Earnings call transcript: NXP Semiconductors Q3 2025 misses EPS forecast

NXP Semiconductors NV, a prominent player in the Semiconductors & Semiconductor Equipment industry, reported its Q3 2025 earnings, revealing a slight miss in earnings per share (EPS) against forecasts. The company posted an EPS of $3.11, just below the expected $3.12, while revenue surpassed expectations at $3.17 billion, compared to the forecasted $3.16 billion. Despite the minor EPS miss, the revenue beat by $10 million. The stock saw a 1.1% increase in the regular session but dropped 1.27% in premarket trading following the earnings release. According to InvestingPro analysis, the company appears fairly valued based on its current Fair Value assessment.

Key Takeaways

• NXP’s Q3 2025 EPS was slightly below expectations at $3.11.
• Revenue exceeded forecasts, reaching $3.17 billion.
• The company’s stock showed mixed reactions, with a premarket decline.
• NXP is focusing on automotive and industrial market innovations.
• Guidance for Q4 2025 anticipates revenue growth.

Company Performance

NXP Semiconductors demonstrated resilience in Q3 2025, with revenue reaching $3.17 billion, marking an 8% sequential growth despite a 2% year-on-year decline. The company continues to strengthen its position in the automotive and industrial sectors, with notable advancements in intelligent edge systems and automotive processing platforms. InvestingPro data reveals strong fundamentals with a current ratio of 1.74, indicating healthy liquidity, and an impressive gross profit margin of 55.7%. Get access to over 30 additional key metrics and financial insights with InvestingPro’s comprehensive research reports.

Financial Highlights

• Revenue: $3.17 billion (2% decline YoY, 8% growth sequentially)
• Non-GAAP EPS: $3.11 (1 cent above company guidance)
• Non-GAAP Operating Margin: 33.8% (170 basis points below previous year)

Earnings vs. Forecast

NXP’s Q3 2025 EPS of $3.11 fell short of the forecasted $3.12, representing a negative surprise of 0.32%. However, revenue came in slightly higher than expected, at $3.17 billion versus the anticipated $3.16 billion. This minor variance in EPS is unlikely to significantly impact the company’s long-term outlook.

Market Reaction

The company’s stock price increased by 1.1% during regular trading hours, closing at $221.56. However, in premarket trading, the stock experienced a 1.27% drop, reflecting investor sentiment following the earnings release. The stock remains within its 52-week range, with a high of $256.62 and a low of $148.09. Analyst consensus is notably bullish, with a "Buy" recommendation and price targets ranging from $210 to $289, suggesting potential upside. InvestingPro subscribers can access detailed analysis of NXP’s market position and comprehensive valuation metrics through the Pro Research Report.

Outlook & Guidance

For Q4 2025, NXP projects revenue of $3.3 billion, indicating a 6% year-over-year increase and a 4% sequential rise. The company anticipates continued growth in the automotive and industrial markets, with a focus on expanding its product offerings in wearables and smart glasses. InvestingPro analysis highlights that NXP has maintained profitability over the last twelve months and is expected to remain profitable this year, with analysts forecasting EPS of $11.85 for FY2025.

Executive Commentary

CEO Rafael Sotomayor emphasized the company’s strategic focus, stating, "Car production is not the driver of our business. We’re not SAR related." He highlighted the importance of content growth, which "dwarfs SAR growth," and expressed a slightly more optimistic outlook compared to the previous quarter.

Risks and Challenges

• Supply chain disruptions could affect production timelines.
• Market saturation in key segments may limit growth potential.
• Macroeconomic pressures, including inflation, could impact costs.
• Competitive pressures in the automotive sector remain high.
• Geopolitical tensions may influence market dynamics, particularly in China.

Q&A

During the earnings call, analysts inquired about inventory levels and market conditions. NXP reported no significant inventory restocking, maintaining a cautious optimism for the 2026 automotive market. The company expects gross margins to improve as manufacturing strategies evolve.

Full transcript - NXP Semiconductors NV (NXPI) Q3 2025:

Tawanda, Conference Call Operator: Hello and thank you for standing by. Welcome to NXP Semiconductors third quarter 2025 earnings conference call. At this time, all participants are on a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Jeff Palmer, Senior Vice President, Investor Relations. Please go ahead sir.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Thank you, Tawanda, and good morning, everyone. Welcome to our third quarter earnings call today. With me on the call today is Rafael Sotomayor, NXP’s President and CEO, and Bill Betz, our CFO. Also on the call with us is Kurt Sievers, who will act as a Special Advisor to Rafael through the end of 2025. 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 financial results for the fourth quarter of 2025. NXP undertakes no obligation to revise or update publicly any forward-looking statements.

For a full disclosure of forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures which are driven primarily by discrete events that management does not consider to be directly related to NXP’s underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2025 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP’s website in the Investor Relations section. Now I’d like to turn the call over to Rafael.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Thank you, Jeff, and good morning. We appreciate you joining our call today. Our overall performance during the third quarter was solid. Our revenue exceeded guidance by $23 million. We experienced sequential growth driven by broad-based improvements across all regions and end markets. We maintained good profitability and controlled operating expenses, resulting in healthy fall through. Turning to the specifics, NXP Semiconductors delivered third quarter revenue of $3.17 billion, a decline of 2% year on year and up 8% sequentially. Non-GAAP operating margin in the third quarter was above 34%, 170 basis points below the same period a year ago and 10 basis points above the midpoint of our guidance. The lower operating margin versus the same period last year was due to lower revenue and gross profit, partially helped by flat operating expenses. Taken together, we drove non-GAAP earnings per share of $3.11, a penny better than guidance.

