.

Thank you. This does conclude today's program.

Thank you all for joining.

You may now disconnect.