Distribution inventory was flat at nine weeks, consistent with our guidance while still below our long-term target of 11 weeks. From a direct sales perspective, we believe our shipments into the Tier 1 automotive supply chain best approach end demand. We estimate that aggregate inventory levels of NXP Semiconductors-specific products at our major Tier 1 partners are below NXP Semiconductors’ manufacturing cycle time. We believe this reflects a continued cautious approach in the automotive supply chain due to the uncertain macro environment. Overall, during the quarter, we did not experience any material customer order pull-ins or push-outs. Now I will turn to our expectations for the fourth quarter. Our outlook reflects the continued strength of our company-specific growth drivers and signs of a steady cyclical recovery in our automotive and industrial markets.

We do not yet anticipate direct customer inventory restocking as one might expect off the bottom of a cyclical trough. From a channel perspective, our guidance assumes distribution inventory may fluctuate between nine and 10 weeks as we are selectively staging additional products in the channel to be competitive. We are guiding fourth quarter revenue to $3.3 billion, up 6% versus the fourth quarter of 2024 and up 4% sequentially. At the midpoint, we expect the following trends in our business during Q4: Automotive is expected to be up mid-single digits versus Q4 2024 and up in the low single-digit % range versus Q3 2025. Industrial and IoT is expected to be up in the mid 20% range year on year and up 10% versus Q3 2025.

Mobile is expected to be up in the mid teens % range year on year and up in the mid single digit range on a sequential basis. Finally, Communication infrastructure and other is expected to be down in the 20% range versus Q4 2024 and flat versus Q3 2025. In summary, NXP Semiconductors third quarter results and guidance for the fourth quarter reflect a growing confidence in the company’s specific growth drivers and that a new upcycle is beginning to materialize. This is based on the several signals we track regularly. These include continually growing customer backlog placed with our distribution partners, improved order signals from our direct customers, increased short cycle orders, and a growing number of product shortages leading to customer escalations. At the same time, we do not yet see material customer restocking due to the uncertain macro environment.

Now an update on our pending acquisitions of Kinara and Aviva Links. We have received all regulatory approvals. We have closed both Aviva Links and Kinara. We are extremely excited about the long term benefits these acquisitions will bring to our customer engagements and market position. As we have previously shared, in the short term, these acquisitions will have an immaterial impact on the revenue and financial model of NXP Semiconductors. We do believe the revenue impact will be material in 2028 and beyond. The three recent acquisitions, TTTech Auto, Kinara, and Aviva Links, will enable NXP Semiconductors’ vision to be the leader in intelligent edge systems in the automotive, industrial & IoT markets. As this is my first earnings call, I would like to assure you that the strategy we laid out during our November 2024 Investor Day stays firmly in place.

This includes our product innovation focus in our financial and capital return model. For the last six months I’ve traveled globally engaging with our customers, suppliers, and development teams. My key takeaway is that NXP Semiconductors strategy is compelling. We are focused on the most important customers and thought leaders. Our highly differentiated product roadmaps position us well to achieve our long term goals. I will continue to work closely with the cross functional leaders throughout NXP Semiconductors to accelerate our innovation in time to market efforts. Overall, we remain focused on disciplined investment and portfolio enhancements to drive profitable growth while maintaining control over the factors we can influence. I would like to pass the call to Bill for a review of our financial performance.

Bill Betz, CFO, NXP Semiconductors: Thank you, Rafael, and good morning to everyone on today’s call. As Rafael has already covered the drivers of the revenue during Q3 and provided the revenue outlook for Q4, I would like to move to the financial highlights. Overall, Q3 financial performance was solid with revenue, gross profit, and operating profit all above the midpoint of our guidance range, while operating expenses were a touch above the midpoint of our guidance due to slightly higher variable compensation. Taken together, we delivered non-GAAP earnings per share of $3.11, or a penny better than the midpoint of our guidance. Now moving to the details of Q3, total revenue was $3.17 billion, down 2% year on year and $23 million above the midpoint of our guidance range.

We generated $1.81 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57%, down 120 basis points year on year and in line with the midpoint of our guidance range. Total non-GAAP operating expenses were $738 million, or 23.3% of revenue, flat year on year. From a total operating profit perspective, non-GAAP operating profit was $1.07 billion and non-GAAP operating margin was 33.8%, down 170 basis points year on year and 10 basis points above the midpoint of our guidance range. Non-GAAP interest expense was $91 million, while taxes for ongoing operations were $173 million, or a 17.7% non-GAAP effective tax rate. Non-controlling interest was $15 million, and results from equity accounted investees related to our joint venture manufacturing partnerships was a $2 million loss.

Taken together, the below the line items were $6 million unfavorable versus our guidance, primarily due to a slightly higher tax rate driven by improved profitability. Stock-based compensation, which is not included in our non-GAAP earnings, was $118 million. Now I’d like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $12.24 billion, up $757 million sequentially. We issued three new tranches of debt totaling $1.5 billion with a combined weighted cost of debt of 4.853%. During the quarter, we reduced our net commercial paper outstanding by $735 million. Additionally, we plan to retire two tranches of debt due in March and June of 2026 totaling $1.25 billion with a weighted cost of debt of 4.465%.

Our ending cash balance was $3.95 billion, up $784 million sequentially due to the cumulative effect of commercial paper reduction, capital returns, equity and CapEx investments offset against the new debt and cash generated during the quarter. The resulting net debt was $8.28 billion with a trailing twelve month adjusted EBITDA of $4.65 billion. Our ratio of net debt to trailing twelve month adjusted EBITDA at the end of Q3 was 1.8 times, and our twelve month adjusted EBITDA interest coverage ratio was 15.9 times. During Q3, we paid $256 million in cash dividends and repurchased $54 million of our shares, representing a twelve month total shareholder return of $2.05 billion or 106% of non-GAAP free cash flow. After the end of the quarter and through October 24th, we bought an additional $100 million of our shares under a 10B5-1 program.

Now turning to working capital metrics, days of inventory was 161 days, an increase of 3 days versus the prior quarter, with inventory dollars up modestly due to pre-builds and wafer receipts from our foundry partners. Days receivables were 31 days, down 2 days sequentially, and days payable were 58 days, down 2 days sequentially as well. Taken together, our cash conversion cycle was 134 days. Cash flow from operations was $585 million and net CapEx was $76 million or about 2% of revenue, resulting in non-GAAP free cash flow of $509 million or 16% of revenue. During Q3, we paid $225 million towards the capacity access fees related to VSMC, which is included in our cash flow from operations.

Additionally, we paid $139 million into VSMC and $15 million into ESMC, our two equity-accounted foundry joint ventures under construction, with the payments reflected in our cash flow from investing activities. Now turning to our expectations for the fourth quarter, as Rafael Sotomayor mentioned, we anticipate Q4 revenue to be $3.3 billion plus or minus $100 million at the midpoint. This is up about 6% year on year and up 4% sequentially, better than our view 90 days ago. We expect non-GAAP gross margin to be 57.5% plus or minus 50 basis points. Operating expenses are expected to be about $757 million plus or minus $10 million or about 23% of revenue, consistent with our long term financial model. Taken together, we see non-GAAP operating margin to be 34.6% at the midpoint, bringing NXP Semiconductors back into our long term financial model.

In addition, our guidance includes about two months of operating expenses for the closed Aviva Links and Kinara acquisitions. Now turning to the below line items, we estimate non-GAAP financial expense to be about $103 million. We expect the non-GAAP tax rate to be 18% of profit before tax, non-controlling interest expense will be about $14 million, and startup expenses related to our equity account investees will be about a $3 million loss. For Q4, we suggest for modeling purposes you use an average share count of 254.3 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance, to be $118 million. Taken together, at the midpoint, this implies a non-GAAP earnings per share of $3.28. Turning to the uses of cash, we expect capital expenditures to be around 3% of revenue, below our 5% target, as we execute our hybrid manufacturing strategy.

This includes consolidating our 200 millimeter front-end manufacturing factories and investing in our 300 millimeter joint ventures with VSMC and ESMC. These investments will result in margin expansion, supply resilience, and access to a competitive manufacturing cost structure. As shared at our Investor Day, we will continue to substantially invest in VSMC in Singapore during Q4, including a $250 million capacity access fee payment and a $350 million equity investment. When VSMC is fully loaded in 2028, it will drive a 200 basis points improvement in NXP Semiconductors’ total gross margin. Additionally, we will make a $45 million equity investment into ESMC in Germany, enabling additional 300 millimeter supply resilience. Lastly, we will pay approximately $500 million for the closed acquisitions of both Aviva Links and Kinara.

Furthermore, we have restarted our buybacks at the beginning of September, and we will continue to buy back stock consistent with our capital allocation strategy. Finally, I would like to extend my personal thanks to Kurt as he transitions to a new and exciting chapter of his life. He’s been an inspiration to all NXP Semiconductors team members and a personal mentor and valued partner to me. As a CFO, we will miss his infectious humor, timely counsel, and thoughtful insights. With that, I would like to now turn it back to the operator for questions.

Tawanda, Conference Call Operator: Thank you, ladies and gentlemen. As a reminder, to ask the question, please first start 1:1 on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one. Again, we ask that you limit yourself to one question and one follow up. Please stand by while we compile the Q and A roster. Our first question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Hi guys.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Thanks for asking the question and congrats to both Kurt and Rafael. I guess my first question, a big picture one, Bill, you just mentioned that the guidance for the fourth quarter was better than you expected 90 days ago. The details Rafael gave, while positive.

Didn’t seem like much had really changed.

What specifically got better over the last 90 days either by end market, inventory, region, etc.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Let me take that one, Russ. The way we think about Q4 is we’re guiding Q4 sequentially, 4% up. What we said last time, we did provide a soft guide of Q4 that we said we’re going to be flat, slightly up. I think what I would say is that things that we expected to go, maybe potentially the risk that we have, they didn’t materialize and the signals with respect to a soft recovery continue to be there. Our order book continues to be strong. The end consumer backlog, our distribution partners continues to be healthy. If you look at the quarter to quarter guide, what is driving a slight improvement, I would say over seasonality, pre-Covid seasonality is industrial and IoT where I think we see signs now of slight demand improvement.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Good. I guess on that front, you mentioned about the inventory staying in the nine to ten week level, not quite getting to the eleven. That’s your target. If you go from nine to eleven, any sort of rough dollar amount that that contributes that we should think about? Is there any specific trigger that you’re looking at to let that inventory get back to its normal level, whether it be in the fourth quarter, which it doesn’t sound like, or say the—

Bill Betz, CFO, NXP Semiconductors: First half of next year.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Yeah, Russ. I understand in the past, I mean, we apply a math that it was that we said it’s about one week of inventory equals to $100 million. I understand the math. What I would like you kind of for now think of, I think it’s more useful to look at how we’re managing the channel strategically and so kind of shift a little bit of how you look at channel inventory. If you look at today, given the current environment that we have where visibility is limited, orders come late. The one thing I want to leave you with, it’s important to have the right product mix in the channel to be competitive, especially when you think about our competition that has significantly higher inventory in the channel than us.

As you know, we’re not a catalog company, so getting the right product mix is really important for us now. Today, right now, we’re being selective. We’re staging additional product that we have high conviction of sell through. That one, that’s the reason I state that the inventory may fluctuate between 9 and 10 is because what I want to leave you with is in today’s environment, weeks of inventory is not static.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Right.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Orders are coming late. I would say that your question with respect to when 11 weeks. I would say that as our visibility and confidence continues to improve, I will confirm your point, we still see the optimal level moving towards 11 weeks. That may or may not happen in Q1 as we see improvements in the business conditions.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Thank you. Thanks, Ross.

Tawanda, Conference Call Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Francois Bouvignies with UBS. Your line is open.

Thank you very much. My first question is on maybe, you know, your comment, Rafael, you said that you think inventories are, I mean, low in automotive, for example, and things are getting better broad based. You do not expect to increase inventories in the channel, I mean, or even, sorry, not in channel, but in the direct channel. I was wondering if we look at Q1, you know, in terms of seasonality, I think you are down high single digit % quarter on quarter for Q1. Should I read this comment as, you know, today with your visibility, you are comfortable with seasonality, assuming there is no stockpiling and demand is stabilizing. Is that the right way to look at it?

Rafael Sotomayor, President and CEO, NXP Semiconductors: You’re asking about Q1. Yeah, Q1.

You know, in a way directionally based on what you just said, you know, are you comfortable with a seasonal trend?

Let me just kind of, before I get into it, give you a slight answer on that one. I would say that if you look into what we feel good about, it is the setup into 2026. If you look at how we finished Q4, I think that we are now entering a phase of inventory normalization in auto, and we’ve seen signals of, I would say, demand improvement in industrial and IoT. I think we like the setup. I’m not going to guide Q1 for you, Francois, but I think if you’re going to model, I think modeling seasonality, and I would say using pre-Covid seasonality, which is high single digits decline, would be reasonable.

Thank you, Rafael. I appreciate the color. Maybe the second question is for Bill. I mean, gross margin is going up in the next quarter. I assume it could be because of mix, but I would be happy to have your view here. More generally, your inventory is still fairly high, you know, days a bit higher, dollars a bit higher. You assume your loading is still, you know, you keep loading quite high. How should we think about the gross margin direction after this Q4? Are you going to, you know, crystal loading at the expense of gross margin, or do you think you can manage this level of gross margin or even increase from here? Just the moving parts would be very helpful, thank you.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Sure.

Bill Betz, CFO, NXP Semiconductors: Francois.

Rafael Sotomayor, President and CEO, NXP Semiconductors: As you can see.

Bill Betz, CFO, NXP Semiconductors: Mentioned, we are guiding gross margins up approximately 50 basis points into Q4. This is driven by the higher revenues, Francois, improved operational costs, and also, yes, higher utilizations which is actually offset with unfavorable product mix. Of course, we have the normal plus or minus 50 basis points on what that mix tends to ultimately be in the quarter for Q1, 2026 and the full year of 2026. We are not guiding. However, please consider our normal seasonality that Rafael just talked about in revenues for Q1 along with our annual low single digit price negotiations that typically impact us in the first quarter. We always work to offset those throughout the year through cost reductions and operational efficiencies.

For full year 2026, I would say we expect to be in our long term model of 57% to 63% driven by a function of revenue levels, improved utilizations, cost reductions, offsetting the price gives, and the normal product mix fluctuations in any given quarter. I would say as stated before, please continue to use that rule of thumb. For every $1 billion of revenue on a full year basis drives approximately 100 basis points improvement to gross margin. For example, I shared in the past at $15 billion, we should be at 60%. Remember, as I mentioned in my prepared remarks, beyond 2027 we also see another lift to our gross margins by approximately 200 basis points driven by our hybrid manufacturing strategy. Again, overall, I think we’re very pleased with the trajectory of our gross margins and how we manage this.

Related to your inventory question, you know, you’re right. In Q3 we finished inventory at 161 days. That was up three days. We’re staging inventory to support our growth into Q4 proactively. We are holding more inventory to support the continued increase of late orders that Rafael talked about which are coming in below lead times. Of course, the customer escalations have grown quarter over quarter as Rafael shared.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: In his prepared remarks.

Bill Betz, CFO, NXP Semiconductors: As I mentioned, last quarter we started our pre-builds for the 200 millimeter consolidation plans, which by the end of the year will be worth about six to seven days of our total NXP days of inventory. Also, remember we’re holding approximately 14 days of inventory on our balance sheet versus our distribution partners. That assumes nine weeks. With the positive signals we are seeing, and from lessons learned from the past, I’m quite comfortable and pleased with the internal inventory positioning. As we mentioned many times, we have long-lived inventory in die form, preventing obsolescence risk. If you had me call inventory into Q4, I would say similar levels from a days perspective, plus or minus five days is the best view I can give you at the moment into Q4.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Very clear.

Thank you, gentlemen.

Thanks Francois.

Tawanda, Conference Call Operator: Please stand by for our next question. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is open.

Great, thank you.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: I also wanted to touch on automotive.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Customers’ kind of view on inventories, and I guess can you just talk to us a little bit about what those.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Conversations are like understanding there’s not much.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Overlap between you and NXP at this point. I would think stuff like that is.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: A reason to want to hold more inventory and kind of buffer yourself from these geopolitics issues.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Are you seeing any indications that that is happening or will happen? Yeah, Joe, that’s a great question. I think the issue with NXP Semiconductors really shows that the current level of inventory at the end customer is not sufficient to have any ripple of business continuity. We don’t see it restocking with our direct customers. I would say the good thing, right, if you look at the business dynamics of auto highly related to inventory, the normalization and also a very nice, already we consider, very nice tailwind, and you would expect the next phase to actually be restocking of inventory. We have not seen it happen. The conversations are pretty much about how they are being very conservative with respect to how they manage their working capital. No restocking so far.

Bill Betz, CFO, NXP Semiconductors: Yeah, maybe I’ll add exterior itself just to add to it because I think your question does it impact NXP in any way from a direct standpoint, the answer is no. As Rafael said, we’re still in the early phase and seeing customer escalations. The signals improve. The restocking has not happened nor has price increases that happen, which you typically see during a supply crisis. Those are other signals that we wait to see.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Okay, is there any impact potentially on automotive production from all of that on the negative side that you could see if they have shortages of other components, that it slows productions? Joe, we don’t anticipate that. I think that the products that are associated right now with Nyxperia, these are products that could be second source. I think the qualification process could be relatively benign for OEMs. So far our orders will not indicate any impacts into the production of auto.

Bill Betz, CFO, NXP Semiconductors: Thank you so much.

Tawanda, Conference Call Operator: Thank you. Our next question comes from the line of Stacy Rasgon with Bernstein Research. Your line is open.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Hi guys. Thanks for taking my questions. My first one, I wanted to drill into gross margins a little more. You are guiding it up sequentially, but it’s flat year over year, even on a pretty decent revenue increase. I guess that’s mix, but I’m struggling to see where the mix issue is. It looks like your industrial mix is higher. Auto looks about the same.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: What is going on with gross margin?

Rafael Sotomayor, President and CEO, NXP Semiconductors: It sounds like utilizations.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: I’m not even sure.

Rafael Sotomayor, President and CEO, NXP Semiconductors: They don’t sound like they’re lower year over year. Why are we getting more gross margin leverage on a year over year basis?

Bill Betz, CFO, NXP Semiconductors: Yes, Stacy, I think the factor that we see going into Q4 again, what we talked about is from an end segment, our gross margins tend to be much closer to each other to the corporate average. You can see the industrial, not the industrial, the common infra is down quite a bit year over year. The other one is you can see we’re having record quarters in our mobile space, which again, you know, is slightly below our margin corporate mix. Those two end markets are kind of impacting our mix from a utilization standpoint. We are in the high 70% or plan to be in the high 70% into Q4 related to it. We do have kind of inventory at the high end internally.

Of course, that also has an impact on how we run total our material throughout the line, not just in the front end but also in the back end and so forth. Those are really helping offset that unfavorable mix that we see at the moment.

Rafael Sotomayor, President and CEO, NXP Semiconductors: I guess the inventory fill also helps. The distribution stuff is higher margin as well.

Bill Betz, CFO, NXP Semiconductors: Yeah, there’s two sets of it. Remember the distribution and what you’ll see is actually our distribution sales will be up quarter over quarter. Let me remind you that a portion of that or a large portion of it is driven by our mobile business where we drive and use the distribution partners in that mobile end market. That’s what’s driving the increase from a quarter over quarter perspective.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Thanks. My follow up, I just wanted to level set. It sounds like there is some channel fill into Q4. If I say half a week, I guess is that, do I just roughly think of that as $50 million of income on the impact into the Q4 guidance? I know you said Q1 you were comfortable with seasonal, but does that incremental channel fill in Q4 influence how we might think about Q1 seasonality? Are you sort of implicitly assuming that?

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: You are going to be putting more.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Into the channel in Q1 before seasonal guide? Okay, there were several questions on that one. Stacy, let me grab that one. You made a comment again on trying to kind of equate where we’re going to end up in the channel and you equate, I mean you mentioned $50 million. I wouldn’t see it that way. We gave a guidance of $3.3 billion. The demand, again, the visibility that we have right now is low. Orders are coming late. Where the weeks of inventory end up in the channel, like I said, it may fluctuate between 9 and 10. It’s not going to be more than 10, it may be 9.

To put a formulaic kind of way of looking at how much revenue is going to come from weeks of inventory staying in the channel, I don’t know if I could really kind of go there, given how fluid the demand is. We’re putting products that we have high conviction of sell through. I don’t see it. We usually have a scenario that’s baked into guidance. You must have a scenario that’s baked into guidance for Q4, right?

Bill Betz, CFO, NXP Semiconductors: Yeah.

Rafael Sotomayor, President and CEO, NXP Semiconductors: The scenario says that depends. The inventory may fluctuate between 9 and 10 weeks. The scenario is what material we put in the channel. Okay. All right, guys, thank you.

Tawanda, Conference Call Operator: Thank you. Our next question comes from the line of Tom O’Malley with Barclays. Your line is open.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Hey guys, thanks for taking my questions. The industrial and IoT business seems very strong to close the year, kind of particularly versus where expectations were. You guys have been helpful in the past about kind of laying out where you’re seeing that strength, whether it’s the core industrial side or more on that IoT side. Could you give us a little bit of a feel of what’s moving into your Q4?

Rafael Sotomayor, President and CEO, NXP Semiconductors: Yes, Tom, let me just step back. If you look at our industrial & IoT business at a high level, 60% is core industrial, 40% is consumer. Even within that, 80% of the revenue flows to distribution. It just kind of gives you kind of step by step. Now what we see in IoT, the end customer backlog through the channel continues to improve. We see really strong signs of demand improvement. On the consumer side, this is where we continue to benefit from company specific drivers. For instance, I’ll give you an example that there’s a new category of wearables. These are smart glasses that have high demand, they require high performance, low power processing. This is an area where our portfolio is strong. We’re seeing some tailwinds on that side. In the core industrial, we’re seeing broad based improvements across regions and products.

For us, if you were to drill into a little bit of the application specific, it will be driven by, for us, is driven by energy storage systems and building automation. Let me put a caveat here. I don’t think we, and we’ll be the first one to tell you, we don’t see ourselves as bad weathers for industrial & IoT. What we see, it may be that this is very company specific.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Helpful. A similar question just on the automotive side because it’s useful to kind of see what’s moving here is just on the S32 automotive processing platform portfolio. You’ve seen some really strong growth trends. Part of the reason many think that you guys have handled this a lot better is just the growing portion of your business that is levered to processors. Maybe again what happened in the quarter, maybe the processor business versus the rest of auto, and then into the fourth quarter, any kind of color on if there’s a divergence there, how we should be thinking about just the entire auto business with those two pieces. Thank you.

Rafael Sotomayor, President and CEO, NXP Semiconductors: No, I think Tom, I mean we were encouraged about the direction that auto is taking, right? I mean if you were to take just Q3, in Q3, we were only 3% below our prior peak, and I think that’s encouraging. Now, with respect to what is driving the performance in the business, it continues to be what we term core accelerate growth drivers. These are in the software defined vehicle, which is the S32 automotive processing platform that you mentioned, is radar, is connectivity. If you were to ask me what is driving that, it is exactly what is driving, it is the secular shift to software defined vehicles that is driving the performance of auto.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Tom, if I could add, we’ll provide a full year kind of update on where we’re at with our accelerated growth drivers on our Q4 call. Directionally, I’d say we feel very good about how the accelerated growth drivers are playing out inter quarter. Thank you guys.

Tawanda, Conference Call Operator: Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Thanks for taking the question and best wishes to both Rafael and Kurt.

Bill Betz, CFO, NXP Semiconductors: Rafael, let’s say 2026 plays out the way 2025 did with China OEMs.

Rafael Sotomayor, President and CEO, NXP Semiconductors: EVs growing, but the rest of the world, you know, not growing or flattish. What does it mean for NXP? In an overall flattish auto production environment, what kind of lift can content provide net of any pricing movement? Like can your autos be conceptually within your long term model for next year? Vivek, I think the one thing I want to maybe reframe is the way we see the drivers of our business, right? Car production is not the driver of our business. We’re not SAR related. If you were to look at the production, it has been stable for years. It varies 1% here and there, but it stays pretty flat. And 90ish million a year, content growth dwarfs SAR growth. What you have in auto is the production is quite stable, but you have a very complex supply chain.

That complex supply chain is the one that creates either bubbles in inventory glut or vacuums that create shortages. The supply chain is the one that creates the cyclical aspect of our business. The way I see it is we see normalization in inventory. If you already get behind the content growth of auto, normalization of inventory is something that we see as very, very positive for the direction of auto. I just want to basically reframe the way I think you posed the question a little bit. The way we see it, content growth and normalization of inventory provides for us an optimistic view of our business in auto in 2026. For my follow up, Bill, on gross margins, is it just volume that takes you from the lower end of the 57% to 63% range right towards the middle of the range?

Or are there any new products, any new kind of mixing up of your portfolio that can provide benefits on top of any volume benefit?

Bill Betz, CFO, NXP Semiconductors: Oh, absolutely. As we said in the past, our new product ramps are accretive to the company and they go through their normal growing pains, of course, as they ramp and other parts of our products roll off. I mean mix is really the one that, you know, what orders we get, what orders we serve. We serve over 10,000 SKUs or products every quarter, and we have to adjust and either accommodate for it and offset those or vice versa, let them fall through. That is why gross margin improves as another factor related to it. Really also our hybrid manufacturing strategy, as we mentioned, moves more to 300 millimeter.

As we’re making all these investments that will start to yield benefits beyond 2027 as I talked about, short term levers, again, I think we’re doing a really good job offsetting any price gives that we give through our cost efficiencies and productivity internally on test time reductions and so forth. Those, you know, that’s really what we’re supposed to go do day in and day out. I think the team’s doing a good job. You can see this by just our variability in our gross margin margins through this last cycle. I think as we become less fixed costs, that will just improve with that variability going forward. As I mentioned today, we’re 30% fixed and my guess is in about a couple years from now, once we finish our consolidation efforts. Think five years and we’ll probably be below 20%, which will reduce that variability.

Tawanda, Conference Call Operator: Thank you. Our next question comes from the line of Chris Caso with Wolfe Research. Your line is open.

Yeah, thanks.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Good morning. I wanted to go back to some of what you said with inventory levels, particularly at your direct automotive customers, where those inventory levels stand now and you quantified a bit on what the impact would be as the distribution channel increased inventory. Is there any, I mean, help us.

Bill Betz, CFO, NXP Semiconductors: With the magnitude of what would happen.

Rafael Sotomayor, President and CEO, NXP Semiconductors: If those direct auto customers finally decided that they did indeed need to restock? Chris, what we see right now is that we’re starting to shift to end demand. I think that normalization, and we can see it in orders, and we did say indeed that we don’t see the restocking. Now, a specific question is of what the levels are. I think we don’t have visibility at a granular per customer, per Tier 1. That will be complex. It is very clear to us that it is way below our manufacturing cycle. That’s what I mean. I think that is just eventually not a healthy level to be able to manage sustainable business. I can’t comment whether this will happen or not in the next few quarters or in even 2026. That is a potential scenario of restocking, which is indeed a tailwind for our business.

That is something that will provide benefit for us.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Maybe I could add a little bit, Rafael. Chris, as you know, for about the last eight quarters we’ve been under shipping into the Tier 1 supply chain and actual end production. It’s actually been a headwind to us, I’d say over the last two quarters, and in our guidance into Q4, we started to see that headwind subside. We think the inventory levels at the Tier 1 are where the Tier 1 players believe are normalized for the current environment. They are still very cautious on the macroeconomic outlook. As Rafael said, we’ve not seen that next lever of restocking occurring. When you go from a headwind of under shipping to at least shipping to end demand, that’s the new growth in the short term. Did you have a follow up, Chris?

Rafael Sotomayor, President and CEO, NXP Semiconductors: I do.

Tawanda, Conference Call Operator: Thanks.

Rafael Sotomayor, President and CEO, NXP Semiconductors: I wanted to come to your comment.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: On buybacks that you mentioned in your.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Prepared remarks, could you give us a little more detail on what the intention is going forward and what we should expect now that you’re resuming the buybacks?

Bill Betz, CFO, NXP Semiconductors: Yeah, no change to our capital allocation strategy. Chris, as shared in our prepared remarks, we restarted our buybacks. As I mentioned, we have a lot of cash going out, and we just wanted to make sure we had all the cash to continue to return and make all the investments we want to make inside NXP, but also balance that with healthy returns to our owners. If you look at the last 12 months, we returned 106% back to our owners, and we’re going to continue to go do that. Thank you.

Tawanda, Conference Call Operator: Thank you. Our next question comes from the line of Blaine Curtis with Jefferies. Your line is open.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Hey guys, thanks for taking my question. I just want to ask on the kind of cyclical tailwinds versus seasonality. I guess if you look at December.

Bill Betz, CFO, NXP Semiconductors: It’s really just industrial that maybe you.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Could argue is above typical seasonality. I think you said just.

Bill Betz, CFO, NXP Semiconductors: Soft guidance for March normal.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: I think a lot of people have talked about just the slowing down of cyclical recovery. I mean your comments were pretty positive, Rafael. I’m just kind of curious if you can assess if you’re just looking at seasonality. Is the seasonal cyclical tailwind slowing, and maybe you can look at the different markets and if you feel differently about them.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Yeah, I think if you look at the Q4 numbers, you clearly stated industrial. It was above. I would even say that automotive was slightly better than seasonality.

Bill Betz, CFO, NXP Semiconductors: Right.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Pre-Covid levels. The drivers have one common driver that is, I think, inventory digestion is almost done. I think that normalization is a big deal. We started to shift to true end demand in automotive, and we’re starting to see some company-specific drivers in industrial IoT that are helping us with respect to whether seasonality is going to change. We call it an upcycle. I think we’re careful with that because, one, we do have the inventory digestion done as a factor for an upcycle. We do see some specific areas of growth in industrial, and we see an encouraging sign. True demand in industrial IoT. We do see the elements of a soft upcycle, and that’s the reason why I would say that.

Blaine Daddy, if you were to ask me today are you more optimistic than you were last quarter, I would say that we are slightly more optimistic than last quarter.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Thanks. I wanted to ask you on mobile, I mean, if I have the numbers right, it might be a record. I’m just kind of curious the drivers behind that.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Blaine, you know, in automotive, mobile, we’re a specialty player there, mostly driven by the wallet and a little bit of custom analog that we do for a Tier 1 customer there. I see that the moves of Q2 to Q3 and Q4, and I think you got to take Q3 and Q4 together, is purely, in my opinion, it’s just a seasonable move and some strength in some of our customers.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Okay, thank you.

Tawanda, Conference Call Operator: Thank you. Our next question comes from the line of Joshua Buchalter with P.D. Cohen. Your line is open.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Hey guys, thank you for taking my question.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Question and congrats to both Rafael and Kurt and good luck. I know it’s still early in earnings season, but your comments and outlook on the industrial and IoT segment were certainly better than your peers who have mainly talked about decelerating trends. We’ve kind of touched on it a little bit and I realize you’re not going to comment on peers, but would you say the difference in what you’re seeing versus peers is because of inventory management or more product cycle driven, and what gives you confidence in the sustainability of sort of the upcycle that you’re starting to see signs of with orders still coming in late and with the lead time. Thank you.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Yeah, Josh. I can speak of NXP Semiconductors’ situation with respect to industrial and IoT because for us, industrial and IoT has indeed been one of the more challenging end markets since 2022, and as of Q3, our business is still 20% below our peak.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Right.

Rafael Sotomayor, President and CEO, NXP Semiconductors: I do remind you that we’re not the bellwether for industrial IoT, so the comparisons to other, you could say, peers may not be, I guess, relevant. I would have to say that we did manage inventory in a different way. We were very disciplined in the way we manage our business in the down cycle. I think I would say that we will be similarly disciplined managing what we see. I would say it’s a sub upcycle. We are having some company specific drivers there that are driving demand, that is true new demand. We have exposure to a few company specific design wins in the core industrial that are driving some of the improvement. I don’t know how you will take that as a bellwether for the industry.

Bill Betz, CFO, NXP Semiconductors: Understood.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Helpful color.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Thank you.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: I was maybe also hoping that you could provide some color on the China auto market, what you saw there inter quarter and your expectations into 4Q. I believe a good amount of that is actually served by the distribution. Our inventory levels there are lean as well. Thank you.

Bill Betz, CFO, NXP Semiconductors: Yes.

Rafael Sotomayor, President and CEO, NXP Semiconductors: China, I mean, listen, I was in China a few months ago with Kurt and we did a customer visit to both China, Taiwan, and actually Japan. China specifically continues to be strong, continues to be a very dynamic market themselves. The auto industry there is very competitive and they continue to actually push for innovation, push for product. I would say our inventory situation there is also lean. It’s also a business that is driven, that is driving, is strong. We have good customer traction. We feel very optimistic about our position in China.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Josh, if I could add as a reminder, in the Asia market, specifically in China auto, we service the majority of that through our distribution channel, and it is in the western markets in North America and Europe where we do it on a direct basis. Our approach to channel management, which I’d say is probably best in class, is that we take a heavy hand there even in Asia with the channel.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Thank you both.

Tawanda, Conference Call Operator: Thank you. Our next question comes from the line of William Stein with Truist Securities. Your line is open.

Bill Betz, CFO, NXP Semiconductors: Thanks for taking my questions. First, I’m hoping you can remind us about the strategic purpose of the recent acquisitions. I think TTTech Auto closed recently, but then you have the two new ones as well. Can you just frame that as it relates to the rest of the autos business? I have a follow up. Thank you.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Yeah, William, these acquisitions are actually directly aligned with the strategic direction of bringing intelligent systems at the edge of industrial and automotive. If you look at TTTech Auto, it is a software company that is going to help us accelerate our move of the system defined vehicle and around S32s and around a system approach, so quite excited to have them. It’s a capability that would have been very difficult to obtain organically. It’s a company that brings IP specific also in functional safety at a system level. Aviva Links is a company that has a really, really, I would say, innovative.

Tawanda, Conference Call Operator: Technology.

Rafael Sotomayor, President and CEO, NXP Semiconductors: On a SERDES technology that is a standard. It’s a standard SERDES, and that is critical to standardize sensors. Think of our radar, think of cameras, think of lidar around a core processor, which in this case will be our S32. We’re quite, quite bullish on Aviva Links. Kinara brings AI capabilities, especially GenAI capabilities. High performance, low power. That is going to also accelerate our portfolio of intelligence into the edge.

Bill Betz, CFO, NXP Semiconductors: There has been some discussion about elevated competitive dynamics in the infotainment part of your autos business. Can you remind us how big that is in your autos business and maybe update us on that competitive situation? Thank you.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Hey, Will, I’ll take that one. Think about IVI and vehicle infotainment. There’s kind of two parts. There’s the visualization, what you see on the dashboards, and there’s what you hear, the audio portion. I’d say on IVI Auto, we continue to be a dominant player there. On the visualization, our performance is maybe a little below some of our peers, but I think that’s very well known at this time. I think with that, Tawanda, I.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Think we’re going to need to move.

Jeff Palmer, Senior Vice President, Investor Relations, NXP Semiconductors: Back to Rafael for closing remarks, if we can.

Rafael Sotomayor, President and CEO, NXP Semiconductors: Thank you everyone for joining us today and your thoughtful questions. This quarter marks both a leadership transition and a reaffirmation of NXP Semiconductors’ consistent strategy, focus on profitable growth, disciplined execution, and predictable returns. We are encouraged by the gradually increasing signs of a cyclical recovery across our automotive and industrial and IoT end markets and by the continued strength of our company-specific growth drivers. Our priorities remain clear: deliver on our commitments, manage what is in our control, and position NXP Semiconductors to continue to grow profitably. I want to express my gratitude to Kurt for his outstanding leadership and for the partnership we have built over many years. In his 30-year career at NXP Semiconductors, he has left a lasting legacy, navigating us through various challenges and positioning NXP Semiconductors as a leader in the markets we serve. I am truly humbled to follow his footsteps.

It is a privilege to lead this company and this team. I am excited about what we will achieve together.

Tawanda, Conference Call Operator: Thank you, ladies and gentlemen. That concludes today’s conference call. Thank you for your participation. You may now disconnect.

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